<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended March 31, 2000
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from the transition period from ___________ to
___________
Commission file number: 0-22163
------------------
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)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days:
Yes (X) No ( )
As of May 11, 2000 there were 174,677,201 outstanding shares of the registrant's
common stock consisting of 158,304,401 outstanding shares of Class A Common
Stock and 16,372,800 outstanding shares of Class B Common Stock.
================================================================================
<PAGE> 2
AMERITRADE HOLDING CORPORATION
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Accountants' Review Report 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits 16
(b) Reports on Form 8-K 16
Signatures 17
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Ameritrade Holding Corporation
Omaha, Nebraska
We have reviewed the accompanying condensed consolidated balance sheet of
Ameritrade Holding Corporation and subsidiaries (collectively "the Company") as
of March 31, 2000, and the related condensed consolidated statements of
operations and cash flows for the three-month and six-month periods ended March
31, 2000 and March 26, 1999. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Ameritrade Holding Corporation and subsidiaries as of September 24, 1999, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
October 27, 1999, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of September 24, 1999 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche
May 9, 2000
Omaha, Nebraska
3
<PAGE> 4
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 24,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 14,207 $ 76,943
Cash and investments segregated in compliance with federal regulations 252,547 942,427
Receivable from brokers, dealers and clearing organizations 49,236 89,958
Receivable from customers and correspondents - net of allowance
for doubtful accounts: March - $3,114; September - $2,916 3,578,340 1,526,801
Refundable income taxes 8,307 15,947
Furniture, equipment and leasehold improvements - net of accumulated
depreciation and amortization: March - $22,401; September - $12,901 88,744 68,588
Goodwill - net of accumulated amortization 12,425 12,821
Investments 407,914 230,619
Other assets 56,580 72,979
----------- -----------
Total assets $ 4,468,300 $ 3,037,083
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations $ 618,135 $ 384,960
Payable to customers and correspondents 2,990,778 2,057,346
Accounts payable and accrued liabilities 110,127 73,603
Notes payable 80,000 -
Convertible subordinated notes 200,000 200,000
Deferred income taxes 159,266 100,711
----------- -----------
Total liabilities 4,158,306 2,816,620
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $1 par value; 3,000,000 shares authorized, none issued - -
Common stock, $0.01 par value:
Class A - 270,000,000 shares authorized; Mar. 31, 2000 - 158,295,118 shares
issued; Sept. 24, 1999 - 158,103,480 shares issued 1,583 1,581
Class B - 18,000,000 shares authorized; 16,372,800 shares issued and
outstanding 164 164
----------- -----------
Total common stock 1,747 1,745
Additional paid-in capital 25,972 24,079
Retained earnings 36,787 55,296
Treasury stock - Class A shares at cost (Mar. 31, 2000 - 28,042 shares;
Sept. 24, 1999 - 39,624 shares) (65) (93)
Accumulated other comprehensive income 245,553 139,436
----------- -----------
Total stockholders' equity 309,994 220,463
----------- -----------
Total liabilities and stockholders' equity $ 4,468,300 $ 3,037,083
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
MARCH 31, 2000 MARCH 26, 1999 MARCH 31, 2000 MARCH 26, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Commissions and clearing fees $ 125,968 $ 46,853 $ 203,560 $ 83,566
Interest revenue 62,486 24,675 111,427 47,715
Other 5,577 2,391 10,281 4,615
--------- --------- --------- ---------
Total revenues 194,031 73,919 325,268 135,896
Interest expense 23,726 10,258 44,111 20,117
--------- --------- --------- ---------
Net revenues 170,305 63,661 281,157 115,779
Expenses excluding interest:
Employee compensation and benefits 34,570 14,205 67,989 27,013
Commissions and clearance 1,951 2,167 3,851 4,033
Communications 9,851 4,455 17,082 7,891
Occupancy and equipment costs 14,059 4,559 26,930 8,627
Advertising 54,774 13,155 113,436 22,796
Professional services 10,688 5,237 25,799 12,051
OnMoney development 29,763 1,142 38,494 2,092
Other 9,096 6,113 15,718 12,754
--------- --------- --------- ---------
Total expenses excluding interest 164,752 51,033 309,299 97,257
Income (loss) before provision for income taxes 5,553 12,628 (28,142) 18,522
Provision for income taxes (benefit) 2,351 4,551 (9,633) 6,702
--------- --------- --------- ---------
Net income (loss) $ 3,202 $ 8,077 $ (18,509) $ 11,820
========= ========= ========= =========
Basic earnings (loss) per share $ 0.02 $ 0.05 $ (0.11) $ 0.07
Diluted earnings (loss) per share $ 0.02 $ 0.05 $ (0.11) $ 0.07
Weighted average shares outstanding - basic 174,621 174,335 174,581 174,247
Weighted average shares outstanding - diluted 176,099 175,727 174,581 175,528
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
MARCH 31, 2000 MARCH 26, 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (18,509) $ 11,820
Adjustments to Reconcile Net Income (Loss) to Net Cash from
Operating Activities:
Depreciation and Amortization 9,500 2,752
Provision for Losses 635 1,695
Deferred Income Taxes (9,290) 304
Amortization of Goodwill 396 182
Changes in Operating Assets and Liabilities:
Cash and Investments Segregated in Compliance with Federal Regulations 689,880 (98,356)
Brokerage Receivables (2,011,451) (549,132)
Other Assets 25,309 (8,792)
Brokerage Payables 1,166,608 538,530
Accounts Payable and Accrued Liabilities 36,524 17,058
Short-term Borrowings - 45,000
Income Taxes Payable - 1,384
----------- -----------
Net Cash Used In Operating Activities (110,398) (37,555)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture, Equipment and Leasehold Improvements (29,657) (10,055)
Purchase of Equity Investments (3,333) -
----------- -----------
Net Cash Used In Investing Activities (32,990) (10,055)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 95,000 60,000
Principal Payments on Notes Payable (15,000) (33,000)
Proceeds from Exercise of Stock Options 410 507
Issuance of Class A Treasury Stock 242 51
----------- -----------
Net Cash Provided By Financing Activities 80,652 27,558
----------- -----------
Net Decrease In Cash And Cash Equivalents (62,736) (20,052)
Cash and Cash Equivalents at Beginning of Period 76,943 24,527
----------- -----------
Cash and Cash Equivalents at End of Period $ 14,207 $ 4,475
=========== ===========
Supplemental Cash Flow Information:
Interest Paid $ 6,657 $ 19,469
Income Taxes Paid (Refunded) $ (9,269) $ 5,011
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Ameritrade Holding Corporation and its wholly-owned subsidiaries (collectively,
the "Company"). All significant intercompany balances and transactions have been
eliminated.
The Company's Board of Directors have declared stock splits, all effected as
stock dividends, as follows: August 1998 - two-for-one; February 1999 -
two-for-one; and July 1999 - three-for-one. All share data and per share amounts
have been restated to reflect these transactions.
These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of
management, reflect all adjustments, which are all of a normal recurring nature,
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented in conformity with generally accepted
accounting principles. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's annual report filed on Form 10-K and amendments thereto for the fiscal
year ended September 24, 1999.
Certain items in prior years consolidated financial statements have been
reclassified to conform to the current quarter presentation.
2. NET CAPITAL
The Company's broker-dealer subsidiaries are subject to the Securities and
Exchange Commission Uniform Net Capital Rule (Rule 15c3-1 of the Securities
Exchange Act of 1934), which requires the maintenance of minimum net capital, as
defined. Net capital and the related net capital requirement may fluctuate on a
daily basis.
The Company's broker-dealer subsidiaries had net capital, in the aggregate, of
$213.0 million and $104.0 million as of March 31, 2000 and September 24, 1999,
respectively, which exceeded aggregate minimum net capital requirements by
$136.3 million and $70.0 million, respectively. Subsidiary net capital in the
amount of $76.7 million and $34.0 million as of March 31, 2000 and September 24,
1999, respectively, was not available for transfer to Ameritrade Holding
Corporation.
3. NOTES PAYABLE
As of March 31, 2000, the Company maintained a revolving credit agreement with a
bank group that was originally entered into in January 1998 and was amended and
restated in January 2000. The revolving credit agreement permitted borrowings up
to $90.0 million through December 31, 2001, subject to reduction under certain
circumstances specified in the credit agreement. The interest rate on borrowings
is determined on a monthly basis based on the greater of (i) the prime rate
minus 0.75 percent or (ii) 90-day LIBOR plus 1.50 percent. At March 31, 2000,
the interest rate on this borrowing was 8.0 percent. The Company also pays a
maintenance fee of 0.25 percent of the unused borrowings through the maturity
date. The Company had outstanding indebtedness under the revolving credit
agreement of $80.0 million at March 31, 2000. At September 24, 1999, there was
no outstanding amount under the revolving credit agreement. The revolving credit
agreement contains certain covenants and restrictions, including a minimum net
worth requirement. As further security for its obligations under the revolving
credit agreement, the Company has pledged $50.0 million of its Knight/Trimark
Group, Inc. ("Knight/Trimark") common stock (see Note 5) to the bank group.
On April 28, 2000, the Company amended the revolving credit agreement to
eliminate certain restrictions on the Company's use of the Knight/Trimark stock
not pledged to the bank group and to reduce the facility size from $90.0 million
to $75.0 million. At that time, the Company also established a $75.0 million
margin loan facility that is supported by the approximately 6.2 million shares
of the Company's Knight/Trimark stock not pledged to the bank group. As of such
date, the Company had borrowings outstanding under the revolving credit
agreement of $35.0 million and had no borrowings outstanding under the margin
loan facility.
7
<PAGE> 8
4. CONVERTIBLE SUBORDINATED NOTES
In August 1999, the Company issued $200.0 million of 5.75 percent convertible
subordinated notes due August 1, 2004. The notes are convertible into 6,142,740
shares of Class A common stock. The holders of the notes may convert the notes
into shares of Class A common stock at any time prior to the close of business
on the maturity date of the notes, unless previously redeemed or repurchased, at
a conversion rate of 30.7137 shares per $1,000 principal amount of notes
(equivalent to an approximate conversion price of $32.56 per share), subject to
adjustment in certain circumstances. Interest on the notes is payable on
February 1 and August 1 of each year. The notes are not subject to redemption
prior to August 6, 2002, and the Company may, at its option, redeem the notes at
a premium on or after such date, in whole or in part, upon not less than 30 days
nor more than 60 days prior notice to each holder.
5. INVESTMENTS
The Company's investments consist primarily of ownership of approximately 7.9
million unregistered shares of Knight/Trimark, representing an approximate 7.0
percent ownership. Knight/Trimark is a publicly held company that is a market
maker in equity securities. The Company derives certain revenues from
Knight/Trimark in exchange for routing trade orders to them for execution.
As of April 28, 2000, the Company had pledged $50.0 million of its
Knight/Trimark common stock to support its obligations under the revolving
credit agreement and had also used approximately 6.2 million shares of its
Knight/Trimark common stock to support borrowings under a margin loan facility
(See Note 3).
6. COMMITMENTS AND CONTINGENCIES
Legal - On September 16, 1998, a putative class action complaint was filed in
the District Court, Douglas County, Nebraska, regarding the Company's alleged
inability to handle the volume of subscribers to its Internet brokerage
services. After initial proceedings and discovery, the complaint was amended
and, on September 10, 1999, a second amended complaint was filed. The amended
complaint seeks injunctive relief enjoining alleged deceptive, fraudulent and
misleading practices, equitable relief compelling the Company to increase
capacity, and unspecified compensatory damages. The Company believes that it has
viable defenses to the allegations raised in the amended complaint and intends
to assert them vigorously. However, because this proceeding is still at a
preliminary phase and the amount of damages sought has not been quantified, the
Company is not presently able to predict the ultimate outcome of this matter.
The Company and its operating units are parties to a number of other 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.
Letter of Credit - Advanced Clearing, Inc. ("Advanced Clearing") has various
secured credit facilities with financial institutions. These credit facilities
are utilized in Advanced Clearing's securities clearing operations. These
facilities provide for the issuance of letters of credit by the financial
institutions on behalf of, and cash advances to, Advanced Clearing. Advanced
Clearing has pledged customer securities as collateral for the related credit,
and its obligations under these facilities and the related collateral
requirements fluctuate from time to time. As of March 31, 2000 and September 24,
1999, the financial institutions had authorized letters of credit in the
aggregate amount of $210.0 million and $100.0 million, respectively. As of March
31, 2000 and September 24, 1999, no amounts were outstanding under the letters
of credit. Advanced Clearing pays a maintenance fee of 0.5 percent of the
committed amount for the letters of credit.
General Contingencies - In the general course of business, there are various
contingencies that are not reflected in the condensed consolidated financial
statements. These include Advanced 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.
Advanced Clearing's customer securities activities are transacted on either a
cash or margin basis. In margin transactions, Advanced Clearing extends credit
to the customer to purchase securities, subject to various regulatory and
internal margin requirements, collateralized by cash and securities in the
customer's account. In addition, Advanced Clearing also executes and clears
customer transactions involving the sale of securities not yet purchased (short
sales). In both types of transactions, the Company may be exposed 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, Advanced Clearing may be required to purchase or sell
financial instruments at prevailing market prices in order to fulfill the
customer's obligations.
8
<PAGE> 9
Advanced 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. Advanced Clearing monitors
required margin levels daily and, pursuant to such guidelines, requires
customers to deposit additional collateral, or to reduce positions, when
necessary.
Advanced Clearing records customer transactions on a settlement date basis,
which is generally three business days after trade date. Advanced Clearing is
obligated to settle transactions with brokers and other financial institutions
even if its customers fail to meet their obligations to the Company. If
customers do not fulfill their contractual obligations, the Company may incur
losses.
Advanced 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
Advanced Clearing to risk of loss. Advanced Clearing seeks to control the risk
of loss by monitoring the market value of securities pledged and requiring
adjustments of collateral levels where necessary.
7. SEGMENT INFORMATION
Commencing in fiscal 2000, OnMoney Financial Services Corporation ("OnMoney"),
the Company's personal financial management subsidiary, was a reportable
business segment. Financial information for the Company's reportable segments is
presented in the table below, and the totals are equal to the Company's
consolidated amounts as reported in the condensed consolidated financial
statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 THREE MONTHS ENDED MARCH 26, 1999
---------------------------------------- ----------------------------------------
BROKERAGE BROKERAGE
OPERATIONS ONMONEY TOTAL OPERATIONS ONMONEY TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest - net of interest expense $ 38,760 $ - $ 38,760 $ 14,417 $ - $ 14,417
Non-interest revenue 131,489 56 131,545 49,244 - 49,244
----------- ----------- ----------- ----------- ----------- -----------
Net revenues $ 170,249 $ 56 $ 170,305 $ 63,661 $ - $ 63,661
=========== =========== =========== =========== =========== ===========
Pre-tax income (loss) $ 35,316 $ (29,763) $ 5,553 $ 13,770 $ (1,142) $ 12,628
Identifiable assets at period end 4,465,353 2,947 4,468,300 2,100,769 4,220 2,104,989
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 2000 SIX MONTHS ENDED MARCH 26, 1999
---------------------------------------- ----------------------------------------
BROKERAGE BROKERAGE
OPERATIONS ONMONEY TOTAL OPERATIONS ONMONEY TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest - net of interest expense $ 67,316 $ - $ 67,316 $ 27,598 $ - $ 27,598
Non-interest revenue 213,785 56 213,841 88,181 - 88,181
----------- ----------- ----------- ----------- ----------- -----------
Net revenues $ 281,101 $ 56 $ 281,157 $ 115,779 $ - $ 115,779
=========== =========== =========== =========== =========== ===========
Pre-tax income (loss) $ 10,352 $ (38,494) $ (28,142) $ 20,614 $ (2,092) $ 18,522
Identifiable assets at period end 4,465,353 2,947 4,468,300 2,100,769 4,220 2,104,989
</TABLE>
OnMoney losses are comprised primarily of advertising expense, professional
services expense and employment expense. Total advertising expense for the
Company, including OnMoney, for the quarters ended March 31, 2000 and March 26,
1999 was $69.5 million and $13.2 million, respectively. Total advertising
expense for the Company, including OnMoney, for the six months ended March 31,
2000 and March 26, 1999 was $131.0 million and $22.8 million, respectively.
9
<PAGE> 10
8. COMPREHENSIVE INCOME
Comprehensive income is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
MARCH 31, 2000 MARCH 26, 1999 MARCH 31, 2000 MARCH 26, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ 3,202 $ 8,077 $ (18,509) $ 11,820
Other Comprehensive Income
Net unrealized holding gains on investment securities
available-for-sale arising during the period 39,535 126,676 173,962 172,934
Adjustment for deferred income taxes (15,417) (49,404) (67,845) (67,444)
--------- --------- --------- ---------
Total Other Comprehensive Income, net of tax 24,118 77,272 106,117 105,490
--------- --------- --------- ---------
Comprehensive Income $ 27,320 $ 85,349 $ 87,608 $ 117,310
========= ========= ========= =========
</TABLE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Selected Financial Data and
the Consolidated Financial Statements and Notes thereto included in the
Company's annual report on Form 10-K and amendments thereto for the fiscal year
ended September 24, 1999. This discussion contains forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
materially from those anticipated in such forward-looking statements. Factors
that may cause such differences include, but are not limited to: the effect of
customer trading patterns on Company revenues and earnings; computer system
failures; the effects of competitors' pricing, product and service decisions and
intensified competition; evolving regulation and changing industry customs and
practices adversely affecting the Company; adverse results of litigation;
changes in revenues and profit margin due to cyclical securities markets and
interest rates; and a significant downturn in the securities markets over a
short period of time or a sustained decline in securities prices and trading
volumes.
The terms "we" and "us" as used in this document refer to Ameritrade Holding
Corporation ("Holding") and its operating subsidiaries Ameritrade (Inc.)
("Ameritrade"), Accutrade, Inc., Advanced Clearing, Inc. ("Advanced Clearing"),
AmeriVest, Inc., FreeTrade.com, Inc. and OnMoney Financial Services Corporation
("OnMoney"), collectively.
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 26, 1999
NET REVENUES. Commissions and clearing fees increased 169 percent to $126.0
million in the second quarter of fiscal 2000 from $46.9 million in the second
quarter of fiscal 1999. This increase was primarily attributable to an increase
in the number of securities transactions processed, as average trades per day
increased 186 percent to 149,000 in the second quarter of fiscal 2000 from
52,000 in the second quarter of fiscal 1999. The increase in transaction
processing volume was primarily a result of a significant increase in customer
accounts resulting from the substantial advertising expenditures made by us
during fiscal 1998, fiscal 1999 and the first half of fiscal 2000. Core accounts
increased to approximately 992,000 at March 31, 2000 from approximately 428,000
at March 26, 1999. Offsetting the growth in trades per day was a decrease in
commissions and clearing fees per trade by 13 percent to $13 in the second
quarter of fiscal 2000 from $15 in the second quarter of fiscal 1999. We expect
average commission and clearing fees per trade to continue to decrease due to
the growth in the number of lower revenue Internet equity trades. However, we
believe the rate of decline in average commission will be lower than the rate of
decline experienced over the past two years.
We have arrangements with several execution agents to receive cash payments in
exchange for routing trade orders to these firms for execution (payment for
order flow). The revenues generated by us under these arrangements totaled $16.2
million, or 9 percent of net revenues, for the second quarter of fiscal 2000 and
$5.4 million, or 9 percent of net revenues, for the second quarter of fiscal
1999. Payment for order flow is a component of the commission and clearing fees
revenue line. Payment for order flow decreased 4 percent on a per trade basis
from $1.79 in the second quarter of fiscal 1999 to $1.72 in the second quarter
of fiscal 2000. We expect payment for order flow to continue to decrease on a
per trade basis as a result of competitive forces and regulatory changes. A
portion of these revenues were received from execution agents owned by
Knight/Trimark Group, Inc. ("Knight/Trimark"), a market maker in equity
securities. As of March 31, 2000, we owned approximately 7.0 percent of the
outstanding common stock of Knight/Trimark.
10
<PAGE> 11
Net interest revenue (interest revenue less interest expense) increased 169
percent to $38.8 million in the second quarter of fiscal 2000 from $14.4 million
in the second quarter of fiscal 1999. This increase was due primarily to an
increase of 206 percent in customer and correspondent broker-dealer receivables
partially offset by a 58 percent decrease in cash and investments segregated in
compliance with federal regulations and an increase of 84 percent in amounts
payable to customers and correspondent broker-dealers in the second quarter of
fiscal 2000 from the second quarter of fiscal 1999. We generally expect net
interest revenue to grow as our account base grows.
Other revenues increased 133 percent to $5.6 million in the second quarter of
fiscal 2000 from $2.4 million in the second quarter of fiscal 1999 due primarily
to an increase in marketing and service fees paid to us by mutual funds as a
result of holding more customer mutual fund assets.
EXPENSES EXCLUDING INTEREST. Employee compensation and benefits expense
increased 144 percent to $34.6 million in the second quarter of fiscal 2000 from
$14.2 million in the second quarter of fiscal 1999, due primarily to an increase
in employees. Full-time equivalent employees rose 84 percent to 2,494 at the end
of March 2000 from 1,353 at the end of March 1999. The increase in employees was
necessary to accommodate the growth in trading volume following our advertising
campaigns. We expect employment expense to continue to increase to support the
expected increase in customer accounts, customer assets and trades.
Commissions and clearance costs decreased 9 percent to $2.0 million in the
second quarter of fiscal 2000 from $2.2 million in the second quarter of fiscal
1999. This decrease reflects our efforts to reduce execution, clearance,
settlement and depository costs with outside entities and the realization of
economies of scale associated with these activities and occurred despite a 186
percent increase in transaction volume.
Communications expense increased 120 percent to $9.9 million in the second
quarter of fiscal 2000 from $4.5 million in the second quarter of fiscal 1999,
primarily as a result of telephone, quote and market information costs related
to the increase in transaction processing volume. Communication expenses are
expected to continue to increase at a slower rate than transactions processed,
as the low-cost Internet continues to be the predominant communication channel
with our customers.
Occupancy and equipment costs increased 207 percent to $14.1 million in the
second quarter of fiscal 2000 from $4.6 million in the second quarter of fiscal
1999. This increase was due primarily to the lease of equipment and additional
office space. In fiscal 1999, we added approximately 250,000 square feet of
additional space in Omaha, Nebraska, Baltimore, Maryland, Ft. Worth, Texas, and
Kansas City, Missouri. We also have leased additional equipment over the past
fiscal year to accommodate our continued growth.
Advertising expenses for our brokerage operations increased 315 percent to $54.8
million in the second quarter of fiscal 2000 from $13.2 million in the second
quarter of fiscal 1999. The increase in advertising expenditures was principally
related to our efforts to build awareness of the Ameritrade brand and was
primarily responsible for the significant increase in the number of customer
accounts and account assets realized by us during the quarter. We plan to
continue to expand our customer base through significant advertising efforts and
have budgeted approximately $200 million for advertising in fiscal 2000.
Professional services expense increased to $10.7 million in the second quarter
of fiscal 2000 from $5.2 million in the second quarter of fiscal 1999. This 106
percent increase was primarily due to marketing and technology consulting
services to assist us in operational effectiveness and market research.
OnMoney development costs increased 2,609 percent to $29.8 million in the second
quarter of fiscal 2000 from $1.1 million in the second quarter of fiscal 1999.
During the second quarter of fiscal 2000, OnMoney development was comprised
primarily of advertising expense, professional services expense and employment
expense. For the second quarter of fiscal 1999, OnMoney development was
comprised primarily of employment expense and professional services expense.
These expenditures are expected to continue at approximately the same dollar
level until OnMoney becomes self-funding by obtaining external financing, which
is currently anticipated before the end of the calendar year. OnMoney is a
personal finance portal providing users with access to information, tools and
products that help them better manage their personal finances. OnMoney.com is a
personalized and interactive financial services website that features a wide
variety of personal finance products and services, including account
consolidation, bill payment and presentment, mortgages, insurance, financial
planning tools and educational materials.
Other operating expenses increased 49 percent to $9.1 million in the second
quarter of fiscal 2000 from $6.1 million in the second quarter of fiscal 1999,
primarily as a result of confirmation and statement processing costs for the
significantly higher number of transactions.
Income tax expense was $2.4 million in the second quarter of fiscal 2000,
compared to $4.6 million in the second quarter of fiscal 1999.
11
<PAGE> 12
SIX MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 26, 1999
NET REVENUES. Commissions and clearing fees increased 144 percent to $203.6
million in the first half of fiscal 2000 from $83.6 million in the first half of
fiscal 1999. This increase was primarily attributable to an increase in the
number of securities transactions processed, as average trades per day increased
171 percent to 114,000 in the first half of fiscal 2000 from 42,000 in the first
half of fiscal 1999. The increase in transaction processing volume was primarily
a result of a significant increase in customer accounts resulting from the
substantial advertising expenditures made by us during fiscal 1998, fiscal 1999
and the first half of fiscal 2000. Core accounts increased to approximately
992,000 at March 31, 2000 from approximately 428,000 at March 26, 1999.
Offsetting the growth in trades per day is the decrease in commissions and
clearing fees per trade by 13 percent to $14 in the first half of fiscal 2000
from $16 in the first half of fiscal 1999. We expect average commission and
clearing fees per trade to continue to decrease due to the growth in the number
of lower revenue Internet equity trades. However, we believe the rate of decline
in average commission will be lower than the rate of decline experienced over
the past two years.
We have arrangements with several execution agents to receive cash payments in
exchange for routing trade orders to these firms for execution (payment for
order flow). The revenues generated by us under these arrangements totaled $25.9
million, or 9 percent of net revenues, for the first half of fiscal 2000 and
$10.3 million, or 9 percent of net revenues, for the first half of fiscal 1999.
Payment for order flow is a component of the commission and clearing fees
revenue line. Payment for order flow decreased 11 percent on a per trade basis
from $1.96 in the first half of fiscal 1999 to $1.74 in the first half of fiscal
2000. We expect payment for order flow to continue to decrease on a per trade
basis as a result of competitive forces and regulatory changes. A portion of
these revenues were received from execution agents owned by Knight/Trimark. As
of March 31, 2000, we owned approximately 7.0 percent of the outstanding common
stock of Knight/Trimark.
Net interest revenue (interest revenue less interest expense) increased 144
percent to $67.3 million in the first half of fiscal 2000 from $27.6 million in
the first half of fiscal 1999. This increase was due primarily to an increase of
206 percent in customer and correspondent broker-dealer receivables partially
offset by a 58 percent decrease in cash and investments segregated in compliance
with federal regulations and an increase of 84 percent in amounts payable to
customers and correspondent broker-dealers in the second quarter of fiscal 2000
from the second quarter of fiscal 1999. We generally expect net interest revenue
to grow as our account base grows.
Other revenues increased 124 percent to $10.3 million in the first half of
fiscal 2000 from $4.6 million in the first half of fiscal 1999 due primarily to
an increase in marketing and service fees paid to us by mutual funds as a result
of holding more customer mutual fund assets.
EXPENSES EXCLUDING INTEREST. Employee compensation and benefits expense
increased 152 percent to $68.0 million in the first half of fiscal 2000 from
$27.0 million in the first half of fiscal 1999, due primarily to an increase in
employees. Full-time equivalent employees rose 84 percent to 2,494 at the end of
March 2000 from 1,353 at the end of March 1999. The increase in employees was
necessary to accommodate the growth in trading volume following our advertising
campaigns. We expect employment expense to continue to increase to support the
expected increase in customer accounts, customer assets and trades.
Commissions and clearance costs decreased 3 percent to $3.9 million in the first
half of fiscal 2000 from $4.0 million in the first half of fiscal 1999. This
decrease reflects our efforts to reduce execution, clearance, settlement, and
depository costs with outside entities and the realization of economies of scale
associated with these activities and occurred despite a 170 percent increase in
transaction volume.
Communications expense increased 116 percent to $17.1 million in the first half
of fiscal 2000 from $7.9 million in the first half of fiscal 1999, primarily as
a result of telephone, quote and market information costs related to the
increase in transaction processing volume. Communication expenses are expected
to continue to increase at a slower rate than transactions processed, as the
low-cost Internet continues to be the predominant communication channel with our
customers.
Occupancy and equipment costs increased 213 percent to $26.9 million in the
first half of fiscal 2000 from $8.6 million in the first half of fiscal 1999.
This increase was due primarily to the lease of equipment and additional office
space. In fiscal 1999, we added approximately 250,000 square feet of additional
space in Omaha, Nebraska, Baltimore, Maryland, Ft. Worth, Texas, and Kansas
City, Missouri. We also have leased additional equipment over the past fiscal
year to accommodate our continued growth.
Advertising expenses for our brokerage operations increased 397 percent to
$113.4 million in the first half of fiscal 2000 from $22.8 million in the first
half of fiscal 1999. The increase in advertising expenditures was principally
related to our efforts to build awareness of the Ameritrade brand and was
primarily responsible for the significant increase in the number of customer
accounts and account assets realized by us during the period. We plan to
continue to expand our customer base through significant advertising efforts and
have budgeted approximately $200 million for advertising in fiscal 2000.
12
<PAGE> 13
Professional services expense increased to $25.8 million in the first half of
fiscal 2000 from $12.1 million in the first half of fiscal 1999. This 113
percent increase was primarily due to marketing and technology consulting
services to assist us in operational effectiveness and market research.
OnMoney development costs increased 1,733 percent to $38.5 million in the first
half of fiscal 2000 from $2.1 million in the first half of fiscal 1999. During
the first half of fiscal 2000, OnMoney development was comprised primarily of
advertising expense, professional services expense and employment expense. For
the first half of fiscal 1999, OnMoney development was comprised primarily of
employment expense and professional services expense.
Other operating expenses increased 23 percent to $15.7 million in the first half
of fiscal 2000 from $12.8 million in the first half of fiscal 1999, primarily as
a result of confirmation and statement processing costs for the significantly
higher number of transactions.
Income tax benefit was $9.6 million for the first half of fiscal 2000, compared
with income tax expense of $6.7 million for the first half of fiscal 2000
consistent with our pretax loss in the first half of fiscal 2000 and pretax
income in the first half of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our growth and our investment in OnMoney primarily
through the use of funds generated from operations and from borrowings under our
credit agreement. Our growth during the first quarter of fiscal 2000 was
financed primarily through funds generated from operations, borrowings under our
credit agreement and the remaining proceeds from the convertible subordinated
notes that were issued in August 1999 (see "Convertible Subordinated Notes").
During the second quarter of fiscal 2000, our growth was financed primarily
through funds generated from operations, borrowings under our credit agreement
and other borrowings, including the mortgaging of our Kansas City, Missouri data
center for $7.5 million. We anticipate continued significant capital and
liquidity needs during the remainder of fiscal 2000 as a result of our current
advertising campaign and expected growth in customer accounts resulting from
this campaign and our continued investment in OnMoney. In addition, we have
recently entered into an agreement to participate as a selling group member in
certain public offerings of securities and may, from time to time, also
participate as an underwriter in connection with such offerings. We anticipate
that such participation will periodically create the need for additional capital
to satisfy the requirements of the Securities and Exchange Commission's Net
Capital Rule (Rule 15c3-1). We plan to finance our capital and liquidity needs
from our operating cash flows and borrowings under our revolving credit
facility. In addition, we recently established a $75.0 million margin loan
facility that is supported by approximately 6.2 million shares of our
Knight/Trimark stock and would be available to meet additional capital and
liquidity needs. We are also considering selling some or all of our interest in
Knight/Trimark.
Dividends from subsidiaries are another source of liquidity. Some of our
subsidiaries are subject to requirements of the Securities and Exchange
Commission and the National Association of Securities Dealers relating to
liquidity, capital standards, and the use of customer funds and securities,
which limit funds available for the payment of dividends to Holding.
CASH FLOW
Cash used in operating activities was $117.9 million in the first half of fiscal
2000, compared to cash used of $37.6 million in the first half of fiscal 1999.
The increase in cash during the first half of fiscal 2000 was attributable to
the substantial increase in customer receivables.
Cash used in investing activities was $33.0 million in the first half of fiscal
2000, compared to $10.1 million in the first half of fiscal 1999. Uses of cash
in both periods is primarily related to purchases of property and equipment.
Cash provided by financing activities was $88.2 million in the first half of
fiscal 2000, compared to $27.6 million in the first half of fiscal 1999. The
cash provided by financing activities for both periods consisted of net proceeds
from our revolving credit agreement with a bank group (see "Bank Loan
Agreements").
LOAN AGREEMENTS
As of March 31, 2000, the Company maintained a revolving credit agreement with a
bank group that was originally entered into in January 1998 and was amended and
restated in January 2000. The revolving credit agreement permits borrowings up
to $90.0 million through December 31, 2001, subject to reduction under certain
circumstances specified in the credit agreement. The interest rate on borrowings
is determined on a monthly basis based on the greater of (i) the prime rate
minus 0.75 percent or (ii) 90-day LIBOR plus 1.50 percent. At March 31, 2000,
the interest rate on this borrowing was 8.0 percent. The Company also pays a
maintenance fee of 0.25 percent of the unused borrowings through the maturity
date. The Company had outstanding
13
<PAGE> 14
indebtedness under the revolving credit agreement of $80.0 million at March 31,
2000. At September 24, 1999, there was no outstanding amount under the revolving
credit agreement. The revolving credit agreement contains certain covenants and
restrictions, including a minimum net worth requirement. As further security for
its obligations under the revolving credit agreement, the Company has pledged
$50.0 million of its Knight/Trimark common stock (see Note 5) to the bank group.
On April 28, 2000, the Company amended the revolving credit agreement to
eliminate certain restrictions on the Company's use of the Knight/Trimark stock
not pledged to the bank group and to reduce the facility size from $90.0 million
to $75.0 million. At that time, the Company also established a $75.0 million
margin loan facility that is supported by the approximately 6.2 million shares
of the Company's Knight/Trimark stock not pledged to the bank group. As of such
date, the Company had borrowings outstanding under the revolving credit
agreement of $35.0 million and had no borrowings outstanding under the margin
loan facility.
CONVERTIBLE SUBORDINATED NOTES
In August 1999, we issued $200.0 million of 5.75 percent convertible
subordinated notes due August 1, 2004. The notes are convertible into 6,142,740
shares of Class A common stock. The holders of the notes may convert the notes
into shares of Class A common stock at any time prior to the close of business
on the maturity date of the notes, unless previously redeemed or repurchased, at
a conversion rate of 30.7137 shares per $1,000 principal amount of notes
(equivalent to an approximate conversion price of $32.56 per share), subject to
adjustment in certain circumstances. Interest on the notes is payable on
February 1 and August 1 of each year. The notes are not subject to redemption
prior to August 6, 2002, and we may, at our option, redeem the notes at a
premium on or after such date, in whole or in part, upon notice to each holder
not less than 30 days nor more than 60 days prior to the redemption date.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument as a result of
fluctuations in interest rates and market prices. We have established policies,
procedures and internal processes governing our management of market risks in
the normal course of our business operations.
As a fundamental part of our brokerage business, we hold short-term interest
earning assets, mainly funds required to be segregated in compliance with
federal regulations for customers. Such funds totaled $252.5 million at March
31, 2000 and $942.4 million at September 24, 1999. We invest such funds
primarily in short-term fixed-rate U.S. Treasury Bills and repurchase
agreements. Our interest earning assets are financed by short-term interest
bearing liabilities totaling $2,990.8 million at March 31, 2000 and $2,057.3
million at September 24, 1999 in the form of customer cash balances. At March
31, 2000, we had an additional $280.0 million of interest bearing indebtedness
outstanding, consisting of the $200.0 million convertible subordinated notes
(see "Convertible Subordinated Notes"), which bear interest at a fixed rate of
interest of 5.75 percent, and $80.0 million under our revolving credit
agreement, which bears interest at a floating rate (as described under "Loan
Agreements"). At September 24, 1999, we had $200.0 million of other interest
bearing indebtedness outstanding, consisting of the convertible subordinated
notes. We earn a net interest spread on the difference between amounts earned on
customer margin loans and amounts paid on customer credit balances.
At March 31, 2000, we held a marketable equity security, which is recorded at
fair value of $403.3 million ($246.3 million net of tax) and had exposure to
market price risk. The same security was recorded at fair value of $229.3
million ($139.4 million net of tax) at September 24, 1999. This risk is
estimated as the potential loss in fair value resulting from a hypothetical 10
percent adverse change in prices quoted by the stock exchanges and was
approximately $40.3 million at March 31, 2000. Actual results may differ.
Our revenues and financial instruments are denominated in U.S. dollars, and we
generally do not invest in derivative financial instruments or derivative
commodity instruments.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
On September 16, 1998, a putative class action complaint was filed in the
District Court, Douglas County, Nebraska, regarding the Company's alleged
inability to handle the volume of subscribers to its Internet brokerage
services. After initial proceedings and discovery, the complaint was amended
and, on September 10, 1999, a second amended complaint was filed. The amended
complaint seeks injunctive relief enjoining alleged deceptive, fraudulent and
misleading practices, equitable relief compelling the Company to increase
capacity, and unspecified compensatory damages. The Company believes that it has
viable defenses to the allegations raised in the amended complaint and intends
to assert them vigorously. However, because this proceeding is still at a
preliminary phase and the amount of damages sought has not been quantified, the
Company is not presently able to predict the ultimate outcome of this matter.
The Company and its operating units are parties to a number of other 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
The Company held its Annual Meeting of Stockholders on February 23, 2000 for the
purposes of electing its board of directors and ratifying the appointment of its
auditors. The Board of Directors consists of a total of nine persons, four of
which are elected by the holders of the Company's Class A Common Stock and five
of which are elected by the holders of the Company's Class B Common Stock. The
nine persons were nominated by the Board of Directors to serve as directors for
terms of one year. The following sets forth the results of the election of
directors:
DIRECTORS ELECTED BY THE HOLDERS OF THE CLASS A COMMON STOCK
<TABLE>
<CAPTION>
NAME OF NOMINEE FOR WITHHELD
- --------------------------------- ---------------------------- ---------------------
<S> <C> <C> <C> <C>
David W. Garrison 151,030,388 95.42% 544,964 0.34%
Thomas Y. Hartley 151,031,291 95.42% 544,061 0.34%
Charles L. Marinaccio 151,043,823 95.43% 531,529 0.34%
Mark L. Mitchell 151,032,551 95.42% 542,801 0.34%
</TABLE>
DIRECTORS ELECTED BY THE HOLDERS OF THE CLASS B COMMON STOCK
<TABLE>
<CAPTION>
NAME OF NOMINEE FOR WITHHELD
- --------------------------------- ---------------------------- ---------------------
<S> <C> <C> <C> <C>
J. Joe Ricketts 16,372,800 100% 0 0%
Robert T. Slezak 16,372,800 100% 0 0%
J. Peter Ricketts 16,372,800 100% 0 0%
John W. Ward 16,372,800 100% 0 0%
Gene L. Finn 16,372,800 100% 0 0%
</TABLE>
No proxies were solicited from the holders of the Class B Common Stock since
such shares are not publicly traded. There was no solicitation in opposition to
the nominees proposed to be elected by the holders of the Class A Common Stock
in the Proxy Statement.
The ratification of the appointment of Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending September 29, 2000 was
approved by the Stockholders with 151,147,786 votes FOR (approximately 95%),
287,799 votes AGAINST, and 139,767 votes ABSTAINED OR BROKER NON-VOTE.
15
<PAGE> 16
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
3.1 Restated Certificate of Incorporation of Ameritrade Holding
Corporation dated July 1, 1999 (incorporated by reference to
Exhibit 3.6 of the Company's quarterly report on Form 10-Q
filed on August 9, 1999)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
4.1 Form of Certificate for Class A Stock (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1 (Registration No. 333-17495) filed on
February 7, 1997)
4.2 Form of Note for the Company's 5.75 percent Convertible
Subordinated Notes due August 1, 2004 (incorporated by
reference to the Company's annual report on Form 10-K filed on
December 23, 1999)
4.3 Indenture dated August 4, 1999, between Ameritrade Holding
Corporation and The Bank of New York, as trustee (incorporated
by reference to the Company's Registration Statement on Form
S-3, File No. 333-87999, filed on September 28, 1999)
4.4 First Supplemental Indenture dated August 4, 1999, between
Ameritrade Holding Corporation and The Bank of New York, as
trustee (incorporated by reference to the Company's
Registration Statement on Form S-3, File No. 333-87999, filed
on September 28, 1999)
4.5 Registration Rights Agreement dated August 4, 1999, between
Ameritrade Holding Corporation and Goldman, Sachs & Co. and
relating to the Company's 5.75 percent Convertible
Subordinated Notes due August 1, 2004 (incorporated by
reference to the Company's Registration Statement on Form S-3,
File No. 333-87999, filed on September 28, 1999)
10.1 Employment Contract, dated as of March 27, 2000, between John
R. MacDonald and Ameritrade Holding Corporation
15 Independent accountants' awareness letter
27.1 Financial Data Schedule (EDGAR filing only)
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the three-month period ended
March 31, 2000.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 11, 2000
Ameritrade Holding Corporation
(Registrant)
by: /s/ J. Joe Ricketts
-------------------
J. Joe Ricketts
Director, Chairman and Co-Chief Executive Officer
(Principal Executive Officer)
by: /s/ Thomas K. Lewis
-------------------
Thomas K. Lewis
Co-Chief Executive Officer
(Principal Executive Officer)
by: /s/ John R. MacDonald
---------------------
John R. MacDonald
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated March 27, 2000, between Ameritrade Holding
Corporation (the "Corporation"), and John R. MacDonald (the "Executive").
RECITALS
Effective as of March 27, 2000, the Executive is the Vice President, Chief
Financial Officer of the Corporation. The Corporation desires to assure to the
Corporation the benefits of the Executive's expertise and knowledge, and the
Executive, in turn, desires full-time, at-will employment with the Corporation,
on the terms provided in this Agreement.
Accordingly, in consideration of the mutual agreements contained in this
Agreement, the parties agree as follows:
ARTICLE I
FULL-TIME EMPLOYMENT OF EXECUTIVE
1.1 DUTIES AND STATUS.
(a) Titles, Authority and Reporting. The Corporation hereby engages the
Executive as a full-time, at-will, employee, effective as of March 27, 2000, and
the Executive accepts such employment, on the terms and conditions set forth in
this Agreement. During his employment with the Corporation, the Executive shall
hold such titles, shall exercise such authority and shall perform such executive
duties as are assigned to him by the Chairman of the Board of the Corporation or
its designee. The Executive shall report to the CEO of the Corporation, Thomas
K. Lewis or to such other individual designated by the Chairman of the Board of
the Corporation.
(b) Full-time Efforts. During his employment with the Corporation, the
Executive shall devote his full professional time and efforts to the business of
the Corporation and will not engage in consulting work or any trade or business
of his own account or for or on behalf of any other individual or entity.
(c) Place of Employment. Except for reasonable business travel, the
Executive shall be required to perform the services and duties provided for in
Section 1.1(a) and (b) primarily at the principal offices of the Corporation in
the Omaha, Nebraska metropolitan area. The Executive shall also spend a portion
of his time in New York City at the Corporation's offices, which are intended to
be established in the future.
(d) Inability to Perform. During his employment with the Corporation,
the Executive shall be entitled to vacation and leave for illness or temporary
disability in accordance with the Corporation's policies for its senior
executive officers. Any leave on account of illness or temporary disability
which is short of a long term disability (as determined by the Corporation in
its discretion) shall not constitute a breach of this Agreement by the
Executive, but leave on
<PAGE> 2
account of a long term disability (as determined by the Corporation in its
discretion) shall be deemed to result in a voluntary termination by the
Executive of the Executive's employment with the Corporation.
(e) Guidelines and Laws. During his employment with the Corporation, the
Executive shall at all times comply with the Corporation's Equity Ownership and
Disposition Guidelines (which currently generally require the Executive to own
Corporation stock valued at two times the Executive's base salary no later than
March 26, 2004). In addition, during his employment with the Corporation, the
Executive shall at all times comply with all applicable Corporation policies and
all applicable federal, State and local laws.
(f) Assistance with Claims. During his employment with the Corporation,
and for a reasonable time thereafter, the Executive will provide reasonable
assistance to the Corporation and/or its affiliates in defense or prosecution of
claims against or by the Corporation and/or its affiliates, to the extent that
the Executive has knowledge or information that, in the judgment of the
Corporation, could be of such assistance. The Corporation shall reimburse the
Executive for any reasonable out-of-pocket expenses associated with such
assistance.
1.2 COMPENSATION AND GENERAL BENEFITS. As compensation for his services
under this Agreement, the Executive shall be compensated as follows:
(a) Base Salary. The Corporation shall pay the Executive an initial base
salary at the rate of three hundred thousand dollars ($300,000) per year,
payable on the Corporation's regular schedule for executive pay. The Executive's
initial base salary is subject to review and adjustment from time-to-time as
deemed appropriate by the Board of the Corporation or its designee.
(b) Benefit Programs. Throughout the Employment Period, the Executive
shall be entitled to participate in the Corporation's employee benefit programs
generally available to its senior executive employees, pursuant to the terms of
those programs. The Corporation retains the right to terminate or amend these
programs from time-to-time as it deems appropriate.
The benefit programs in which the Executive shall participate on March
27, 2000 include, but are not limited to, the following:
1. Incentive Bonus. The Executive is eligible to receive an annual
incentive bonus, payable at the same time as other executives and subject to pro
ration in year one, in accordance with all of the terms of the Corporation's
annual incentive bonus program. This program provides for a threshold bonus of
50% of base salary, a targeted bonus of 100% of base salary, and a maximum bonus
of 150% of base salary, with no bonuses paid for performance below the
threshold. The amount of any annual incentive bonus is determined using the
Corporation's bonus performance measurement program applicable to senior
executives. Presently, under that program, 60% of the bonus is based on
achievement of corporate objectives, and 40% is based on achievement of
individual objectives.
2
<PAGE> 3
2. Nonqualified Stock Options. Management will recommend to the
Compensation Committee of the Board of the Corporation that the Executive be
granted $700,000 worth of AMTD nonqualified stock options, with such options to
be awarded and their strike price set upon approval by the Compensation
Committee. The options would vest 25% at the end of each full year of employment
and in accordance with the Ameritrade Long Term Incentive Plan.
After this initial grant, the Executive will be eligible for the next
normal grant on the next regular grant date for other executives. Management
will recommend to the Board a normal grant consistent with the existing
executive stock option program with a target grant of $250,000 (83% of starting
base salary).
All of the above will be based on the Corporation's method of
calculating stock option grants for executives established by the Corporation's
external compensation consultant.
Subject to Board approval, the Executive's unvested stock options will
vest upon a change of control. For this purpose, change of control means that
the Control Group as that term is defined in the Corporation's Certificate of
Incorporation (i.e., J. Joe Ricketts, Marlene M. Ricketts, the lineal
descendants of J. Joe Ricketts and Marlene M. Ricketts and their spouses, and
any trust or other person or entity that holds Common Stock for the benefit of
the foregoing) is no longer entitled to appoint a majority of the Corporation's
Board of Directors.
No unvested stock options will vest upon the Executive's termination of
employment, except as indicated above with respect to a change of control.
A vested stock option may be exercised within the ten year period
beginning on the date of grant of the option, except in the event of termination
"for cause" (as defined in Section 4.2) in which case the exercise period for
any vested options will expire one year from the date of termination.
3. Paid Time Off/Vacation. The Executive is entitled to 20 days paid
time off and Corporation holidays during calendar year 2000, and 20 days paid
time off (and Corporation holidays) each January 1 thereafter.
4. Relocation Costs. The Corporation will reimburse the Executive for
the reasonable costs of his family's relocation from Middletown, New Jersey to
the Omaha, Nebraska area. In particular, the Corporation will reimburse realtor
fees incurred in the sale of the Executive's New Jersey residence, other
reasonable closing costs associated with that sale and the purchase of a new
residence in Nebraska, reasonable expenses associated with packing and moving of
household goods, and reasonable costs incurred in connection with two
househunting trips for the Executive and his spouse, one of which trips may
include the Executive's children. In addition, the Corporation will provide the
Executive with temporary housing in Nebraska until the Executive's children's
current school year ends, for a period not to exceed three months. The
Corporation also will reimburse the Executive's tax liability that is a direct
result of his relocation expenses reimbursements from the Corporation, in an
amount not to exceed $50,000. All of the foregoing reimbursements will be
subject to applicable taxes and withholding. If the Executive
3
<PAGE> 4
voluntarily terminates his employment with the Corporation within one year of
the date of the actual relocation of his family to Nebraska, he will reimburse
the Corporation, within ninety days of the date of termination, for all amounts
paid by the Corporation under this paragraph.
5. Deferred Compensation Program. The Corporation intends to adopt a
deferred compensation program that will allow executives to defer some or all of
their incentive bonuses, where one of the investment elections will be
Corporation stock. If such a program is adopted, the Executive will be eligible
to participate in the program.
ARTICLE II
COMPETITION; CONFIDENTIAL INFORMATION; SOLICITATION
2.1 COMPETITION; CONFIDENTIAL INFORMATION. The Executive and the
Corporation recognize that, due to the nature of his employment with the
Corporation, the Executive will have access to and will acquire, and may assist
in developing, confidential and proprietary information relating to the business
and operations of the Corporation and its affiliates, including, without
limiting the generality of the foregoing, information with respect to the
Corporation's present and prospective financial and balance sheet data, systems,
customers, agents, accounts, deposits, loans, sales and marketing methods.
The Executive acknowledges that such information is of central
importance to the business of the Corporation and its affiliates and that
disclosure of it to or its use by others could cause substantial loss to the
Corporation and its affiliates. The Executive and the Corporation also recognize
that an important part of the Executive's duties will be to develop good will
for the Corporation and its affiliates through his personal contact with
customers, agents and others sharing business relationships with the Corporation
and its affiliates, and that there is a danger that this good will, a
proprietary asset of the Corporation and its affiliates, may follow the
Executive if and when his relationship with the Corporation is terminated.
The Executive accordingly agrees as follows:
(a) Non-Competition. During his employment with the Corporation, and
thereafter for the longer of six (6) months or any period during which or with
respect to which payments of compensation are being made to the Executive under
this Agreement or any benefit program of the Corporation, the Executive will
not, directly or indirectly, either individually or as owner, partner, agent,
employee, consultant or otherwise engage in any activity competitive with the
business of the Corporation and its affiliates.
(b) Passive Ownership. Nothing in this Article II shall be construed to
prevent the Executive from owning, as an entirely passive investment, not more
than ten percent (10%) of a class of equity securities issued by any issuer
whose business is in no way competitive with the business of the Corporation.
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<PAGE> 5
The Executive also represents that he is not now a party to any
agreement restricting or purporting to restrict his right to perform any of the
services contemplated by this Agreement.
This Section 2.1 shall survive the termination of this Agreement.
2.2 NON-DISCLOSURE. During and at all times after the date of this
Agreement, the Executive will keep confidential any confidential or proprietary
information of the Corporation and its affiliates which is now known to him or
which becomes known to him as a result of his employment or association with the
Corporation and its affiliates and shall not at any time directly or indirectly
disclose any such information to any individual or entity or use the same in any
way other than in connection with the business of the Corporation and its
affiliates. For purposes of this Agreement, "confidential or proprietary
information" means information unique to the Corporation and/or its affiliates,
which has a significant business purpose and is not known or generally available
from sources outside the Corporation and its affiliates or typical of industry
practice. This Section 2.2 shall survive the termination of this Agreement.
2.3 NON-SOLICITATION. During and at all times after the date of this
Agreement, the Executive will not, without the express written consent of the
Corporation, solicit any individual who is an employee of the Corporation or any
of its affiliates to terminate his or her employment with the Corporation or its
affiliate. This Section 2.3 shall survive the termination of this Agreement.
ARTICLE III
CORPORATION'S REMEDIES FOR BREACH OF ARTICLE II
3.1 CORPORATION'S REMEDIES FOR BREACH. It is recognized that damages in the
event of a breach of Article II by the Executive would be difficult, if not
impossible, to ascertain, and it is therefore agreed that, if such a breach
occurs, the Corporation, in addition to and without limiting any other remedy or
right it may have, shall have the right to an injunction or other equitable
relief, in any court of competent jurisdiction, enjoining any such breach, and
the Executive hereby waives any and all defenses he may have on the ground of
lack of jurisdiction or competence of the court to grant such an injunction or
other equitable relief. The existence of this right shall not preclude any other
rights and remedies at law or in equity which the Corporation may have. The
Corporation also shall have the specific right to a refund of any payments made,
but not owed, to the Executive because of a breach by him of his obligations
hereunder, and the Corporation shall have the right to cease payments not
payable to the Executive because of a breach hereunder.
ARTICLE IV
AT-WILL EMPLOYMENT
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<PAGE> 6
4.1 AT-WILL EMPLOYMENT. The Corporation or the Executive may terminate the
Executive's employment with the Corporation, at any time, for any reason.
4.2 PAYMENTS AFTER EMPLOYMENT PERIOD.
(a) Involuntary Termination Without Cause. If the Corporation terminates
the Executive's employment for reasons other than "for cause", in addition to
any benefits to which the Executive may be entitled under any of the
Corporation's employee benefit programs, the Corporation will pay the Executive
a severance allowance, subject to the Executive entering into a general release
acceptable to the Corporation in its discretion. This severance allowance, which
shall be paid only if the Executive is in full compliance with all of his
obligations under this Agreement, shall be the continuation of the Executive's
base salary, at the rate in effect on the date of termination, for the twelve
(12) month period following termination. Payment of this severance allowance
shall be made in installments on the regular paydays for senior executives. This
severance allowance shall be reduced by any payments due to the Executive under
any other severance program of the Corporation.
(b) Change of Control Terminations. If the Corporation terminates the
Executive's employment with the Corporation within six months after a change of
control of the Corporation (as defined in Section 1.2), in addition to any
benefits to which the Executive may be entitled under any of the Corporation's
employee benefit programs, the Corporation will pay the Executive a severance
allowance, subject to the Executive entering into a general release acceptable
to the Corporation in its discretion. This severance allowance, which shall be
paid only if the Executive is in full compliance with all of his obligations
under this Agreement, shall be the continuation of the Executive's base salary,
at the rate in effect on the date of termination, for the twelve (12) month
period following termination. Payment of this severance allowance shall be made
in installments on the regular paydays for senior executives. This severance
allowance shall be reduced by any payments due to the Executive under any other
severance program of the Corporation.
(c) Other Terminations. If the Executive's employment with the
Corporation terminates other than as described in (a) or (b) above, the
Executive, or the Executive's dependents, beneficiaries and estate, as the case
may be, will receive any termination benefits, including but not limited to
health care continuation benefits, as they may be entitled under the terms of
the Corporation's employee benefit programs in which the Executive participated
on the date of his termination which provide benefits upon the applicable type
of termination.
For purposes of this Section 4.2, the term "for cause" means conduct
that, in the judgment of the Corporation, would render the Executive incapable
of performing his duties under this Agreement, including but not limited to
embezzlement, fraud, perjury, alteration of documents, robbery, any felonious
acts, substantial non-performance and any conduct that the Corporation
determines would compromise the Corporation's interests.
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<PAGE> 7
ARTICLE V
NOTICES
5.1 NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Corporation or, in the case of the Corporation, at its
principal executive offices.
ARTICLE VI
ENTIRE AGREEMENT; AMENDMENTS
6.1 ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes the entire
understanding of the Executive and the Corporation with respect to the subject
matter of this Agreement and supersedes any and all prior understandings on the
subjects matter of this Agreement, written or oral, including but not limited to
the letter agreement between the parties dated February 28, 2000. This Agreement
may not be changed, modified or discharged orally, but only by an instrument in
writing signed by the parties. The invalidity or unenforceability of any
provisions of this Agreement shall in no way affect the validity or
enforceability of any other provision of this Agreement.
ARTICLE VII
DISPUTE RESOLUTION
7.1 DISPUTE RESOLUTION. In the event of any dispute, claim, question or
disagreement arising from or relating to this Agreement or its breach, the
parties shall use their best efforts to settle the dispute, claim, question or
disagreement. To this effect, they shall consult and negotiate with each other
in good faith and, recognizing their mutual interests, attempt to reach a just
and equitable solution satisfactory to both parties.
If they do not reach such a solution within 30 days, the parties agree
that any and all disputes, claims, questions or disagreements arising out of or
related to this Agreement shall be submitted to mediation. Either party may
commence mediation by providing the other party with a written request for
mediation, setting forth the subject of the dispute and the relief requested.
The parties will cooperate with one another in selecting a mediator, and in
scheduling the mediation proceedings. If the parties cannot agree on a mediator,
the parties agree that they shall appoint JAMS/Endispute as a mediation body.
The mediation shall be conducted in accordance with JAMS/Endispute's applicable
employment mediation rules and procedures then in effect. The parties agree that
they shall share equally in the costs of any mediation.
If the parties cannot reach a mutually satisfactory resolution by
mediation, any unresolved disputes, claims, questions or disagreements between
them, including any controversy
7
<PAGE> 8
or claim arising out of or relating to this Agreement (or its breach) shall be
settled by final, binding and non-appealable arbitration in Omaha, Nebraska by
one arbitrator. The arbitration shall be conducted by JAMS/Endispute or its
successor in interest in accordance with its applicable employment arbitration
rules and procedures then in effect. The arbitrator will be chosen from
JAMS/Endispute's panel of former judges. Judgment upon the award rendered in any
arbitration may be entered in any court having jurisdiction.
Except as noted below, during the pendency of this dispute resolution
process, the parties agree to forbear from filing or otherwise proceeding with
litigation. Any and all proceedings, hearings, findings or any other record of a
dispute under this Article shall be private and shall be held in the strictest
confidence of all parties so involved, including but not limited to the parties
to this Agreement and any appointed mediator or arbitrator.
Finally, this Article shall not be construed to limit the Corporation's
right to obtain relief under Article 3 with respect to any matter or controversy
subject to Article 3, and, pending a final determination by the arbitrator with
respect to any such matter or controversy, the Corporation shall be entitled to
obtain any such relief by direct application to a court of law, without being
required to first arbitrate such matter or controversy.
The provisions of this Article may be enforced by any court of competent
jurisdiction, and the party seeking enforcement shall be entitled to an award of
all costs, fees and expenses, including reasonable attorneys fees, to be paid by
the party against whom enforcement is ordered.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement effective as of March 27, 2000.
ATTEST/WITNESS: THE CORPORATION
- ------------------------------- /s/ J. Joe Ricketts
Print Name: Print Name: J. Joe Ricketts
-------------------- ----------------
/s/ John R. MacDonald
---------------------------
JOHN R. MACDONALD
8
<PAGE> 1
EXHIBIT 15
INDEPENDENT ACCOUNTANTS' AWARENESS LETTER
Ameritrade Holding Corporation
Omaha, Nebraska
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Ameritrade Holding Corporation and subsidiaries for the three and
six month periods ended March 31, 2000 and March 26, 1999, as indicated in our
report dated May 9 2000; because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, is incorporated by reference in
Registration Statement Numbers 333-40633, 333-40631 and 333-77573 on Form S-8
and Registration Statement Number 333-87999 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche
May 9, 2000
Omaha, Nebraska
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS INCLUDED IN THE FORM 10Q AS OF MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-2000
<PERIOD-START> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 266,753,770
<RECEIVABLES> 3,627,575,241
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 2,506,253
<INSTRUMENTS-OWNED> 0
<PP&E> 88,743,976
<TOTAL-ASSETS> 4,468,300,437
<SHORT-TERM> 0
<PAYABLES> 3,608,914,240
<REPOS-SOLD> 0
<SECURITIES-LOANED> 413,285,153
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 280,000,000
0
0
<COMMON> 1,746,679
<OTHER-SE> 308,246,527
<TOTAL-LIABILITY-AND-EQUITY> 4,468,300,437
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 62,486,072
<COMMISSIONS> 125,967,764
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 5,577,272
<INTEREST-EXPENSE> 23,726,070
<COMPENSATION> 34,570,012
<INCOME-PRETAX> 5,552,500
<INCOME-PRE-EXTRAORDINARY> 5,552,500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,201,384
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
