eTrade 2000 Annual Report Download - page 72

consolidated financial statements and related notes for the periods presented. Actual results could differ from management’ s estimates.
Material estimates for which a change is reasonably possible in the near-term relate to the determination of the allowance for loan
losses, the fair value of investments and available-for-sale mortgage-backed securities, loans receivable held for sale, trading securities
and the valuation of real estate acquired in connection with foreclosures and mortgage servicing rights. In addition, the regulatory
agencies that supervise the financial services industry periodically review the Bank’ s allowance for losses on loans. This review, which
is an integral part of their examination process, may result in additions or deductions to the allowance for loan losses based on
judgments with regard to available information provided at the time of their examinations.
Certain items in these consolidated financial statements have been reclassified to conform to the current period presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Transaction Revenues— The Company derives transaction revenues from commissions related to domestic retail customer
broker-dealer 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.
Interest Income and Expense— Interest income is primarily comprised of: interest earned by the Company’ s broker-dealer operations
on credit extended to its customers to finance their purchases of securities on margin; fees on customer assets invested in money
market accounts; interest earned by the Company’ s banking operations on purchased pools of one- to four-family first lien mortgages
and mortgage-related securities; and interest earned on investment securities and other interest-earning assets. Interest expense
primarily represents: interest paid to customers for their brokerage cash balances and banking deposits; interest paid on borrowed
funds; and interest paid to other broker-dealers through the Company’ s stock loan program. Interest income and expense arising from
the Company’ s brokerage and banking operations are reported as components of net revenues. Corporate interest income and expense
are included in non-operating income.
Global and Institutional Revenues— Global and institutional revenues consist principally of commission revenues from TIR and
VERSUS for institutional transaction execution, commission revenues from international subsidiaries for retail customer broker-dealer
transactions in equity and debt securities, options and, payments from
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other broker-dealers for order flow. 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, 2000 and 1999, costs of $14.1 million and
$7.2 million, respectively, were deferred and costs of $6.9 million and $12.3 million, respectively, were accrued for these
arrangements.
Other Revenues— Other revenues primarily consist of investment banking revenues, software licensing and maintenance fee revenues,
brokerage and banking-related fees for services, revenues from advertising on the Company’ s Web site, mutual fund fees, ATM
transaction fees and the gains or losses from the sale of trading securities. Included in other revenues are gains on the sale of
banking-related loans and securities, an investment in the London Stock Exchange, and a seat on the Hong Kong Stock Exchange
totaling $11.9 million, $6.3 million and $5.6 million, in fiscal 2000, 1999 and 1998, respectively.
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 $149.4 million, $124.2 million and $26.9 million in
advertising expense in fiscal 2000, 1999 and 1998, respectively.
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 , Accounting 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 $61.5 million, $12.8 million
and $10.2 million in fiscal 2000, 1999 and 1998, respectively.
2002. EDGAR Online, Inc.