eTrade 2012 Annual Report Download - page 121

of nonqualified or incentive stock options, restricted stock awards and restricted stock units to officers, directors
and certain key employees and consultants for the purchase of newly issued shares of the Company’s common
stock at a price determined by the Board at the date of the grant. The 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.
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. As
of December 31, 2012, there were 2.4 million shares outstanding and $1.7 million of total unrecognized
compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted-
average period of 1.5 years. The Company recognized $2.8 million, $2.4 million and $8.4 million in
compensation expense for stock options for the years ended December 31, 2012, 2011, and 2010, respectively.
The Company issues restricted stock awards and restricted stock units to certain employees. Each restricted
stock unit can be converted into one share of the Company’s common stock upon vesting. These awards are
issued at the fair value on the date of grant and vest ratably over the period, generally two to four years. The fair
value is calculated as the market price upon issuance. As of December 31, 2012, there were 3.2 million units
outstanding and $22.9 million of total unrecognized compensation cost related to non-vested awards. This cost is
expected to be recognized over a weighted-average period of 2.6 years. The total fair value of restricted shares
and restricted stock units vested was $9.9 million, $15.4 million and $20.9 million for the years ended
December 31, 2012, 2011 and 2010, respectively. The Company recognized $17.7 million, $11.7 million and
$17.0 million in compensation expense for restricted stock awards and restricted stock units for the years ended
December 31, 2012, 2011 and 2010, respectively.
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, 2012, 9.8 million shares were available for grant under the 2005 Plan.
The Company records share-based payments expense in accordance with the stock compensation accounting
guidance. The Company records compensation cost at the grant date fair value of a share-based payment award
over the vesting period less estimated forfeitures. Share-based payments expense is included in the compensation
and benefits line item.
Advertising and Market Development—Advertising production costs are expensed when the initial
advertisement is run.
Net Income (Loss) Per Share—Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted-average common shares outstanding for the period. Diluted net income (loss) per share reflects
the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock. The Company excludes from the calculation of diluted net income (loss) per share
stock options, unvested restricted stock awards and units and shares related to convertible debentures that would
have been anti-dilutive.
New Accounting and Disclosure Guidance—Below is the new accounting and disclosure guidance that
relates to activities in which the Company is engaged.
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