eTrade 1999 Annual Report Download - page 47

See notes to consolidated financial statements.
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E*TRADE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The consolidated financial statements include E*TRADE Group, Inc. and its subsidiaries (collectively, the
"Company"), including E*TRADE Securities, Inc. ("E*TRADE Securities"), a securities broker-dealer, and TIR (Holdings) Limited
("TIR"), a provider of global securities brokerage and other related services to institutional clients. The consolidated financial
statements of the Company have been prepared to give retroactive effect to the acquisitions of ClearStation, Inc. ("ClearStation") in
April 1999, and TIR in August 1999, which have been accounted for as poolings-of- interests (see Note 16). All significant
intercompany accounts and transactions have been eliminated.
Transaction Revenues--The Company derives revenues from commissions related to retail customer transactions in equity and debt
securities, options and, to a lesser extent, payments from other broker-dealers for order flow. Securities transactions are recorded on a
trade date basis and are executed by independent broker-dealers.
Global and Institutional Revenues--Global and institutional revenues include TIR's commission revenues from institutional trade
execution, as well as fees from the international licensing of rights which allow foreign licensees to offer online investing services
using the E*TRADE brand name in their respective countries plus ongoing royalty payments based on transaction volume. TIR
provides certain institutional customers with market research and other information under arrangements whereby TIR receives
minimum annual commissions. Direct costs arising from these arrangements are expensed as the commissions are received, in
proportion to the expected cost of the total arrangement. As a result, costs may be deferred or accrued, as appropriate, to properly
match expenses at the time revenue is earned. At September 30, 1999 and 1998 respectively, costs of $6,855,000 and $5,951,000 were
deferred and costs of $12,104,000 and $9,484,000 were accrued for these arrangements.
Interest, Net of Interest Expense--Interest revenues primarily represent interest earned by the Company on credit extended to its
customers to finance their purchases of securities on margin, fees on customer assets invested in money market accounts and interest
earned on investment securities. These revenues are reported net of interest paid to customers on certain credit balances, interest paid
to banks and interest paid to other broker-dealers through the Company's stock loan program.
Other Revenues--Other revenues primarily consist of investment banking revenues, software licensing and maintenance fee revenues,
broker-related fees for services, revenues from advertising on the Company's Web site and mutual fund fees.
Foreign Currency Translation--Assets and liabilities of operations outside of the United States are translated into U.S. dollars using the
exchange rate in effect at each period end. Revenues and expenses are translated at the average exchange rate during the period. The
effects of foreign currency translation adjustments arising from differences in exchange rates from period to period are deferred and
included in shareowners' equity.
Property and Equipment--Property and equipment are carried at cost and are depreciated on a straight-line basis over their estimated
useful lives, generally three to seven years. Leasehold improvements are stated at cost and are amortized over the lesser of their
estimated useful lives or the lease term.
Technology Development Costs--Technology development costs are charged to operations as incurred. Technology development costs
include costs incurred in the development and enhancement of software used in connection with services provided by the Company
that do not otherwise qualify as internally developed software costs. The cost of internally developed software is capitalized and
included in property and equipment. The costs to develop such software are capitalized in accordance with Statement of Position 98-1,
Accounting for the Costs
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of Computer Software Developed or Obtained for Internal Use, and begin when management authorizes and commits to funding a
project it believes will be completed and used to perform the functions intended and the conceptual formulation, design and testing of
possible software project alternatives have been completed. Pilot projects and projects where expected future economic benefits are
less than probable are not capitalized. Internally developed software costs include the cost of software tools and licenses used in the
2002. EDGAR Online, Inc.