eTrade 2011 Annual Report Download - page 112

If the Company intends to sell an impaired debt security or if it is more likely than not that the Company
will be required to sell the impaired debt security before recovery of the security’s amortized cost basis, the
Company will recognize OTTI in earnings equal to the entire difference between the security’s amortized cost
basis and the security’s fair value. If the Company does not intend to sell the impaired debt security and it is not
more likely than not that the Company will be required to sell the impaired debt security before recovery of its
amortized cost basis but the Company does not expect to recover the entire amortized cost basis of the security,
the Company will separate OTTI into two components: 1) the amount related to credit loss, recognized in
earnings; and 2) the noncredit portion of OTTI, recognized through other comprehensive income (loss).
Net Impairment—Net impairment includes OTTI net of the noncredit portion of OTTI on debt securities
recognized through other comprehensive income (loss) (before tax).
Other Revenues—Other revenues primarily consists of fees from software and services for managing equity
compensation plans. Other revenues also includes revenue ancillary to the Company’s customer transactions and
income from the cash surrender value of BOLI. Employee stock option management fees are recognized in
accordance with applicable accounting guidance, including software revenue recognition accounting guidance.
Share-Based Payments—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. The underlying assumptions to
these fair value calculations are discussed in Note 18—Employee Share-Based Payments and Other Benefits.
Additionally, the Company elected to use the alternative transition method provided for calculating the tax
effects of share-based compensation pursuant to the stock compensation accounting guidance. 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.
Improving Disclosures about Fair Value Measurements
In January 2010, the FASB amended the disclosure guidance related to fair value measurements. The
amended disclosure guidance requires new fair value measurement disclosures and clarifies existing fair value
measurement disclosure requirements. The amended disclosure guidance requiring separate presentation of
purchases, sales, issuances and settlements of Level 3 instruments was effective January 1, 2011 for the
Company. The Company’s disclosures about fair value measurements reflect the adoption of the amended
disclosure guidance in Note 4—Fair Value Disclosures.
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
In July 2010, the FASB amended the disclosure guidance for financing receivables and the allowance for
credit losses. The amendments require new and amended disclosures about nonaccrual and past due financing
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