| |
| Lease
Commitments - The Company and its subsidiaries have various
non-cancelable operating leases on facilities and certain computer
and office equipment requiring annual payments as follows: |
 |
| Fiscal
Year Ending |
|
Minimum
Lease
Payments |
|
Sublease
Proceeds |
|
Net
Lease
Commitments |
|
|
|
|
|
|
|
| 2003 |
|
$ |
35,096 |
|
$ |
(1,220) |
|
$ |
33,876 |
| 2004
|
|
|
15,652 |
|
|
(883) |
|
|
14,769 |
| 2005 |
|
|
9,118 |
|
|
(769) |
|
|
8,349 |
| 2006 |
|
|
6,347 |
|
|
(619) |
|
|
5,728 |
| 2007 |
|
|
6,201 |
|
|
(619) |
|
|
5,582 |
| Thereafter
(to April 2019) |
|
|
35,470 |
|
|
(1,820) |
|
|
33,650 |
|
|
|
|
|
|
|
| Total |
|
$ |
107,884 |
|
$ |
(5,930) |
|
$ |
101,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense was approximately $36.2 million,
$55.4 million and $31.5 million for fiscal years 2002, 2001 and 2000,
respectively.
Legal – In September 1998,
a putative class action complaint was filed against the Company by
Zannini, et al. in the District Court of Douglas County, Nebraska,
claiming the Company was not able to handle the volume of subscribers
to its Internet brokerage services. The complaint, as amended, seeks
injunctive relief enjoining alleged deceptive, fraudulent and misleading
practices, equitable relief compelling the Company to increase capacity,
and unspecified compensatory damages. In May 2001, the Company filed
a motion for summary judgment in the matter, which the plaintiffs
opposed. The court granted summary judgment for the Company on January
2, 2002. The plaintiffs have appealed.
The nature of the Company's business subjects it to lawsuits, arbitrations,
claims and other legal proceedings. Management cannot predict with
certainty the outcome of pending legal proceedings. A substantial
adverse judgment or other resolution regarding these proceedings could
have a material adverse effect on the Company's financial condition,
results of operations and cash flows. However, in the opinion of management,
after consultation with legal counsel, the Company has adequate legal
defenses with respect to the legal proceedings to which it is a defendant
or respondent and the outcome of these proceedings is not likely to
have a material adverse effect on the financial condition, results
of operations or cash flows of the Company.
Patent Matter – An owner
of a large patent portfolio relating to interactive voice response
systems has sent correspondence to the Company in which he alleges
infringement of one of his patents. The Company has not admitted any
infringement. In July 2002, the Company commenced negotiations with
the patent owner to resolve this issue. If an agreement is reached,
it is probable that the Company would be required to pay a fee for
the past use of this technology, which, based on Company estimates,
is expected to be approximately $2.5 million. This estimate is not
precise and actual results could differ materially. If an agreement
is not reached and the patent owner succeeds in establishing infringement
in a lawsuit, the Company may be liable to pay damages in the amount
of the value of the use of the technology. If the Company were found
to have engaged in willful infringement, a court would have the discretion
to increase damages by up to three times, and to award attorneys'
fees. The Company has accrued $2.5 million for this matter as of September
27, 2002.
General Contingencies – In
the ordinary course of business, there are various contingencies which
are not reflected in the financial statements. These include Ameritrade,
Inc. and iClearing client activities involving the execution, settlement
and financing of various client securities transactions. These activities
may expose the Company to off-balance-sheet credit risk in the event
the clients are unable to fulfill their contracted obligations.
Client securities activities are transacted on either a cash or margin
basis. In margin transactions, the Company extends credit to the client,
subject to various regulatory and internal margin requirements, collateralized
by cash and securities in the client's account. In connection with
these activities, the Company also executes and clears client transactions
involving the sale of securities not yet purchased ("short sales").
Such margin related transactions may expose the Company to off-balance-sheet
risk in the event margin requirements are not sufficient to fully
cover losses which clients may incur. In the event the client fails
to satisfy its obligations, the Company may be required to purchase
or sell financial instruments at prevailing market prices in order
to fulfill the client's obligations.
The Company seeks to control the risks associated with its client
activities by requiring clients to maintain margin collateral in compliance
with various regulatory and internal guidelines. The Company monitors
required margin levels daily and, pursuant to such guidelines, requires
the clients to deposit additional collateral, or to reduce positions,
when necessary.
The Company borrows and loans securities both to cover short sales
and to complete client transactions in the event that a client fails
to deliver or receive securities by the required date. Securities
borrowed and securities loaned transactions are reported as collateralized
financings except where other securities are used as collateral. Securities
borrowed transactions require the Company to deposit cash or other
collateral with the lender. With respect to securities loaned, the
Company receives cash or other collateral in an amount generally in
excess of the market value of securities loaned. Failure to maintain
levels of cash deposits or pledged securities at all times at least
equal to the value of the related securities can subject the Company
to risk of loss. The Company monitors the market value of securities
borrowed and loaned on a daily basis with additional collateral obtained
or refunded as necessary.
As of September 27, 2002, client margin securities of approximately
$1.9 billion and stock borrowings of approximately $1.4 billion were
available to the Company to utilize as collateral on various borrowings
or for other purposes. The Company had sold or repledged approximately
$2.2 billion of that collateral as of September 27, 2002.
Employment Agreements – The
Company has entered into employment agreements with several of its
key executive officers. These employment agreements generally provide
for annual base salary compensation, stock option acceleration and
severance payments in the event of termination of employment under
certain defined circumstances or changes in the control of the Company.
Salaries are subject to adjustments according to the Company's financial
performance and other factors. |
|
|
