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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Quarterly Period Ended
March 30, 2001
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 from the transition period from ___________ to ___________
Commission file number: 0-22163
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AMERITRADE HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 47-0642657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4211 SOUTH 102ND STREET, OMAHA, NEBRASKA
68127
(Address of principal executive offices)
(Zip Code)
(402) 331-7856
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days:
Yes (X) No ( )
As of May 7, 2001 there were 188,776,673 outstanding shares of the registrant's
common stock consisting of 172,403,873 outstanding shares of Class A Common
Stock and 16,372,800 outstanding shares of Class B Common Stock.
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AMERITRADE HOLDING CORPORATION
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Accountants' Review Report 3
Balance Sheets 4
Statements of Operations 5
Statements of Cash Flows 6
Notes to Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits 17
(b) Reports on Form 8-K 18
Signatures 19
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PART I - FINANCIAL INFORMATION
ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Ameritrade Holding Corporation
Omaha, Nebraska
We have reviewed the accompanying condensed consolidated balance sheet of
Ameritrade Holding Corporation and subsidiaries (collectively "the Company") as
of March 30, 2001, and the related condensed consolidated statements of
operations and cash flows for the three-month and six-month periods ended March
30, 2001 and March 31, 2000. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Ameritrade Holding Corporation and subsidiaries as of September 29, 2000, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated October 24, 2000, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of September 29, 2000
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
May 9, 2001
Omaha, Nebraska
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AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts)
March 30, September 29,
2001 2000
----------- -----------
ASSETS
Cash and cash equivalents $ 26,806 $ 122,351
Cash and investments segregated in compliance with federal regulations 1,662,034 215,956
Receivable from brokers, dealers, and clearing organizations 249,150 24,646
Receivable from clients and correspondents - net of allowance
for doubtful accounts: Mar. 30, 2001 - $3,926; Sept. 29, 2000 - $4,017 1,378,384 2,926,981
Refundable income taxes - 4,108
Property and equipment - net of accumulated depreciation and
amortization: Mar. 30, 2001 - $48,232; Sept. 29, 2000 - $34,056 98,062 90,348
Goodwill - net of accumulated amortization: Mar. 30, 2001 - $5,273; Sept. 29, 2000 - $3,240 38,096 40,002
Investments 124,091 292,907
Other assets 66,132 80,937
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Total assets $ 3,642,755 $ 3,798,236
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations $ 433,089 $ 433,706
Payable to clients and correspondents 2,751,829 2,618,157
Accounts payable and accrued liabilities 101,436 99,239
Notes payable 74,900 75,000
Convertible subordinated notes 47,645 200,000
Deferred income taxes 36,161 107,966
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Total liabilities 3,445,060 3,534,068
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value; 3,000,000 shares authorized, none issued - -
Common stock, $0.01 par value:
Class A - 270,000,000 shares authorized; Mar. 30, 2001 - 165,278,873 shares
issued; Sept. 29, 2000 - 160,036,664 shares issued 1,652 1,600
Class B - 18,000,000 shares authorized; 16,372,800 shares issued and
outstanding 164 164
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Total common stock 1,816 1,764
Additional paid-in capital 161,619 47,864
Retained earnings (accumulated deficit) (35,553) 41,670
Treasury stock - Class A shares at cost (Mar. 30, 2001 - 34,552 shares;
Sept. 29, 2000 - 43,492 shares) (310) (331)
Accumulated other comprehensive income 70,123 173,201
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Total stockholders' equity 197,695 264,168
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Total liabilities and stockholders' equity $ 3,642,755 $ 3,798,236
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See notes to condensed consolidated financial statements.
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AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
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March 30, 2001 March 31, 2000 March 30, 2001 March 31, 2000
-------------- -------------- -------------- --------------
Revenues:
Commissions and clearing fees $ 76,378 $ 125,968 $ 158,459 $ 203,560
Interest revenue 52,287 62,486 113,663 111,427
Other 5,141 5,632 10,130 10,336
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Total revenues 133,806 194,086 282,252 325,323
Client interest expense 14,819 19,460 32,344 36,280
--------- --------- --------- ---------
Net revenues 118,987 174,626 249,908 289,043
--------- --------- --------- ---------
Operating expenses:
Employee compensation and benefits 37,718 34,570 73,811 67,989
Communications 9,955 9,851 18,386 17,082
Occupancy and equipment costs 20,655 14,059 42,317 26,930
Professional services 11,576 10,688 24,524 25,799
Interest on borrowings 2,856 4,266 7,537 7,831
Other 9,309 11,047 19,516 19,569
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Total operating expenses 92,069 84,481 186,091 165,200
--------- --------- --------- ---------
Operating margin 26,918 90,145 63,817 123,843
Advertising 45,606 54,774 103,084 113,436
OnMoney development 10,050 29,818 26,633 38,549
Debt conversion expense (Note 4) 62,082 - 62,082 -
--------- --------- --------- ---------
Income (loss) before income taxes (90,820) 5,553 (127,982) (28,142)
Provision (benefit) for income taxes (36,629) 2,351 (50,759) (9,633)
--------- --------- --------- ---------
Net income (loss) $ (54,191) $ 3,202 $ (77,223) $ (18,509)
========= ========= ========= =========
Basic earnings (loss) per share $ (0.30) $ 0.02 $ (0.43) $ (0.11)
Diluted earnings (loss) per share $ (0.30) $ 0.02 $ (0.43) $ (0.11)
Weighted average shares outstanding - basic 179,462 174,621 179,378 174,581
Weighted average shares outstanding - diluted 179,462 176,099 179,378 174,581
See notes to condensed consolidated financial statements.
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AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
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March 30, 2001 March 31, 2000
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Cash flows from operating activities:
Net loss $ (77,223) $ (18,509)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization 13,319 9,500
Provision for loan losses 361 635
Deferred income taxes (48,728) (9,290)
Loss on disposal of property 1,469 -
Amortization of goodwill 2,033 396
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with federal regulations (1,446,077) 689,880
Brokerage receivables 1,323,732 (2,011,451)
Other assets 19,830 25,309
Brokerage payables 133,055 1,166,608
Accounts payable and accrued liabilities 4,862 36,524
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Net cash used in operating activities (73,367) (110,398)
Cash flows from investing activities:
Purchase of property and equipment (22,502) (29,657)
Purchase of investments (165) (3,333)
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Net cash used in investing activities (22,667) (32,990)
Cash flows from financing activities:
Proceeds from notes payable 74,900 95,000
Principal payments on notes payable (75,000) (15,000)
Proceeds from exercise of stock options 447 410
Issuance of treasury stock 142 242
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Net cash provided by financing activities 489 80,652
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Net decrease in cash and cash equivalents (95,545) (62,736)
Cash and cash equivalents at beginning of period 122,351 76,943
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Cash and cash equivalents at end of period $ 26,806 $ 14,207
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Supplemental cash flow information:
Interest paid $ 52,296 $ 39,461
Income tax refunds received $ (7,056) $ (9,269)
Noncash financing activities:
Tax benefit on exercise of stock options $ 917 $ -
Issuance of common stock in acquisition of subsidiaries $ 2,792 $ -
Conversion of convertible notes to Class A common stock $ 152,355 $ -
Deferred income taxes on debt conversion $ (42,825) $ -
See notes to condensed consolidated financial statements.
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AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Ameritrade Holding Corporation and its wholly-owned subsidiaries (collectively,
the "Company"). All intercompany balances and transactions have been eliminated.
These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of
management, reflect all adjustments, which are all of a normal recurring nature,
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented in conformity with accounting principles
generally accepted in the United States of America. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report filed on Form 10-K for the
fiscal year ended September 29, 2000.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivatives and Similar Financial Instruments and for Hedging
Activities," as amended by SFAS No. 137 and SFAS No. 138, on September 30, 2000.
There was no impact to the condensed consolidated financial statements as a
result of adopting this standard.
Certain items in prior year condensed consolidated financial statements have
been reclassified to conform to the current presentation.
2. INVESTMENTS
The Company's investments consist primarily of ownership of approximately 7.9
million unregistered shares of Knight Trading Group, Inc. ("Knight"),
representing an approximate six percent ownership. Knight is a publicly held
company that is a market maker in equity securities. The Company derives certain
revenues from Knight in exchange for routing trade orders to it for execution.
The Company accounts for its investment in Knight as a marketable equity
security available for sale. As of March 30, 2001 and September 29, 2000, the
Company's investment in Knight was valued at $115.7 million and $284.7 million,
respectively. The Company's cost basis is $0.7 million, therefore the gross
unrealized gain was $115.0 million and $284.0 million at March 30, 2001 and
September 29, 2000, respectively.
As of March 30, 2001, the Company had pledged approximately 1.65 million shares
of its Knight common stock to support its obligations under a revolving credit
agreement and had also pledged approximately 6.25 million shares of its Knight
common stock to support borrowings under a margin loan facility. During May
2001, the Company amended its revolving credit agreement and has 5.0 million
shares of Knight common stock pledged under the revolving credit facility and
2.9 million shares of Knight common stock pledged under the margin loan facility
as of the date of this filing (See Note 3).
3. NOTES PAYABLE
As of March 30, 2001, the Company maintained a revolving credit agreement with a
bank group that was originally entered into in January 1998 and was amended and
restated in January 2000. The revolving credit agreement contains certain
covenants and restrictions, including a minimum income before income taxes
requirement. In May 2001, the Company and the bank group agreed to modify the
minimum income before income taxes requirement and amend the revolving credit
agreement. The revolving credit agreement, as amended, permits borrowings up to
$60 million through December 31, 2001, and is secured by 5.0 million shares of
the Company's Knight common stock (See Note 2). The Company may borrow up to 70
percent of the market value of the Knight stock under the amended revolving
credit agreement. The interest rate on borrowings is determined on a monthly
basis based on the greater of (i) the prime rate minus 0.25 percent or (ii)
90-day LIBOR plus 2.0 percent. At March 30, 2001, the interest rate on this
borrowing was 7.75 percent. The Company also pays a maintenance fee of 0.5
percent of the unused borrowings through the maturity date. The Company had
outstanding indebtedness under the revolving credit agreement of $59 million at
March 30, 2001 and $75 million at September 29, 2000. The Company was in
compliance with or has obtained waivers for all covenants under the revolving
agreement for all periods presented in the condensed consolidated financial
statements.
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The Company also maintains a separate margin loan facility that is supported by
approximately 2.9 million shares of Knight stock not pledged to the bank group.
The Company may borrow up to 25 percent of the value of the Knight stock under
the margin loan facility. The interest rate on borrowings under the margin loan
facility is based on LIBOR plus 1.0% and was 6.1 percent at March 30, 2001. As
of March 30, 2001, the Company had $16 million of borrowings outstanding under
this loan facility, which were repaid in April 2001.
4. CONVERTIBLE SUBORDINATED NOTES
In August 1999, the Company issued $200.0 million of 5.75 percent convertible
subordinated notes due August 1, 2004. The notes are convertible into 6,142,740
shares of Class A common stock. The holders of the notes may convert the notes
into shares of Class A common stock at any time prior to the close of business
on the maturity date of the notes, unless previously redeemed or repurchased, at
a conversion rate of 30.7137 shares per $1,000 principal amount of notes
(equivalent to an approximate conversion price of $32.56 per share), subject to
adjustment in certain circumstances. Interest on the notes is payable on
February 1 and August 1 of each year. The notes are not subject to redemption
prior to August 6, 2002, and the Company may, at its option, redeem the notes at
a premium on or after such date, in whole or in part, upon not less than 30 days
nor more than 60 days prior notice to each holder.
In February 2001, the Company induced the conversion of $152.4 million of its
convertible subordinated notes for approximately 4.7 million shares of Class A
common stock and $58.7 million of cash. Including $3.4 million of deferred note
origination costs written off, this resulted in debt conversion expense of $62.1
million and an increase in stockholders' equity of $71.7 million (net of income
taxes) during the second fiscal quarter ended March 30, 2001.
5. NET CAPITAL
The Company's broker/dealer subsidiaries are subject to the Securities and
Exchange Commission Uniform Net Capital Rule (Rule 15c3-1 of the Securities
Exchange Act of 1934), which requires the maintenance of minimum net capital, as
defined. Net capital and the related net capital requirement may fluctuate on a
daily basis.
The Company's broker/dealer subsidiaries had net capital, in the aggregate, of
$106.0 million and $226.8 million as of March 30, 2001 and September 29, 2000,
respectively, which exceeded aggregate minimum net capital requirements by $76.0
million and $164.1 million, respectively. Subsidiary net capital in the amount
of $30.0 million and $62.7 million as of March 30, 2001 and September 29, 2000,
respectively, was not available for transfer to Ameritrade Holding Corporation.
6. COMMITMENTS AND CONTINGENCIES
Legal - The Company and its operating units are parties to a number of legal
matters arising in the ordinary course of its business. In management's opinion,
the Company has adequate legal defenses respecting each of these actions and
does not believe that any such matters, either individually or in the aggregate,
would materially affect the Company's results of operations or its financial
position.
Letter of Credit - Letters of credit in the amount of $114 million and $198
million as of March 30, 2001 and September 29, 2000, respectively, have been
issued by several financial institutions on behalf of Advanced Clearing, Inc.
("Advanced Clearing"), the Company's wholly-owned securities clearing
subsidiary. The letters of credit have been issued to finance margin debits and
support margin requirements. Advanced Clearing pays a maintenance fee of 0.25 to
0.5 percent of the committed amount for the letters of credit. In addition, the
same financial institutions may make loans to Advanced Clearing if requested
under note agreements. Advanced Clearing pledges client securities, the amount
of which fluctuates from time to time, to secure its obligations under the
letters of credit and the notes. As of March 30, 2001 and September 29, 2000, no
amounts were outstanding under the notes.
General Contingencies - In the general course of business, there are various
contingencies which are not reflected in the condensed consolidated financial
statements. These include Advanced Clearing's client activities involving the
execution, settlement and financing of various client securities transactions.
These activities may expose Advanced Clearing to off-balance-sheet credit risk
in the event the clients are unable to fulfill their contracted obligations.
Advanced Clearing's client securities activities are transacted on either a cash
or margin basis. In margin transactions, Advanced Clearing extends credit to the
client, subject to various regulatory and internal margin requirements,
collateralized by cash and securities in the client's account. In connection
with these activities, Advanced Clearing also executes and clears client
transactions involving the sale of securities not yet purchased ("short sales").
Such margin related transactions may expose Advanced Clearing to
off-balance-sheet risk in the event margin requirements are not sufficient to
fully cover losses
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which clients may incur. In the event the client fails to satisfy its
obligations, Advanced Clearing may be required to purchase or sell financial
instruments at prevailing market prices in order to fulfill the client's
obligations.
Advanced Clearing seeks to control the risks associated with its client
activities by requiring clients to maintain margin collateral in compliance with
various regulatory and internal guidelines. Advanced Clearing monitors required
margin levels daily and, pursuant to such guidelines, requires clients to
deposit additional collateral, or to reduce positions, when necessary.
Advanced Clearing borrows and loans securities both to cover short sales and to
complete client transactions in the event that a client fails to deliver or
receive securities by the required date. Securities borrowed and securities
loaned transactions are reported as collateralized financings except where other
securities are used as collateral. Securities borrowed transactions require
Advanced Clearing to deposit cash with the lender. With respect to securities
loaned, Advanced Clearing receives all collateral in the form of cash in an
amount generally in excess of the market value of securities loaned. Failure to
maintain levels of cash deposits or pledged securities at all times at least
equal to the value of the related securities can subject Advanced Clearing to
risk of loss. Advanced Clearing monitors the market value of securities borrowed
and loaned on a daily basis with additional collateral obtained or refunded as
necessary.
Employment Agreements - The Company has entered into employment agreements with
several of its key executive officers. These employment agreements generally
provide for annual base salary compensation, stock option acceleration and
severance payments in the event of termination of employment under certain
defined circumstances or changes in the Company's control. Salaries are subject
to adjustments according to the Company's financial performance and other
factors.
7. SEGMENT INFORMATION
Commencing in fiscal 2000, OnMoney Financial Services Corporation ("OnMoney"),
the Company's personal financial management subsidiary, was a reportable
business segment. The Company has two reportable business segments. Effective
with the second quarter of fiscal 2001, the Company reclassified the operations
of Financial Passport, Inc.; an Internet-based provider of financial planning
services, from the OnMoney business segment to the brokerage operations business
segment. Prior periods have been restated to reflect this change. Financial
information for the Company's reportable segments is presented in the table
below, and the totals are equal to the Company's consolidated amounts as
reported in the condensed consolidated financial statements.
Three Months Ended March 30, 2001 Three Months Ended March 31, 2000
----------------------------------------- ----------------------------------------
Brokerage Brokerage
Operations OnMoney Total Operations OnMoney Total
----------- ----------- ----------- ----------- ----------- -----------
Interest - net of client interest expense $ 37,446 $ 22 $ 37,468 $ 43,026 $ - $ 43,026
Non-interest revenue 81,457 62 81,519 131,545 55 131,600
----------- ----------- ----------- ----------- ----------- -----------
Net revenues $ 118,903 $ 84 $ 118,987 $ 174,571 $ 55 $ 174,626
=========== =========== =========== =========== =========== ===========
Pre-tax income (loss) $ (80,854) $ (9,966) $ (90,820) $ 35,316 $ (29,763) $ 5,553
Identifiable assets at period end 3,626,822 15,933 3,642,755 4,465,353 2,947 4,468,300
Six Months Ended March 30, 2001 Six Months Ended March 31, 2000
---------------------------------------- ---------------------------------------
Brokerage Brokerage
Operations OnMoney Total Operations OnMoney Total
---------- --------- --------- ---------- --------- ---------
Interest - net of client interest expense $ 81,290 $ 29 $ 81,319 $ 75,147 $ - $ 75,147
Non-interest revenue 168,397 192 168,589 213,841 55 213,896
---------- --------- --------- ---------- --------- ---------
Net revenues $ 249,687 $ 221 $ 249,908 $ 288,988 $ 55 $ 289,043
========== ========= ========= ========== ========= =========
Pre-tax income (loss) $ (101,570) $ (26,412) $(127,982) $ 10,352 $ (38,494) $ (28,142)
OnMoney non-interest revenues are included in other revenues in the statement of
operations. OnMoney expenses are comprised primarily of advertising expense,
employee compensation and benefits expense and professional services expense.
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8. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is as follows:
Three Months Ended Six Months Ended
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March 30, 2001 March 31, 2000 March 30, 2001 March 31, 2000
-------------- -------------- -------------- --------------
Net income (loss) $ (54,191) $ 3,202 $ (77,223) $ (18,509)
Other comprehensive income
Net unrealized holding gains (losses) on investment
securities available-for-sale arising during the period 5,456 39,535 (168,980) 173,962
Adjustment for deferred income taxes (2,128) (15,417) 65,902 (67,845)
--------- --------- --------- ---------
Total other comprehensive income (loss), net of tax 3,328 24,118 (103,078) 106,117
--------- --------- --------- ---------
Comprehensive income (loss) $ (50,863) $ 27,320 $(180,301) $ 87,608
========= ========= ========= =========
9. NONRECURRING CHARGES
During the six-month period ended March 30, 2001, the Company terminated
approximately 450 employees, primarily at its Omaha, Nebraska and Fort Worth,
Texas call centers. Termination costs, including severance and outplacement
costs, of approximately $1.2 million and $2.4 million for the three- and
six-month periods ended March 30, 2001, respectively, are recorded in employee
compensation and benefits in the statements of operations. As of May 7, 2001,
the Company has paid substantially all of these costs. In addition, asset
impairment and related charges of approximately $0.7 million and $1.9 million
for the three- and six-month periods ended March 30, 2001, respectively, are
recorded in occupancy and equipment costs; and approximately $1.3 million and
$1.9 million for the three and six-month periods ended March 30, 2001,
respectively, are recorded in other expenses in the statements of operations.
10. ACQUISITION
On December 1, 2000, the Company issued 316,818 shares of its Class A Common
Stock in connection with its May 25, 2000 acquisition of Ten Bagger, Inc. ("Ten
Bagger"), the corporation that developed the stock analysis tool, The BigEasy
Investor(TM). These shares represent the first of three post-closing payments
required under the purchase agreement during the 18-month period following the
acquisition date. The Company is required to issue additional shares of its
Class A Common Stock with a value between a minimum of $5.3 million and a
maximum of $8.9 million in settlement of the final two post-closing payments,
depending upon the achievement of certain performance targets, the satisfaction
of certain indemnification obligations and the market price of the Company's
Class A Common Stock at the time of issuance.
11. SUBSEQUENT EVENT
On April 2, 2001, the Company acquired TradeCast, Inc. ("TradeCast"), a Delaware
corporation, and all of the ownership interests in TradeCast Investments Ltd.
("TradeCast Ltd."), a Texas limited partnership. TradeCast Ltd., through its
subsidiaries, is a leading provider of direct access trade execution and
software designed for the active trader. In connection with the acquisition, the
Company issued 7,500,000 shares of its Class A Common Stock in exchange for the
outstanding shares of TradeCast common stock and the ownership interests of
TradeCast Ltd., including 375,000 shares which are being held in escrow pursuant
to the indemnification provisions of the transaction documents. The Company also
issued an additional 712,500 shares of its Class A Common Stock in connection
with the acquisition which are being held in escrow and may be released based on
future performance, and may issue an additional 37,500 shares of its Class A
Common Stock to an employee of a TradeCast Ltd. subsidiary based on future
performance and employment. The acquisition will be accounted for as a purchase.
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Selected Financial Data and
the Consolidated Financial Statements and Notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended September 29,
2000. This discussion contains forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
anticipated in such forward-looking statements. Factors that may cause such
differences include, but are not limited to: the effect of client trading
patterns on Company revenues and earnings; computer system failures; trading
volumes in excess of our capacity; the effects of competitors' pricing, product
and service decisions and intensified competition; evolving regulation and
changing industry customs and practices adversely affecting the Company; adverse
results of litigation; changes in revenues and profit margin due to cyclical
securities markets and interest rates; a significant downturn in the securities
markets over a short period of time or a sustained decline in securities prices
and trading volumes; and the other risks and uncertainties set forth under the
heading "Risk Factors" in Item 7 of the Company's annual report on Form 10-K for
the fiscal year ended September 29, 2000.
In particular, the following statements contained in this discussion are
forward-looking statements: our expectations regarding the decrease and rate of
decline of average commission and clearing fees per trade; our expectations
regarding the decrease in payment for order flow on a per trade basis; our
expectations regarding growth of interest revenue; our estimation of annualized
employee compensation and benefits savings; our expectation regarding the growth
in communication expenses; our expectation of advertising expenses; our
expectation of OnMoney expenses; the expected growth in our client accounts
resulting from advertising; our estimation of savings in annualized cash
interest payments on the convertible subordinated notes; and our expectation
regarding the period of time through which our financial resources will be
adequate to support our operations.
The terms "we" and "us" as used in this document refer to Ameritrade Holding
Corporation ("Holding") and its operating subsidiaries.
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 30, 2001 AND MARCH 31, 2000
NET REVENUES. Commissions and clearing fees decreased 39 percent to $76.4
million in the second quarter of fiscal 2001 from $126.0 million in the second
quarter of fiscal 2000. This decrease was primarily attributable to a decrease
in the number of securities transactions processed, as average trades per day
decreased 24 percent to 113,000 in the second quarter of fiscal 2001 from
149,000 in the second quarter of fiscal 2000. The decrease in transaction
processing volume was primarily a result of significantly lower client trading
activity during the second quarter of fiscal 2001, compared to unusually high
client trading activity during the second quarter of fiscal 2000. Clients
averaged approximately five trades per account during the second quarter of
fiscal 2001, compared to over 11 trades per account during the second quarter of
fiscal 2000. The decreased volume per account was partially offset by a
significant increase in client accounts resulting from the substantial
advertising expenditures made by us during the past few years. Client accounts
increased to approximately 1,478,000 at March 30, 2001 from approximately
992,000 at March 31, 2000. Commissions and clearing fees per trade decreased by
19 percent to $10.89 in the second quarter of fiscal 2001 from $13.41 in the
second quarter of fiscal 2000. This decrease in commissions per trade was due
primarily to our clients increasingly using the Internet to place trades, as we
charge lower commissions for Internet trades than for trades placed through
other means, growth in our Freetrade.com client base, and a lower commission
structure for option trades. We expect average commission and clearing fees per
trade to continue to decrease due to the growth in the number of lower revenue
Internet equity trades. However, we believe the rate of decline in average
commission will be lower than the rate of decline experienced over the past two
years, because the vast majority of our clients' trades are now being submitted
using the Internet.
We have arrangements with several execution agents to receive cash payments in
exchange for routing trade orders to these firms for execution ("payment for
order flow"). The revenues generated by us under these arrangements totaled
$13.5 million, or 11 percent of net revenues, for the second quarter of fiscal
2001 and $16.2 million, or 9 percent of net revenues, for the second quarter of
fiscal 2000. Payment for order flow is a component of the commissions and
clearing fees revenue line. Payment for order flow increased 11 percent on a per
trade basis from $1.73 in the second quarter of fiscal 2000 to $1.92 in the
second quarter of fiscal 2001. We expect payment for order flow to decrease
somewhat on a per trade basis as a result of competitive forces and regulatory
changes. A portion of these revenues were received from execution agents owned
by Knight Trading Group, Inc. ("Knight"), a market maker in equity securities.
As of March 30, 2001, we owned approximately six percent of the outstanding
common stock of Knight.
Net interest revenue (interest revenue less client interest expense) decreased
13 percent to $37.5 million in the second quarter of fiscal 2001 from $43.0
million in the second quarter of fiscal 2000. This decrease was due primarily to
a decrease of 45 percent in average client and correspondent receivables,
partially offset by an increase of approximately 75 basis points in the
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average interest rate charged on such receivables, a 96 percent increase in
average cash and investments, including cash and investments segregated in
compliance with federal regulations, and a decrease of 7 percent in average
amounts payable to clients and correspondents in the second quarter of fiscal
2001 from the second quarter of fiscal 2000. We generally expect net interest
revenue to grow as our account base grows, however it will also be affected by
changes in interest rates and fluctuations in the levels of client margin
borrowing and deposits.
Other revenues decreased slightly to $5.1 million in the second quarter of
fiscal 2001 from $5.6 million in the second quarter of fiscal 2000 due in part
to decreased marketing and service fees paid to us by mutual funds.
EXPENSES EXCLUDING CLIENT INTEREST. Employee compensation and benefits expense
increased 9 percent to $37.7 million in the second quarter of fiscal 2001 from
$34.6 million in the second quarter of fiscal 2000, due in part to severance
costs associated with further staff reductions during the second quarter of
fiscal 2001 (see Note 9), and costs associated with the hiring of a new CEO
during the second quarter of fiscal 2001. Full-time equivalent employees,
excluding OnMoney, decreased 9 percent to 2,223 at the end of March 2001 from
2,437 at the end of March 2000, and have decreased further to 1,991 as of May 7,
2001. Through staff reductions during fiscal 2001, the Company estimates it will
achieve approximately $22 million in annualized employee compensation and
benefits savings.
Communications expense was virtually unchanged at $10.0 million in the second
quarter of fiscal 2001 compared to $9.9 million in the second quarter of fiscal
2000. Communication expenses are expected to increase at a slower rate than
transactions processed, as the lower-cost Internet continues to be the
predominant communication channel with our clients. The Company recently
implemented electronic confirmations and statements, which we expect will
further slow the growth of communications expense.
Occupancy and equipment costs increased 47 percent to $20.7 million in the
second quarter of fiscal 2001 from $14.1 million in the second quarter of fiscal
2000. This increase was due primarily to the lease of equipment and additional
office space. In fiscal 2000, we added approximately 150,000 square feet of
additional space in Baltimore, Maryland, Ft. Worth, Texas, Omaha, Nebraska,
Chicago, Illinois, and Orem, Utah. We also have leased additional equipment over
the past fiscal year to accommodate growth. In addition, a portion of the
increased occupancy and equipment is due to asset impairment costs associated
with the staff reductions (see Note 9).
Professional services expense increased 8 percent to $11.6 million in the second
quarter of fiscal 2001 from $10.7 million in the second quarter of fiscal 2000.
This increase was primarily due to higher usage of consulting services to assist
us in operational effectiveness and product enhancements during the second
quarter of fiscal 2001.
Interest on borrowings decreased 33 percent to $2.9 million in the second
quarter of fiscal 2001, from $4.3 million in the second quarter of fiscal 2000,
due to lower average borrowings on the Company's revolving credit agreement and
the conversion of $152.4 million of convertible subordinated notes in February
2001 (see Note 4). As a result of the debt conversion, the Company will save
approximately $8.8 million in annualized cash interest payments on the
convertible subordinated notes.
Other operating expenses decreased 15 percent to $9.3 million in the second
quarter of fiscal 2001 from $11.0 million in the second quarter of fiscal 2000,
primarily due to lower transaction processing volumes, partially offset by
certain asset impairment costs associated with the staff reductions (see Note
9).
Advertising expenses for our brokerage operations decreased 17 percent to $45.6
million in the second quarter of fiscal 2001 from $54.8 million in the second
quarter of fiscal 2000. The continuing high level of advertising expenditures
was principally related to our efforts to build awareness of the Ameritrade
brand and was primarily responsible for the significant increase in the number
of client accounts realized by us during the quarter. However, due to adverse
stock market conditions and a historically slow market for new accounts during
the summer, we have reduced our advertising budget for the remainder of the
fiscal year. We estimate aggregate advertising expenses will range from $35 to
$45 million for the last six months of fiscal 2001.
OnMoney development costs decreased 66 percent to $10.1 million in the second
quarter of fiscal 2001 from $29.8 million in the second quarter of fiscal 2000,
due primarily to substantial decreases in advertising and professional services
costs. The Company has substantially completed the development of the OnMoney
product. We expect OnMoney expenses to range between $7 million and $9 million
per quarter for the remainder of fiscal 2001.
Debt conversion expense consists of $58.7 million of cash paid to induce holders
of the convertible subordinated notes to convert the notes into 4.7 million
shares of Class A common stock, and $3.4 million of deferred note origination
costs written off related to the converted notes (see Note 4).
Income tax benefit was $36.6 million in the second quarter of fiscal 2001
compared to income tax expense of $2.4 million in the second quarter of fiscal
2000. The effective tax rate in the second quarter of fiscal 2001 was 40 percent
compared to 42 percent in the second quarter of fiscal 2000.
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SIX MONTH PERIODS ENDED MARCH 30, 2001 AND MARCH 31, 2000
NET REVENUES. Commissions and clearing fees decreased 22 percent to $158.5
million in the first half of fiscal 2001 from $203.6 million in the first half
of fiscal 2000. This decrease was primarily attributable to a decrease in
commissions and clearing fees per trade by 17 percent to $11.32 in the first
half of fiscal 2001 from $13.66 in the first half of fiscal 2000. The decrease
in commissions per trade was due primarily to our clients increasingly using the
Internet to place trades, as we charge lower commissions for Internet trades
than for trades placed through other means, growth in our Freetrade.com client
base, and a lower commission structure for option trades. We expect average
commission and clearing fees per trade to continue to decrease due to the growth
in the number of lower revenue Internet equity trades. However, we believe the
rate of decline in average commission will be lower than the rate of decline
experienced over the past two years, because the vast majority of our clients'
trades are now being submitted using the Internet. In addition, the average
number of trades processed per day decreased 2 percent to 112,000 in the first
half of fiscal 2001 from 114,000 in the first half of fiscal 2000. The decrease
in transaction processing volume was primarily a result of significantly lower
client trading activity during the first half of fiscal 2001, compared to
unusually high client trading activity during the first half of fiscal 2000.
Clients averaged approximately 10 trades per account during the first half of
fiscal 2001, compared to approximately 18 trades per account during the first
half of fiscal 2000. The decreased volume per account was partially offset by a
significant increase in client accounts resulting primarily from the substantial
advertising expenditures made by us during the past few years. Client accounts
increased to approximately 1,478,000 at March 30, 2001 from approximately
992,000 at March 31, 2000.
Payment for order flow revenues totaled $28.2 million, or 11 percent of net
revenues, for the first half of fiscal 2001 and $26.0 million, or 9 percent of
net revenues, for the first half of fiscal 2000. Payment for order flow is a
component of the commissions and clearing fees revenue line. Payment for order
flow increased 8 percent on a per trade basis from $1.74 in the first half of
fiscal 2000 to $2.02 in the first half of fiscal 2001. We expect payment for
order flow to decrease somewhat on a per trade basis as a result of competitive
forces and regulatory changes. A portion of these revenues was received from
execution agents owned by Knight. As of March 30, 2001, we owned approximately
six percent of the outstanding common stock of Knight.
Net interest revenue increased 8 percent to $81.3 million in the first half of
fiscal 2001 from $75.1 million in the first half of fiscal 2000. This increase
was due primarily to an increase of approximately 125 basis points in the
average interest rate charged on client and correspondent receivables, a 29
percent increase in average cash and investments, including cash and investments
segregated in compliance with federal regulations, and a decrease of 2 percent
in average amounts payable to clients and correspondents, partially offset by a
decrease of 16 percent in average client and correspondent receivables, in the
first half of fiscal 2001 from the first half of fiscal 2000. We generally
expect net interest revenue to grow as our account base grows, however it will
also be affected by changes in interest rates and fluctuations in the levels of
client margin borrowing and deposits.
Other revenues decreased slightly to $10.1 million in the first half of fiscal
2001 from $10.3 million in the first half of fiscal 2000 due in part to
decreased marketing and service fees paid to us by mutual funds.
EXPENSES EXCLUDING CLIENT INTEREST. Employee compensation and benefits expense
increased 9 percent to $73.8 million in the first half of fiscal 2001 from $68.0
million in the first half of fiscal 2000, due in part to severance costs
associated with staff reductions during the first half of fiscal 2001, and costs
associated with the hiring of a new CEO during the second quarter of fiscal
2001. Full-time equivalent employees, excluding OnMoney, decreased 9 percent to
2,223 at the end of March 2001 from 2,437 at the end of March 2000, and have
decreased further to 1,991 as of May 7, 2001. Through staff reductions during
fiscal 2001, the Company estimates it will achieve approximately $22 million in
annualized employee compensation and benefits savings.
Communications expense increased 8 percent to $18.4 million in the first half of
fiscal 2001 compared to $17.1 million in the first half of fiscal 2000,
primarily due to higher quote and market information costs. Communication
expenses are expected to increase at a slower rate than transactions processed,
as the lower-cost Internet continues to be the predominant communication channel
with our clients. The Company recently implemented electronic confirmations and
statements, which we expect will further slow the growth of communications
expense.
Occupancy and equipment costs increased 57 percent to $42.3 million in the first
half of fiscal 2001 from $26.9 million in the first half of fiscal 2000. This
increase was due primarily to the lease of equipment and additional office
space. In fiscal 2000, we added approximately 150,000 square feet of additional
space in Baltimore, Maryland, Ft. Worth, Texas, Omaha, Nebraska, Chicago,
Illinois, and Orem, Utah. We also have leased additional equipment over the past
fiscal year to accommodate growth. In addition, a portion of the increased
occupancy and equipment was due to asset impairment costs associated with the
staff reductions (see Note 9).
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Professional services expense decreased 5 percent to $24.5 million in the first
half of fiscal 2001 from $25.8 million in the first half of fiscal 2000. This
decrease was primarily due to higher usage of marketing and technology
consulting services during the first half of fiscal 2000.
Interest on borrowings decreased 4 percent to $7.5 million in the first half of
fiscal 2001 from $7.8 million in the first half of fiscal 2000, due to lower
average interest rates and the conversion of $152.4 million of convertible
subordinated notes in February 2001 (see Note 4). As a result of the debt
conversion, the Company will save approximately $8.8 million in annualized cash
interest payments on the convertible subordinated notes.
Other operating expenses was virtually unchanged at $19.5 million in the first
half of fiscal 2001 compared to $19.6 million in the first half of fiscal 2000.
The costs for the first half of fiscal 2001 include certain asset impairment
costs associated with the staff reductions (see Note 9).
Advertising expenses for our brokerage operations decreased 9 percent to $103.1
million in the first half of fiscal 2001 from $113.4 million in the first half
of fiscal 2000. The continuing high level of advertising expenditures was
principally related to our efforts to build awareness of the Ameritrade brand
and was primarily responsible for the significant increase in the number of
client accounts realized by us during the period. However, due to adverse stock
market conditions and a historically slow market for new accounts during the
summer, we have reduced our advertising budget for the remainder of the fiscal
year. We estimate aggregate advertising expenses will range from $35 to $45
million for the last six months of fiscal 2001.
OnMoney development costs decreased 31 percent to $26.6 million in the first
half of fiscal 2001 from $38.5 million in the first half of fiscal 2000, due
primarily to substantial decreases in advertising and professional services
costs. The Company has substantially completed the development of the OnMoney
product. We expect OnMoney expenses to range between $7 million and $9 million
per quarter for the remainder of fiscal 2001.
Debt conversion expense consists of $58.7 million of cash paid to induce holders
of the convertible subordinated notes to convert the notes into 4.7 million
shares of Class A common stock, and $3.4 million of deferred note origination
costs written off related to the converted notes.
Income tax benefit was $50.8 million in the first half of fiscal 2001 compared
to $9.6 million in the first half of fiscal 2000. The effective tax rate in the
first half of fiscal 2001 was 40 percent compared to 34 percent in the first
half of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed the Company primarily through the use of funds
generated from operations and from borrowings under our credit agreements. We
have also raised funds in the past through an initial public offering of common
stock in fiscal 1997 and the issuance of convertible subordinated notes in
fiscal 1999. Our liquidity needs during the second quarter of fiscal 2001 were
financed primarily by borrowings under our credit facilities. We anticipate
continued capital and liquidity needs during the remainder of fiscal 2001 as a
result of our current advertising campaign and expected growth in client
accounts resulting from this campaign. We plan to finance our capital and
liquidity needs primarily from our operating cash flows. In addition, we
maintain a margin loan facility that is supported by approximately 2.9 million
shares of our Knight stock and would be available to meet additional capital and
liquidity needs. We may also consider selling, or entering into a forward
contract to sell, some or all of our interest in Knight.
Dividends from subsidiaries are another source of liquidity for the holding
company. Some of our subsidiaries are subject to requirements of the Securities
and Exchange Commission and the National Association of Securities Dealers
relating to liquidity, capital standards, and the use of client funds and
securities, which limit funds available for the payment of dividends to the
Company.
Under the SEC's Uniform Net Capital Rule (Rule 15c3-1 under the Securities
Exchange Act of 1934), our broker-dealer subsidiaries are required to maintain
at all times at least the minimum level of net capital required under Rule
15c3-1. This minimum net capital level is determined based upon a complicated
calculation described in Rule 15c3-1, but takes account of, among other things,
each broker-dealer's "net debit items," which primarily are a function of client
margin receivables at our broker-dealer subsidiaries. Since our net debit items
can fluctuate significantly, our minimum net capital requirements can also
fluctuate significantly from period to period. Historically, we have utilized
our revolving credit facility as a mechanism to provide additional capital as
needed to meet net capital requirements, and the balance on our revolving credit
facility often has fluctuated significantly from period to period due to changes
in our net capital requirements.
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CASH FLOW
Cash used in operating activities was $73.4 million in the first half of fiscal
2001, compared to $110.4 million in the first half of fiscal 2000. The decrease
in cash used in operations during the first half of fiscal 2001 was primarily
attributable to the substantial decrease in client margin receivables during the
period, compared to a substantial increase in client receivables during the
first half of fiscal 2000, partly offset by debt conversion expense of $37.2
million (net of income taxes) during the first half of fiscal 2001.
Cash used in investing activities was $22.7 million in the first half of fiscal
2001, compared to $33.0 million in the first half of fiscal 2000. Uses of cash
in both periods were primarily related to purchases of property and equipment.
Cash provided by financing activities was $0.5 million in the first half of
fiscal 2001, compared to $80.7 million in the first half of fiscal 2000. The
financing activities consisted primarily of net repayments on our revolving
credit agreements (see "Loan Agreements") offset by proceeds from stock option
exercises in the first half of fiscal 2001, and net proceeds from borrowings on
the revolving credit agreement in the first half of fiscal 2000. The Company
borrowed $58.7 million on our revolving credit agreements during the second
quarter of fiscal 2001 to finance the induced conversion of $152.4 million of
convertible subordinated notes (see "Convertible Subordinated Notes") to Class A
common stock.
LOAN AGREEMENTS
As of March 30, 2001, we maintained a revolving credit agreement with a bank
group that was originally entered into in January 1998 and was amended and
restated in January 2000. The revolving credit agreement contains certain
covenants and restrictions, including a minimum income before income taxes
requirement. In May 2001, the Company and the bank group agreed to modify the
minimum income before income taxes requirement and amend the revolving credit
agreement. The revolving credit agreement, as amended, permits borrowings up to
$60 million through December 31, 2001, and is secured by 5.0 million shares of
our Knight common stock. The Company may borrow up to 70 percent of the market
value of the Knight stock under the amended revolving credit agreement. The
interest rate on borrowings is determined on a monthly basis based on the
greater of (i) the prime rate minus 0.25 percent or (ii) 90-day LIBOR plus 2.0
percent. At March 30, 2001, the interest rate on this borrowing was 7.75
percent. We also pay a maintenance fee of 0.5 percent of the unused borrowings
through the maturity date. We had outstanding indebtedness under the revolving
credit agreement of $59 million at March 30, 2001 and $75 million at September
29, 2000.
We also maintain a separate margin loan facility that is supported by
approximately 2.9 million shares of our Knight stock not pledged to the bank
group. The Company may borrow up to 25 percent of the value of the Knight stock
under the margin loan facility. The interest rate on borrowings under the margin
loan facility is based on LIBOR plus 1.0% and was 6.1 percent at March 30, 2001.
As of March 30, 2001, we had $16 million of borrowings outstanding under this
loan facility, which were repaid in April 2001.
We intend to renegotiate and extend our loan agreements during the next three to
six months.
CONVERTIBLE SUBORDINATED NOTES
In August 1999, we issued $200 million of 5.75 percent convertible subordinated
notes due August 1, 2004. The notes are convertible into 6,142,740 shares of
Class A common stock. The holders of the notes may convert the notes into shares
of Class A common stock at any time prior to the close of business on the
maturity date of the notes, unless previously redeemed or repurchased, at a
conversion rate of 30.7137 shares per $1,000 principal amount of notes
(equivalent to an approximate conversion price of $32.56 per share), subject to
adjustment in certain circumstances. Interest on the notes is payable on
February 1 and August 1 of each year. The notes are not subject to redemption
prior to August 6, 2002, and we may, at our option, redeem the notes at a
premium on or after such date, in whole or in part, upon notice to each holder
not less than 30 days nor more than 60 days prior to the redemption date.
In February 2001, we induced the conversion of $152.4 million of our convertible
subordinated notes (see Note 4) for approximately 4.7 million shares of Class A
common stock and $58.7 million of cash. Including $3.4 million of deferred note
origination costs written off, this resulted in debt conversion expense of $62.1
million and an increase in stockholders' equity of $71.7 million (net of income
taxes) during the second fiscal quarter ended March 30, 2001. Additionally, we
will save approximately $8.8 million in annualized cash interest payments on the
convertible subordinated notes.
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CAPITAL EXPENDITURES
We currently anticipate that our available cash resources and credit facilities
will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next 12 months. However, we may need
to raise additional funds in order to support more rapid expansion, develop new
or enhanced products and services, respond to competitive pressures, acquire
complementary businesses or technologies, or take advantage of unanticipated
opportunities.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of the stockholders may be reduced, stockholders may
experience additional dilution in net book value per share or such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. There can be no assurance that additional financing
will be available when needed on terms favorable to us, if at all.
If adequate funds are not available on acceptable terms, we may be unable to
develop or enhance our services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on our business, financial condition and operating
results.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument as a result of
fluctuations in interest rates and market prices. We have established policies,
procedures and internal processes governing our management of market risks in
the normal course of our business operations.
Advanced Clearing seeks to control the risks associated with its client
activities by requiring clients to maintain margin collateral in compliance with
various regulatory and internal guidelines. Advanced Clearing monitors required
margin levels daily and, pursuant to such guidelines, requires the clients to
deposit additional collateral, or to reduce positions, when necessary.
As a fundamental part of our brokerage business, we hold short-term interest
earning assets, mainly funds required to be segregated in compliance with
federal regulations for clients. Such funds totaled $1.7 billion at March 30,
2001 and $216.0 million at September 29, 2000. We invest such funds primarily in
short-term fixed-rate U.S. Treasury Bills and repurchase agreements. Our
interest earning assets are financed by short-term interest bearing liabilities
totaling $2.8 billion at March 30, 2001 and $2.6 billion at September 29, 2000
in the form of client cash balances. At March 30, 2001, we had an additional
$122.5 million of interest bearing indebtedness outstanding, consisting of $47.6
million of convertible subordinated notes (see "Convertible Subordinated
Notes"), which bear interest at a fixed rate of interest of 5.75 percent, and
$74.9 million under our revolving credit agreements, which bear interest at a
floating rate (as described under "Loan Agreements"). At September 29, 2000, we
had $275.0 million of other interest bearing indebtedness outstanding,
consisting of $200.0 million of convertible subordinated notes and $75.0 million
under a revolving credit agreement. We earn a net interest spread on the
difference between amounts earned on client margin loans and amounts paid on
client credit balances. Since we establish the rate paid on client cash
balances, a substantial portion of our interest rate risk is under our direct
management. Our annual interest payments on our revolving credit agreements
would increase or decrease by approximately $749,000 for each one percent change
in interest rates based on the amount outstanding at March 30, 2001.
We hold a marketable equity security, which is recorded at fair value of $115.7
million ($67.5 million net of tax) at March 30, 2001 and has exposure to market
price risk. The same security was recorded at fair value of $284.7 million
($173.9 million net of tax) at September 29, 2000. This risk is estimated as the
potential loss in fair value resulting from a hypothetical 10 percent adverse
change in prices quoted by the stock exchanges and was approximately $11.6
million at March 30, 2001. Actual results may differ.
Our revenues and financial instruments are denominated in U.S. dollars, and we
generally do not invest in derivative financial instruments or derivative
commodity instruments.
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
The Company and its operating units are parties to a number of legal matters
arising in the ordinary course of its business. In management's opinion, the
Company has adequate legal defenses respecting each of these actions and does
not believe that any such matters, either individually or in the aggregate, will
materially affect the Company's results of operations or its financial position.
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ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on February 21, 2001 for
the purposes of electing its board of directors and ratifying the appointment of
its independent auditors. The Board of Directors consists of a total of nine
persons, four of which are elected by the holders of the Company's Class A
Common Stock and five of which are elected by the holders of the Company's Class
B Common Stock. The nine persons were nominated by the Board of Directors to
serve as directors for terms of one year. The following sets forth the results
of the election of directors:
DIRECTORS ELECTED BY THE HOLDERS OF THE CLASS A COMMON STOCK
NAME OF NOMINEE FOR WITHHELD
- --------------- --- --------
David W. Garrison 129,142,353 426,263
Thomas Y. Hartley 129,146,341 422,275
Charles L. Marinaccio 129,154,900 413,716
Mark L. Mitchell 129,149,428 419,188
DIRECTORS ELECTED BY THE HOLDERS OF THE CLASS B COMMON STOCK
NAME OF NOMINEE FOR WITHHELD
- --------------- --- --------
J. Joe Ricketts 16,372,800 -
Robert T. Slezak 16,372,800 -
J. Peter Ricketts 16,372,800 -
Gene L. Finn 16,372,800 -
John W. Ward 16,372,800 -
No proxies were solicited from the holder of the Class B Common Stock since
such shares are not publicly traded. There was no solicitation in opposition to
the nominees proposed to be elected by the holders of the Class A Common Stock
in the Proxy Statement.
The ratification of the appointment of Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending September 28, 2001 was
approved by the Stockholders with 145,640,295 votes FOR, 178,997 votes AGAINST,
and 122,124 votes ABSTAINED OR BROKER NON-VOTE.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
3.1 Restated Certificate of Incorporation of Ameritrade Holding
Corporation dated July 1, 1999 (incorporated by reference to Exhibit
3.6 of the Company's quarterly report on Form 10-Q filed on August 9,
1999)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-1 (Registration No. 333-17495) filed
on February 7, 1997)
4.1 Form of Certificate for Class A Stock (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form S-1
(Registration No. 333-17495) filed on February 7, 1997)
4.2 Form of Note for the Company's 5.75 percent Convertible Subordinated
Notes due August 1, 2004 (incorporated by reference to the Company's
annual report on Form 10-K filed on December 23, 1999)
4.3 Indenture dated August 4, 1999, between Ameritrade Holding Corporation
and The Bank of New York, as trustee (incorporated by reference to the
Company's Registration Statement on Form S-3, File No. 333-87999,
filed on September 28, 1999)
4.4 First Supplemental Indenture dated August 4, 1999, between Ameritrade
Holding Corporation and The Bank of New York, as trustee (incorporated
by reference to the Company's Registration Statement on Form S-3, File
No. 333-87999, filed on September 28, 1999)
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4.5 Registration Rights Agreement dated August 4, 1999, between Ameritrade
Holding Corporation and Goldman, Sachs & Co. and relating to the
Company's 5.75 percent Convertible Subordinated Notes due August 1,
2004 (incorporated by reference to the Company's Registration
Statement on Form S-3, File No. 333-87999, filed on September 28,
1999)
10.1 Employment Agreement, dated as of March 1, 2001, between Joseph H.
Moglia and Ameritrade Holding Corporation
15 Independent accountants' awareness letter
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the three-month period ended
March 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 14, 2001
Ameritrade Holding Corporation
(Registrant)
By: /s/ Joseph H. Moglia
--------------------
Joseph H. Moglia
Chief Executive Officer
(Principal Executive Officer)
By: /s/ John R. MacDonald
---------------------
John R. MacDonald
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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