| |
On September 9, 2002, the merger
of Ameritrade Online Holdings Corp. ("AOH") (formerly Ameritrade Holding
Corporation), a Delaware corporation, and Datek Online Holdings Corp.
("Datek"), a Delaware corporation, was completed. The merger was accomplished
through corporate reorganizations whereby AOH became a wholly owned
subsidiary of the Company, then Datek was acquired and became a wholly
owned subsidiary of the Company. Pursuant to the terms of the merger
agreement, each share of Common Stock of AOH was automatically converted
into one share of Common Stock of the Company, and the stockholders
of Datek in the aggregate received 216,341,375 shares of Common Stock
of the Company and approximately $235 million in cash of Datek, which
was distributed concurrently with the closing of the merger.
AOH's Board of Directors considered various factors in approving the
Datek merger and the merger agreement, including anticipated synergies
from the merger, increased market liquidity expected to result from
the issuance of a single class of common stock to AOH and Datek stockholders,
the strategic fit between AOH and Datek and the complementary nature
of their client bases, including increased access to the active trader
segment of the market and the opportunity of AOH's stockholders to
become stockholders of a company with greater financial and market
strength than AOH on its own.
Pursuant to SFAS No. 141, Business
Combinations, one of the existing combining
entities is determined to be the acquiring entity
on the basis of the evidence available. AOH was
determined to be the acquiring entity based on the
following facts: (1) the holders of AOH Common Stock
received a slightly larger portion of the voting
rights of the Company because of payments in lieu
of fractional shares to Datek stockholders, (2)
AOH's Chairman, members of his family and related
trusts, who in the aggregate held a majority voting
interest in AOH, now in the aggregate hold the largest
voting interest in the Company and (3) the senior
management of the Company consists primarily of
the senior management of AOH, including AOH's Chairman,
Chief Executive Officer and Chief Financial Officer,
who now serve in the same positions for the Company.
The purchase price for Datek was comprised of the
following: |
 |
| Common
Stock issued, net of registrations
costs |
|
|
|
|
|
|
|
$ |
754,204 |
| Cash
acquired |
|
|
|
|
|
|
|
|
(133,819) |
| Acquisition
costs |
|
|
|
|
|
|
|
|
16,134 |
| Exit
and involuntary termination costs |
|
|
|
|
|
|
|
|
47,287 |
| Fair
value of stock options granted to
employees of acquired company |
|
|
|
|
|
|
|
|
25,933 |
| Intrinsic
value of stock appreciation rights
granted to employees of acquired
company |
|
|
|
|
|
|
|
|
3,971 |
|
|
|
|
|
|
|
| Total
purchase price |
|
|
|
|
|
|
|
$ |
713,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| The preliminary purchase price allocation
for Datek is summarized as follows: |
|
| Cash and investments
segregated in compliance with federal regulations |
|
|
|
|
$ |
2,724,648 |
| Receivable from
brokers, dealers and clearing organizations |
|
|
|
|
|
708,551 |
| Receivable from
clients and correspondents, net |
|
|
|
|
|
518,820 |
| Property and equipment,
net |
|
|
|
|
|
11,526 |
| Goodwill |
|
|
|
|
|
541,688 |
| Acquired intangible
assets, net |
|
|
|
|
|
243,655 |
| Investments |
|
|
|
|
|
1,066 |
| Other assets |
|
|
|
|
|
23,991 |
|
|
|
|
|
|
|
Total assets acquired |
|
|
|
|
|
4,773,945 |
|
|
|
|
|
|
|
| Payable to brokers,
dealers and clearing organizations |
|
|
|
|
|
(920,400) |
| Payable to clients
and correspondents |
|
|
|
|
|
(2,955,309) |
| Accounts payable
and accrued liabilities |
|
|
|
|
|
(60,486) |
| Income taxes payable |
|
|
|
|
|
(83,302) |
| Deferred income
taxes |
|
|
|
|
|
(53,582) |
|
|
|
|
|
|
|
Total liabilities assumed |
|
|
|
|
|
(4,073,079) |
|
|
|
|
|
|
|
|
Net assets acquired |
|
|
|
|
|
700,866 |
| Stockholder loans
|
|
|
|
|
|
12,844 |
|
|
|
|
|
|
| Total purchase price
allocated |
|
|
|
|
$ |
713,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| None of the goodwill associated with the Datek
acquisition is expected to be deductible for income tax purposes.
The purchase price allocation is preliminary due to estimates included
in the purchase price for exit and involuntary termination costs.
Differences between these estimates and actual results may result
in adjustments to the purchase price allocation. Exit and involuntary
termination costs consist primarily of severance and other involuntary
termination costs for approximately 900 Datek employees and costs
associated with closing Datek facilities in New Jersey and New York.
Amounts assigned to acquired intangible assets and their amortization
periods were based on an independent valuation. The following table
summarizes the major classes of Datek acquired intangible assets and
the respective amortization periods: |
|
| |
|
|
|
Amount |
|
Amortization
Period (Years) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Client
relationships |
|
|
|
|
$ |
231,087 |
|
|
23 |
| Noncompete
agreements |
|
|
|
|
|
7,583 |
|
|
1 |
| Contract
- Watcher Technologies |
|
|
|
|
|
4,985 |
|
|
None |
|
|
|
|
|
|
|
| |
|
|
|
|
$ |
243,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average amortization period of
the acquired intangible assets subject to amortization is 22 years.
Watcher Technologies LLC ("Watcher") is a wholly owned subsidiary
of Datek that develops high-speed, direct access trading systems for
active traders. The acquired intangible asset associated with Watcher
is not subject to amortization because the Company intends to sell
Watcher.
On September 6, 2001, the Company acquired all of the shares of common
stock of National Discount Brokers Corporation ("NDB"), a New York
corporation, and all of the outstanding subordinated promissory notes
issued by NDB to its former parent. In connection with the acquisition,
the Company paid aggregate consideration of $154 million, consisting
of $20,000 in cash and 26,027,282 shares of the Company's Class A
Common Stock. The number of shares of Common Stock was determined
based on the average closing stock price of the Class A Common Stock
on the Nasdaq National Market for the ten consecutive trading days
ending on the business day prior to the closing date.
On April 2, 2001, the Company acquired TradeCast Inc. ("TradeCast"),
a Delaware corporation, and all of the ownership interests in TradeCast
Investments Ltd. ("TradeCast Ltd."), a Texas limited partnership.
TradeCast Ltd., through its subsidiaries, is a leading provider of
direct access trade execution and software designed for the active
trader. In connection with the acquisition, the Company issued 7,500,000
shares of its Class A Common Stock in exchange for the outstanding
shares of TradeCast common stock and the ownership interests of TradeCast
Ltd., including 375,000 shares which were held in escrow pursuant
to the indemnification provisions of the transaction documents. The
Company also issued an additional 712,500 shares of its Class A Common
Stock in connection with the acquisition which were held in escrow
to be released based on the earn-out provisions of the transaction
documents. Effective April 3, 2002, the Company released all 375,000
of the indemnity shares and 26,838 of the earn-out shares, which were
recorded at an aggregate value of $3.6 million based on the average
market price of approximately $8.95 per share at the time the TradeCast
acquisition was announced. The remaining 685,662 earn-out shares held
in escrow were not earned by the sellers and were cancelled.
The following unaudited pro forma financial information sets forth
the results of operations of the Company as if the Datek merger had
occurred on September 30, 2000 and the acquisitions of TradeCast and
NDB had occurred on September 25, 1999. The pro forma results for
periods prior to the acquisition dates do not reflect any potential
operating cost savings that may result from the consolidation of operations
of the Company with the acquired companies and are not necessarily
indicative of the results of future operations.
Pro forma financial information (unaudited) for the fiscal years ended: |
|
| |
|
2002 |
|
2001 |
|
2000 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Net
revenues |
|
$ |
744,085 |
|
$ |
917,983 |
|
$ |
695,140
|
| Net
income (loss) |
|
$ |
8,791 |
|
$ |
(88,083) |
|
$ |
(27,863) |
| Basic
and diluted earnings (loss) per share |
|
$ |
0.02 |
|
$ |
(0.20) |
|
$ |
(0.13) |
|
|
On May 25, 2000, the Company issued 267,000
shares of its Class A Common Stock to the stockholders of Ten Bagger,
the corporation that developed the stock analysis tool, the BigEasy
Investor(tm), in connection with the acquisition by the Company of
all the issued and outstanding shares of common stock of Ten Bagger.
On December 1, 2000, May 25, 2001 and December 5, 2001, the Company
issued 316,818 shares, 468,686 shares and 599,264 shares, respectively,
of its Class A Common Stock, which represent the three post-closing
payments required under the purchase agreement during the 18-month
period following the acquisition date. The fair value of the Common
Stock issued on December 1, 2000, May 25, 2001 and December 5, 2001
was approximately $2.7 million, $3.6 million and $3.6 million, respectively.
On July 21, 2000, the Company acquired Financial Passport, Inc., an
Internet-based provider of financial planning services and an online
marketplace for a wide range of financial products and services. Under
the terms of the merger agreement, the Company issued 1,482,548 shares
of its Class A Common Stock (and paid cash of $136,921 in lieu of
small stockholders and fractional shares) in exchange for the outstanding
shares of Financial Passport, Inc. common stock.
The following table summarizes changes in the carrying amount of goodwill
by operating segment for the fiscal year ended September 27, 2002: |
|
| |
|
Private
Client |
|
Institutional
Client |
|
Total |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Balance
as of September 28, 2001 |
|
$ |
205,474 |
|
$ |
5,320 |
|
$ |
210,794 |
|
Reclassification
of intangible assets that do not
meet the criteria for recognition
apart from goodwill |
|
|
1,668 |
|
|
201 |
|
|
1,869 |
|
Goodwill
acquired during period |
|
|
548,398 |
|
|
451 |
|
|
548,849 |
|
TradeCast
impairment (see Note 6) |
|
|
(47,599) |
|
|
(5,883) |
|
|
(53,482) |
|
|
|
|
|
|
|
| Balance
as of September 27, 2002 |
|
$ |
707,941 |
|
$ |
89 |
|
$ |
708,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| In accordance with SFAS No. 142, the Company
discontinued goodwill amortization effective September 29, 2001. The
following table presents pro forma financial information assuming
that amortization expense associated with goodwill was excluded for
the periods indicated: |
|
| |
|
2002 |
|
2001 |
|
2000 |
|
|
|
|
|
|
|
| Net loss: |
|
|
|
|
|
|
|
|
|
|
Net loss, as reported |
|
$ |
(28,963) |
|
$ |
(91,177) |
|
$ |
(13,626) |
|
Goodwill amortization |
|
|
-
|
|
|
6,626 |
|
|
1,634
|
|
|
Tax benefit of goodwill amortization |
|
|
-
|
|
|
(338) |
|
|
(144) |
|
|
|
|
|
|
|
|
Adjusted net loss |
|
$ |
(28,963) |
|
$ |
(84,889) |
|
$ |
(12,136) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted
loss per share: |
|
|
|
|
|
|
|
|
|
|
Net loss per share, as reported |
|
$ |
(0.13) |
|
$ |
(0.49) |
|
$ |
(0.08) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted net loss
per share |
|
$ |
(0.13) |
|
$ |
(0.4)6 |
|
$ |
(0.07) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization expense on acquired intangible
assets was $1.8 million for fiscal 2002. The Company estimates amortization
expense on acquired intangible assets will be $18.0 million for fiscal
2003 and $10.8 million for each of the four succeeding fiscal years. |
|
|
