eTrade 2005 Annual Report Download - page 84

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intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining period of
amortization in accordance with SFAS No.142. Our estimates of fair value of goodwill and other intangible assets depend on a number
of factors, including estimates of future market growth and trends, forecasted revenue and costs, expected useful lives of the assets,
appropriate discount rates and other variables.
Effects if Actual Results Differ
If our estimates of goodwill fair value change due to changes in our businesses or other factors, we may determine that an impairment
charge is necessary. Estimates of fair value are determined based on a complex model using cash flows and company comparisons. If
management’s estimates of future cash flows are inaccurate, the fair value determined could be inaccurate and impairment not
recognized in a timely manner. Intangible assets are amortized over their estimated useful lives. If changes in the estimated underlying
revenues occurs, impairment or a change in the remaining life may need to be recognized.
Valuation and Expensing of Share-Based Payments
Description
We value and expense employee share-based payments, which is primarily stock options, in accordance with SFAS No.123(R.) We
value each granted option using an option pricing model using assumptions that match the characteristics of the granted options. We
then assume a forfeiture rate that is used to calculate each period’s compensation expense attributed to these options.
Judgments
We estimate the value of employee stock options using the Black-Scholes-Merton option pricing model. Assumptions necessary for
the calculation of fair value include expected term and expected volatility. These assumptions are management’s best estimate of the
characteristics of the options. Additionally, forfeiture rates are estimated based on prior option vesting experience.
Effects if Actual Results Differ
If our estimates of employees’ forfeiture rates are not correct at the end of the term of the option, we will record either additional
expense or a reduction in expense in the period it completely vests. This adjustment may be material to the period in which it is
recorded. In addition, option fair value is based on estimates of volatility determined by us. Many methods are available to determine
volatility, so the determination is subjective. Applying a different method to determine volatility could impact earnings. A 10 basis
point change in volatility would increase or decrease stock option fair value by 7%. A change in fair value would affect all amortization
periods.
REQUIRED FINANCIAL DATA
This section presents information required by the SEC’s Industry Guide 3, “
Statistical Disclosure by Bank Holding Companies
” that
has not been incorporated into Management’s Discussion and Analysis. The tables in this section include Bank subsidiary
information only.
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2006. EDGAR Online, Inc.