eTrade 2001 Annual Report Download - page 118

information under arrangements whereby E*TRADE Institutional receives minimum annual commissions. Commission revenues from
these arrangements are recognized at the time the trades are executed. Commission revenues under these arrangements were less than
10% of net revenues in fiscal 2001, for the three months ended December 31, 2000 and in fiscal 2000 and 16% of net revenues in
fiscal 1999. Direct costs arising from these arrangements are expensed as the commissions are received, in proportion to the cost of the
total arrangement. As a result, payments for independent research are deferred or accrued to properly match expenses at the time
commission revenue is earned. For these arrangements, payments for independent research of $6.7 million were deferred and costs of
$21.5 million were accrued at December 31, 2001 and at September 30, 2000, costs of $4.6 million were deferred and costs of
$13.9million were accrued.
Gains on sales of originated loans— Gains or losses resulting from sales of loans originated by E*TRADE Mortgage are recognized at
the date of settlement and are based on the difference between the cash received and the carrying value of the related loans sold less
related transaction costs. Nonrefundable fees and direct costs associated with the origination of mortgage loans are deferred and
recognized when the related loans are sold.
Gains on bank loans held for sale and other securities-net— Includes gains or losses at the Bank resulting from sales of loans, which
the Bank purchases for resale, the sale of available-for-sale securities, other than temporary impairment of available-for-sale securities
and gains or losses on financial derivatives that are not accounted for as hedging instruments under Statement of Financial Accounting
Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities . Gains or losses resulting from the sale
of Bank loans held for sale are recognized at the date of settlement and are based on the difference between the cash received and the
carrying value of the related loans less related transaction costs. Gains or losses resulting from the sale of available-for-sale securities
are recognized at the trade date based on the difference between the cash received and the amortized cost of the sold specific
securities.
Other Revenues— Other revenues consists primarily of ATM transaction fees, brokerage account maintenance fees, and other
brokerage and banking-related fees for services. Also, beginning in the fourth quarter of fiscal 2001, other revenues includes
market-making revenue earned by Dempsey. Realized and
102
Table of Contents
unrealized gains and losses from Dempsey’ s securities transactions are recognized in other revenues on a trade date basis. Securities
owned and securities sold, not yet purchased, which consist of corporate equity securities, are carried at market value.
Advertising Costs— Advertising production costs are expensed when the initial advertisement is run. Costs of communicating
advertising are expensed as the services are received. The Company incurred $69.9 million in fiscal 2001, $41.2 million in the three
months ended December 31, 2000, $149.4 million in fiscal 2000, and $124.2 million in fiscal 1999 in advertising expense.
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 for capitalization treatment as internally developed software costs in accordance with
Statement of Position (“SOP”) 98-1 , A ccounting for the Costs of Computer Software Developed or Obtained for Internal Use . In
accordance with SOP 98-1, the cost of internally developed software is capitalized and included in property and equipment at the point
at which the conceptual formulation, design and testing of possible software project alternatives have been completed and management
authorizes and commits to funding the project. 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
development of the Company’ s systems, as well as payroll and consulting costs. Capitalized costs were $27.5 million in fiscal 2001,
$20.1 million in the three months ended December 31, 2000, $61.5 million in fiscal 2000, and $12.8 million in fiscal 1999.
Completed projects are transferred to property and equipment at cost and are amortized on a straight-line basis over their estimated
2002. EDGAR Online, Inc.