<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal year ended September 26, 1997
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________
to __________
Commission file number: 0-22163
__________________
AMERITRADE HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 47-0642657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4211 SOUTH 102ND STREET, OMAHA, NEBRASKA
68127
(Address of principal executive offices)
(Zip Code)
(402) 331-7856
(Registrant's telephone number, including area code)
__________________
<TABLE>
<S> <C>
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Title of class
--------------
Class A Common Stock - $0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.(X)
As of December 17, 1997, the aggregate market value of the Class A Common Stock
held by non-affiliates of the registrant was approximately $142,776,644
computed by reference to the market price at which the stock was sold on
December 17, 1997 on the Nasdaq stock market.
The number of shares of Class A Common Stock outstanding as of December 17,
1997 was 13,152,243 shares.
The number of shares of Class B Common Stock outstanding as of December 17,
1997 was 1,364,400 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement relating to the Company's 1998 Annual Meeting to be
filed hereafter (incorporated into Part III hereof).
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AMERITRADE HOLDING CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 7
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 15
Item 8. Financial Statements and Supplementary Data 15
Quarterly Financial Data (Unaudited) 27
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 28
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 28
Exhibit Index 29
Signatures 31
</TABLE>
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UNLESS OTHERWISE INDICATED, REFERENCES TO "COMPANY" MEAN AMERITRADE HOLDING
CORPORATION AND ITS OPERATING UNITS AND REFERENCES TO "FISCAL" MEAN THE
COMPANY'S FISCAL YEAR ENDED THE LAST FRIDAY OF SEPTEMBER.
Except for historical information contained herein, the matters discussed in
this report contain certain forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
anticipated in such forward looking statements.
PART I
ITEM 1. BUSINESS
The Company is a provider of retail discount securities brokerage and related
financial services. The Company makes extensive use of a variety of electronic
mediums, including the Internet, in order to service individual investors
throughout the United States and internationally. Customers of the Company are
able to execute trades via personal computer, Sharp Zaurus personal digital
assistant, touchtone telephone, facsimile, as well as through traditional
registered representatives. During the quarter ended September 26, 1997,
approximately 50 percent of the Company's trades were executed electronically.
Because of its utilization of state-of-the-art technology, the Company is able
to efficiently execute securities transactions at a relatively low cost and,
therefore, offer discount commission rates which are among the lowest in the
industry. The Company provides execution services for stocks, mutual funds,
options, and bonds though these means. In addition, the Company provides
market data and research services to its customers. The Company also provides
clearing and execution services to its own retail brokerage operations as well
as to unaffiliated broker-dealers. The Company was formed in 1971 and has
conducted discount brokerage operations since 1975. The Company began
providing securities clearing services in 1983.
RETAIL DISCOUNT BROKERAGE
The Company derives over 90 percent of its revenues from the provision of
retail discount brokerage services. As of the end of its fiscal year 1997, the
Company had over 98,000 core accounts, which represents an 88 percent increase
in the number of core accounts at the end of its fiscal year 1996. Average
daily trading volume during September 1997 was approximately 11,000 executed
transactions, up from approximately 3,500 during September 1996. The Company
provides retail discount brokerage services under two separate operating units,
Ameritrade, (Inc.) and Accutrade, Inc.
AMERITRADE, (INC.)
Ameritrade, (Inc.) ("Ameritrade") was formed in 1997 through the consolidation
of three previously independent operating units of the Company - Ceres
Securities, Inc. ("Ceres"), K. Aufhauser & Company ("Aufhauser"), and the
eBroker division of All American Brokers, Inc. ("eBroker"). Ameritrade is
designed to appeal to customers who are seeking very low execution costs.
Clients may trade any number of shares, regardless of share price, at $8 per
trade for Internet trades, $12 per trade for trades made via touchtone
telephone or personal digital assistant, and $18 per trade for broker-assisted
trades. Ameritrade also offers a special program whereby active traders can
receive a year of equity executions, subject to certain restrictions, for a
flat annual fee (currently $800). A minimum balance of $10,000 is required for
$800 annual fee accounts.
Ameritrade's web site (www.ameritrade.com) allows customers to enter orders for
stocks, mutual funds, and options; to view their balances, positions, order
status, quotes, and transaction history; and gives customers access to
up-to-the-minute company reports, industry news, earnings reports, analyst
recommendations, charts, and quotes. Stockpile is a game played over the
Ameritrade web site that allows participants to learn about investing or to
test their investing skills. Daily commentary and analysis by noted investment
columnist Andy Tobias is also available on Ameritrade's home page.
ACCUTRADE, INC.
Accutrade, Inc. ("Accutrade") provides value added discount brokerage services
to sophisticated investors. Accutrade introduced a software package known as
Accutrade for Windows in March 1996 to provide investors with an online
investing system and the ability to manage all of their financial assets.
Customers using Accutrade for Windows may place orders for stocks, mutual
funds, options and corporate bonds. Customers can also review their balances,
positions, transaction history, order status, and obtain quotes. In addition,
the program enables customers to track multiple portfolios and tax lots and
generates a variety of reports, including a Schedule D for income tax purposes.
Customers can create quote lists of their favorite stocks and keep price
histories for them. Accutrade for Windows also offers symbol lookup and
creates a report of all of the equity options for an underlying stock. To
provide additional helpful information to investors, the program includes a
margin and option help file and a margin calculator.
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One of the advanced features of Accutrade for Windows is the ability to make
program investments. This feature permits customers to create conditions under
which orders will be placed and then have their personal computer monitor the
market to automatically place the order. Customers can also design baskets of
stocks to track and trade. A price history of the basket can be tracked to
determine how the basket is performing and a single order can buy or sell the
basket.
CLEARING AND EXECUTION SERVICES
The Company provides clearing and execution services to its discount brokerage
businesses, as well as to independent broker dealers, depository institutions,
registered investment advisors, and financial planners through its subsidiary,
AmeriTrade Clearing, Inc. ("AmeriTrade Clearing"). The clearing function
involves a sharing of responsibilities between the clearing broker and the
introducing broker. The Company's correspondents, as introducing brokers, are
responsible for all customer contact, including opening customer accounts,
responding to customer inquiries and placing customer orders with the clearing
broker. As a clearing broker, AmeriTrade Clearing provides the following back
office functions: maintaining customer accounts; extending credit (in a margin
account) to the customer; settling security transactions with clearing houses
(e.g., the Depository Trust Company and the National Securities Clearing
Corporation); settling commissions and clearing fees; preparing customer trade
confirmations and statements; performing designated cashiering functions,
including the delivery and receipt of funds and securities to or from the
customer; safeguarding funds and securities in customer accounts; transmitting
tax accounting information to the customer and to the applicable tax authority;
forwarding prospectuses, proxies and other shareholder information to
customers; preparing books and records in support of the above; and other
related activities.
Included as a part of the clearing function is the assumption of responsibility
for the possession and control of customer securities and other assets. As a
result, the Company records on its balance sheet amounts receivable from
customers that are a result of margin loans (loans made to customers that are
collateralized by securities held in customer's trading accounts at the
Company). In addition, the Company records on its balance sheet amounts
payable to its customers and correspondent broker-dealers related to cash
balances maintained by the Company on behalf of those customers and
correspondents (free credit balances).
MARGIN LENDING
The Company makes loans to customers collateralized by customer securities.
Margin lending by the Company is subject to the margin rules of the Board of
Governors of the Federal Reserve System, National Association of Securities
Dealers ("NASD") margin requirements, and the Company's internal policies,
which are more stringent than the Federal Reserve and NASD requirements. By
permitting customers to purchase on margin, the Company takes the risk of a
market decline that could reduce the value of the collateral held by the
Company to below the customers' indebtedness before the collateral can be sold.
Under applicable NASD rules, in the event of a decline in the market value of
the securities in a margin account, the Company is obligated to require the
customer to deposit additional securities or cash in the account so that at all
times the customer's equity in the account is at least 25 percent of the value
of the securities in the account. The Company's current internal requirement,
however, is that the customer's equity not fall below 30 percent of the value
of the securities in the account. If it does, the customer will be required to
increase the account's equity to 35 percent of the value of the securities in
the account. These requirements can be, and often are, raised as the Company
deems necessary for certain accounts, groups of accounts, securities, or groups
of securities.
OTHER FINANCIAL SERVICES
OnMoney Financial Services Corporation ("OnMoney") is a development stage
entity involved in online commerce. OnMoney is a comprehensive financial
management system that is designed to provide members with access to everything
they need to manage their personal finances. OnMoney is currently in testing
and scheduled to launch in fiscal 1998.
INVESTMENTS
As of September 26, 1997, the Company owned 9.9 percent of Roundtable Partners,
L.L.C. ("Roundtable") which conducts securities trading operations through its
subsidiaries, Trimark, L.P. ("Trimark") and Knight Securities, L.P. ("Knight
Securities"). Trimark is a third-market trading operation that makes markets
in securities listed on the New York Stock Exchange, Inc. ("NYSE") and the
American Stock Exchange, Inc. Knight Securities is an over the counter ("OTC")
trading operation that makes markets in OTC securities, principally securities
traded on the Nasdaq Stock Market, including Small Capitalization listings and
securities listed on the NASD's OTC Bulletin Board. The customer base of
Trimark and Knight Securities consists primarily of registered broker-dealers
and financial institutions. The Company derives revenues from Trimark and
Knight Securities in exchange for routing trade orders to them for execution.
Although this practice of receiving payments for order flow is wide-spread in
the securities industry, it has come under increased scrutiny in recent years.
The Securities and Exchange Commission ("SEC"), the NASD and other
self-regulatory organizations ("SROs") recently have
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announced that this industry practice may be challenged. Furthermore,
competition between execution agents has narrowed the spread between bid and
ask prices, which has made it less profitable for execution agents to offer
order flow payment to broker-dealers. The Company has taken steps and intends
to take further steps to mitigate the financial impact of the loss of these
revenues on the Company. In particular, to the extent that reduced order flow
payments by execution agents result in increased profits to such agents, the
Company expects to benefit through its investment in Roundtable.
The Company also has minority interests in two software companies.
Comprehensive Software Systems, Ltd. ("CSS") is a joint venture formed for the
purpose of developing a variety of software for broker-dealers, banks, and
other financial institutions. Telescan, Inc. is a publicly-traded software and
online company.
COMPETITION
The market for discount brokerage services, particularly electronic brokerage
services, is new, rapidly evolving, intensely competitive, and has few barriers
to entry. The Company has seen increased competition during 1997 and expects
competition to continue and intensify in the future. The Company encounters
direct competition from approximately 100 other discount brokerage firms, many
of which provide electronic brokerage services. These competitors include such
discount brokerage firms as Charles Schwab & Co., Inc., Fidelity Brokerage
Services, Inc., National Discount Brokers Group, Inc., Quick & Reilly, Inc.,
and E*Trade Group, Inc. The Company also encounters competition from
established full-commission brokerage firms as well as financial institutions,
mutual fund sponsors, and other organizations, some of which provide electronic
brokerage services.
REGULATION
The securities industry is subject to extensive regulation under federal and
state law. In general, broker-dealers are required to register with the SEC
and to be members of the NASD. As such, the Company is subject to the
requirements of the Securities Exchange Act of 1934 and the rules promulgated
thereunder relating to broker-dealers and to the Rules of Fair Practice of the
NASD. Such regulations establish, among other things, minimum net capital
requirements for the Company and its operating subsidiaries. The Company is
also subject to regulation under various state laws in all 50 states and the
District of Columbia, including registration requirements.
In its capacity as a securities clearing firm, AmeriTrade Clearing is a member
of the National Securities Clearing Corporation, the Depository Trust
Corporation, and The Options Clearing Corporation, each of which is registered
as a clearing agency with the SEC. As a member of these clearing agencies,
AmeriTrade Clearing is required to comply with the rules of such clearing
agencies, including rules relating to possession and control of customer funds
and securities, margin lending and execution, and settlement of transactions.
Margin lending activities are subject to limitations imposed by the Federal
Reserve System and the NASD. In general, these regulations provide that in the
event of a decline in the value of securities collateralizing a margin account,
the Company is required to obtain additional collateral from the borrower.
EMPLOYEES
As of September 26, 1997, the Company employed a total of 382 full-time
employees and 33 part-time employees, of which 136 were registered
representatives. None of the Company's employees are covered under a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
ITEM 2. PROPERTIES
The Company's headquarters are located in Omaha, Nebraska and occupy
approximately 70,000 square feet of leased space. The existing lease expires
in December 2017. The Company also leases three other locations totaling
approximately 25,000 square feet of space under leases that expire through
August 2001. The Company believes that additional space will be required
during fiscal 1998 to accommodate growth.
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ITEM 3. LEGAL PROCEEDINGS
The Company and its operating units are parties to a number of legal matters
arising in the ordinary course of its business. In management's opinion, the
Company has adequate legal defenses respecting each of these actions and does
not believe that any such matters, either individually or in the aggregate,
will materially affect the Company's results of operations or its financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of fiscal 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
J. Joe Ricketts 56 Chairman, Chief Executive Officer, and Director
Joseph A. Konen 50 President, Chief Operating Officer, and Director
Robert T. Slezak 40 Vice President, Chief Financial Officer, Treasurer, and Director
Thomas J. Pleiss 56 Vice President and Assistant Secretary of AmeriTrade Holding Corp.,
Chief Financial Officer of OnMoney Financial Services Corporation
Susan M. Hohman 55 Vice President, Human Resources
J. Peter Ricketts 33 President of Accutrade, Secretary of AmeriTrade Holding Corp.
Kurt D. Halvorson 35 President of AmeriTrade Clearing
Michael J. Anderson 41 President of Ameritrade, (Inc.)
</TABLE>
J. Joe Ricketts, has served as a director and as Chairman and Chief Executive
Officer of the Company since 1981. In 1975 Mr. Ricketts became associated with
the company and served as an employee, director, officer, and 25 percent
investor. From 1976 to 1981 the other partners retired, allowing Mr. Ricketts
to acquire majority control of the Company. Prior to 1975, Mr. Ricketts was a
registered representative with a national brokerage firm, an investment advisor
with Ricketts & Co., and a branch manager with Dun & Bradstreet. Mr. Ricketts
is a director of CSS Management. Mr. Ricketts currently serves as a member of
the District Committee for District 4 of the NASD. Mr. Ricketts is a member of
the Board of Trustees for Father Flanagan's Boys' Home ("Boys Town"). Mr.
Ricketts received his B.A. in economics from Creighton University.
Joseph A. Konen has served as President and Chief Operating Officer of the
Company since October 1994 and has served as a director since October 1996.
From October 1992 to April 1995, Mr. Konen served as President of AmeriTrade
Clearing. Mr. Konen served as Operations Manager of AmeriTrade Clearing from
February 1992 to October 1992. Mr. Konen was a principal in Joseph A. Konen &
Associates, a management consulting firm, from June 1990 to February 1992. Mr.
Konen was President and Chief Executive Officer of Vital Learning Corporation,
a training industry firm, from January 1989 to June 1990 and was President and
Chief Executive Officer of its parent, Vital Resources, Inc., from October 1987
to June 1990. Mr. Konen held various executive management positions from 1970
to 1987 with responsibility for corporate finance, including acquisitions,
divestitures, and strategic planning. Mr. Konen was a member of the Clearing
Firms Committee of the Securities Industry Association from 1995 to 1996 and
was a member of its Membership Committee from 1993 to 1994. He is currently a
member of the Advisory Committee of Roundtable Partners, L.L.C. Mr. Konen
holds a B.A. in economics and an M.B.A. in finance from Indiana University.
Robert T. Slezak has served as Vice President, Chief Financial Officer and
Treasurer of the Company since January 1989 and has served as a director since
October 1996. Mr. Slezak joined the Company in March 1987 and served as
Operations Manager at AmeriTrade Clearing until January 1989. Prior to that
time, Mr. Slezak was a Senior Financial Analyst for Peter Kiewit Sons' Inc., an
international construction and mining company, from August 1985 to March 1987.
From January 1980 to August 1985, Mr. Slezak was on the audit staff of Deloitte
& Touche, a big six accounting firm. Mr. Slezak served as a member of the
District Committee for District 4 of the NASD from 1990 to 1992, and as a
member of its Nominating Committee from 1993 to 1994. Mr. Slezak is a
Certified Public Accountant. Mr. Slezak holds a B.S. in business from the
University of Nebraska at Omaha and an M.B.A. from Creighton University.
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Thomas J. Pleiss has served as Vice President of AmeriTrade Holding Corporation
since 1993, Assistant Secretary of AmeriTrade Holding Corporation since 1996
and as Chief Financial Officer of OnMoney Financial Services Corporation since
March 1997. Mr. Pleiss served as Vice President, Regulation and Facilities
Planning of the Company from October 1992 to March 1997. From August 1987 to
October 1992, Mr. Pleiss served as President of AmeriTrade Clearing. Mr.
Pleiss served as Vice President of Jerry Leonard Inc., a major retail specialty
corporation, from October 1984 to July 1987. Mr. Pleiss served as Financial
Manager of AmeriTrade Clearing from October 1982 to October 1984. From July
1970 to October 1982, Mr. Pleiss was Treasurer and Controller of Lozier
Corporation, an international manufacturer of store fixtures. From December
1963 to July 1970, Mr. Pleiss was on the audit staff of Deloitte & Touche, a
big six accounting firm. Mr. Pleiss was a Director of Midwest Securities Trust
Company from 1991 to 1994. Mr. Pleiss also was a member of the Clearing Firms
Committee of the Securities Industry Association from 1990 to 1992, and was
Vice Chairperson of the Central States District of the Securities Industry
Association from 1995 to 1996. Mr. Pleiss is a Certified Public Accountant.
Mr. Pleiss has a B.S. in business from Creighton University.
Susan M. Hohman has served as Vice President, Human Resources, of the Company
since August 1986. Prior to that time, Mrs. Hohman served in human resource
management positions with various public and private organizations for 14
years. Mrs. Hohman was a member of the Human Resources Committee of the
Securities Industry Association in 1993. Mrs. Hohman received a B.S. in
management from Bellevue University.
J. Peter Ricketts has served as Secretary of the Company since November 1996
and as President of Accutrade since November 1997. From October 1997 to
November 1997, Mr. Ricketts served as General Manager of Accutrade. From
August 1996 to October 1997 Mr. Ricketts served as Director of Corporate
Development of AmeriTrade Holding Corporation. From April 1995 to August 1996,
Mr. Ricketts served as Project Director for Accutrade. From January 1995 to
March 1995, Mr. Ricketts served as Vice President of Ceres and from May 1994 to
January 1995 as President of Ceres. Mr. Ricketts was a customer service
representative for Accutrade from December 1993 to May 1994. Mr. Ricketts
worked as Manager, Business Development, for Woodward Clyde Consultants, an
environmental consulting firm, from October 1992 to September 1993. Mr.
Ricketts served as Account Representative for Union Pacific Railroad from July
1991 to September 1992. Mr. Ricketts holds a B.A. in biology and an M.B.A.
from the University of Chicago. J. Peter Ricketts is the son of J. Joe
Ricketts.
Kurt D. Halvorson has served as President of AmeriTrade Clearing since April
1997. Mr. Halvorson served as Vice President and General Manager of AmeriTrade
Clearing April 1996 to March 1997. Mr. Halvorson served as Vice President and
Controller of AmeriTrade Clearing from October 1992 to March 1996, and as
Controller of AmeriTrade Clearing from September 1987 to October 1992. Mr.
Halvorson was on the audit staff of Deloitte & Touche, a big six public
accounting firm, from 1984 to September 1987. Mr. Halvorson is a Certified
Public Accountant. Mr. Halvorson received a B.S. in business from the
University of Nebraska.
Michael J. Anderson has served as President of Ameritrade, (Inc.) since October
1997. From May 1996 to October 1997 Mr. Anderson was the President of
Accutrade. Mr. Anderson served as General Manager of Accutrade from August
1994 to May 1996, and served as Director of Marketing and Sales of AmeriTrade
Clearing from October 1992 until August 1994. Mr. Anderson was an account
executive for Vital Learning Corporation, a training industry firm, from
January 1990 to October 1992. From 1985 to January 1990, Mr. Anderson served
in several marketing capacities for Majers and A.C. Nielsen. Mr. Anderson
served in sales and sales management capacities from 1979 to 1985 with Proctor
& Gamble. Mr. Anderson received a B.S. in marketing from Iowa State
University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF CLASS A COMMON STOCK
The Company's Class A Common Stock (the "Class A Stock") has been quoted on the
Nasdaq National Market under the symbol "AMTD" since March 4, 1997. The
following table shows the high and low closing sales prices for the Class A
Stock of the Company for the period indicated, as reported by the Nasdaq
National Market. The prices do not include retail markups, markdowns, or
commissions, and may not represent actual transactions.
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<TABLE>
<CAPTION>
CLASS A STOCK PRICE
--------------------------
FOR THE FISCAL YEAR ENDED
SEPTEMBER 26, 1997
--------------------------
HIGH LOW CLOSE
------ ------ ------
<S> <C> <C> <C>
First Quarter n/a n/a n/a
Second Quarter 21.250 16.750 17.250
Third Quarter 17.750 12.125 15.938
Fourth Quarter 26.313 15.063 25.750
</TABLE>
The closing sale price of the Company's Class A Stock as reported on the Nasdaq
National Market on December 17, 1997 was $28.375 per share. As of that date
there were 93 holders of record of the Company's Class A Stock based on
information provided by the Company's transfer agent. The number of
stockholders does not reflect the actual number of individual or institutional
stockholders of the Company because certain stock is held in the name of
nominees. Based on the best information available to the Company by the
transfer agent, there are approximately 5,300 holders of the Company's Class A
Stock.
There are currently 1,364,400 shares of the Company's Class B Common Stock (the
"Class B Stock") outstanding, all of which are held of record by J. Joe
Ricketts and Marlene Ricketts or certain entities controlled by them. The
Class B Stock is not listed on any exchange and is not traded over the counter.
Each share of Class B Stock is convertible into one share of Class A Stock at
any time at the election of the holder thereof. Each share of Class B Stock
shall automatically convert into one share of Class A Stock in the event of a
transfer of such share of Class B Stock to any person other than J. Joe
Ricketts, Marlene Ricketts, the lineal descendants of J. Joe Ricketts and
Marlene Ricketts and their spouses, or any trust or other person or entity that
holds Class B Stock for the benefit of any of the foregoing (the "Control
Group"). In addition, the Class B Stock shall automatically convert on a share
for share basis into Class A Stock if the number of shares of outstanding
Common Stock held by the Control Group falls below 20 percent of the number of
shares of outstanding Common Stock.
DIVIDENDS
The Company has not declared or paid cash dividends on its capital stock. The
Company currently intends to retain all of its earnings, if any, for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon a number of factors,
including future earnings, the success of the Company's business activities,
capital requirements, the general financial condition and future prospects of
the Company, general business conditions, and such other factors as the Board
of Directors may deem relevant.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
SEPT. 26, SEPT. 27, SEPT. 29, SEPT. 30, SEPT. 24,
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues:
Commissions and clearing fees . . . . . . . . . . $51,937 $36,470 $23,977 $20,386 $16,910
Interest revenue . . . . . . . . . . . . . . . . 36,623 22,518 16,297 9,856 5,838
Equity income (loss) from investments . . . . . . 3,444 3,359 543 (575) (240)
Gain from sale of partnership interest . . . . . - - 584 - -
Other . . . . . . . . . . . . . . . . . . . . . . 3,663 3,032 1,481 1,694 1,031
------- ------- ------- ------- -------
Total revenues . . . . . . . . . . . . . . . 95,667 65,379 42,882 31,361 23,539
Interest expense . . . . . . . . . . . . . . . . 18,429 11,040 7,862 3,912 2,258
------- ------- ------- ------- -------
Net revenues . . . . . . . . . . . . . . . . 77,238 54,339 35,020 27,449 21,281
Expenses excluding interest:
Employee compensation and benefits . . . . . . . 19,291 14,050 8,482 6,538 5,368
Commissions and clearance . . . . . . . . . . . . 3,320 2,531 2,517 1,717 1,447
Communications . . . . . . . . . . . . . . . . . 5,623 3,686 2,353 1,892 1,289
Occupancy and equipment costs . . . . . . . . . . 5,423 2,890 1,627 1,412 970
Advertising and promotion . . . . . . . . . . . . 13,971 7,537 4,842 5,987 3,928
Provision for losses . . . . . . . . . . . . . . 59 148 1,429 266 131
Amortization of goodwill . . . . . . . . . . . . 363 363 94 7 7
Other . . . . . . . . . . . . . . . . . . . . . 7,763 4,717 2,846 2,180 1,877
------- ------- ------- ------- -------
Total expenses excluding interest . . . . . . 55,813 35,922 24,190 19,999 15,017
------- ------- ------- ------- -------
Income before provision for income taxes . . . . . . 21,425 18,417 10,830 7,450 6,264
Provision for income taxes . . . . . . . . . . . . . 7,603 7,259 3,799 2,619 2,119
------- ------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . $13,822 $11,158 $7,031 $4,831 $4,145
======= ======= ======= ======= =======
Earnings per share . . . . . . . . . . . . . . . . . $1.00 $0.87 $0.55 $0.38 $0.30
======= ======= ======= ======= =======
Weighted average shares outstanding . . . . . . . . . 13,769 12,814 12,814 12,856 13,716
OPERATING DATA:
Average customer trades per day . . . . . . . . . . . 6,571 3,670 2,055 1,519 1,220
Assets in customer accounts (in billions) . . . . . . $7.34 $3.99 $2.36 $1.66 $1.19
Number of core accounts (1) . . . . . . . . . . . . . 98,000 52,000 38,000 18,000 11,000
Average net revenue per trade . . . . . . . . . . . . $47 $59 $67 $70 $69
Operating margin (2) . . . . . . . . . . . . . . . . 28% 34% 31% 27% 29%
Pre-advertising operating margin (3) . . . . . . . . 46% 48% 49% 50% 49%
Return on average equity (4) . . . . . . . . . . . . 28% 44% 47% 49% 69%
<CAPTION>
SEPT. 26, SEPT. 27, SEPT. 29, SEPT. 30, SEPT. 24,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and segregated investments . . . . . . . . . . . $373,286 $191,436 $125,456 $101,352 $53,787
Receivable from customers and correspondents . . . . 325,407 166,075 130,187 99,627 86,281
Total assets . . . . . . . . . . . . . . . . . . . . 757,357 401,679 287,105 216,991 151,228
Payable to customers and correspondents . . . . . . . 666,279 356,943 251,862 198,539 138,958
Notes payable . . . . . . . . . . . . . . . . . . . . - 4,853 7,097 - -
Stockholders' equity . . . . . . . . . . . . . . . . 66,989 30,662 19,504 12,473 7,831
</TABLE>
(1) Core accounts consist of open accounts in the Company's discount brokerage
subsidiaries.
(2) Operating margin is computed by dividing income before provision for income
taxes by net revenues.
(3) Pre-advertising operating margin is computed by dividing income before
provision for income taxes plus advertising and promotional expenses by
net revenues.
(4) Return on average equity is computed by dividing net income by
stockholders' equity averaged on a quarterly basis.
9
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations
of the Company should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in Items 6 and 8 of this Form 10-K. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth elsewhere in this Form 10-K.
OVERVIEW
The Company was established in 1971 and has conducted its operations in the
discount brokerage industry since 1975. The Company's consolidated financial
statements include the accounts of AmeriTrade Holding Corporation and its
wholly owned discount brokerage operating units, Accutrade, Inc. ("Accutrade"),
K. Aufhauser & Company ("Aufhauser"), Ceres Securities, Inc. ("Ceres"), and All
American Brokers, Inc. ("All American"), and its wholly owned securities
clearing subsidiary, AmeriTrade Clearing, Inc. ("AmeriTrade Clearing"). The
Company began to provide clearing and execution services for its own
broker-dealer operating units and for independent correspondents in 1983.
Throughout the 1980s, the Company's discount securities brokerage and clearing
and execution businesses experienced significant growth, both in terms of
number of accounts and trading volume. In the 1990s, the Company has continued
to grow and has diversified its services through the formation of Ceres in 1994
and eBroker in 1996. In July 1995, the Company acquired the net assets of
Aufhauser for approximately $7.6 million in cash. Of the total purchase price,
$7.0 million was allocated to goodwill, which is being amortized over a 20 year
period. In October 1995, the Company acquired the net assets of All American
Brokers for approximately $0.2 million. During the fourth quarter of fiscal
1997, the Company announced the consolidation of three of its previously
independent discount brokerage operations (Ceres, Aufhauser, and the eBroker
division of All American Brokers) into a single subsidiary called Ameritrade,
(Inc.) ("Ameritrade").
The Company's revenues consist primarily of transaction revenues and interest
revenues. Transaction revenues include brokerage commissions, securities
transaction clearing fees, and payments based on order flow. Interest revenues
are generated by charges to customers on debit balances maintained in brokerage
accounts and the investment of cash from operations and cash segregated in
compliance with federal regulations in short-term marketable securities.
Interest expense consists of amounts paid or payable to customers based on
credit balances maintained in brokerage accounts, as well as costs related to
notes payable, letters of credit, and lines of credit with financial
institutions.
The Company's operating expenses include employee compensation and benefits,
commissions and clearance fees related to the processing of securities
transactions, telephone, postage and other communications costs, occupancy and
equipment costs, advertising and promotion costs, provision for losses related
to the processing of securities transactions, and amortization of goodwill
established in connection with the acquisitions discussed above. In addition,
the Company incurs supply costs related to the processing of customer
confirmations, statements and other communications, as well as general office
supply costs, legal costs, consulting costs, and regulatory costs. These costs
have been classified as other expenses on the Company's consolidated statements
of income.
For the years ended September 26, 1997, September 27, 1996, and September 29,
1995, 67 percent, 67 percent, and 68 percent, respectively, of the Company's
net revenues were derived from commissions and clearing fees. Clearing
services include the confirmation, receipt, settlement, delivery, and
record-keeping functions involved in the processing of securities transactions.
Included as a part of the clearing function is the assumption of
responsibility for the possession and control of customer securities and other
assets. As a result, the Company records on its balance sheet amounts
receivable from customers that are a result of margin loans (loans made to
customers that are collateralized by securities held in customers' brokerage
accounts at the Company). In addition, the Company records on its balance
sheet amounts payable to its customers and correspondent broker-dealers related
to cash balances maintained by the Company on behalf of those customers and
correspondents (free credit balances).
The Company has arrangements with several execution agents to receive cash
payments in exchange for routing trade orders to these firms for execution.
The revenues generated by the Company under these arrangements for the years
ended September 26, 1997, September 27, 1996, and September 29, 1995 were 12
percent, 15 percent and 11 percent, respectively, of net revenues. The
majority of these revenues were received from execution agents owned by
Roundtable Partners, L.L.C. ("Roundtable"), an entity that was approximately
9.9 percent owned by the Company as of September 26, 1997. Although this
practice of receiving payments for order flow is widespread in the securities
industry, it has come under increased scrutiny in recent years. The SEC, the
NASD, and other self-regulatory organizations ("SROs") recently have announced
that this
10
<PAGE> 11
industry practice may be challenged. Furthermore, competition between
execution agents has narrowed the spread between bid and ask prices, which has
made it less profitable for execution agents to offer order flow payments to
brokers such as the Company's operating units. The Company expects such
payments to decrease as competition increases; however, the Company has taken
steps and intends to take further steps to mitigate the financial impact of the
loss of these revenues. In particular, to the extent that reduced order flow
payments by execution agents result in increased profits to such agents, the
Company expects to benefit through its investment in Roundtable. The Company
also believes that the narrowing of spreads will create better trade executions
for its customers, and that superior trade execution will tend to increase the
activity in customer accounts. Nevertheless, there can be no assurance that
the loss of any significant portion of these revenues will not have a material
adverse effect on the Company's business, financial condition, and operating
results.
The Company operates in a new, rapidly evolving, intensely competitive market.
As a result, a significant portion of its operating costs are incurred in
connection with advertising and promotional activities. These expenditures
represented 18 percent, 14 percent and 14 percent of net revenues in the years
ended September 26, 1997, September 27, 1996, and September 29, 1995
respectively. The Company's primary advertising and promotional mediums
include print, television, direct mail, online services, and various Internet
sites. The Company expenses all advertising and promotional costs as incurred.
The increased advertising expenditures in fiscal 1997 were in response to
favorable market conditions as part of the Company's ongoing marketing efforts.
The Company has instituted an even more aggressive marketing campaign in the
first quarter of fiscal 1998 and expects that advertising and promotional
expenses are expected to exceed $20 million for fiscal 1998. The aggressive
advertising campaign is expected to create a loss in the first quarter of
fiscal 1998 and a near break-even second quarter in fiscal 1998. The Company
expects that account activity resulting from the increased advertising
expenditures will continue to yield results that are consistent with the
Company's prior financial history when viewed on an annual basis; however,
there can be no assurances in this regard.
The Company currently derives over 90 percent of its revenues from the
provision of discount brokerage services. The Company believes that the
discount brokerage market is currently impacted by three significant trends
that may affect its financial condition and results of operations. First,
commissions charged to customers of discount brokerage services have steadily
decreased over the past several years, and the Company expects such decreases
to continue. Although decreased commissions will have a negative effect on the
Company's commission and clearing fee revenue per trade, the Company's
experience to date indicates that decreased commissions result in increased
account activity and increased commission and clearing fee revenue in the
aggregate. Second, technology has increased in importance as delivery channels
such as the Internet have become more prevalent. During the quarter ended
September 26, 1997, approximately 50 percent of the Company's transactions were
generated through electronic mediums, including approximately 34 percent over
the Internet. The Company expects that increased use of electronic mediums
will decrease operating expenses per trade. Finally, the effects of price
competition and required investment in technology have resulted in some
consolidation in the market.
The Company is conducting a review of its computer systems to identify those
areas that could be affected by the "Year 2000" issue and is developing a plan
to resolve the issue. The Company believes that, by modifying existing
software, and converting to new software, the Year 2000 problem can be resolved
without significant operational difficulties. The financial impact is not
anticipated to be material to the Company's results of operations, financial
position, or cash flows.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
NET REVENUES
Commissions and clearing fees increased 42 percent to $51.9 million for fiscal
1997 from $36.5 million in fiscal 1996. This increase was primarily
attributable to an increase in the number of securities transactions processed,
as average trades per day increased 79 percent to 6,571 in fiscal 1997 from
3,670 in fiscal 1996. This increase was a result of the increase in the
Company's customer base created by the significant increase in advertising
expenditures by the Company's discount brokerage operating units during the
first half of fiscal 1997. The increase in transactions processed was
partially offset by a decrease in average commission revenue per trade of 21
percent to $31 in fiscal 1997 from $39 in fiscal 1996, primarily as a result of
an increased proportion of trades generated by its discount units with a lower
average revenue per trade. The Company believes that the trends in commissions
and clearing fees revenue will continue into fiscal 1998.
11
<PAGE> 12
Net interest revenue increased 58 percent to $18.2 million in fiscal 1997 from
$11.5 million in fiscal 1996. This increase was due primarily to an increase
of 94 percent in cash and investments segregated in compliance with federal
regulations, an increase of 89 percent in customer and correspondent
broker-dealer receivables partially offset by an increase of 86 percent in
amounts payable to customers and correspondent broker-dealers in fiscal 1997
over fiscal 1996. The Company generally expects net interest revenue to grow
as the account base grows through its planned aggressive advertising campaign.
Equity income from the Company's investments was constant at $3.4 million for
fiscal 1997 and fiscal 1996.
Other revenues increased 23 percent to $3.7 million for fiscal 1997 from $3.0
million for fiscal 1996, due primarily to an increase in marketing fees and
service fees paid to the Company by mutual funds.
EXPENSES EXCLUDING INTEREST
Employee compensation and benefits expense increased 38 percent to $19.3
million in fiscal 1997 from $14.0 million in fiscal 1996, due primarily to an
increase in full-time equivalent employees to 412 as of September 26, 1997 from
334 as of September 27, 1996.
Commissions and clearance costs increased 32 percent to $3.3 million in fiscal
1997 from $2.5 million in fiscal 1996 due primarily to the 79 percent increase
in transaction processing volume, offset by efforts that the Company has
undertaken to reduce execution, clearance, settlement, and depository costs
with outside entities.
Communications expense increased 51 percent to $5.6 million in fiscal 1997 from
$3.7 million in fiscal 1996, primarily as a result of the 79 percent increase
in transaction processing volume. Communication expenses are expected to
increase at a slower rate than transactions processed as the low cost Internet
becomes the Company's predominant communication channel with its customers.
Occupancy and equipment costs increased 86 percent to $5.4 million in fiscal
1997 from $2.9 million in fiscal 1996. This increase was due primarily to the
lease of equipment and approximately 15,000 square feet of additional space
leased in January, and approximately 35,000 square feet of additional space
leased in July to accommodate the employment growth.
Advertising and promotion expenses increased 87 percent to $14.0 million in
fiscal 1997 from $7.5 million in fiscal 1996 as the Company made a planned
major advertising and promotional effort in the first half of fiscal 1997 to
increase its customer base.
Provision for losses, net of recoveries, was constant at $0.1 million for
fiscal 1997 and fiscal 1996.
Amortization of goodwill remained constant at $0.4 million in fiscal 1997 and
fiscal 1996.
Other operating expenses increased 66 percent to $7.8 million in fiscal 1997
from $4.7 million in fiscal 1996, primarily as a result of increased
confirmation and statement processing costs associated with the increase in
transaction processing volume, increased professional services in preparation
for the launch of Ameritrade, and increases in trade errors related to the
growth in transactions processed.
Income tax expense increased 4 percent to $7.6 million in fiscal 1997 from $7.3
million in fiscal 1996. The effective tax rate dropped from 39 percent in
fiscal 1996 to 35 percent in fiscal 1997 as a result of the Company's
participation in economic development tax incentive programs offered by the
State of Nebraska. The Company expects to continue to benefit from the
Nebraska tax incentive programs in fiscal 1998.
FISCAL YEARS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
NET REVENUES
Commissions and clearing fees increased 52 percent to $36.5 million for fiscal
1996 from $24.0 million in fiscal 1995. This increase was primarily
attributable to an increase in the number of securities transactions processed,
as average trades per day increased 79 percent to 3,670 in fiscal 1996 from
2,055 in fiscal 1995. The effect of the first full year of operations of
Aufhauser resulted in 52 percent of the increase in transaction processing
volume. The remainder of this increase was a result of ongoing marketing
efforts undertaken by the Company's discount brokerage operating units and the
introduction and subsequent marketing of the Accutrade for Windows software in
March 1996. The increase in transactions processed was
12
<PAGE> 13
partially offset by a decrease in average commission revenue per trade of 15
percent to $39 in fiscal 1996 from $46 in fiscal 1995, primarily as a result of
an increased proportion of trades generated by its discount units with a lower
average revenue per trade.
Net interest revenue increased 37 percent to $11.5 million in fiscal 1996 from
$8.4 million in fiscal 1995. This increase was due primarily to an increase of
42 percent in cash and investments segregated in compliance with federal
regulations, an increase of 28 percent in customer and correspondent
broker-dealer receivables, and an increase of 42 percent in amounts payable to
customers and correspondent broker-dealers in fiscal 1996 over fiscal 1995.
Equity income from the Company's investments increased to $3.4 million in
fiscal 1996 from $0.5 million in fiscal 1995, due primarily to the Company's
investment in Roundtable in March 1995. The Company recorded a fiscal 1995
gain of $0.6 million related to the sale of its interest in Bond Express, L.P.
in August 1995.
Other revenues increased 100 percent to $3.0 million for fiscal 1996 from $1.5
million for fiscal 1995, due primarily to an increase in marketing fees and
service fees paid to the Company by mutual funds.
EXPENSES EXCLUDING INTEREST
Employee compensation and benefits expense increased 66 percent to $14.1
million in fiscal 1996 from $8.5 million in fiscal 1995, due primarily to an
increase in full-time employees to 334 as of September 27, 1996 from 184 as of
September 29, 1995.
Commissions and clearance costs were $2.5 million in both fiscal 1996 and
fiscal 1995. These costs returned to a normalized level in fiscal 1996 in
comparison with historical trends after a significant increase in fiscal 1995
related to the acquisition of Aufhauser.
Communications expense increased 54 percent to $3.7 million in fiscal 1996 from
$2.4 million in fiscal 1995, primarily as a result of the 79 percent increase
in transaction processing volume, offset in part by lower communication costs
per transaction during the same period.
Occupancy and equipment costs increased 81 percent to $2.9 million in fiscal
1996 from $1.6 million in fiscal 1995. This increase was due primarily to the
lease of additional space to accommodate the employment growth during fiscal
1996 and the onset of depreciation of the Company's Accutrade for Windows
software, which was released in March 1996.
Advertising and promotion expenses increased 56 percent to $7.5 million in
fiscal 1996 from $4.8 million in fiscal 1995 as the Company increased its
advertising and promotional expenditures in connection with the introduction
and promotion of its Accutrade for Windows software in March 1996.
Provision for losses, net of recoveries, was $1.4 million in fiscal 1995, due
primarily to the settlement of a complaint relating to alleged responsibility
for trading losses.
Amortization of goodwill increased to $0.4 million in fiscal 1996 from $0.1
million in fiscal 1995 due to the July 1995 acquisition of Aufhauser.
Other operating expenses increased 68 percent to $4.7 million in fiscal 1996
from $2.8 million in fiscal 1995, primarily as a result of increased
confirmation and statement processing costs associated with the increase in
transaction processing volume.
Income tax expense increased 92 percent to $7.3 million in fiscal 1996 from
$3.8 million in fiscal 1995, consistent with the increase in net income before
income taxes during the same period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its growth primarily through the use of
funds generated from operations. In March 1997, the Company completed an
initial public offering of its common stock, resulting in net proceeds of $22.5
million. Upon completion of the offering, the Company repaid its term and
revolving debt in their entirety, resulting in the use of proceeds of $5.4
million. The Company has also terminated its previously available credit
facility and eliminated the related commitment fee. The Company anticipates
that new credit facilities will be put in place to finance the expected growth
in the business in fiscal 1998 and beyond.
13
<PAGE> 14
The Company is subject to the requirements of the SEC and the NASD relating to
liquidity, capital standards, and the use of customer funds and securities.
OPERATING CASH FLOW
The Company generated $23.8 million in cash from operations in fiscal 1997,
compared to $20.9 million in fiscal 1996. The increase in fiscal 1997 was
primarily attributable to an increase in commissions and clearing fees and
interest revenues related to growth in the discount brokerage operations. The
Company generated $20.9 million in cash from operations in fiscal 1996,
compared to $7.4 million in fiscal 1995. The increase in fiscal 1996 was
attributable primarily to an increase in transaction volume related to growth
in the discount brokerage operations and the acquisition of Aufhauser.
Cash used in investing activities was $3.7 million in fiscal 1997, compared to
a use of cash of $4.7 million in fiscal 1996. Uses of cash in fiscal 1997
related primarily to purchases of property and equipment, offset by cash
distributions received from Roundtable. Uses of cash in fiscal 1996 related
primarily to purchases of property and equipment and additional investments in
Roundtable and CSS, offset by cash distributions received from Roundtable.
Cash used in investing activities was $4.7 million in fiscal 1996, down from
$14.1 million in fiscal 1995. The significant use of cash in fiscal 1995
related to the purchase of property and equipment and the acquisition of
ownership interests in Aufhauser and Telescan, as well as increases in the
ownership interests of the Company's investments in Roundtable and CSS.
Cash provided by financing activities was $17.6 million in fiscal 1997,
compared to cash used in financing activities of $2.2 million in fiscal 1996.
The increase in fiscal 1997 was attributable to the net proceeds of $22.5
million from the initial public offering in March 1997, offset by principal
payments on notes payable. Cash used in financing activities was $2.2 million
in fiscal 1996, compared to cash provided by financing activities of $7.1
million in fiscal 1995. The cash provided in fiscal 1995 was due primarily to
term notes payable issued in connection with the Aufhauser acquisition, and the
cash used in fiscal 1996 was due to payments made on those term notes.
BANK LOAN AGREEMENTS
The Company entered into a loan agreement with a bank dated as of December 22,
1994 (as amended, the "Bank Loan Agreement"). Pursuant to the Bank Loan
Agreement, the Company borrowed a term loan of $1.9 million payable in monthly
installments of principal of $79,000 beginning January 31, 1995 until January
31, 1997, and a term loan of $6.0 million payable in monthly installments of
principal of $125,000 beginning August 31, 1995 until July 31, 1999. The loan
was repaid in its entirety in March 1997 with proceeds from the Company's
initial public offering.
The Company has also entered into a loan agreement dated as of November 11,
1997 with a bank. Pursuant to this loan agreement, the Company may borrow up
to $10 million on a revolving basis until January 31, 1998. Borrowings under
the revolving loan agreement will bear interest at the rate designated by the
bank as its National Base Rate less 0.5 percent and are unsecured. The Company
intends to negotiate a credit facility of up to $50 million to replace this
loan agreement before its January 31, 1998 maturity.
A letter of credit in the amount of $35 million as of September 26, 1997, has
been issued on behalf of AmeriTrade Clearing by a financial institution. The
letter of credit, which is for the benefit of a securities clearinghouse, has
been issued to support margin requirements. AmeriTrade Clearing pays a
maintenance fee of 0.5 percent of the committed amount for the letter of
credit. In addition, the same financial institution may make loans to
AmeriTrade Clearing if requested under a note. AmeriTrade Clearing has pledged
customer securities, the amount of which fluctuates from time to time, to
secure its obligations under the letters of credit and the note. As of
September 26, 1997, no amounts were outstanding under the note.
CAPITAL EXPENDITURES
The Company's anticipated capital expenditures for fiscal 1998 approximate
$12.0 million, primarily for the purchase of office, computer, and other
operating equipment. In addition, at September 26, 1997, the Company had lease
commitments for operating equipment and facilities of $3.8 million for fiscal
1998, with an aggregate commitment of approximately $31.7 million through
fiscal 2018. These purchases will be financed through a combination of
operating cash flow and the credit facility discussed above.
14
<PAGE> 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the Company prior to its annual report on Form 10-K for the
fiscal year ending September 25, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of AmeriTrade Holding Corporation
and Subsidiaries
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of AmeriTrade
Holding Corporation and subsidiaries (collectively, the "Company") as of
September 26, 1997 and September 27, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 26, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of AmeriTrade Holding Corporation and
subsidiaries as of September 26, 1997 and September 27, 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended September 26, 1997 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Omaha, Nebraska
November 7, 1997
15
<PAGE> 16
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
------------ ------------
<S> <C> <C>
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,522,447 $15,767,170
Cash and Investments Segregated in Compliance with Federal Regulations . . . . . . 319,763,921 175,668,497
Receivable from Brokers, Dealers, and Clearing Organizations . . . . . . . . . . 17,823,640 15,096,862
Receivable from Customers and Correspondents - Net of allowance
for doubtful accounts: 1997 - $249,949; 1996 - $202,956 . . . . . . . . . . . 325,407,147 166,075,055
Furniture, Equipment and Leasehold Improvements - Net of accumulated
depreciation and amortization: 1997 - $3,732,790; 1996 - $2,139,323 . . . . . 8,709,923 3,746,178
Goodwill - net of accumulated amortization . . . . . . . . . . . . . . . . . . . . 6,346,763 6,709,765
Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,597,972 7,157,783
Other Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,000,000
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,314 444,378
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,145,616 6,013,544
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $757,356,743 $401,679,232
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to Brokers, Dealers and Clearing Organizations . . . . . . . . . . . . $1,404,999 $1,193,479
Payable to Customers and Correspondents . . . . . . . . . . . . . . . . . . . . 666,279,440 356,942,970
Accounts Payable and Accrued Liabilities . . . . . . . . . . . . . . . . . . . 19,252,931 7,221,008
Notes Payable to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,853,000
Income Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,430,279 806,711
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690,367,649 371,017,168
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $1 par value; authorized 3,000,000 shares, none issued . . . . - -
Common stock, $0.01 par value:
Class A - 25,000,000 shares authorized; 13,153,423 and 11,449,423
shares issued and outstanding in 1997 and 1996, respectively . . . . 131,534 114,494
Class B - 2,000,000 shares authorized; 1,364,400 shares issued and
outstanding in 1997 and 1996, respectively . . . . . . . . . . . . . 13,644 13,644
------------ ------------
Total common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,178 128,138
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,297,506 809,665
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,546,410 29,724,261
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 66,989,094 30,662,064
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $757,356,743 $401,679,232
============ ============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 17
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29,
1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
REVENUES:
Commissions and clearing fees (including
amounts from a related party of $6,843,502
$7,758,836, and $1,480,349 in 1997, 1996, and
1995, respectively) . . . . . . . . . . . . . . . . . . . $51,936,902 $36,469,561 $23,977,481
Interest revenue . . . . . . . . . . . . . . . . . . . . . . 36,622,800 22,517,655 16,296,871
Equity income from investments . . . . . . . . . . . . . . . 3,443,807 3,358,871 542,515
Gain from sale of partnership interest . . . . . . . . . . . - - 584,293
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,663,685 3,032,443 1,480,730
----------- ------------ -----------
Total revenues . . . . . . . . . . . . . . . . . . . . . . 95,667,194 65,378,530 42,881,890
Interest expense . . . . . . . . . . . . . . . . . . . . . . 18,428,854 11,039,777 7,862,287
----------- ------------ -----------
Net revenues . . . . . . . . . . . . . . . . . . . . . . . 77,238,340 54,338,753 35,019,603
EXPENSES EXCLUDING INTEREST:
Employee compensation and benefits . . . . . . . . . . . . . 19,290,808 14,049,642 8,481,977
Commissions and clearance . . . . . . . . . . . . . . . . . . 3,320,262 2,530,642 2,516,796
Communications . . . . . . . . . . . . . . . . . . . . . . . 5,623,468 3,685,535 2,352,590
Occupancy and equipment costs (including
amounts to a related party of $823,360,
$591,040, and $591,040 in 1997, 1996, and
1995, respectively) . . . . . . . . . . . . . . . . . . . 5,422,839 2,889,654 1,626,725
Advertising and promotion . . . . . . . . . . . . . . . . . 13,970,834 7,537,265 4,842,392
Provision for losses . . . . . . . . . . . . . . . . . . . . 59,000 148,014 1,428,663
Amortization of goodwill . . . . . . . . . . . . . . . . . . 363,002 363,002 94,152
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,763,014 4,717,406 2,846,280
----------- ------------ -----------
Total expenses excluding interest . . . . . . . . . . . . 55,813,227 35,921,160 24,189,575
----------- ------------ -----------
Income Before Provision for Income Taxes . . . . . . . . . . . 21,425,113 18,417,593 10,830,028
Provision for Income Taxes . . . . . . . . . . . . . . . . . . 7,602,964 7,259,248 3,798,881
----------- ------------ -----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $13,822,149 $11,158,345 $7,031,147
=========== =========== ==========
Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . $1.00 $0.87 $0.55
=========== =========== ==========
Weighted Average Shares Outstanding . . . . . . . . . . . . . . 13,768,889 12,813,823 12,813,823
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29,
1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------------- PAID-IN RETAINED TREASURY
TOTAL CLASS A CLASS B TOTAL CAPITAL EARNINGS STOCK
----------- -------- ------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 . . . . . . $12,472,572 $132,984 $24,948 $157,932 $943,736 $12,808,303 ($1,437,399)
Net Income . . . . . . . . . . . . . 7,031,147 - - - - 7,031,147 -
----------- -------- ------- -------- ----------- ----------- -----------
Balance, September 29, 1995 . . . . . . 19,503,719 132,984 24,948 157,932 943,736 19,839,450 (1,437,399)
Net Income . . . . . . . . . . . . . 11,158,345 - - - - 11,158,345 -
Retirement of Treasury Stock . . . . - (18,490) (11,304) (29,794) (134,071) (1,273,534) 1,437,399
----------- -------- ------- -------- ----------- ----------- -----------
Balance, September 27, 1996 . . . . . . 30,662,064 114,494 13,644 128,138 809,665 29,724,261 -
Net Income . . . . . . . . . . . . . 13,822,149 - - - - 13,822,149 -
Issuance of 4,000 shares from
compensation plans . . . . . . . 33,750 40 - 40 33,710 - -
Issuance of 1,700,000 shares
from initial public offering . . 22,471,131 17,000 - 17,000 22,454,131 - -
----------- -------- ------- -------- ----------- ----------- -----------
Balance, September 26, 1997 . . . . . . $66,989,094 $131,534 $13,644 $145,178 $23,297,506 $43,546,410 $ -
=========== ======== ======= ======== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29,
1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,822,149 $11,158,345 $7,031,147
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 1,693,487 1,048,692 511,156
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,000 148,014 1,428,663
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,064 (358,139) (6,280)
Equity income from investments . . . . . . . . . . . . . . . . . . . . . . . (3,443,807) (3,358,871) (1,126,808)
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . 363,002 363,002 94,152
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with
Federal regulations . . . . . . . . . . . . . . . . . . . . . . . . . (144,095,424) (51,977,699) (23,689,423)
Receivable from brokers, dealers and clearing organizations . . . . . . (2,726,778) (5,080,870) 1,792,810
Receivable from customers and correspondents . . . . . . . . . . . . . . (159,391,092) (36,035,750) (31,988,712)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,132,072) (658,027) (2,551,644)
Payable to brokers, dealers and clearing organizations . . . . . . . . . 211,520 (1,664,200) 98,981
Payable to customers and correspondents . . . . . . . . . . . . . . . . 309,336,470 105,080,587 53,323,772
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . 12,031,923 1,999,534 2,113,250
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 2,623,568 244,342 376,563
------------ ----------- -----------
Net cash provided by operating activities . . . . . . . . . . . . . . 23,757,010 20,908,960 7,407,627
------------ ----------- -----------
Cash Flows From Investing Activities:
Acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . - (188,953) (7,582,337)
Purchase of furniture, equipment and leasehold improvements . . . . . . . . (6,657,232) (1,811,738) (2,609,544)
Proceeds from sale of furniture, equipment and leasehold improvements . . . - 707,614 -
Purchase of equity and other investments . . . . . . . . . . . . . . . . . . (659,613) (6,272,361) (4,687,650)
Distributions received from equity investments . . . . . . . . . . . . . . . 3,663,231 2,902,004 189,744
Proceeds from sale of partnership interest . . . . . . . . . . . . . . . . . - - 600,000
------------ ----------- -----------
Net cash used in investing activities . . . . . . . . . . . . . . . . (3,653,614) (4,663,434) (14,089,787)
------------ ----------- -----------
Cash Flows From Financing Activities:
Issuance of Class A common stock . . . . . . . . . . . . . . . . . . . . . . 33,750 - -
Proceeds from initial public offering, net of offering costs . . . . . . . . 22,471,131 - -
Proceeds from notes payable to bank . . . . . . . . . . . . . . . . . . . . - - 7,900,000
Principal payments on notes payable to bank . . . . . . . . . . . . . . . . (4,853,000) (2,244,000) (803,000)
------------ ----------- -----------
Net cash provided by (used in) financing activities . . . . . . . . . 17,651,881 (2,244,000) 7,097,000
------------ ----------- -----------
Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . 37,755,277 14,001,527 414,840
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . 15,767,170 1,765,643 1,350,803
------------ ----------- -----------
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . . . . . $53,522,447 $15,767,170 $1,765,643
============ =========== ===========
Supplemental Cash Flow Information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,623,539 $11,025,779 $7,490,422
============ =========== ===========
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,525,078 $7,342,359 $3,587,169
============ =========== ===========
Noncash Financing Activities:
Retirement of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . $ - $1,437,399 $ -
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29,
1995
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of AmeriTrade Holding Corporation and its wholly-owned
subsidiaries (collectively, the "Company"), AmeriTrade Clearing, Inc.
(AmeriTrade Clearing), Accutrade, Inc. (Accutrade), Ceres Securities, Inc.
(Ceres), K. Aufhauser & Company, Inc. (Aufhauser), All American Brokers,
Inc. (All American), and OnMoney Financial Services Corporation (OnMoney).
All significant intercompany balances and transactions have been
eliminated.
On September 27, 1996, the Company's Board of Directors approved a
resolution to reincorporate in the State of Delaware and change its name
from TransTerra Co. to AmeriTrade Holding Corporation. The reincorporation
was accomplished by exchanging each share of Class A and Class B Common
Stock of TransTerra Co. for thirty shares of Class A and Class B Common
Stock, respectively of AmeriTrade Holding Corporation. In addition, on
January 23, 1997, the Company effected an eight-for-five stock split in the
form of a stock dividend. All share data and per share amounts have been
restated to reflect the exchange and stock split.
Subsequent to year end, Ceres changed its name to Ameritrade, (Inc.) and
certain operations from Aufhauser and All American were merged into
Ameritrade, (Inc.).
NATURE OF OPERATIONS - AmeriTrade Clearing is a broker-dealer that
provides trade execution and clearing services to correspondent
broker-dealers. AmeriTrade Clearing is required to abide by all applicable
rules and regulations of the Securities and Exchange Commission, the
Chicago Stock Exchange, Inc. and the National Association of Securities
Dealers. Accutrade, Ceres, Aufhauser and All American, are broker-dealers
that provide discount securities brokerage and related financial services.
Ceres brokerage operations commenced in October 1994. Each of these
brokerage companies clears its securities transactions through AmeriTrade
Clearing. OnMoney is a development stage entity involved in online
commerce.
The Company reports on a fifty-two/fifty-three week year. The fiscal
years ended 1997, 1996, and 1995 were each fifty-two week years.
CAPITAL STOCK - The authorized capital stock of the Company consists of
Class A Common Stock, Class B Common Stock and preferred stock. Each share
of Class A and Class B Common Stock is entitled to one vote on all matters,
except that the Class B Common Stock is entitled to elect a majority of the
directors of the Company and the Class A Common Stock is entitled to elect
the remainder of the directors. Each class of common stock is equally
entitled to dividends if, as and when declared by the board of directors.
Shares of Class A Common Stock are not convertible, while each share of
Class B Common Stock is convertible into one share of Class A Common Stock
at the option of the Class B holder or upon the occurrence of certain
events. Class A and Class B Common Stock have equal participation rights
in the event of a liquidation of the Company.
Voting, dividend, conversion and liquidation rights of the preferred stock
would be established by the board of directors upon issuance of such
preferred stock.
USE OF ESTIMATES - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
SECURITIES TRANSACTIONS - Securities transactions are recorded on a
settlement date basis with such transactions generally settling three
business days after trade date. Revenues and expenses related to
securities transactions are also recorded on settlement date, which is not
materially different than trade date.
20
<PAGE> 21
DEPRECIATION AND AMORTIZATION - Depreciation is provided on a
straight-line basis using estimated useful service lives of three to seven
years. Leasehold improvements are amortized over the lesser of the
economic useful life of the improvement or the term of the lease.
Goodwill is amortized on a straight-line basis generally over a twenty
year period. Accumulated amortization at September 26, 1997 and September
27, 1996 was $880,024 and $517,022, respectively. The Company reviews its
intangible assets for impairment periodically or whenever events or change
in circumstances indicate that the carrying amount of such asset may not be
recoverable.
EARNINGS PER SHARE - Per share data is determined based on the weighted
average number of common shares outstanding each year.
INCOME TAXES - The Company files a consolidated income tax return with its
subsidiaries on a calendar year basis. Income taxes are allocated to the
subsidiaries based upon their respective net income (loss). Deferred
income taxes are provided for temporary differences between financial
statement and taxable income. The principal temporary differences arise
from depreciation, bad debts, prepaid expenses, and certain accrued
liabilities. Deferred tax liabilities and assets are determined based on
the differences between the financial statement carrying amounts and tax
bases of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.
CASH AND CASH EQUIVALENTS - The Company considers temporary, highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
SEGREGATED CASH AND INVESTMENTS - Cash and investments, consisting
primarily of US Treasury Bills and repurchase agreements, at AmeriTrade
Clearing of $319,763,921 and $175,668,497 in 1997 and 1996, respectively,
have been segregated in a special reserve bank account for the benefit of
customers under Rule 15c3-3 of the Securities and Exchange Commission.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company considers the
amounts presented for financial instruments on the consolidated balance
sheets to be reasonable estimates of fair value. The estimated fair value
amounts have been determined by the Company using available market
information and appropriate valuation methodologies.
INVESTMENTS - Investments in other companies and partnerships are
accounted for under the equity method when the Company has the
ability to exercise significant influence over the investee's operating and
financial policies or when the investment is a corporate joint venture.
All material intercompany balances and transactions are eliminated in
consolidation.
ADVERTISING AND PROMOTIONAL EXPENSE - The Company generally expenses all
advertising and promotional costs.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In June 1996, Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities was issued.
This statement applies a "financial-components approach" that focuses on
control, whereby an entity recognizes the financial and servicing costs it
controls and the liabilities it has incurred, de-recognizes assets when
control has been surrendered, and de-recognizes liabilities when
extinguished. The statement, as amended, is applicable to transactions
occurring after December 31, 1997 for securities lending and similar
transactions. The Company has not determined the impact this statement may
have on the consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income (SFAS No. 130). This statement
establishes standards for reporting and display of comprehensive income and
its components in a full set of financial statements. This statement is
effective for fiscal years beginning after December 15,
21
<PAGE> 22
1997. In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information (SFAS No. 131). This statement requires disclosures for each
segment that are similar to those required under current standards with the
addition of quarterly disclosure requirements and more specific and
detailed geographic disclosures. The provisions of SFAS No. 131 are
effective for fiscal years beginning after December 15, 1997. These
statements will not have a material impact on the Company's consolidated
financial statements, as they are of a disclosure nature only.
RECLASSIFICATIONS - Certain items in prior years' consolidated financial
statements have been reclassified to conform to the fiscal 1997
presentation.
2. RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS AND CLEARING
ORGANIZATIONS
Amounts receivable from and payable to brokers, dealers and clearing
organizations are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------ ------------
<S> <C> <C>
Receivable:
Securities borrowed . . . . . . . . . . . . $15,072,400 $10,975,805
Securities failed to deliver . . . . . . . 2,751,240 3,903,960
Clearing organizations . . . . . . . . . . - 217,097
----------- -----------
Total . . . . . . . . . . . . . . . . $17,823,640 $15,096,862
=========== ===========
Payable:
Securities failed to receive . . . . . . . $1,005,984 $1,187,726
Clearing organizations . . . . . . . . . . 399,015 5,753
----------- -----------
Total . . . . . . . . . . . . . . . . $1,404,999 $1,193,479
=========== ===========
</TABLE>
3. INVESTMENTS
EQUITY INVESTMENTS
ROUNDTABLE PARTNERS, L.L.C. (ROUNDTABLE) - As of September 26, 1997 and
September 27, 1996, the Company owned a 9.9 percent and 12.1 percent,
respectively, interest in Roundtable, a limited liability company formed to
hold equity interests in securities trading and market making companies.
This investment is accounted for using the equity method. As of September
26, 1997 and September 27, 1996, $2,184,764 and $1,654,292, respectively,
of the Company's retained earnings represent undistributed earnings of
Roundtable.
The Company has executed a portion of its securities transactions through
subsidiaries of Roundtable since March, 1995.
COMPREHENSIVE SOFTWARE SYSTEMS, LTD. (CSS) - As of September 26, 1997 and
September 27, 1996, the Company owned a 14.3 percent and 12.7 percent,
respectively, limited partnership interest in CSS, a joint venture formed
for the purpose of developing software for securities broker-dealers, banks
and other financial institutions. This investment is accounted for using
the equity method.
22
<PAGE> 23
SUMMARIZED FINANCIAL INFORMATION - The following summarized unaudited
financial information represents an aggregation of financial information of
Roundtable and CSS:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Balance Sheet Data:
Current assets . . . . . . . . . . $108,458,527 $71,387,992
Noncurrent assets . . . . . . . . . 22,356,636 21,025,326
Current liabilities . . . . . . . . 43,754,491 30,547,586
Noncurrent liabilities . . . . . . 12,036,615 1,570,029
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31 DECEMBER 31,
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Earnings Data:
Total revenues . . . . . . . . . $108,536,928 $115,347,509 $44,098,654
Net earnings . . . . . . . . . . 34,455,913 34,239,889 9,679,293
</TABLE>
OTHER INVESTMENT
TELESCAN, INC. (TELESCAN) - As of September 26, 1997 and September 27,
1996, the Company owned approximately 7.2 percent of the outstanding
common stock of Telescan, a publicly traded software/online services
company. The investment in the common stock of Telescan is classified as
an available for sale security in 1997. As of September 27, 1996, the
Company's investment in Telescan was subject to restrictions of Rule 144
under the Securities Act of 1933 and this investment was accounted for
using the cost method, which approximated fair value.
4. NOTES PAYABLE TO BANK
The Company has the following notes payable under a bank loan agreement:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Term note . . . . . . . . . . . . $ - $478,000
Term note B . . . . . . . . . . . - 4,375,000
---------- ----------
Total . . . . . . . . . . . . . . $ - $4,853,000
========== ==========
</TABLE>
The notes were paid in March, 1997. In addition, a revolving note
providing for borrowings up to $4,000,000 was canceled in April, 1997.
23
<PAGE> 24
5. INCOME TAXES
Provision for income taxes is comprised of the following for fiscal years
ended:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current expense:
Federal . . . . . . . . . . $7,150,775 $7,132,387 $3,680,161
State . . . . . . . . . . . 47,125 485,000 125,000
---------- ---------- ----------
7,197,900 7,617,387 3,805,161
Deferred expense (benefit):
Federal . . . . . . . . . . 344,066 (306,777) (5,652)
State . . . . . . . . . . . 60,998 (51,362) (628)
---------- ---------- ----------
405,064 (358,139) (6,280)
---------- ---------- ----------
Provision for income taxes . . $7,602,964 $7,259,248 $3,798,881
========== ========== ==========
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax
rate applicable to income before provision for income taxes follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate . . . . . . . . . . . . . 35% 35% 34%
State taxes, net of federal tax effect . . . . . 3.57 4.29 3.72
Amortization of goodwill . . . . . . . . . . . . 0.59 0.75 0.28
State credits . . . . . . . . . . . . . . . . . (3.72) (2.87) (2.96)
Other . . . . . . . . . . . . . . . . . . . . . 0.05 1.95 0.04
------ ------ ------
35.49% 39.41% 35.08%
====== ====== ======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Depreciation and amortization, net . . . . ($181,323) ($144,841)
Prepaid expenses . . . . . . . . . . . . . (1,107,460) (261,460)
---------- ---------
(1,288,783) (406,301)
Accrued liabilities . . . . . . . . . . . 1,328,097 850,679
---------- ---------
Net deferred tax assets . . . . . . . . . $39,314 $444,378
========== =========
</TABLE>
6. NET CAPITAL
The Company's subsidiaries are subject to the Securities and Exchange
Commission Uniform Net Capital Rule (SEC rule 15c3-1), which requires the
maintenance of minimum net capital, as defined. Net capital and the
related net capital requirement may fluctuate on a daily basis.
The Company's broker-dealer subsidiaries had net capital, in the
aggregate, of $26,121,959 and $13,870,801 as of September 26, 1997
and September 27, 1996, respectively, which exceeded aggregate minimum net
capital requirements by $18,058,972 and $9,397,960, respectively.
Subsidiary net capital in the amount of $8,062,987 and $4,472,841 as of
September 26, 1997 and September 27, 1996, respectively, is not available
for transfer to the Company.
24
<PAGE> 25
7. EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing plan under which the annual contribution
is determined at the discretion of the Board of Directors. Profit sharing
expense was $595,222, $388,800 and $261,143 for the fiscal years ended
1997, 1996 and 1995, respectively.
The Company has a 401(k) plan covering all eligible employees. The plan
provides for matching contributions at the discretion of the Board of
Directors. Contribution expense under this plan was $-0-, $9,093, and
$26,043 for the fiscal years ended 1997, 1996, and 1995, respectively.
The Company has an executive bonus plan which allows designated executive
participants the opportunity to earn bonus awards with current and deferred
components. The value of each component is based on the annual increase
(if any) in the book value per share of the common stock. Executive bonus
plan expense was $2,170,000, $1,710,000 and $1,105,000 for the fiscal
years ended 1997, 1996 and 1995, respectively.
In February 1997, the Company adopted a long-term incentive plan and a
directors plan. The long-term incentive plan authorizes the award of
options to purchase Class A Common Stock, Class A Common Stock appreciation
rights, shares of Class A Common Stock and performance units, while the
directors plan authorizes the award of options to purchase Class A Common
Stock and shares of Class A Common Stock. The number of shares that may be
awarded under the long-term incentive plan and the directors plan may not
exceed 800,000 shares and 80,000 shares, respectively. During fiscal 1997,
4,000 shares of restricted Class A Common Stock and options to purchase
8,000 shares of Class A Common Stock were awarded to non-employee directors
under the directors plan.
8. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company and its subsidiaries have various
noncancelable leases on facilities and certain computer and office
equipment requiring annual payments as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
-------------------------------------------- -----------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . $3,799,544
1999 . . . . . . . . . . . . . . . . . . . . 3,340,530
2000 . . . . . . . . . . . . . . . . . . . . 2,138,740
2001 . . . . . . . . . . . . . . . . . . . . 1,518,010
2002 . . . . . . . . . . . . . . . . . . . . 1,288,000
Thereafter (to December 31, 2017) . . . . . 19,642,000
-----------
Total . . . . . . . . . . . . . . . . . . . $31,726,824
===========
</TABLE>
The Company and certain of its subsidiaries lease their office facilities
from the Chief Executive Officer of the Company and his wife. The lease
expires on December 31, 2017, and provides for annual rentals of
$1,288,000. Additionally, the Company and its subsidiaries lease certain
computer equipment, office equipment, and office facilities under various
operating leases. Rental expense was $3,155,550, $1,581,171 and $866,983
for fiscal years ended 1997, 1996 and 1995, respectively.
LETTER OF CREDIT - A letter of credit in the amount of $35 million as of
September 26, 1997, has been issued on behalf of AmeriTrade Clearing by a
financial institution. The letter of credit, which is for the benefit of a
securities clearinghouse, has been issued to support margin requirements.
AmeriTrade Clearing pays a maintenance fee of 0.5 percent of the committed
amount for the letter of credit. In addition, the same financial
institution may make loans to AmeriTrade Clearing if requested under a
note. AmeriTrade Clearing has pledged customer securities, the amount of
which fluctuates from time to time, to secure its obligations under the
letter of credit and the note. As of September 26, 1997, no amounts were
outstanding under the note.
25
<PAGE> 26
LEGAL - In July 1994, a civil complaint was filed by an Ohio county in U.S.
District Court against Accutrade and AmeriTrade Clearing seeking to
recover approximately $6.5 million of alleged trading losses,
plus interest. The complaint alleged the treasurer of the county
unlawfully invested county funds through a relative, who allegedly
fraudulently caused certain county funds to be wire transferred from the
county to Accutrade and AmeriTrade Clearing into an account owned by that
relative. It was further alleged that the funds were improperly invested
in common stock and options resulting in the trading losses. A customer
account in the name of the county was never maintained at Accutrade or
AmeriTrade Clearing. In December 1994, this complaint was settled with an
out of court payment of $1.5 million to the Ohio county.
The Company and its operating units are parties to a number of legal
matters arising in the ordinary course of its business. In management's
opinion, the Company has adequate legal defenses respecting each of these
actions and does not believe that any such matters, either individually or
in the aggregate, will materially affect the Company's results of
operations or its financial position.
GENERAL CONTINGENCIES - In the general course of business, there are
various contingencies which are not reflected in the consolidated
financial statements. These include AmeriTrade Clearing's customer
activities involving the execution, settlement and financing of various
customer securities transactions. These activities may expose the Company
to off-balance-sheet credit risk in the event the customers are unable to
fulfill their contracted obligations.
AmeriTrade Clearing's customer securities activities are transacted on
either a cash or margin basis. In margin transactions, AmeriTrade Clearing
extends credit to the customer, subject to various regulatory and internal
margin requirements, collateralized by cash and securities in the
customer's account. In connection with these activities, AmeriTrade
Clearing executes and clears customer transactions involving the sale of
securities not yet purchased ("short sales") substantially all of which are
transacted on a margin basis subject to individual exchange regulations.
Such transactions may expose AmeriTrade Clearing to off-balance-sheet risk
in the event margin requirements are not sufficient to fully cover losses
which customers may incur. In the event the customer fails to satisfy its
obligations, AmeriTrade Clearing may be required to purchase or sell
financial instruments at prevailing market prices in order to fulfill the
customer's obligations.
AmeriTrade Clearing seeks to control the risks associated with its
customer activities by requiring customers to maintain margin collateral
in compliance with various regulatory and internal guidelines. AmeriTrade
Clearing monitors required margin levels daily and, pursuant to such
guidelines, requires the customers to deposit additional collateral, or to
reduce positions, when necessary.
AmeriTrade Clearing borrows securities both to cover short sales and to
complete customer transactions in the event that a customer fails to
deliver securities by the required date. Such borrowings are
collateralized by depositing cash or pledging securities with lending
institutions and are "marked to market" on a daily basis. Failure to
maintain levels of cash deposits or pledged securities at all times at
least equal to the value of the related securities can subject AmeriTrade
Clearing to risk of loss. AmeriTrade Clearing seeks to control the risk of
loss by monitoring the market value of securities pledged and requiring
adjustments of collateral levels where necessary.
9. ACQUISITIONS
AUFHAUSER - On July 10, 1995, the Company acquired the net assets of K.
Aufhauser & Company, Inc. for $7,582,337 in cash. $7,000,000 of the
purchase price has been allocated to goodwill, which is being amortized
over a twenty year period. The acquisition was accounted for under the
purchase method of accounting and the consolidated financial statements
include the results of operations from the date of acquisition.
ALL AMERICAN - On October 25, 1995, the Company acquired the net assets of
All American Brokers, Inc. for $188,953 in cash. $127,000 of the purchase
price has been allocated to goodwill, which is being amortized over a
twenty year period. The acquisition was accounted for under the purchase
method of accounting and the consolidated financial statements include the
results of operations from the date of acquisition.
The pro forma effects of these acquisitions on the Company's consolidated
financial statements as if they had occurred at the beginning of fiscal
years are not material.
26
<PAGE> 27
10. INITIAL PUBLIC OFFERING OF COMMON STOCK
The Company sold 1,700,000 shares of its common stock in an initial public
offering at a price of $15 per share on March 4, 1997. The proceeds from
the public offering were $22,471,131 after deducting underwriting
discounts, commissions, and offering costs. The Company used net proceeds
of $5,435,188 to repay borrowings under its bank loan agreement and
$6,000,000 to increase the net capital of AmeriTrade Clearing. The
remainder of the net proceeds were used for marketing activities, the
development and acquisition of new forms of technology, and other general
corporate purposes.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED SEPTEMBER 26, 1997
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $19,042 $22,641 $24,904 $29,080
Interest expense . . . . . . . . . . . . . . . . . . . . . 3,690 4,197 4,959 5,583
------- ------- ------- -------
Net revenues . . . . . . . . . . . . . . . . . . . . 15,352 18,444 19,945 23,497
Total expenses excluding interest . . . . . . . . . . . . 15,416 13,036 12,805 14,556
------- ------- ------- -------
Income (loss) before provision for income taxes . . . . . (64) 5,408 7,140 8,941
Net income (loss) . . . . . . . . . . . . . . . . . . . . ($75) $3,469 $4,587 $5,841
======= ======= ======= =======
Earnings (loss) per share . . . . . . . . . . . . . . . . ($0.01) $0.26 $0.32 $0.40
======= ======= ======= =======
Stock price data
High n/a $21.250 $17.750 $26.313
Low n/a $16.750 $12.125 $15.063
Close n/a $17.250 $15.938 $25.750
<CAPTION>
FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1996
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $14,814 $16,586 $18,641 $15,337
Interest expense . . . . . . . . . . . . . . . . . . . . . 2,765 2,603 2,814 2,857
------- ------- ------- -------
Net revenues . . . . . . . . . . . . . . . . . . . . . 12,049 13,983 15,827 12,480
Total expenses excluding interest . . . . . . . . . . . . . 7,580 8,498 10,525 9,318
------- ------- ------- -------
Income before provision for income taxes . . . . . . . . . . 4,469 5,485 5,302 3,162
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $2,612 $3,198 $3,091 $2,257
======= ======= ======= =======
Earnings per share . . . . . . . . . . . . . . . . . . . . . $0.20 $0.25 $0.24 $0.18
======= ======= ======= =======
Stock price data
High n/a n/a n/a n/a
Low n/a n/a n/a n/a
Close n/a n/a n/a n/a
</TABLE>
27
<PAGE> 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to directors of the Company required to be furnished
pursuant to this item is incorporated by reference from portions of the
Company's definitive proxy statement for its 1998 annual meeting of
stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after September 26, 1997 (the "Proxy
Statement"). Information about Executive Officers is shown on pages 6 and 7 of
this filing.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation required to be furnished
pursuant to this item is incorporated by reference from portions of the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership of certain beneficial owners and
management required to be furnished pursuant to this item is incorporated by
reference from portions of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions
required to be furnished pursuant to this item is incorporated by reference
from portions of the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The following financial statements of the Company are included in this
filing and shown on pages 14-19:
<TABLE>
<CAPTION>
Financial Statement Page in this filing
- ------------------- -------------------
<S> <C>
Report of Independent Auditors 15
Consolidated Balance Sheets as of September 26, 1997 and September 27, 1996 16
Consolidated Statements of Income for the years ended September 26, 1997,
September 27, 1996, and September 29, 1995 17
Consolidated Statements of Stockholders' Equity for the years ended
September 26, 1997, September 27, 1996, and September 29, 1995 18
Consolidated Statements of Cash Flows for the years ended September 26,
1997, September 27, 1996, and September 29, 1995 19
Notes to Consolidated Financial Statements 20
</TABLE>
(a) (2) Financial Data Schedules:
None
Financial statements and schedules other than those listed are omitted for the
reason that they are not required, are not applicable, or that equivalent
information has been included in the financial statements or notes.
28
<PAGE> 29
<TABLE>
<S> <C>
(a) (3) Exhibits:
3.1 Certificate of Incorporation (incorporated by reference to Exhibit 3.1
of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-1 (Registration No. 333-17495) filed on
February 7, 1997)
4.1 Form of Certificate for Class A Stock (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form S-1 (Registration
No. 333-17495) filed on February 7, 1997)
10.1 Agreement of Limited Partnership, dated as of February 4, 1993, of
Comprehensive Software Systems Ltd. (incorporated by reference to Exhibit 10.1
of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.2 Amended and Restated Limited Liability Company Agreement, dated as of
March 6, 1995, of Roundtable Partners (incorporated by reference to Exhibit
10.2 of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.3 Amendment to Agreement of Limited Partnership, dated as of September
1993, of Comprehensive Software Systems Ltd. (incorporated by reference to
Exhibit 10.33 of the Company's Registration Statement on Form S-1 (Registration
No. 333-17495) filed on February 7, 1997)
10.4 Second Amendment to Agreement of Limited Partnership, dated as of
December 1994, of Comprehensive Software Systems Ltd. (incorporated by
reference to Exhibit 10.34 of the Company's Registration Statement on Form S-1
(Registration No. 333-17495) filed on February 7, 1997)
10.5 Third Amendment to Agreement of Limited Partnership, dated as of
December 31, 1995, of Comprehensive Software Systems Ltd. (incorporated by
reference to Exhibit 10.35 of the Company's Registration Statement on Form S-1
(Registration No. 333-17495) filed on February 7, 1997)
10.6 Broker Loan Pledge and Security Agreement, dated as of October 24,
1989, made by AmeriTrade, Inc. in favor of the First National Bank of Chicago
(incorporated by reference to Exhibit 10.18 of the Company's Registration
Statement on Form S-1 (Registration No. 333-17495) filed on February 7, 1997)
10.7 Master Broker Loan Note, dated as of October 24, 1989, made by
AmeriTrade, Inc. in favor of the First National Bank of Chicago (incorporated
by reference to Exhibit 10.19 of the Company's Registration Statement on Form
S-1 (Registration No. 333-17495) filed on February 7, 1997)
10.8 Lease, dated as of July 14, 1993, between John Joe and Marlene M.
Ricketts and TransTerra Co. (incorporated by reference to Exhibit 10.20 of the
Company's Registration Statement on Form S-1 (Registration No. 333-17495) filed
on February 7, 1997)
10.9 Amendment to Lease, dated as of September 27, 1996, between John Joe
and Marlene M. Ricketts and TransTerra Co. (incorporated by reference to
Exhibit 10.21 of the Company's Registration Statement on Form S-1 (Registration
No. 333-17495) filed on February 7, 1997)
10.10 Lease, dated as of October 5, 1995, between A.C. Nielsen Company and
TransTerra Co. (incorporated by reference to Exhibit 10.22 of the Company's
Registration Statement on Form S-1 (Registration No. 333- 17495) filed on
February 7, 1997)
10.11 First Amendment to Lease, dated as of August 23, 1996, between A.C.
Nielsen Company and TransTerra Co. (incorporated by reference to Exhibit 10.23
of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C>
10.12 Second Amendment to Lease, dated as of October 5, 1997, between A.C.
Nielsen Company and AmeriTrade Holding Corporation
10.13 Lease, dated as of March 10, 1996, between New York Executive Office
Network and K. Aufhauser & Company, Inc. (incorporated by reference to Exhibit
10.24 of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.14 Lease, dated as of June 20, 1996, between Christ Community Church
and TransTerra Co. (incorporated by reference to Exhibit 10.25 of the Company's
Registration Statement on Form S-1 (Registration No. 333- 17495) filed on
February 7, 1997)
10.15 Employment Contract, dated as of December 3, 1996, between J. Joe
Ricketts and Ameritrade Holding Corporation (incorporated by reference to
Exhibit 10.26 of the Company's Registration Statement on Form S-1 (Registration
No. 333-17495) filed on February 7, 1997)
10.16 Employment Contract, dated as of December 3, 1996, between Joseph A.
Konen and Ameritrade Holding Corporation (incorporated by reference to Exhibit
10.27 of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.17 Employment Contract, dated as of December 3, 1996, between Robert T.
Slezak and Ameritrade Holding Corporation (incorporated by reference to Exhibit
10.28 of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.18 Form of Executive Bonus Plan (incorporated by reference to Exhibit
10.29 of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.19 1996 Long-Term Incentive Plan (incorporated by reference to Exhibit
10.30 of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.20 1996 Directors Incentive Plan (incorporated by reference to Exhibit
10.31 of the Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.21 Loan Agreement, dated as of November 11, 1997
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 of the Company's Registration Statement on Form S-1
(Registration No. 333-17495) filed on February 7, 1997)
24.1 Power of Attorney authorizing Robert T. Slezak to sign the annual
report on Form 10-K on behalf of Gene L. Finn
24.2 Power of Attorney authorizing Robert T. Slezak to sign the annual
report on Form 10-K on behalf of Thomas Y. Hartley
24.3 Power of Attorney authorizing Robert T. Slezak to sign the annual
report on Form 10-K on behalf of Charles L. Marinaccio
24.4 Power of Attorney authorizing Robert T. Slezak to sign the annual
report on Form 10-K on behalf of Mark L. Mitchell
24.5 Power of Attorney authorizing Robert T. Slezak to sign the annual
report on Form 10-K on behalf of John W. Ward
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of fiscal 1997.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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, in the city of
Omaha, State of Nebraska, on the 22nd day of December, 1997.
AmeriTrade Holding Corporation
By: /s/ J. Joe Ricketts
-------------------
J. Joe Ricketts
Chairman, Chief Executive Officer, and Director
(Principal Executive Officer)
By: /s/ Robert T. Slezak
--------------------
Robert T. Slezak
Vice President, Chief Financial Officer, Treasurer, and Director
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on this 22nd day of December, 1997.
<TABLE>
<S> <C>
/s/ J. Joe Ricketts /s/ Thomas Y. Hartley (1)
- ------------------- --------------------------
J. Joe Ricketts Thomas Y. Hartley
Chairman, Chief Executive Officer, and Director Director
/s/ Joseph A. Konen /s/ Charles L. Marinaccio (1)
- ------------------- ------------------------------
Joseph A. Konen Charles L. Marinaccio
President, Chief Operating Officer, and Director Director
/s/ Robert T. Slezak /s/ Mark L. Mitchell (1)
- -------------------- -------------------------
Robert T. Slezak Mark L. Mitchell
Vice President, Chief Financial Officer, Director
Treasurer, and Director
/s/ Gene L. Finn (1) /s/ John W. Ward (1)
- --------------------- ---------------------
Gene L. Finn John W. Ward
Director Director
-------------------
David W. Garrison
Director
</TABLE>
(1) By: /s/ Robert T. Slezak
--------------------
Robert T. Slezak, Attorney-In-Fact
31
<PAGE> 1
EXHIBIT 10.12
AMENDMENT NUMBER TWO
TO THE LEASE BETWEEN A.C. NIELSEN COMPANY, AS LANDLORD
AND AMERITRADE HOLDING CORPORATION,
FORMERLY TRANSTERRA COMPANY, AS TENANT
COVERING THE PREMISES AT
10202 F STREET
OMAHA, NE
EXECUTED OCTOBER 5, 1995
THIS AMENDMENT is made October , 1997 between A.C. Nielsen Company,
150 North Martingale Road, Schaumburg, IL 60173 ("the Landlord") and Ameritrade
Holding Corporation, formerly known as TransTerra Company, of 4211 South 102nd
Street, Omaha, Nebraska 68127 ("the Tenant").
By their signatures written below, the Landlord and the Tenant amend the
Lease as follows:
1. Section 1.b.(1) is revised as follows:
The renewal period ("Renewal Period") of the term of this Lease (the
"Lease Term") shall commence on December 1, 1997. The commencement date
("Commencement Date") remains as defined in the Lease.
2. Section 1.b.(2) is revised as follows:
The Lease Term shall end 24 months after December 1, 1997, or such earlier
date as this Lease may terminate as provided herein (the "Expiration Date").
Notwithstanding this provision, Tenant shall have the one-time option,
exercised by written notice to the Landlord given after December 1, 1998, to
terminate the Lease effective six months after the written notification.
3. Section 2.a., Base Rent, is revised as follows:
a. Base Rent
Except as modified by Section c. of this Article 2, beginning on December
1, 1997, Tenant shall pay Landlord rent (the "Base Rent") at the annual rate of
One Hundred Eight Thousand Five Hundred Forty Two Dollars ($108,542.00),
payable in equal monthly installments of Nine Thousand Forty Five and 16/100
Dollars ($9,045.16), in advance on the first day of each calendar month during
the Lease Term, at Landlord's address set forth above, or at such other address
as Landlord may specify by written notice to Tenant from time to time. This
rental is based on an annual rental rate of Fourteen Dollars ($14.00) per
rentable square foot.
<PAGE> 2
EXHIBIT 10.12
4. Section 26 is revised as follows:
26. OPTION TO RENEW
Providing Tenant is not, and has not been, in default under the terms of
this Lease, the Landlord shall, not later than June 1, 1999, advise the Tenant
in writing whether the Landlord will extend to the Tenant the right to renew
the Lease for a further period to be mutually agreed between the Landlord and
the Tenant, commencing upon the expiration hereof, upon the same terms and
conditions as set out herein, save as to the rental rate which shall increase
by 6% and to any further right of renewal. The Tenant shall have thirty days to
accept or reject the Landlord's offer.
5. Except to the extent modified by this Amendment, all of the terms and
conditions of the Lease remain in effect as written and binding upon the
parties.
Witness: A.C. NIELSEN COMPANY (Landlord)
/s/ Sandra M. Hovey By: /s/ Edward J. Riehl
- ------------------- ---------------------
Name: EDWARD J. RIEHL
-------------------
Title: ASSISTANT SECRETARY
---------------------
Witness: AMERITRADE HOLDING
CORPORATION (Tenant)
/s/ Robert G. Moore By: /s/ Joseph A. Konen
- ------------------- --------------------
Office Service Mgr. Name:
-----------------
Title: President
----------------
<PAGE> 1
[First National Bank of Omaha LOGO]
PROMISSORY NOTE
MAKER: AmeriTrade Holding Corporation
Address: 4211 So. 102nd Street
Omaha, NE 68127
<TABLE>
<CAPTION>
INTEREST RATE
PRINCIPAL AMOUNT VARIABLE NOTE DATE MATURITY DATE OBLIGOR # NOTE#
<S> <C> <C> <C> <C> <C>
$10,000,000.00 NAT -- 0.5000% 11/11/97 01/31/98 2000000367 7
</TABLE>
Maker promises to pay to the order of First National Bank of Omaha ("Bank") at
any of its offices, the principal sum hereof, which shall be: (Revolving) the
lesser of TEN MILLION AND NO/100 Dollars or so much thereof as may have been
advanced by Bank. The Maker may borrow, repay without penalty, and reborrow from
Note Date until Maturity Date, either the full amount of this loan or any lesser
sum.
Interest shall accrue on the outstanding principal amount from and including the
Note Date above to the Maturity Date at the rate of: 0.5000% per annum under the
rate in effect from time to time and designated by Bank as its National Base
Rate ("Base Rate").
Interest shall be computed on the basis of actual days elapsed and a year of 360
days. The unpaid principal and interest due on this Note at maturity (whether
the Note matures by demand, acceleration, lapse of time or otherwise) shall bear
interest at the lesser of 6% per annum above the interest rate stated above, or
the highest rate allowed by law.
Principal and interest shall be paid as follows: Principal due on Maturity Date,
interest due MONTHLY beginning NOVEMBER 30, 1997 and on the same day of each
MONTH thereafter.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS PRINTED ON THE REVERSE SIDE,
AND ANY APPLICABLE LOAN AGREEMENT.
A credit agreement must be in writing to be enforceable under Nebraska law. To
protect you and us from any misunderstandings or disappointments, any contract,
promise, undertaking, or offer to forebear repayment of money or to make any
other financial accommodation in connection with this loan of money or grant or
extension of credit, or any amendment of, cancellation of, waiver of, or
substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
Witnessed By: AmeriTrade Holding Corporation
/s/ J. Peter Ricketts By: /s/ R.T. Slezak Title: VP & CFO
---------------------- ------------
<PAGE> 2
EXHIBIT 10.21
TERMS AND CONDITIONS
1. Maker shall reimburse Bank for all expenses incurred in protecting or
enforcing its rights.
Maker's liability under its Obligations ("all Maker's existing and future
obligations of whatever nature and whenever incurred to Bank") shall
not be affected by any of the following:
- Acceptance or retention by Bank of other property or interests as
security for the Obligations, or for the liability of any person
other than a Maker with respect to the Obligations;
- Any release, extension, renewal, modification or compromise of any of
the Obligations or the liability of any obligor thereon; or
- Failure by Bank to resort to other security or any person liable for
the Obligations.
Each maker specifically consents to multiple renewals or extensions of
the Obligations. This Note shall be deemed extended through the date
of any advance made by Bank after the original maturity hereof; and any
such advance shall constitute principal due under this Note.
2. REPRESENTATION, WARRANTIES AND COVENANTS. Each Maker represents, warrants
and covenants as follows:
This Note, security agreement, deed of trust, mortgage, or other lien
document(s), if any, securing the Note have been duly authorized,
executed and delivered by the Maker and constitute legal, valid and
binding Obligations of Maker.
This Note evidences a loan for business or agricultural purposes.
Maker will provide business reports and with such frequency as Bank
shall request; and
Maker agrees to pay all costs of collection in connection with this Note,
including reasonable attorneys' fees and legal expenses.
3. DEFAULTS AND REMEDIES. Upon the occurrence of one or more of the following
events of default:
- Maker fails to pay when due any of the Obligations, or to perform or
rectify breach of, any warranty or other undertaking by Maker in this
Note or the other Obligations; or breaches any other covenant or
condition described in any other document;
- Any Maker, endorser, surety, or guarantor of any of the Obligations
dies, ceases to exist, makes an assignment for the benefit of
creditors, becomes insolvent or the subject of bankruptcy or
insolvency proceedings;
- Any representation made to induce Bank to extend credit under this
Note or otherwise is false in any material respect when made;
- A material adverse change, in the opinion of Bank, occurs in the
financial or business condition of any Maker or of any endorser, surety
or guarantor of this Note;
- The entry of a judgment against any Maker;
- Filing of any lien against any Maker;
- The taking possession of any substantial part of the property of any
Maker at the instance of any governmental authority;
- The dissolution, merger, consolidation, or reorganization of any Maker,
or other entity liable for this Obligation;
- Any other event occurs which causes Bank in good faith to deem itself
insecure;
then in such event, all of the Obligations shall, at the option of Bank
and without notice or demand, mature and become immediately due and
payable; and Bank shall have all rights and remedies for default provided
by the Uniform Commercial Code, and any other applicable law and/or the
Obligations.
All costs and expenses incurred by Bank in enforcing its rights under this
Note or any mortgage or other lien, endorsement, surety agreement,
guarantee relating thereto are the obligations of Maker and are
immediately due and payable. Interest shall accrue on such costs and
expenses from the date of incurrence at the rate specified herein for
delinquent Note payments. Each Maker, endorser, surety and guarantor
hereby waives presentment, protest, demand, notice of dishonor, and the
defense of any statute of limitations.
4. GENERAL. Without affecting the liability of any Maker, endorser, surety,
or guarantor, the holder may, without notice, renew or extend the time
for payment, accept partial payments, release or impair any collateral
security for the payment of this Note or agree to sue any party liable
on it.
Subject to rights afforded by law, Bank may, at any time and for any
reason, charge to or off-set against any amount then on deposit in any
account (including a savings certificate), whether or not then due, any
and all debts or liabilities (sole, several, joint, or joint and
severable, absolute or contingent, due or not due, liquidated or
unliquidated, secured or unsecured) then owed to Bank by depositor or in
the case of a multiple-party account, by any party to such multiple-party
account, and this agreement shall be construed to be the consent of
depositor and any such party for the Bank to make such charge or off-set
if consent be required by any person or future law.
Bank shall not be deemed to have waived any of its rights upon or under
this Note, or under any mortgage or other lien, endorsement, surety
agreement, or guarantee unless such waivers be in writing and signed by
Bank. No delay or omission on the part of Bank in exercising any right
shall operate as a waiver of such right or any other right. A waiver on
any one occasion shall not be construed as a bar to or waiver of any
right on any future occasion. All rights and remedies of Bank on
liabilities or the collateral whether evidenced hereby or by any other
instrument or papers shall be cumulative and may be exercised singularly
or concurrently.
Maker, if more than one, shall be jointly and severally liable hereunder
and all provisions hereof regarding the liabilities or security of Maker
shall apply to any liability or any security of any or all of them. This
agreement shall be binding upon the heirs, executors, administrators,
assigns or successors of Maker; shall constitute a continuing agreement,
applying to all future as well as existing transaction, whether or not of
the character contemplated at the date of this Note, and if all
transactions between Bank and Maker shall be at any time closed, shall be
equally applicable to any new transactions thereafter; shall benefit Bank,
its successors, and assigns; and shall so continue in force not
withstanding any change in any partnership party hereto, whether such
change occurs through death, retirement or otherwise.
If any party of this Note is a married person, such person or persons
hereby separately charges his or her separate estate, including both that
now owned and that hereafter acquired, with the payment of this Note.
This Note shall be construed according to the laws of the State of
Nebraska.
Unless the content otherwise requires, all terms used herein which are
defined in the Uniform Commercial Code shall have the meanings therein
stated.
Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned hereby appoints Robert T. Slezak as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending September 26, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
AmeriTrade Holding Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 17th day of December, 1997.
/s/ Gene L. Finn
-------------------------------------
Gene L. Finn, Director
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned hereby appoints Robert T. Slezak as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending September 26, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
AmeriTrade Holding Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 17th day of December, 1997.
/s/ Thomas Y. Hartley
-------------------------------------
Thomas Y. Hartley, Director
<PAGE> 1
EXHIBIT 24.3
POWER OF ATTORNEY
The undersigned hereby appoints Robert T. Slezak as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending September 26, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
AmeriTrade Holding Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 18th day of December, 1997.
/s/ Charles L. Marinaccio
-------------------------------------
Charles L. Marinaccio, Director
<PAGE> 1
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned hereby appoints Robert T. Slezak as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending September 26, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
AmeriTrade Holding Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 17th day of December, 1997.
/s/ Mark L. Mitchell
-------------------------------------
Mark L. Mitchell, Director
<PAGE> 1
EXHIBIT 24.5
POWER OF ATTORNEY
The undersigned hereby appoints Robert T. Slezak as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending September 26, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
AmeriTrade Holding Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
as of the 17th day of December, 1997.
/s/ John W. Ward
-------------------------------------
John W. Ward, Director
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10Q AS OF JUNE 27, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> SEP-26-1997
<CASH> 373,286,368
<RECEIVABLES> 343,230,787
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 15,072,400
<INSTRUMENTS-OWNED> 0
<PP&E> 8,709,923
<TOTAL-ASSETS> 757,356,743
<SHORT-TERM> 0
<PAYABLES> 667,684,439
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 145,178
<OTHER-SE> 66,989,094
<TOTAL-LIABILITY-AND-EQUITY> 757,356,743
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 36,622,800
<COMMISSIONS> 51,936,902
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 3,663,685
<INTEREST-EXPENSE> 18,428,854
<COMPENSATION> 19,290,808
<INCOME-PRETAX> 21,425,113
<INCOME-PRE-EXTRAORDINARY> 21,425,113
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,822,149
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
