- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 13, 1999
---------------------------------------------
E*TRADE Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 1-11921 94-2844166
- -----------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4500 Bohannon Drive, Menlo Park, C_____________________________________94025 A
- --------------------------------------------------------------------------------
(Address of principal executive offices)_________________________(Zip Code)
Registrant's telephone number, including area code: (650) 331-6000
- --------------------------------------------------------------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 2 ACQUISITION OR DISPOSITION OF ASSETS
This Form 8-K/A amends the Current Report on Form 8-K filed on July 13, 1999
to incorporate Item 7(a), the Financial Statements of Business Acquired and
Item 7(b), the Pro Forma Financial Information.
On July 12, 1999, E*TRADE Group, Inc. ("E*TRADE") entered into an agreement
with TIR (Holdings) Limited, a Cayman Islands company ("TIR"), pursuant to
which E*TRADE has agreed to acquire all of the outstanding ordinary shares of
TIR in exchange for an aggregate of approximately $122,372,500 of E*TRADE
common stock and TIR will become a wholly owned subsidiary of E*TRADE. The
amount of such consideration was determined based on arm's-length negotiations
between E*TRADE and TIR. The purpose of the acquisition is to build E*TRADE's
infrastructure by providing the first global cross-border trading network for
online investors and making trading in foreign securities accessible to retail,
corporate and institutional investors alike. The acquisition is subject to the
satisfaction of certain conditions and is intended to be accounted for as a
pooling of interests.
Item 7 FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
(1) TIR (Holdings) Limited Independent Auditors' Report
(2) TIR (Holdings) Limited Consolidated Statements of Financial
Condition At April 30, 1999 and 1998
(3) TIR (Holdings) Limited Consolidated Statements of Income For the
Years Ended April 30, 1999, 1998 and 1997
(4) TIR (Holdings) Limited Consolidated Statements of Comprehensive
Income For the Years Ended April 30, 1999, 1998 and 1997
(5) TIR (Holdings) Limited Consolidated Statements of Changes in
Stockholders' Equity For the Years Ended April 30, 1999, 1998
and 1997
(6) TIR (Holdings) Limited Consolidated Statements of Cash Flows For
the Years Ended April 30, 1999, 1998 and 1997
(7) TIR (Holdings) Limited Notes to Consolidated Financial
Statements
(b) Pro Forma Financial Information.
(1) Pro Forma Combined Balance Sheets as of June 30, 1999
(unaudited)
(2) Pro Forma Combined Statements of Operations for the nine-month
periods ended June 30, 1999 and 1998 (unaudited)
(3) Pro Forma Combined Statements of Operations for the year ended
September 30, 1998 (unaudited)
(c) Exhibits.
The following documents are filed as exhibits to this Report:
23.1 Consent of PricewaterhouseCoopers, Independent Auditors
99.1 Press Release, dated July 13, 1999, issued by E*TRADE Group,
Inc. announcing the agreement to acquire TIR (Holdings)
Limited.*
- --------
* Filed as part of the Registrant's Current Report on Form 8-K dated July 13,
1999, filed July 28, 1999, and incorporated herein by reference.
2
TIR (HOLDINGS) LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1999, 1998 and 1997
CONTENTS PAGE
-------- ----
Independent Auditors' Report............................................. 4
Consolidated Financial Statements:
Consolidated Statements of Financial Condition as of April 30, 1999 and
1998.................................................................... 5
Consolidated Statements of Income For the Years Ended April 30, 1999,
1998 and 1997........................................................... 6
Consolidated Statements of Comprehensive Income For the Years Ended April
30, 1999, 1998 and 1997................................................. 7
Consolidated Statements of Changes in Stockholders' Equity For the Years
Ended April 30, 1999, 1998 and 1997..................................... 8
Consolidated Statements of Cash Flows For the Years Ended April 30, 1999,
1998 and 1997........................................................... 11
Notes to Consolidated Financial Statements............................... 13
3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
TIR (Holdings) Limited
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of income, of comprehensive
income, of changes in stockholders' equity and of cash flows present fairly, in
all material respects, the financial position of TIR (Holdings) Limited and its
subsidiary companies (the "Company") at April 30, 1999 and 1998 and the results
of their operations and their cash flows for each of the three years ended
April 30, 1999, 1998 and 1997 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, July 23, 1999
4
TIR (HOLDINGS) LIMITED
Consolidated Statements of Financial Condition
at April 30, 1999 and 1998
1999 1998
------------ -----------
US$ US$
ASSETS
Cash and cash equivalents............................ $ 35,301,977 $31,237,017
Receivables from correspondent brokers and dealers... 44,535,984 20,765,167
Receivables from clients............................. 28,101,093 9,369,776
Deferred research/services expense................... 5,571,829 5,266,881
Loans to directors................................... 3,000,000 3,000,000
Other receivables, deposits and prepayments.......... 6,347,977 4,285,894
Equipment, furniture and leasehold improvements, net
of accumulated depreciation and amortization........ 2,086,142 1,730,818
Goodwill (net of accumulated amortisation of $20,000
at April 30, 1999).................................. 280,000 --
Exchange memberships, at cost........................ 565,151 270,396
Investment in a listed mutual fund................... 1,004,000 --
Unlisted investments................................. 202,748 110,715
Joint venture........................................ 896,426 521,336
------------ -----------
Total assets..................................... $127,893,327 $76,558,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued research/services payable.................. $ 11,211,413 $10,671,670
Payables to brokers and dealers.................... 32,884,682 9,313,748
Payables to clients................................ 35,255,468 12,566,362
Accounts payable and accruals...................... 7,696,534 8,553,370
Taxation........................................... 1,832,751 919,587
Obligation under capital leases.................... 68,569 46,508
Bank overdraft..................................... 520,666 846,116
Loans from directors............................... 3,000,000 3,000,000
Loan from a shareholder............................ 3,000,000 3,000,000
------------ -----------
Total liabilities................................ 95,470,083 48,917,361
------------ -----------
Mandatorily redeemable preference shares............. 3,000,000 3,000,000
------------ -----------
Stockholders' Equity:
Common stock $0.01 par value per share; voting--
authorized: 89,500,000 shares in 1999 and 1998;
issued: 12,733,065 shares in 1999 and 12,201,602
shares in 1998.................................... 127,331 122,016
Share Premium...................................... 4,158,390 3,159,724
Stock compensation reserve......................... 1,210,922 1,691,260
Accumulated other comprehensive income............. 231,208 486,510
Retained earnings.................................. 23,695,393 19,181,129
------------ -----------
Total stockholders' equity....................... 29,423,244 24,640,639
------------ -----------
Total liabilities and stockholders' equity..... $127,893,327 $76,558,000
============ ===========
The accompanying notes to these consolidated financial statements are an
integral part hereof.
5
TIR (HOLDINGS) LIMITED
Consolidated Statements of Income
For the Years Ended April 30, 1999, 1998 and 1997
1999 1998 1997
------------ ----------- -----------
US$ US$ US$
Operating revenues:
Gross commissions.................... $100,446,825 $87,134,071 $71,381,111
Realised (loss)/gain arising from
forward exchange and option
contracts........................... (285,996) (319,996) 773,779
Unrealised gain arising from forward
exchange and option contracts....... 102,013 151,845 1,012,307
Others............................... 1,536,651 857,003 506,967
------------ ----------- -----------
Total operating revenues........... 101,799,493 87,822,923 73,674,164
------------ ----------- -----------
Operating expenses:
Independent research and services.... $ 48,960,963 $38,505,669 $31,439,692
Employee compensation--cash based.... 18,845,798 16,279,393 11,843,194
- --stock based.......................... 586,201 1,458,292 818,923
Clearing, floor brokerage and
exchange charges.................... 16,874,312 16,479,047 16,352,464
Travel and marketing................. 2,642,497 1,673,782 1,340,672
Communication and market
information......................... 2,524,754 2,074,849 1,726,281
Professional fees.................... 2,431,283 2,351,212 2,236,026
Occupancy and equipment.............. 1,341,016 1,141,416 1,090,622
Other................................ 1,214,626 883,288 1,467,787
Depreciation--owned assets........... 706,652 601,408 629,713
- --leased assets........................ 10,847 19,723 35,803
Exchange loss........................ 259,926 1,447,774 173,631
Equity in loss of joint venture...... 258,314 352,163 17,088
Amortisation of goodwill............. 20,000 -- --
------------ ----------- -----------
Total operating expenses........... 96,677,189 83,268,016 69,171,896
------------ ----------- -----------
Operating income....................... 5,122,304 4,554,907 4,502,268
------------ ----------- -----------
Interest and other investment income... 1,537,811 1,198,668 987,185
Interest expense--to shareholder....... (243,333) (234,667) (140,000)
- --to others............................ (228,823) (289,854) (255,650)
------------ ----------- -----------
Other income (expense)--net........ 1,065,655 674,147 591,535
------------ ----------- -----------
Income before income taxes............. 6,187,959 5,229,054 5,093,803
Provision for income taxes............. (1,433,695) (967,432) (485,522)
------------ ----------- -----------
Net income............................. 4,754,264 4,261,622 4,608,281
Preferred stock dividends............ (240,000) (240,000) (240,000)
------------ ----------- -----------
Income applicable to common stock...... $ 4,514,264 $ 4,021,622 $ 4,368,281
============ =========== ===========
Income per share:
Basic................................ $ 0.36 $ 0.33 $ 0.35
============ =========== ===========
Diluted.............................. $ 0.34 $ 0.31 $ 0.34
============ =========== ===========
Shares used in income per share
computation:
Basic................................ 12,704,697 12,308,961 12,510,514
============ =========== ===========
Diluted.............................. 13,089,998 12,885,728 12,987,236
============ =========== ===========
The accompanying notes to these consolidated financial statements are an
integral part hereof.
6
TIR (HOLDINGS) LIMITED
Consolidated Statements of Comprehensive Income
For the Years Ended April 30, 1999, 1998 and 1997
1999 1998 1997
---------- ---------- ----------
US$ US$ US$
Net income.................................... $4,754,264 $4,261,622 $4,608,281
Other comprehensive (loss)/income:
Foreign currency translation adjustment..... (255,302) (21,041) 56,817
---------- ---------- ----------
Comprehensive income.......................... $4,498,962 $4,240,581 $4,665,098
========== ========== ==========
The accompanying notes to these consolidated financial statements are an
integral part hereof.
7
TIR (HOLDINGS) LIMITED
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended April 30, 1999, 1998 and 1997
Common Accumulated
stocks Stock other
Number of Common Share compensation Retained comprehensive
shares stocks premium reserve earnings income/(loss) Total
---------- -------- ---------- ------------ ----------- ------------- ----------
US$ US$ US$ US$ US$ US$
Balance, May 1, 1996.... 12,394,200 $123,942 $3,732,077 $1,572,813 $10,791,226 $450,734 16,670,792
Net income.............. -- -- -- -- 4,608,281 -- 4,608,281
Repurchase of stock
options................. -- -- -- (98,937) -- -- (98,937)
Issuance of common
stocks to directors
- --Allotment of shares
(Note a)................ 63,350 633 110,296 -- -- -- 110,929
Issuance of common
stocks to non-employee
shareholders
- --Exercise of options
(Note b)................ 20,000 200 -- (200) -- -- --
- --Allotment of shares
(Note c)................ 37,653 377 68,805 -- -- -- 69,182
Issuance of common
stocks to employees
- --Allotment of shares
(Note a)................ 335,503 3,355 1,011,270 (1,194,644) -- -- (180,019)
Repurchase of common
stocks from employees
(Note a)................ (111,636) (1,116) (277,719) -- -- -- (278,835)
Repurchase of common
stocks from non-employee
shareholders (Note c)... (244,242) (2,443) (785,400) -- -- -- (787,843)
Reserve arising on
granting common stocks
and options to employees
but not yet allotted and
exercised respectively.. -- -- -- 818,923 -- -- 818,923
Dividend paid on
mandatorily redeemable
preference shares....... -- -- -- -- (240,000) -- (240,000)
Foreign currency
translation adjustment.. -- -- -- -- -- 56,817 56,817
---------- -------- ---------- ---------- ----------- -------- ----------
Balance, April 30,
1997.................... 12,494,828 124,948 3,859,329 1,097,955 15,159,507 507,551 20,749,290
Net income.............. -- -- -- -- 4,261,622 -- 4,261,622
Repurchase of stock
options................. -- -- -- (117,401) -- -- (117,401)
Issuance of common
stocks to directors
- --Allotment of shares
(Note a)................ 15,690 157 39,301 -- -- -- 39,458
Issuance of common
stocks to non-employee
shareholders
- --Exercise of options
(Note b)................ 12,000 120 15,480 -- -- -- 15,600
- --Allotment of shares
(Note c)................ 3,806 38 10,770 -- -- -- 10,808
Issuance of common
stocks to employees
- --Allotment of shares
(Note a)................ 214,529 2,145 705,983 (747,586) -- -- (39,458)
Repurchase of common
stocks from employees
(Note a)................ (345,750) (3,457) (1,120,421) -- -- -- (1,123,878)
Repurchase of common
stocks from non-employee
shareholders (Note c)... (193,501) (1,935) (350,718) -- -- -- (352,653)
Reserve arising on
granting common stocks
and options to employees
but not yet allotted and
exercised respectively.. -- -- -- 1,458,292 -- -- 1,458,292
Dividend paid on
mandatorily redeemable
preference shares....... -- -- -- -- (240,000) -- (240,000)
Foreign currency
translation adjustment.. -- -- -- -- -- (21,041) (21,041)
---------- -------- ---------- ---------- ----------- -------- ----------
Balance, April 30,
1998.................... 12,201,602 122,016 3,159,724 1,691,260 19,181,129 486,510 24,640,639
8
TIR (HOLDINGS) LIMITED
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended April 30, 1999, 1998 and 1997 (continued)
Common Accumulated
stocks Stock other
Number of Common Share compensation Retained comprehensive
shares stocks premium reserve earnings income/(loss) Total
---------- -------- ---------- ------------ ----------- ------------- -----------
US$ US$ US$ US$ US$ US$
Balance, April 30,
1998.................... 12,201,602 122,016 3,159,724 1,691,260 19,181,129 486,510 24,640,639
(brought forward from
previous page)
Net income.............. -- -- -- -- 4,754,264 -- 4,754,264
Repurchase of stock
options................. -- -- -- (66,363) -- -- (66,363)
Issuance of common
stocks to directors
- --Exercise of options
(Note b)................ 345,810 3,458 435,669 (26,640) -- -- 412,487
Issuance of common
stocks to non-employee
shareholders
- --Exercise of options
(Note b)................ 25,710 257 44,736 -- -- -- 44,993
- --Allotment of shares
(Note c)................ 67,808 678 -- -- -- -- 678
Issuance of common
stocks to employees
- --Exercise of options
(Note b)................ 55,150 552 219,198 (154,030) -- -- 65,720
- --Allotment of shares
(Note a)................ 223,354 2,234 834,148 (819,506) -- -- 16,876
Repurchase of common
stocks from employees
(Note a)................ (61,507) (615) (277,685) -- -- -- (278,300)
Repurchase of common
stocks from non-employee
shareholders (Note c)... (124,862) (1,249) (257,400) -- -- -- (258,649)
Reserve arising on
granting common stocks
and options to employees
but not yet allotted and
exercised respectively.. -- -- -- 586,201 -- -- 586,201
Dividend paid on
mandatorily redeemable
preference shares....... -- -- -- -- (240,000) -- (240,000)
Foreign currency
translation adjustment.. -- -- -- -- -- (255,302) (255,302)
---------- -------- ---------- ---------- ----------- -------- -----------
Balance, April 30, 1999 12,733,065 $127,331 $4,158,390 $1,210,922 $23,695,393 $231,208 $29,423,244
========== ======== ========== ========== =========== ======== ===========
9
TIR (HOLDINGS) LIMITED
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended April 30, 1999, 1998 and 1997 (continued)
Note:
(a) During the period from May 1, 1996 to April 30, 1999, the Company has
issued shares to and repurchased shares from employees and directors.
Details of the stock purchase plan are contained in Note 16.
(b) During the period from May 1, 1996 to April 30, 1999, various parties have
exercised their options to acquire shares in the Company. Details of these
options are contained in Note 17.
(c) In accordance with the Agreement for the Subscription of Shares in TIR
(Holdings) Limited dated October 31, 1995, the Company has issued shares
to and repurchased shares from a non-employee shareholder to maintain
their shareholding at 4.9% of the issued common stocks of the Company.
To meet the regulatory requirements of a subsidiary, the Company has
repurchased shares from a non-employee shareholder to bring their
shareholding below 10% of the issued common stocks of the Company. The
Company has agreed to reissue any shares so repurchased to that non-
employee shareholder at the repurchase price provided that the 10%
threshold is not breached.
The accompanying notes to these consolidated financial statements are an
integral part hereof.
10
TIR (HOLDINGS) LIMITED
Consolidated Statements of Cash Flows
For the Years Ended April 30, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ -----------
US$ US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 4,754,264 $ 4,261,622 $ 4,608,281
Adjustments to reconcile net income to
net cash
provided by/(used in) operating
activities:
Depreciation and amortization....... 737,499 621,131 665,516
Loss on disposal of fixed assets.... 8,368 505 9,603
Foreign currency translation
adjustment......................... (257,388) 28,524 39,106
Issuance of stock compensation...... 586,201 1,458,292 818,923
Equity in loss of joint venture..... 258,314 352,163 17,088
Changes in assets and liabilities:
Receivables from correspondent
brokers and dealers.............. (23,770,817) 14,536,936 (1,521,479)
Receivables from clients.......... (18,731,317) 6,134,748 (168,800)
Payables to clients............... 22,689,106 (3,153,890) (6,209,658)
Payables to brokers and dealers... 23,570,934 (12,255,665) 760,866
Deferred research/services
expense.......................... (304,948) 1,861,482 (2,376,694)
Other receivables, deposits and
prepayments...................... (2,062,083) 767,283 (2,637,922)
Accrued research/services
payable.......................... 539,743 3,273,541 (1,443,732)
Taxation.......................... 913,164 711,352 98,027
Accounts payable and accruals..... (856,836) (6,333,543) 7,203,533
------------ ------------ -----------
Net cash provided by/(used in)
operations........................... 8,074,204 12,264,481 (137,342)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint venture......... (633,404) (556,251) (334,336)
Receivables from directors.......... -- -- (3,000,000)
Investment in securities............ (1,096,033) -- --
Purchase of subsidiary (net of cash
acquired).......................... (300,000) -- --
Acquisition of exchange seat........ (293,720) (32,192) (218,341)
Purchase of equipment, furniture and
leasehold improvements............. (1,097,583) (822,199) (746,063)
Sales proceeds on disposals of
equipment.......................... 17,443 -- 1,529
------------ ------------ -----------
Net cash used in investing
activities........................... (3,403,297) (1,410,642) (4,297,211)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid...................... (240,000) (240,000) (240,368)
Loan from a shareholder............. -- -- 3,000,000
Addition/(repayment) of obligations
under capital leases............... 22,061 (12,094) (24,143)
Issuance of share capital........... 540,754 26,408 92
Repurchase of share capital......... (536,949) (1,476,531) (1,066,678)
Repurchase of stock options......... (66,363) (117,401) (98,937)
Bank overdrafts..................... (325,450) 846,039 (10,427)
------------ ------------ -----------
Net cash (used in)/provided by
financing activities................. (605,947) (973,579) 1,559,539
------------ ------------ -----------
Net increase/(decrease) in cash and
cash equivalents..................... 4,064,960 9,880,260 (2,875,014)
Cash and cash equivalents at the
beginning of year.................... 31,237,017 21,356,757 24,231,771
------------ ------------ -----------
Cash and cash equivalents at the end
of year.............................. $ 35,301,977 $ 31,237,017 $21,356,757
============ ============ ===========
Supplemental disclosure of cash flow
information:
Interest paid--to shareholder....... $ 243,333 $ 234,667 $ 140,000
- --to others........................... $ 228,823 $ 289,854 $ 255,650
Taxes paid.......................... $ 514,108 $ 256,080 $ 387,495
11
TIR (HOLDINGS) LIMITED
Consolidated Statements of Cash Flows
For the Years Ended April 30, 1999, 1998 and 1997 (continued)
Acquisition of subsidiary
On May 1, 1998, Marquette Securities, Inc. ("Marquette") made a US$313,422
distribution to its former stockholder, representing the net assets of
Marquette at such date. Concurrent with the distribution, Marquette was
acquired by a subsidiary company of the Company for US$300,000. The acquisition
was recorded under the purchase method of accounting. The US$300,000 excess of
the purchase price over the fair value of the assets and liabilities remaining
in Marquette was recorded as a goodwill in these consolidated financial
statements.
The accompanying notes to these consolidated financial statements are an
integral part hereof.
12
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements
For the Years Ended April 30, 1999, 1998 and 1997
1 Nature of operations
TIR (Holdings) Limited (the Company) was incorporated in 1990 in Cayman
Islands with limited liability. Through its wholly-owned subsidiary companies,
the Company mainly provides global securities brokerage and other related
services to institutional clients. The Company's subsidiary companies also
provide consultancy services for investment management in relation to the
financial services industry. However, the income earned from these activities
is insignificant to the Company.
2 Significant accounting policies
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of consolidated revenues and
expenses during those periods. Actual results could differ from those
estimates.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
following is a summary of significant accounting policies followed by the
Company in the preparation of its consolidated financial statements:
(a) Principles of consolidation
The accompanying financial statements include the accounts of the Company
and its subsidiary companies. All material intercompany accounts and
transactions have been eliminated in consolidation.
(b) Revenue recognition
Securities transactions and the related revenues and expenses are recorded
on a trade date basis.
Independent research and directed brokerage arrangements are accounted for
on an accrual basis in accordance with generally accepted accounting
principles. Commission revenue is recorded when earned on a trade date basis.
Research receivables represent amounts paid by the Company to third parties
that provide various services to clients of the Company related to research on
and information about securities markets, under supply of service contracts
between the third parties and the clients. Under an arrangement, each client is
expected to place commission generating business with the Company which will
generate commission income of an amount equal to a specified multiple applied
to the research expenses paid.
Research expenses paid for a client are amortized to the Statements of
Income according to the inverse of the specified multiple applied to commission
income earned from that client. In the event that a client is unable to
generate sufficient commission to cover the amount of the receivable, the
Company expects to recover the outstanding amount in cash.
Research payables represent liabilities in respect of research services due
to clients of the Company.
Interest income is recognised on a time proportion basis, taking into
account the principal amounts outstanding and the interest rates applicable.
13
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
2 Significant accounting policies--(continued)
(c) Furniture, equipment and leasehold improvements
Fixed assets are stated at cost less accumulated depreciation. Depreciation
is provided to write off the cost of fixed assets over their estimated useful
lives using the straight line method, at the following rates per annum:
Furniture and fixtures................................................... 20%
Computer and office equipment............................................ 20%
Leasehold improvements................................................... 20%
Fixed assets held under capital leases are depreciated using the straight
line method over the shorter of the respective lease terms and their estimated
useful lives.
(d) Goodwill
Goodwill represents the excess of the purchase price of acquired companies
over the fair value of the net assets acquired. Goodwill is amortized on a
straight-line basis over the estimated 15 year life of the benefits received.
Annually, the Company reviews and adjusts the carrying value of goodwill if
the facts and circumstances suggest goodwill may be impaired. If this review
indicates goodwill may not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the carrying value of goodwill will be reduced by the estimated
shortfall in cash flows.
In fiscal year 1999 the Company acquired all of the common stocks of
Marquette Securities, Inc. This acquisition would not have had a material
effect on the results of operations of the Company for the years ended April
30, 1999 and 1998 had it been acquired at the beginning of fiscal year 1998.
(e) Translation of foreign currencies
The Company's reporting and functional currency is the U.S. dollar. The
Company operates in several overseas markets and subsidiary companies or joint
venture in these markets have functional currencies other than the U.S. dollar,
including pounds sterling, the Hong Kong dollar, the Australian dollar,
Japanese yen and Philippine peso.
Assets and liabilities of subsidiary companies and joint venture with
functional currencies other than the U.S. dollar are translated at year-end
rates of exchange, and revenues and expenses are translated at average rates of
exchange during the year, which approximate actual rates on the transaction
dates. The resulting foreign currency translation adjustments are reflected in
the Company's Statements of Comprehensive Income and are accumulated in a
separate component of stockholders' equity in the Company's Statements of
Financial Condition.
(f) Cash and cash equivalents
For purposes of the Statements of Cash Flows, the Company considers money
market funds and certificates of deposit with maturities of three months or
less when acquired to be cash equivalents.
14
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
2 Significant accounting policies--(continued)
(g) Income tax
The Company uses the asset and liability method in providing for income
taxes on all transactions that have been recognized in the consolidated
financial statements. The asset and liability method requires that deferred
taxes be adjusted to reflect the taxes at which future taxable amounts will be
settled and realized. The effects of tax rate changes on future deferred tax
liabilities and deferred tax assets, as well as other changes in income tax
laws, are recognized in net earnings in the period such changes are enacted.
Valuation allowances against deferred tax assets are established when it is
considered more likely than not that the assets will not be realized.
(h) Receivables from and payables to clients, brokers and dealers
Receivables from and payables to clients represent amounts due on cash
securities transactions.
Receivables from correspondent brokers and dealers represent net commissions
earned and other brokerage transactions earned but not yet paid. All
receivables from correspondent brokers and dealers are considered fully
collectible; therefore, no provision for uncollectibles is required. Payables
to brokers and dealers represent amounts due for execution and settlement of
clients' transactions.
(i) Investments
Unlisted investments held on a long term basis are stated at cost less
provision for diminution where the Company considers that there has been an
other than temporary impairment in value.
Listed investments designated as available-for-sale, are carried at fair
value with unrealised gains or losses included as a component of accumulated
comprehensive income, net of applicable taxes.
(j) Joint venture
The investment in joint venture is held for the long term and is an
investment in which significant influence is exercised in its management. The
Company's interest in this entity is accounted for by the equity method.
(k) Leases
Leases are classified as capital leases where the leases substantially
transfer all the rewards and risks of ownership to the Company, in accordance
with the requirements of Statement of Financial Accounting Standards No.13.
Assets held under capital leases are capitalised at their fair value at the
date of acquisition. The corresponding lease commitments are shown as
obligations under capital leases. The finance costs which represent the
difference between the total lease commitments and the fair value of the assets
acquired are charged to the Statements of Income using the interest method over
the period of the respective leases.
All other leases are classified as operating leases and the rentals
applicable are charged to the Statements of Income on a straight line basis
over the lease term.
(l) Derivative financial instruments
Derivative financial instruments, which include foreign exchange forward
contracts and foreign currency option contracts, are used in the Company's risk
management of foreign currency and risk exposures of its financial assets and
liabilities.
15
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
2Significant accounting policies--(continued)
The Company purchases foreign currency option contracts, which, together
with the foreign exchange forward contracts, limit exposure to potential
losses, resulting from adverse changes in foreign currency exchange rates, on
anticipated net cash flows in foreign currencies.
The forward and option contracts are revalued at fair value and are recorded
in other receivables, deposits and prepayments in the Statements of Financial
Condition. Net unrealised gain or loss on forward and option contracts is
recognised in the Statements of Income.
(m) Stocks and stock options issued to employees as compensation
According to Accounting Principles Board Opinion No.25 ("APB No.25"), the
Company recognizes compensation in respect of stock issued to employees and
directors as compensation for services rendered based on the estimated fair
value of the stock on the grant date. Where stock granted is not allotted until
the employee or director has completed a specified period of service a portion
of the compensation expense is deferred as a deduction from stockholders'
equity and amortized over the vesting period. The estimated fair value of the
stock is determined by the executive board on a quarterly basis with reference
to the market prices of certain listed companies engaged in similar nature of
operations of the Company.
The Company recognizes compensation expense in respect of options to
purchase the Company's stock issued to employees and directors using the
intrinsic value method prescribed by APB No.25. Under that method compensation
expense is recognized and amortized over the vesting period, based on the
difference between the exercise price of the option and the estimated fair
value of the Company's stock on the grant date.
In accordance with the provisions of Statement of Financial Accounting
Standards No.123 ("SFAS No.123"), the Company discloses the pro forma effect
that recognition of compensation expense based on the fair value of the stock-
based awards issued would have on its net income.
(n) Recent pronouncements
Derivative instruments and hedging activities
In June 1998, the Financial Accounting Standard Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". This standard,
which is effective for fiscal years beginning after June 15, 2000, requires all
derivatives to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. The resultant unrealized gain
or loss is recognized either in income or comprehensive income, depending on
whether the transaction qualifies as a hedge in accordance with the provisions
of the standard. Unrealized gains or losses on certain of the Company's hedges
of anticipated transactions, which are currently included in income on the
basis that they do not qualify for hedge accounting under current accounting
standards, may be included in comprehensive income upon implementation of
SFAS 133.
3 Cash and cash equivalents
Bank balances of US$3,500,000 (1998: US$3,500,000) held by the Company have
been pledged to the Standard Chartered Bank, Hong Kong branch in respect of
banking facilities granted to the Company and its subsidiary companies.
Bank balances of US$7,200,000 and US$2,146,160 (1998: US$6,835,000 and Nil)
held by Carswell--T.I.R. Limited, a subsidiary of the Company, have been
pledged to the Sumitomo Bank, Tokyo branch for banking facilities and S-E-
Banken for securities borrowing respectively.
16
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
4 Equipment, furniture and leasehold improvements
Equipment, furniture and leasehold improvements are summarized as follows:
1999 1998
---------- ----------
US$ US$
Owned assets
Computer and office equipment....................... 2,651,242 2,323,985
Furniture and fixtures.............................. 352,994 250,660
Leasehold improvements.............................. 668,125 602,228
---------- ----------
Total............................................... 3,672,361 3,176,873
Less: Accumulated depreciation...................... (1,643,026) (1,477,869)
---------- ----------
2,029,335 1,699,004
---------- ----------
Leased assets
Computer and office equipment....................... 116,627 117,107
Less: Accumulated depreciation...................... (59,820) (85,293)
---------- ----------
56,807 31,814
---------- ----------
Total............................................... 2,086,142 1,730,818
========== ==========
5 Commitments
(a) Obligations under leases
The Company leases computer and office equipment, under capital lease
agreements. In addition, the Company has non-cancellable operating lease
agreements (with initial terms in excess of one year). The following is a
schedule of future minimum lease payments for capital and non-cancellable
operating leases (with initial terms in excess of one year) as of April 30,
1999:
Capital Operating
leases leases
------- ---------
Year ending April 30: US$ US$
2000...................................................... 17,464 1,424,621
2001...................................................... 17,464 1,165,746
2002...................................................... 17,464 542,147
2003...................................................... 14,720 487,498
2004...................................................... 10,877 489,923
Thereafter................................................ 5,438 466,003
------- ---------
Total minimum lease payments.............................. 83,427 4,575,938
=========
Less: amount representing interest........................ (14,858)
-------
Present value of minimum lease payments................... 68,569
=======
Total rent expense was approximately US$624,486, US$462,673 and US$633,624
for the years ended April 30,1999, 1998 and 1997, respectively.
17
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
6 Net capital and reserve requirements
The Company's brokerage subsidiary companies are subject to various net
capital requirements. These are summarised as follows:
(a) TIR Securities, Inc. is subject to the Uniform Net Capital Rule
("Rule 15c3-1") under the Securities Exchange Act ("SEC") of 1934. This rule
requires that TIR Securities, Inc. maintains net capital of the greater of
$5,000 or 6.67% of aggregate indebtedness, as defined. Rule 15c3-1 also
requires that the ratio of aggregate indebtedness to net capital shall not
exceed 15 to 1. TIR Securities, Inc. is also subject to the Commodity Futures
Trading Commission ("CFTC") Regulation 1.17 which requires the maintenance of
net capital of 4% of the funds required to be segregated in accordance with
Section 4d(2) of the Commodities Exchange Act or $30,000, whichever is greater.
TIR Securities, Inc. is required to maintain net capital in accordance with
Rule 15c3-1 or CFTC Regulation 1.17 whichever is greater. At April 30, 1999,
the ratio of aggregate indebtedness to net capital was 0.92 to 1.
(b) TIR Investor Select, Inc. is subject to the SEC's Uniform Net Capital
Rule ("Rule 15c3-1") which requires the maintenance of minimum net capital, as
defined, equal to the greater of $5,000 or 6.67% of aggregate indebtedness, as
defined. Rule 15c3-1 also requires that the ratio of aggregate indebtedness to
net capital shall not exceed 15 to 1. At April 30, 1999, the ratio of aggregate
indebtedness to net capital was 1 to 1.
(c) Marquette Securities, Inc. is subject to the SEC's Uniform Net
Capital Rule ("Rule 15c3-1") which requires the maintenance of minimum net
capital, as defined, equal to the greater of $250,000 or 6.67% of aggregate
indebtedness, as defined. Rule 15c3-1 also requires that the ratio of aggregate
indebtedness to net capital shall not exceed 15 to 1. At April 30, 1999, the
ratio of aggregate indebtedness to net capital was 0.43 to 1.
(d) TIR Securities (Australia) Limited is required to maintain minimum
net capital equal to 5% of aggregate indebtedness.
(e) Carswell--T.I.R. Limited's Tokyo office is required to maintain a
capital adequacy ratio of 140% or above. The capital adequacy ratio is defined
as the ratio of actual capital over total risk amounts.
Carswell--T.I.R. Limited's United Kingdom office is required to maintain
minimum capital calculated as the sum of the Primary Requirement and Secondary
Requirement. The Primary Requirement is the higher of (i) the sum position risk
requirement, counterparty risk requirement, foreign exchange risk requirement,
large exposure requirement, base requirement; and (ii) initial capital
requirement of Euro730,000 (US$774,310). The Secondary Requirement only applies
if a firm has exposure to illiquid assets of greater than 25% of original own
funds in aggregate or an individual illiquid asset of more than 10% of original
own funds. The Secondary Requirement is not applicable to Carswell--T.I.R.
Limited's United Kingdom office in this case.
(f) TIR Securities Ireland Limited is required to maintain minimum
capital calculated as the higher of (i) the sum of position risk requirement,
underwriting risk requirement, settlement and counterparty risk requirement,
large exposures requirement, foreign exchange risk requirement and non trading
book requirement; and (ii) expenditure requirement. In addition, the sum of the
Company's share capital, share premium, capital reserves and audited revenue
may never fall below IEP105,000 (US$141,414).
(g) TIR Securities Limited and TIR Securities (Hong Kong) Limited are
required to maintain liquid capital of the greater of HK$3,000,000 (US$387,074)
or 5% of the average quarterly liabilities.
18
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
6 Net capital and reserve requirements--(continued)
The table below summarizes the minimum capital requirements for each
brokerage subsidiary:
Minimum Actual capital
required As at April 30, Excess of
Name of subsidiary capital 1999 Requirement
------------------ -------- --------------- -----------
US$ US$ US$
TIR Securities, Inc................... 93,395 1,521,028 1,427,633
TIR Investor Select, Inc.............. 8,682 130,310 121,628
Marquette Securities, Inc............. 250,000 378,729 128,729
TIR Securities (Australia) Limited.... 943,700 3,587,254 2,643,554
Carswell--T.I.R. Limited
-- United Kingdom office............. 2,726,907 5,524,684 2,797,777
-- Tokyo office...................... 3,242,971 5,211,918 1,968,947
TIR Securities Ireland Limited........ 141,414 4,609,682 4,468,268
TIR Securities Limited................ 387,074 843,306 456,232
TIR Securities (Hong Kong) Limited.... 695,314 1,857,053 1,161,739
7 Retirement plans
(a) TIR (US) Holdings, Inc. maintains a 401(k) profit-sharing plan (the
"Plan") covering substantially all regular employees of TIR Securities, Inc.
The contributions of TIR Securities, Inc. to the Plan are based upon a
percentage of employees' contributions. Contributions were approximately
US$29,487 for 1999, US$30,705 for 1998 and US$55,759 for 1997.
(b) TIR Securities (Australia) Limited has a defined contribution plan
covering substantially all of its regular employees. Its contributions under
this plan are made fixed at 7% of basic salaries. Contributions were
approximately US$29,067 for 1999,US$15,745 for 1998 and US$6,518 for 1997.
(c) Carswell--T.I.R. Limited has defined contribution plans covering
substantially all of its regular employees. Its contributions under these plans
are made fixed at 3% and 5% of basic salaries for employees in the United
Kingdom and Tokyo respectively. Total contributions were approximately
US$77,413 for 1999, US$85,695 for 1998 and US$16,452 for 1997.
(d) TIR Securities (Ireland) Limited has a defined contribution plan
covering substantially all of its regular employees. Its contributions under
this plan are made fixed at 3% of basic salaries with discretion for management
to exceed. Contributions were approximately US$14,407 for 1999, US$13,919 for
1998 and US$10,031 for 1997.
(e) TIR Securities Limited, TIR Securities (Hong Kong) Limited and TIR
Services Asia Limited together have a defined contribution plan covering
substantially all of their regular employees. The total contributions under
this plan are made fixed at 3% of basic salaries. Contributions were
approximately US$35,585 for 1999, US$50,199 for 1998 and US$30,324 for 1997.
8 Off balance sheet risk and concentration of credit risk
TIR Securities, Inc., Carswell--T.I.R. Limited, TIR Securities Ireland
Limited, TIR Securities (Australia) Limited, TIR Securities Limited and TIR
Securities (Hong Kong) Limited are securities broker-dealers engaged in various
trading and brokerage activities on behalf of institutional clients, including
insurance companies, pension plans, mutual funds, limited partnerships and
other financial institutions on an agency and riskless
19
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
8 Off balance sheet risk and concentration of credit risk--(continued)
principal basis only. Their exposure to off balance sheet credit risk occurs in
the event a client, clearing agent or counterparty does not fulfill its
obligations arising from a transaction. The Company has an agreement with its
clearing agent that provides that it is obligated to assume any of the clearing
agent's losses related to the non-performance of its clients. These companies
each monitor client brokerage activity by reviewing information received from
their clearing agents on a daily basis.
9 Financial instruments
The Company has certain financial instruments including financial assets and
liabilities and off-balance-sheet financial instruments arising in the normal
course of business. In applying a consistent risk management strategy, the
Company manages the exposure to market rate movements of its financial assets
and liabilities through the use of derivative financial instruments which
include foreign exchange forward contracts and foreign currency option
contracts used to hedge anticipated cash flows in currencies other than the
U.S. dollar. These instruments are executed with creditworthy financial
institutions, and virtually all foreign currency contracts are denominated in
U.S. dollars, euros, pounds sterling, Japanese yen and other currencies of
major countries. Although the Company may be exposed to losses in the event of
non-performance by counterparties or currency rate movements, it does not
anticipate significant losses due to the nature of its counterparties or the
hedging arrangements.
Following are explanatory notes regarding the financial assets and
liabilities and off-balance-sheet financial instruments:
Cash and cash equivalents and time deposits
In the normal course of business, substantially all cash and cash
equivalents and time deposits are highly liquid and are carried at amounts
which approximate fair value.
Loans to directors
Loans to directors are repayable on demand (Note 14) and therefore they are
considered as highly liquid and are carried at amounts which approximate fair
value.
Short-term borrowings and long-term debt
The fair values of short-term borrowings and long-term debt were estimated
based on the discounted amounts of future cash flows using market rates for
similar liabilities. The carrying amounts and fair values are summarised as
follows:
Carrying Fair
amount value
--------- ---------
US$ US$
Loans from directors..................................... 3,000,000 2,758,621
Loan from a shareholder.................................. 3,000,000 2,448,851
--------- ---------
6,000,000 5,207,472
========= =========
20
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
9 Financial instruments--(continued)
Derivative financial instruments
The Company utilizes foreign exchange forward contracts and foreign
currency option contracts primarily to fix the cash flow value resulting from
anticipated future transactions denominated in foreign currencies. The
majority of foreign exchange forward contracts mature within twelve months.
The contracted amounts of such contracts outstanding at April 30, 1999 and
1998 were US$9,600,349 and US$2,118,564, respectively. The fair values of
these contracts of US$103,923 and US$151,845 at April 30, 1999 and 1998,
respectively, were estimated based on market quotations.
The Company has entered into purchased foreign currency option contracts in
the notional principal amounts of US$5,411,751 and nil at April 30,1999 and
1998, respectively. The fair values of such foreign currency options of
US$249,913 and nil at April 30, 1999 and 1998, respectively, were estimated
based on the Black Scholes model. These options, together with the foreign
exchange forward contracts, are used to hedge anticipated net cash flows in
foreign currencies.
The Company's derivative financial instruments are carried at fair value in
the Statements of Financial Condition.
10 Joint venture
Note 1999 1998
---- --------- --------
US$ US$
Investment cost.................................... (a) 600 600
Loan to joint venture.............................. (b) 600,000 300,000
Amount due from joint venture...................... (c) 923,391 589,987
--------- --------
1,523,991 890,587
Share of losses.................................... (627,565) (369,251)
--------- --------
896,426 521,336
========= ========
(a) The joint venture represents a 50% interest in TIR Currency
Management Limited ("TCML") which is incorporated in the Cayman Islands. The
principal activity of the joint venture is investing in a wholly owned
subsidiary which provides currency advisory and management services to
customers.
(b) The loan to joint venture is unsecured and bears interest at 8% per
annum. Pursuant to the joint venture deed dated February 3, 1997, the loan
will be capitalised by issuing 8% cumulative redeemable preference shares of
US$1 each in the capital of TCML repayable in three years, upon receiving all
necessary approvals from the Investment Management Regulatory Organisation
Limited ("IMRO") and/or the Securities and Futures Authority Limited ("SFA")
for carrying out its business within the United Kingdom.
(c) The amount due from joint venture is unsecured, interest free and
has no fixed terms of repayment.
(d) The Company has committed to provide financial support to the joint
venture. 50% of the joint venture's losses were fully shared by the Company at
April 30, 1999 and 1998.
21
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
11 Income taxes
The Company accounts for income taxes using the liability method prescribed
under Statement of Financial Accounting Standards ("SFAS") No.109, Accounting
for Income Taxes. Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end. The primary
differences are deferred compensation charges and unrealized losses and gains
on investments.
Income from operations before provision for taxes on income consists of:
1999 1998 1997
--------- --------- ---------
US$ US$ US$
Cayman Islands................................. 5,751,274 2,494,638 3,468,262
Foreign........................................ 436,685 2,734,416 1,625,541
--------- --------- ---------
6,187,959 5,229,054 5,093,803
========= ========= =========
The provision for taxes on income from operations consists of:
1999 1998 1997
--------- --------- ---------
US$ US$ US$
Current tax expenses
Cayman Islands.............................. -- -- --
Foreign..................................... 1,534,896 967,566 485,522
--------- --------- ---------
Total current provision..................... 1,534,896 967,566 485,522
--------- --------- ---------
Over provision in prior year
Foreign.................................... (101,201) (134) --
--------- --------- ---------
(101,201) (134) --
--------- --------- ---------
Total provision............................. 1,433,695 967,432 485,522
========= ========= =========
Deferred tax assets consist of the following:
1999 1998 1997
--------- --------- ---------
US$ US$ US$
Deferred tax assets
Loss carry-forwards......................... 488,459 105,585 309,663
Less: valuation allowance................... (488,459) (105,585) (309,663)
--------- --------- ---------
Net deferred taxes receivable............... -- -- --
========= ========= =========
The provision for taxes on income for the years ended April 30, 1999, 1998
and 1997 differed from the amount computed by applying the statutory income tax
rate of 0% as follows:
1999 1998 1997
--------- --------- ---------
US$ US$ US$
Computed tax provision......................... -- -- --
Differential on foreign tax rates.............. 1,253,686 838,456 451,359
Others......................................... 180,009 128,976 34,163
--------- --------- ---------
Total.......................................... 1,433,695 967,432 485,522
========= ========= =========
Effective tax rate............................. 23% 19% 10%
========= ========= =========
22
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
12 Short-term borrowings
The Company maintains overseas banking facilities as follows:
(a) There is an overdraft facility of US$4,000,000 entered into in Hong
Kong by the Company, which bears a variable interest rate based upon current
market rates in Hong Kong and New York. No amount was due under this facility
at April 30, 1999 and US$47,284 was due at April 30, 1998. The Company also
maintains a US$10,750,000 foreign exchange line for normal business trading
operations under this credit facility. The amount due under this facility was
US$404,606 at April 30, 1999 and no amount was due at April 30, 1998.
In addition, the Company maintains a (Pounds)5,000,000 (US$8,054,000)
foreign exchange line (calculated at risk) and a maximum daily settlement limit
of (Pounds)15,000,000 (US$24,160,000) in the United Kingdom. Foreign exchange
forward contracts were entered into under this facility and the contracted
amounts of such contracts outstanding at April 30, 1999 and 1998 were
US$9,600,349 and US$2,118,564 respectively.
(b) A facility of SEK20,000,000 (approximately US$2,385,000) covering
both securities borrowing and overdraft and a maximum outstanding trade limit
of SEK50,000,000 (approximately US$5,961,700) are maintained by Carswell--
T.I.R. Limited in the United Kingdom. The securities borrowing facility bears a
fixed annual interest rate of 3%. The amount due under the securities borrowing
facility was US$520,666 at April 30, 1999 and no amount was due at April 30,
1998.
In addition, there is an overdraft facility of YEN600,000,000 (approximately
US$5,036,700) entered into by Carswell--T.I.R. Limited in Japan, which bears at
variable rate of interest based upon current market rates in Japan. No amounts
were due under these facilities at April 30, 1999 and April 30, 1998.
(c) An overdraft facility of AUD$8,000,000 (approximately US$5,272,000)
and an overdraft intra day settlement limit of AUD$20,000,000 (approximately
US$13,180,500) are entered into by TIR Securities (Australia) Limited in
Australia. The overdraft facility bears a variable rate of interest based upon
current market rates in Australia. No amounts were due under this facility at
April 30, 1999 and April 30, 1998.
(d) There is an overdraft facility of US$1,000,000 entered into by TIR
Securities Ireland Limited in Singapore, which bears a variable interest rate
based upon current market rates in Singapore. In addition, TIR Securities
Ireland Limited maintains a US$2,200,000 and US$1,800,000 foreign exchange line
in Singapore and Bangkok respectively. No amounts were due under these
facilities at April 30, 1999 and April 30, 1998.
(e) There is an overdraft facility of US$20,000,000 entered into by TIR
Securities Limited in Hong Kong, which bears a variable interest rate based
upon current market rates in Hong Kong. No amount was due under this facility
at April 30,1999 and US$798,832 was due at April 30, 1998.
(f) There is a bank facility entered into by TIR Securities (Hong Kong)
Limited in Hong Kong, which maintains a US$60,000 foreign exchange line and a
maximum daily settlement limit of US$600,000 for outstanding contracts on any
value date. No amounts were due under this facility at April 30,1999 and
April 30, 1998.
23
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
13 Mandatorily redeemable preference shares
1999,
1998 and
1997
---------
US$
Authorized:
5,000 8% cumulative redeemable "A" preference shares of US$1
each............................................................ 5,000
6,000,000 8% cumulative redeemable "B" preference shares of US$1
each............................................................ 6,000,000
---------
6,005,000
=========
Issued and fully paid:
3,000,000 8% cumulative redeemable "B" preference shares of US$1
each............................................................ 3,000,000
=========
On April 30, 1996, 3,000,000 cumulative redeemable "B" preference shares
were issued at par value which are redeemable at par value from time to time
with not less that one month's prior notice or, if not previously redeemed, on
April 30, 2001.
Dividend payments are included within retained earnings.
14 Loans to/from directors
Loans receivable from directors are unsecured, bear interest at 6% per annum
and are wholly repayable on April 20, 2000 or at call on 45 days' notice. The
Company has a legal right to set off against the loans payable to directors.
Loans payable to directors are unsecured, bear interest at 6% per annum and
are wholly repayable at call on one month notice on or after April 12, 2000.
15 Loan from a shareholder
The loan is unsecured, wholly repayable on September 30, 2001 and bears
interest at 8% per annum.
16 Stock purchase plan
The Company has encouraged employee participation in the capital of the
Company by inviting directors and employees to purchase shares and by granting
shares as bonuses. In certain cases, the Company invites directors and
employees to purchase shares by allowing them to select the settlement of their
compensation for the services provided in the form of cash, stocks allotments
or stock options (see category 3 in Note 17). Where shares are granted as
bonuses, they are vested over a three-year period.
In accordance with the Memorandum and Articles of Association of the
Company, an employee shall, upon the termination of employment with the Company
or its subsidiary companies, be deemed to have given a Transfer Notice (an
offer to sell the common stocks) to the Company in respect of all common stocks
held by the employee. The Company may accept and agree to repurchase within 14
days after receipt of the Transfer Notice. The price per sale share is the
prevailing market value as determined by the Executive Board of the Company for
the calendar quarter in which the date of such termination of employment falls.
The Company has exercised its rights under these terms to repurchase shares
from employees who have left the Company during the period from May 1, 1996 to
April 30, 1999.
24
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
17 Stock options
The Company issues options under the following categories:
Category 1
Options were issued to certain directors, employees and non-employee
shareholders in return for providing the past year's services beyond the normal
scope of their duties, including the provision of personal guaranties in
respect of bank borrowings by the Company. No such options were granted in the
three years ended April 30, 1999.
Category 2
Options were issued to members of the Company's executive group on the
achievement of certain objectives for past year's services. No such options
were granted in the three years ended April 30, 1999.
Category 3
Options to repurchase shares of stock at $.01 per share were issued to
employees of the Company in lieu of cash compensation. Compensation expense was
recorded for the intrinsic value of the options granted.
Category 4
Options were issued to senior employees on joining the Company as an
incentive to integrate with their colleagues, to assist in growing the business
and to participate in the Company's success. In such cases, the measurement
date for determining compensation expense is the vesting date. The vesting
period of the options granted is different from case to case (6 months to 3
years) depending on the terms agreed in the employment contract. In certain
cases, the content of the employment contract requires the achievement of
performance criteria based on mutually agreed budgeted targets for the options
to be vested. In all cases, the employees are required to be in the employment
of the Company at the time of vesting.
25
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
17 Stock Options--(continued)
Stock option activities during the periods are as follows:
Category 1 Category 2 Category 3
(exercise price of US$1.75) (exercise price of US$1.30) (exercise price of US$0.01)
------------------------------- -------------------------------- ---------------------------
Non-employee Non-employee
Director shareholders Director Employee shareholders Director Employee
-------------- --------------- -------- -------- ------------ ------------- -------------
At April 30,
1996........... 102,850 45,710 199,000 12,000 12,000 26,160 178,920
Granted......... -- -- -- -- -- 10,080 117,908
Exercised....... -- (20,000) -- -- -- -- --
Repurchased..... -- -- -- -- -- -- (29,543)
-------------- ------------- -------- ------- ------- ------------- -------------
At April 30,
1997........... 102,850 25,710 199,000 12,000 12,000 36,240 267,285
Granted......... -- -- -- -- -- 7,720 51,475
Exercised....... -- -- -- -- (12,000) -- --
Repurchased..... -- -- -- -- -- -- (36,720)
Expired......... -- -- -- (12,000) -- -- --
-------------- ------------- -------- ------- ------- ------------- -------------
At April
30,1998........ 102,850 25,710 199,000 -- -- 43,960 282,040
Granted......... -- -- -- -- -- -- 73,692
Exercised....... (102,850) (25,710) (199,000) -- -- (43,960) --
Repurchased..... -- -- -- -- -- -- (33,900)
Expired......... -- -- -- -- -- -- --
-------------- ------------- -------- ------- ------- ------------- -------------
At April 30,
1999........... -- -- -- -- -- -- 321,832
============== ============= ======== ======= ======= ============= =============
Category 4
(various exercise prices
from US$3.5 to US$5.4)
-----------------------------
Weighted
average
Employee price US$ Total
--------------- ------------- ---------
At April 30,
1996........... -- -- 576,640
Granted......... 27,000 4.04 154,988
Exercised....... -- -- (20,000)
Repurchased..... -- -- (29,543)
--------------- ------------- ---------
At April 30,
1997........... 27,000 4.04 682,085
Granted......... 125,000 5.17 184,195
Exercised....... -- -- (12,000)
Repurchased..... -- -- (36,720)
Expired......... -- -- (12,000)
--------------- ------------- ---------
At April
30,1998........ 152,000 4.97 805,560
Granted......... 19,950 4.43 93,642
Exercised....... (55,150) 4.09 (426,670)
Repurchased..... -- -- (33,900)
Expired......... (2,800) 4.50 (2,800)
--------------- ------------- ---------
At April 30,
1999........... 114,000 5.31 435,832
=============== ============= =========
26
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
17 Stock purchase plan--(continued)
Currently outstanding and exercisable options
Options Outstanding Options Exercisable
------------------------------- --------------------------
Weighted Weighted
Range of Number Weighted average average Number average
exercise prices outstanding contractual life exercise price exercisable exercise price
--------------- ----------- ---------------- -------------- ----------- --------------
US$0.01 321,832 2.16 years US$0.01 321,832 US$ 0.01
US$3.50--US$5.40 114,000 0.62 years US$5.31 61,000 US$ 5.25
Pro forma information regarding net income is required by SFAS No.123 and
has been determined as if the Company had accounted for its stock options under
the fair value method of SFAS No.123.
As the exercise prices of some options granted differ from the estimated
fair value of the stock on the grant date, the weighted average exercise prices
and the weighted average fair value of options granted during the period from
May 1, 1996 to April 30, 1999 are summarised as follows:
Weighted
average Weighted
exercise average
prices fair value
-------------- ---------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ----- ---- ----
US$ US$ US$ US$ US$ US$
Category 3
-- options with exercise price less than
estimated fair value of the stock on grant
date...................................... 0.01 0.01 0.01 4.58 5.13 3.29
Category 4
-- options with exercise prices less than
estimated fair value of the stock on grant
date...................................... 3.80 5.17 -- 0. 95 0.59 --
-- options with exercise prices exceed
estimated fair value of the stock on grant
date...................................... 4.70 -- 4.04 -- -- --
The fair value for these options was estimated at the date of grant using
the minimum value method with the following weighted-average assumptions for
1997, 1998 and 1999, respectively: risk-free interest rates of 3.75%, 4%-5.5%
and 3.84%-5.3%; dividend yields of 0%; and a weighted-average expected lives of
the options of 4 years.
For purpose of pro forma disclosure, the estimated fair value of the options
is amortized to expense over the options' vesting period. The pro forma
information is as follows:
1999 1998 1997
--------- --------- ---------
US$ US$ US$
Net income:
As reported.................................. 4,754,264 4,261,622 4,608,281
Pro forma results............................ 4,724,611 4,249,622 4,608,181
27
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
18 Related party transactions
The following is a summary of significant related party transactions which
were carried out in the normal course of the Company's business with a related
Company under common directorship.
1999 1998 1997
---------- ---------- ---------
US$ US$ US$
Commission income (Note a)................ 2,298,817 1,440,243 1,882,961
Research expenses (Note a)................ (1,167,474) (1,168,306) (959,466)
Occupancy expense (Note b)................ (165,079) (177,052) (165,825)
Note:
(a) The Company derived commission income from and paid research expenses
on securities transactions conducted with affiliates in the normal
course of business.
(b) A subsidiary leases office space from a related company under an
operating lease agreement which is on a month-to-month basis. The lease
terms include escalation clauses for real estate taxes and other
operating costs.
19 Segment reporting
The Financial Accounting Standards Board issued Statement of Financial
Standards No 131, "Disclosures about Segments of an Enterprise and Related
Information" to assist financial statement users in assessing the performance
of an enterprise, prospects for future cash flows, and to make informed
decisions about an enterprise.
The Company has four reportable operating segments: United States, Europe,
Japan, and South East Asia brokerages. The Company's brokerage segments provide
global securities brokerage and other services primarily to institutional
clients from its United States, and international (Europe, Japan and South East
Asia) brokerage operations. In attributing commission revenues to its brokerage
segments, the Company primarily relies on the geographic location of the
customer.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 2). The Company
evaluates the performance of its segments based upon trading revenues and
trading costs. The Company allocates its assets to its reportable segments
based on the gross profit of each segment.
28
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
19 Segment reporting--(continued)
The table below presents information about segments used by the Executive
Committee of the Company as of and for the years ended April 30, 1999, 1998,
and 1997
United South
States Europe Japan East Asia
Brokerage Brokerage Brokerage Brokerage Total
--------- --------- --------- --------- -------
US$'000 US$'000 US$'000 US$'000 US$'000
1999
Trading revenues from external
customers.................... 42,876 29,491 16,165 11,121 99,653
Trading costs................. 33,074 16,678 9,286 6,260 65,298
Gross profit.................. 9,802 12,813 6,879 4,861 34,355
Segment assets................ 35,559 46,482 24,955 17,634 124,630
1998
Trading revenues from external
customers.................... 26,489 25,971 17,494 17,359 87,313
Trading costs................. 19,131 14,999 10,969 10,130 55,229
Gross profit.................. 7,358 10,972 6,525 7,229 32,084
Segment assets................ 17,041 25,411 15,112 16,742 74,306
1997
Trading revenues from external
customers.................... 17,619 21,916 16,777 14,937 71,249
Trading costs................. 13,043 13,992 11,582 9,642 48,259
Gross profit.................. 4,576 7,924 5,195 5,295 22,990
Segment assets................ 17,462 30,237 19,824 20,205 87,728
29
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
19 Segment reporting--(continued)
Reconciliation of the Company's reportable segments to the consolidated
totals is as follows:
1999 1998 1997
------- ------- -------
US$'000 US$'000 US$'000
TRADING REVENUES
United States brokerage................................. 42,876 26,489 17,619
Europe brokerage........................................ 29,491 25,971 21,916
Japan brokerage......................................... 16,165 17,494 16,777
South East Asia brokerage............................... 11,121 17,359 14,937
Other revenue........................................... 2,146 510 2,425
------- ------ ------
101,799 87,823 73,674
======= ====== ======
TRADING COSTS
United States brokerage................................. 33,074 19,131 13,043
Europe brokerage........................................ 16,678 14,999 13,992
Japan brokerage......................................... 9,286 10,969 11,582
South East Asia brokerage............................... 6,260 10,130 9,642
------- ------ ------
Total................................................... 65,298 55,229 48,259
Overheads............................................... 31,379 28,039 20,913
------- ------ ------
Total expenses.......................................... 96,677 83,268 69,172
======= ====== ======
Operating income........................................ 5,122 4,555 4,502
Interest and investment income.......................... 1,066 674 592
------- ------ ------
Income before income taxes.............................. 6,188 5,229 5,094
======= ====== ======
SEGMENT ASSETS
United States brokerage................................. 35,559 17,041 17,462
Europe brokerage........................................ 46,482 25,411 30,237
Japan brokerage......................................... 24,955 15,112 19,824
South East Asia brokerage............................... 17,634 16,742 20,205
General corporate....................................... 3,263 2,252 1,865
------- ------ ------
Total................................................... 127,893 76,558 89,593
======= ====== ======
Trading revenue of US$18,277,882 was earned from a single customer in the
United States brokerage segment which accounted for greater than 10% of total
revenue for the year ended April 30, 1999. No one single customer accounted for
greater than 10% of revenues for the years ended April 30, 1998 and 1997.
30
TIR (HOLDINGS) LIMITED
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended April 30, 1999, 1998 and 1997
20. Earnings per share
The Financial Accounting Standard Board issued SFAS 128, "Earnings per
Share" with respect to financial statements issued for periods ending after
December 15, 1997. SFAS 128 simplifies the standards for computing and
presenting earnings per share ("EPS") previously found in APB Opinion No. 15,
"Earnings per Share." Basic earnings per share is calculated by dividing net
income by the weighted average number of common shares outstanding. Diluted
earnings per share is similar to basic, but adjusts for the effect of potential
common shares.
The following table presents the computations of basic and diluted earnings
per share:
1999 1998 1997
----------- ----------- -----------
Net income available to common
stockholders............................. $ 4,514,264 $ 4,021,622 $ 4,368,281
=========== =========== ===========
Weighted average shares outstanding....... 12,704,697 12,308,961 12,510,514
Effect of dilutive instruments
Stock options and stock purchase plan.... 385,301 576,767 476,722
----------- ----------- -----------
Total weighted average dilutive shares.... 13,089,998 12,885,728 12,987,236
=========== =========== ===========
Basic earnings per share.................. $ 0.36 $ 0.33 $ 0.35
=========== =========== ===========
Diluted earnings per share................ $ 0.34 $ 0.31 $ 0.34
=========== =========== ===========
The following stock options and nonvested shares under the stock purchase
plan were anti-dilutive and were not included in the calculation above:
1999 1998 1997
----------- ----------- -----------
Stock options............................. 104,000 110,000 27,000
Nonvested shares under stock purchase
plan..................................... 27,250 9,375 13,858
=========== =========== ===========
21 Subsequent events
(a) On May 28, 1999, a subsidiary made a US$1,250,000 investment in Strike
Technologies, LLP ("STRIKE"), a company which owns an electronic communication
network ("ECN"). Management anticipates making an additional US$1,250,000
investment in STRIKE in the near future. The combined investment would result
in an approximate 6.87% interest in STRIKE. The ECN is a crossing network used
to match clients' (focusing on international clients) trades.
(b) On July 12, 1999, an agreement was signed by and between E*TRADE Group,
Inc. ("E*TRADE") and TIR (Holdings) Limited ("TIR") in which E*TRADE will
exchange shares of its common stocks, with par value of US$0.01 per share, for
all issued and outstanding shares of TIR. The maximum number of shares of
E*TRADE to be issued shall be equal to that number of its shares determined by
dividing US$122,372,500 by the average of its closing bid price as quoted on
the Nasdaq National Market for the three consecutive trading days immediately
preceding the day prior to the Closing Date as defined in the agreement. The
acquisition is subject to the satisfaction of certain conditions, is expected
to close by August 31, 1999 and will be accounted for as a pooling of
interests.
31
PRO FORMA FINANCIAL INFORMATION
On July 12, 1999, E*TRADE Group, Inc. ("E*TRADE") entered into an agreement
with TIR (Holdings) Limited, a Cayman Islands company ("TIR"), pursuant to
which E*TRADE has agreed to acquire all of the outstanding ordinary shares of
TIR in exchange for an aggregate of approximately $122,372,500 of E*TRADE
common stock and TIR will become a wholly owned subsidiary of E*TRADE. The
amount of such consideration was determined based on arm's-length negotiations
between E*TRADE and TIR. The purpose of the acquisition is to build E*TRADE's
infrastructure by providing the first global cross-border trading network for
online investors and making trading in foreign securities accessible to retail,
corporate and institutional investors alike. The acquisition is subject to the
satisfaction of certain conditions and is intended to be accounted for as a
pooling of interests.
The following unaudited pro forma combined financial statements give effect
to the merger between E*TRADE and TIR. The unaudited pro forma combined balance
sheet of E*TRADE and TIR as of June 30, 1999 combines the unaudited balance
sheets of E*TRADE and TIR as of June 30, 1999. The unaudited pro forma combined
statements of operations of E*TRADE and TIR for the nine month periods ended
June 30, 1999 and 1998, and the fiscal years ended September 30, 1998, 1997 and
1996, give effect to the proposed merger as if the merger had been completed at
the beginning of the periods presented, as required under pooling of interests
accounting. TIR had a fiscal year that ended on April 30 of each year. For
purposes of the unaudited pro forma combined statements of operations, TIR's
statements of operations for the nine month periods ended June 30, 1999 and
1998, and the twelve month periods ended September 30, 1998, 1997 and 1996,
were derived from the unaudited monthly information of TIR for those periods.
This presentation is consistent with the years expected to be combined after
the date of the closing of the merger.
For purposes of the unaudited pro forma share and per share data
presentation, the TIR shares reflect the assumed conversion ratio of .39
E*TRADE shares for each share of TIR common stock outstanding. The assumed
conversion ratio of .39 E*TRADE shares was determined by applying E*TRADE's
closing share price on August 11, 1999 to the conversion factor as defined in
the purchase agreement between E*TRADE and TIR. The actual conversion ratio
will be determined at the time of closing, which is expected to occur by August
31, 1999.
In January 1999 and April 1999, E*TRADE issued two-for-one stock splits by
distributing one additional share of common stock for every share of common
stock outstanding to shareowners. Accordingly, all E*TRADE and pro forma share
and per share amounts have been restated to reflect the two-for-one stock
splits, as appropriate.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if these transactions had been consummated at the beginning
of the earliest period presented, nor is it necessarily indicative of future
operating results or financial position.
32
E*TRADE GROUP, INC. AND SUBSIDIARIES
Pro Forma Combined Balance Sheets
(in thousands, except share amounts)
(Unaudited)
June 30, 1999
-------------------------------
E*TRADE As Pro Forma
Reported TIR Combined
---------- -------- ----------
ASSETS
Current assets:
Cash and equivalents......................... $ 29,495 $ 30,780 $ 60,275
Cash and investments required to be
segregated under Federal or other
regulations................................. 5,005 -- 5,005
Investment securities........................ 280,047 1,805 281,852
Brokerage receivables--net................... 2,830,439 64,906 2,895,345
Other assets................................. 28,154 15,868 44,022
---------- -------- ----------
Total current assets....................... 3,173,140 113,359 3,286,499
Property and equipment--net.................... 97,585 2,107 99,692
Investments.................................... 556,142 1,732 557,874
Other assets................................... 5,803 400 6,203
---------- -------- ----------
Total assets............................... $3,832,670 $117,598 $3,950,268
========== ======== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities:
Brokerage payables........................... $2,587,729 $ 73,694 $2,661,423
Accounts payable, accrued liabilities and
other....................................... 255,735 10,981 266,716
---------- -------- ----------
Total liabilities.......................... 2,843,464 84,675 2,928,139
---------- -------- ----------
Mandatorily redeemable preferred securities.... -- 3,000 3,000
---------- -------- ----------
Shareowners' equity:
Common stock, $.01 par value; shares
authorized, 600,000,000; shares issued and
outstanding: June 1999, 238,772,420......... 2,338 50 2,388
Additional paid-in capital................... 737,693 5,600 743,293
Retained earnings (deficit).................. (17,905) 23,750 5,845
Accumulated other comprehensive income....... 267,080 523 267,603
---------- -------- ----------
Total shareowner's equity.................. 989,206 29,923 1,019,129
---------- -------- ----------
Total liabilities and shareowners'
equity.................................. $3,832,670 $117,598 $3,950,268
========== ======== ==========
33
E*TRADE GROUP, INC. AND SUBSIDIARIES
Pro Forma Combined Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Nine Months Ended Nine Months Ended
June 30, 1999 June 30, 1998
----------------------------- ------------------------------
E*TRADE Pro Forma E*TRADE Pro Forma
As Reported TIR Combined As Reported TIR Combined
----------- ------- --------- ----------- ------- ---------
Revenues:
Transaction revenues.. $256,911 $80,410 $337,321 $118,881 $63,661 $182,542
Interest--net of
interest expense
(A).................. 84,577 670 85,247 38,790 484 39,274
International......... 3,941 -- 3,941 4,665 -- 4,665
Other................. 21,402 313 21,715 14,285 833 15,118
-------- ------- -------- -------- ------- --------
Net revenues......... 366,831 81,393 448,224 176,621 64,978 241,599
-------- ------- -------- -------- ------- --------
Cost of services........ 170,235 57,625 227,860 78,615 46,147 124,762
-------- ------- -------- -------- ------- --------
Operating expenses:
Selling and
marketing............ 183,406 6,633 190,039 34,224 5,553 39,777
Technology
development.......... 50,481 -- 50,481 21,079 -- 21,079
General and
administrative....... 47,851 11,777 59,628 18,096 8,844 26,940
Merger related
expenses............. 3,652 -- 3,652 -- -- --
-------- ------- -------- -------- ------- --------
Total operating
expenses............ 285,390 18,410 303,800 73,399 14,397 87,796
-------- ------- -------- -------- ------- --------
Total cost of
services and
operating expenses.. 455,625 76,035 531,660 152,014 60,544 212,558
-------- ------- -------- -------- ------- --------
Operating income
(loss)................. (88,794) 5,358 (83,436) 24,607 4,434 29,041
-------- ------- -------- -------- ------- --------
Non-operating income
(expense):
Gain on sale of
investment........... 37,670 -- 37,670 -- -- --
Gain (loss) on foreign
exchange............. -- 28 28 -- (853) (853)
Loss on equity
investments.......... (2,185) -- (2,185) -- -- --
-------- ------- -------- -------- ------- --------
Total non-operating
income.............. 35,485 28 35,513 -- (853) (853)
-------- ------- -------- -------- ------- --------
Pre-tax income (loss)... (53,309) 5,386 (47,923) 24,607 3,581 28,188
Income tax expense
(benefit).............. (21,194) 990 (20,204) 10,292 817 11,109
-------- ------- -------- -------- ------- --------
Net income (loss)....... (32,115) 4,396 (27,719) 14,315 2,764 17,079
Preferred stock
dividends.............. -- 180 180 -- 180 180
-------- ------- -------- -------- ------- --------
Income (loss)
applicable to common
stock................ $(32,115) $ 4,216 $(27,899) $ 14,315 $ 2,584 $ 16,899
======== ======= ======== ======== ======= ========
Net income (loss) per
share:
Basic................. $ (0.14) $ (0.12) $ 0.09 $ 0.10
======== ======== ======== ========
Diluted............... $ (0.14) $ (0.12) $ 0.08 $ 0.10
======== ======== ======== ========
Shares used in
computation of net
income (loss) per
share*:
Basic................. 230,595 4,973 235,568 161,441 4,781 166,222
Diluted............... 230,595 5,108 235,568** 172,808 4,994 177,802
- --------
(A) Interest is presented net of interest expense. Pro forma interest expense
for the nine months ended June 30, 1999 and 1998 was $50,168 and $27,475,
respectively.
* TIR shares reflect the assumed conversion ratio of .39 E*TRADE shares for
each share of TIR common stock outstanding.
** Because the Company reported a net loss for the nine months ended June 30,
1999 on a pro forma combined basis, the calculation of diluted earnings per
share does not include TIR's, or E*TRADE's, common stock equivalents as they
are anti-dilutive and would result in a reduction of the pro forma combined
net loss per share.
34
E * TRADE GROUP, INC. AND SUBSIDIARIES
Pro Forma Combined Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Twelve Months Ended
September 30, 1998
------------------------------
E*TRADE Pro Forma
As Reported TIR Combined
----------- ------- ---------
Revenues:
Transaction revenues........................ $162,097 $88,798 $250,895
Interest--net of interest expense (A)....... 56,020 681 56,701
International............................... 7,031 -- 7,031
Other....................................... 20,169 960 21,129
-------- ------- --------
Net revenues.............................. 245,317 90,439 335,756
-------- ------- --------
Cost of services.............................. 111,888 65,293 177,181
-------- ------- --------
Operating expenses:
Selling and marketing....................... 71,447 7,594 79,041
Technology development...................... 33,699 -- 33,699
General and administrative.................. 31,048 11,874 42,922
-------- ------- --------
Total operating expenses.................. 136,194 19,468 155,662
-------- ------- --------
Total cost of services and operating
expenses................................. 248,082 84,761 332,843
-------- ------- --------
Operating income (loss) ...................... (2,765) 5,678 2,913
-------- ------- --------
Non-operating income (expense):
Loss on foreign exchange.................... -- (762) (762)
-------- ------- --------
Total non-operating income................ -- (762) (762)
-------- ------- --------
Pre-tax income (loss) ........................ (2,765) 4,916 2,151
Income tax expense (benefit).................. (953) 1,177 224
-------- ------- --------
Net income (loss)............................. (1,812) 3,739 1,927
Preferred stock dividends .................... -- 240 240
-------- ------- --------
Income (loss) applicable to common stock ... $(1,812) $ 3,499 $ 1,687
======== ======= ========
Net income (loss) per share:
Basic....................................... $ (0.01) $ 0.01
======== ========
Diluted..................................... $ (0.01) $ 0.01
======== ========
Shares used in computation of net income
(loss) per share*:
Basic....................................... 169,791 4,811 174,602
Diluted..................................... 169,791 5,008 186,203**
- --------
(A) Interest is presented net of interest expense. Pro forma interest expense
for the twelve months ended September 30, 1998 was $40,029.
* TIR shares reflect the assumed conversion ratio of .39 E*TRADE shares for
each share of TIR common stock outstanding.
** Because E*TRADE As Reported was a net loss for the twelve months ended
September 30, 1998, the calculation of diluted earnings per share does not
include common stock equivalents as they are anti-dilutive and would result
in a reduction of net loss per share. If E*TRADE had reported net income in
this period, there would have been 11,404,000 additional shares in the
calculation of diluted earnings per share. These additional shares have been
included in the calculation of diluted earnings per share on a pro forma
combined basis as the Company reported net income on a pro forma combined
basis.
35
E * TRADE GROUP, INC. AND SUBSIDIARIES
Pro Forma Combined Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Twelve Months Ended
September 30, 1997
------------------------------
E*TRADE Pro Forma
As Reported TIR Combined
----------- ------- ---------
Revenues:
Transaction revenues......................... $109,659 $76,128 $185,787
Interest--net of interest expense (A)........ 25,265 474 25,739
International................................ 4,000 -- 4,000
Other........................................ 17,471 1,131 18,602
-------- ------- --------
Net revenues............................... 156,395 77,733 234,128
-------- ------- --------
Cost of services............................... 73,381 55,452 128,833
-------- ------- --------
Operating expenses:
Selling and marketing........................ 28,160 6,221 34,381
Technology development....................... 13,547 -- 13,547
General and administrative................... 16,847 10,251 27,098
-------- ------- --------
Total operating expenses................... 58,554 16,472 75,026
-------- ------- --------
Total cost of services and operating
expenses.................................. 131,935 71,924 203,859
-------- ------- --------
Operating income............................... 24,460 5,809 30,269
-------- ------- --------
Non-operating income (expense):
Loss on foreign exchange..................... -- (946) (946)
-------- ------- --------
Total non-operating expense................ -- (946) (946)
-------- ------- --------
Pre-tax income................................. 24,460 4,863 29,323
Income tax expense............................. 9,425 705 10,130
-------- ------- --------
Net income..................................... 15,035 4,158 19,193
Preferred stock dividends ..................... -- 240 240
-------- ------- --------
Income applicable to common stock ........... $ 15,035 $ 3,918 $ 18,953
======== ======= ========
Net income per share:
Basic........................................ $ 0.12 $ 0.14
======== ========
Diluted...................................... $ 0.10 $ 0.13
======== ========
Shares used in computation of net income per
share*:
Basic........................................ 129,408 4,868 134,276
Diluted...................................... 143,496 5,070 148,566
- --------
(A) Interest is presented net of interest expense. Pro forma interest expense
for the twelve months ended September 30, 1997 was $15,126.
* TIR shares reflect the assumed conversion ratio of .39 E*TRADE shares for
each share of TIR common stock outstanding.
36
E * TRADE GROUP, INC. AND SUBSIDIARIES
Pro Forma Combined Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Twelve Months Ended
September 30, 1996
------------------------------
E*TRADE Pro Forma
As Reported TIR Combined
----------- ------- ---------
Revenues:
Transaction revenues......................... $44,178 $78,865 $123,043
Interest--net of interest expense (A)........ 4,813 208 5,021
Other........................................ 13,529 210 13,739
------- ------- --------
Net revenues............................... 62,520 79,283 141,803
------- ------- --------
Cost of services............................... 38,027 60,684 98,711
------- ------- --------
Operating expenses:
Selling and marketing........................ 10,944 6,028 16,972
Technology development....................... 4,699 -- 4,699
General and administrative................... 8,238 8,970 17,208
------- ------- --------
Total operating expenses................... 23,881 14,998 38,879
------- ------- --------
Total cost of services and operating
expenses.................................. 61,908 75,682 137,590
------- ------- --------
Operating income............................... 612 3,601 4,213
------- ------- --------
Non-operating income (expense):
Loss on foreign exchange..................... -- (542) (542)
------- ------- --------
Total non-operating expense................ -- (542) (542)
------- ------- --------
Pre-tax income................................. 612 3,059 3,671
Income tax expense (benefit)................... (555) 60 (495)
------- ------- --------
Net income..................................... 1,167 2,999 4,166
Preferred stock dividends ..................... -- 240 240
------- ------- --------
Income applicable to common stock ........... $ 1,167 $ 2,759 $ 3,926
======= ======= ========
Net income per share:
Basic........................................ $ 0.01 $ 0.05
======= ========
Diluted...................................... $ 0.01 $ 0.03
======= ========
Shares used in computation of net income per
share*:
Basic........................................ 78,564 2,326 80,890
Diluted...................................... 119,728 2,496 122,224
- --------
(A) Interest is presented net of interest expense. Pro forma interest expense
for the twelve months ended September 30, 1996 was $2,451.
* TIR shares reflect the assumed conversion ratio of .39 E*TRADE shares for
each share of TIR common stock outstanding.
37
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.
E*TRADE Group, Inc.
(Registrant)
Date: August 18, 1999
/s/ Leonard C. Purkis
By:__________________________________
Leonard C. Purkis
Executive Vice President,
Finance and Administration,
Chief Financial Officer
(principal financial and
accounting officer)
38
EXHIBITS INDEX
Exhibit Description
------- -----------
23.1 Consent of PricewaterhouseCoopers, Independent Auditors
99.1 Press Release, dated July 13, 1999, issued by E*TRADE Group, Inc.
announcing the agreement to acquire TIR (Holdings) Limited.*
- --------
* Filed as part of the Registrant's Current Report on Form 8-K dated July 13,
1999, filed July 28, 1999, and incorporated herein by reference.
39