Ameritrade 2003 Annual Report | Financial Reports

For the Years Ended September 26, 2003, September 27, 2002 and September 28, 2001
(Columnar amounts in thousands, except per share amounts)

On June 13, 2003, the Company completed its purchase of approximately 16,500 Mydiscountbroker.com, Inc. (“MDB”) client accounts from SWS Group, Inc. The purchase price was $4.2 million. The entire purchase price has been allocated to acquired intangible assets for the fair value of the MDB client relationships. This intangible asset is being amortized over a 20 year period.

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.

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. 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 table summarizes changes in the carrying amount of goodwill by operating segment:


			Private Client		All Other		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
	Purchase accounting adjustments, net of income taxes(1)			32,539		—		32,539
	Tax benefit of option exercises(2)			(5,666)		—		(5,666)



Balance as of September 26, 2003			$	734,814	$	89	$	734,903


(1)		Purchase accounting adjustments consist of approximately $27.5 million of adjustments to assets and liabilities relating to the Company’s merger with Datek, and an adjustment to reclassify approximately $5.0 million of the Datek purchase price which was initially allocated to an intangible asset for the value of a contract associated with Datek’s Watcher Technologies LLC (“Watcher”) subsidiary. The Company discontinued the Watcher business during fiscal 2003 and accordingly has reduced the purchase price allocated to the Watcher contract to zero.

(2)		Represents tax benefit of exercises of replacement stock options that were issued in connection with the Datek merger. The tax benefit of these option exercises was recorded as a reduction of goodwill to the extent the Company recorded fair value of the replacement options in the purchase accounting. The tax benefit of gains realized by the optionee in excess of the fair value recorded in the purchase accounting was recorded as additional paid-in capital.

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:


	2003			2002		2001


Net income (loss):
Net income (loss), as reported	$	136,642		$	(28,963)	$	(91,177)
Goodwill amortization		—			—		6,626
Tax benefit of goodwill amortization		—			—		(338)


Adjusted net income (loss)	$	136,642	$		(28,963)	$	(84,889)


Basic and diluted earnings (loss) per share:
Earnings (loss) per share, as reported	$	0.32		$	(0.13)	$	(0.49)


Adjusted earnings (loss) per share	$	0.32		$	(0.13)	$	(0.46)

Acquired intangible assets consist of the following as of the fiscal years ended:


			2003						2002

	Gross Carrying Amount		Accumulated Amoritization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amoritization		Net Carrying Amount


Client relationships	$	250,413	$	(12,266)	$	238,147	$	246,213	$	(1,394)	$	244,819
Noncompete agreements		—		—		—		7,583		(438)		7,145
Contract — Watcher Technologies		—		—		—		4,985		—		4,985


	$	250,413	$	(12,266)	$	238,147	$	258,781	$	(1,832)	$	256,949

Amortization expense on acquired intangible assets was $17.8 million, $1.8 million and $6.8 million for fiscal years 2003, 2002 and 2001, respectively. The Company estimates amortization expense on existing acquired intangible assets will be approximately $11.0 million for each of the five succeeding fiscal years.