eTrade 2002 Annual Report Download - page 110

Table of Contents
Index to Financial Statements
Compensation—Transition and Disclosure, which encourages expensing options based on application of a fair value methodology. However
SFAS No. 123 allows the intrinsic value recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees , and related Interpretations to be applied. If any stock options are granted to employees below fair market value at the date of grant,
the resulting stock-based employee compensation cost is reflected in the Company’ s reported net income (loss), based on the intrinsic value.
More than 99% of the Company’ s grants have been granted at fair market value and therefore are not expensed in accordance APB Opinion No.
25.
The following table illustrates the effect on the Company’ s reported net income (loss) and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123, to stock-based employee compensation (in thousands, except per share amounts):
Year Ended
December 31, ThreeMonths Ended December 31, 2000 YearEnded September30, 2000
2002 2001
Net income (loss), as reported $ (186,405 ) $ (241,532 ) $ 1,353 $ 19,152
Add back: Stock-based employee compensation expense
included in reported net income (loss), net of tax
5,522 5,950 — 2,758
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all awards, net
of tax
(19,737 ) (44,410 ) (15,222 ) (75,879 )
Pro forma net loss $ (200,620 ) $ (279,992 ) $ (13,869 ) $ (53,969 )
Income (loss) per share:
Basic—as reported $ (0.52 ) $ (0.73 ) $ 0.00 $ 0.06
Basic—pro forma $ (0.56 ) $ (0.84 ) $ (0.04 ) $ (0.18 )
Diluted—as reported $ (0.52 ) $ (0.73 ) $ 0.00 $ 0.06
Diluted—pro forma $ (0.56 ) $ (0.84 ) $ (0.04 ) $ (0.18 )
The underlying assumptions to these fair value calculations are explained in Note 20.
Earnings Per Share —Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted average common shares
outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock.
Long-Lived Assets —Effective January 1, 2002, the Company adopted SFAS No. 144, Impairment on Disposal of Long-Lived Assets , which
changes the criteria required for classifying an asset as held-for-sale. Assets held-for-sale are stated at the lower of their fair values or carrying
amounts and depreciation is no longer recognized. The impact of adopting SFAS No. 144 did not have a material effect to the Company’ s
consolidated financial statements. Consistent with prior rules, in the event that facts and circumstances indicate that the carrying value of a
long-lived asset, including associated intangibles, is impaired, an evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the asset’ s carrying amount to determine if a write-down to market value or discounted
cash flow was required.
Financial Derivative Instruments and Hedging Activities —The Company enters into derivative transactions to protect against the risk of
market price or interest rate movements on the value of certain assets and future cash flows. The Company is also required to recognize certain
contracts and commitments as derivatives when the characteristics of those contracts and commitments meet the definition of a derivative
promulgated by SFASNo.133 , as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—
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2003. EDGAR Online, Inc.