TD Ameritrade Holding 10Q 2009 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended June 30, 2009


o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


		for the transition period from to

Commission file number: 0-49992

TD AMERITRADE HOLDING CORPORATION

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		82-0543156 (I.R.S. Employer Identification Number)

4211 South 102^nd Street, Omaha, Nebraska, 68127
(Address of principal executive offices) (Zip Code)
(402) 331-7856
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding twelve months. Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filerþ		Accelerated filero		Non-accelerated filero (Do not check if a smaller reporting company)		Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yeso Noþ

As of July 31, 2009, there were 586,322,235 outstanding shares of the registrant’s common stock.

TD AMERITRADE HOLDING CORPORATION

INDEX


		Page No.
Part I — FINANCIAL INFORMATION

Item 1. Financial Statements
Report of Independent Registered Public Accounting Firm		3
Condensed Consolidated Balance Sheets		4
Condensed Consolidated Statements of Income		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23

Item 3. Quantitative and Qualitative Disclosures About Market Risk		35

Item 4. Controls and Procedures		36

Part II — OTHER INFORMATION

Item 1. Legal Proceedings		36

Item 1A. Risk Factors		38

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities		38

Item 6. Exhibits		38

Signatures		40
EX-10.1
EX-10.2
EX-10.3
EX-15.1
EX-31.1
EX-31.2
EX-32.1

Part I — FINANCIAL INFORMATION

Item 1. — Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
TD AMERITRADE Holding Corporation

We have reviewed the condensed consolidated balance sheet of TD AMERITRADE Holding Corporation (the Company) as of June 30, 2009, and the related condensed consolidated statements of income for the three-month and nine-month periods ended June 30, 2009 and 2008, and the condensed consolidated statements of cash flows for the nine-month periods ended June 30, 2009 and 2008. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, 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 the condensed consolidated financial statements referred to above for them to be in conformity with US generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of TD AMERITRADE Holding Corporation as of September 30, 2008, 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 November 25, 2008, 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 30, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ ERNST & YOUNG LLP

Minneapolis, Minnesota
August 7, 2009

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


	June 30,			September 30,
	2009			2008
	(Unaudited)
ASSETS

Cash and cash equivalents	$	1,119,824		$	674,135
Short-term investments		52,071			369,133
Cash and investments segregated in compliance with federal regulations		5,251,563			260,000
Receivable from brokers, dealers and clearing organizations		1,540,165			4,177,149
Receivable from clients — net of allowance for doubtful accounts		5,012,819			6,933,926
Receivable from affiliates		92,544			179,633
Other receivables — net of allowance for doubtful accounts		93,600			89,486
Securities owned, at fair value		30,572			60,645
Property and equipment — net of accumulated depreciation and amortization		192,847			153,208
Goodwill		2,465,674			1,947,102
Acquired intangible assets — net of accumulated amortization		1,250,303			1,013,679
Deferred income taxes		17,685			17,158
Other investments		9,640			12,768
Other assets		90,327			63,500


Total assets	$	17,219,634		$	15,951,522


LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Payable to brokers, dealers and clearing organizations	$	2,268,745		$	5,769,676
Payable to clients		9,188,183			5,070,671
Accounts payable and accrued liabilities		687,115			569,788
Payable to affiliates		15,539			3,637
Deferred revenue		66,144			1,637
Long-term debt		1,424,275			1,444,000
Capitalized lease obligations		10,965			544
Deferred income taxes		181,102			166,531


Total liabilities		13,842,068			13,026,484


Stockholders’ equity:
Preferred stock, $0.01 par value; 100 million shares authorized, none issued		—			—
Common stock, $0.01 par value; one billion shares authorized; 631,381,860 shares issued; June 30, 2009 - 586,103,438 shares outstanding; September 30, 2008 - 593,130,521 shares outstanding		6,314			6,314
Additional paid-in capital		1,576,491			1,613,700
Retained earnings		2,373,377			1,886,412
Treasury stock, common, at cost — June 30, 2009 - 45,278,422 shares;
September 30, 2008 - 38,251,339 shares		(578,691	)		(580,664	)
Deferred compensation		171			146

Accumulated other comprehensive loss		(96	)		(870	)


Total stockholders’ equity		3,377,566			2,925,038


Total liabilities and stockholders’ equity	$	17,219,634		$	15,951,522

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended June 30,						Nine Months Ended June 30,
	2009			2008			2009			2008
Revenues:
Transaction-based revenues:
Commissions and transaction fees	$	338,450		$	248,861		$	891,005		$	754,017

Asset-based revenues:
Interest revenue		101,204			174,940			263,960			635,983
Brokerage interest expense		(2,564	)		(43,008	)		(13,076	)		(217,084	)

Net interest revenue		98,640			131,932			250,884			418,899

Money market deposit account fees		125,124			155,708			424,891			467,634
Investment product fees		39,079			77,552			156,341			223,242

Total asset-based revenues		262,843			365,192			832,116			1,109,775

Other revenues		12,475			9,551			26,875			24,315


Net revenues		613,768			623,604			1,749,996			1,888,107


Expenses:
Employee compensation and benefits		128,216			129,039			366,413			367,167
Fair value adjustments of compensation- related derivative instruments		—			—			—			764
Clearing and execution costs		16,141			11,110			46,846			32,548
Communications		20,795			17,898			57,392			52,851
Occupancy and equipment costs		29,951			24,030			89,614			74,257
Depreciation and amortization		11,162			9,841			33,299			26,423
Amortization of acquired intangible assets		17,551			15,337			48,289			43,809
Professional services		45,923			28,964			95,332			76,826
Interest on borrowings		8,365			16,344			32,246			62,674
Other		14,513			6,421			34,798			37,460
Advertising		39,402			36,724			139,196			129,490


Total expenses		332,019			295,708			943,425			904,269


Income before other income (expense) and income taxes		281,749			327,896			806,571			983,838

Other income (expense):
Gain (loss) on sale of investments		(2,003	)		284			(2,003	)		928


Pre-tax income		279,746			328,180			804,568			984,766
Provision for income taxes		109,209			123,818			317,603			352,848


Net income	$	170,537		$	204,362		$	486,965		$	631,918


Earnings per share — basic	$	0.30		$	0.34		$	0.84		$	1.06
Earnings per share — diluted	$	0.30		$	0.34		$	0.83		$	1.05

Weighted average shares outstanding — basic		563,792			592,948			576,420			594,071
Weighted average shares outstanding — diluted		571,772			602,336			584,623			603,402

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended June 30,
	2009			2008
Cash flows from operating activities:
Net income	$	486,965		$	631,918
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		33,299			26,423
Amortization of acquired intangible assets		48,289			43,809
Deferred income taxes		(76,890	)		(69,753	)
(Gain) loss on sale of investments		2,003			(928	)
Loss on disposal of property		3,005			1,151
Fair value adjustments of derivative instruments		—			764
Stock-based compensation		17,530			20,360
Other, net		57			—
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with federal regulations		(4,991,563	)		(25,002	)
Receivable from brokers, dealers and clearing organizations		2,652,965			1,056,577
Receivable from clients, net		1,921,697			(916,405	)
Receivable from/payable to affiliates, net		110,442			(41,682	)
Other receivables, net		13,349			33,081
Securities owned		30,371			8,453
Other assets		(11,604	)		(14,977	)
Payable to brokers, dealers and clearing organizations		(3,500,931	)		498,416
Payable to clients		4,117,513			(570,885	)
Accounts payable and accrued liabilities		34,612			(111,497	)
Deferred revenue		3,748			(6,685	)


Net cash provided by operating activities		894,857			563,138


Cash flows from investing activities:
Purchase of property and equipment		(45,799	)		(77,243	)
Cash and cash equivalents acquired in business combinations		86,423			623,837
Cash paid in business combinations		(266,713	)		(271,870	)
Cash received in sale of business, net		326			—
Purchase of short-term investments		—			(328,690	)
Proceeds from sale of short-term investments		—			894,277
Proceeds from redemption of money market funds		317,015			—
Proceeds from sale of other investments available-for-sale		2,868			5,227
Other		(146	)		10


Net cash provided by investing activities		93,974			845,548

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited)

(In thousands)


	Nine Months Ended June 30,
	2009			2008
Cash flows from financing activities:
Increase in trust account deposits	$	—		$	186,095
Principal payments on long-term debt		(102,125	)		(25,000	)
Principal payments on capital lease obligations		(2,263	)		(2,394	)
Proceeds from exercise of stock options; Nine months ended June 30, 2009 - 3,397,849 shares; 2008 - 1,606,333 shares		22,233			4,760
Purchase of treasury stock; Nine months ended June 30, 2009 - 38,991,221 shares; 2008 - 3,647,947 shares		(465,452	)		(65,636	)
Excess tax benefits on stock-based compensation		4,841			8,522


Net cash (used in) provided by financing activities		(542,766	)		106,347


Effect of exchange rate changes on cash and cash equivalents		(376	)		(63	)


Net increase in cash and cash equivalents		445,689			1,514,970

Cash and cash equivalents at beginning of period		674,135			413,787

Cash and cash equivalents at end of period	$	1,119,824		$	1,928,757


Supplemental cash flow information:
Interest paid	$	51,893		$	296,735
Income taxes paid	$	262,863		$	433,294
Tax benefit on exercises and distributions of stock-based compensation	$	5,207		$	8,584
Noncash investing and financing activities:
Issuance of capital lease obligations	$	12,441		$	—
Issuance of long-term debt in exchange for equipment	$	8,400		$	—
Issuance of common stock in business combinations	$	362,967		$	—

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three-Month and Nine-Month Periods Ended June 30, 2009 and 2008
(Unaudited)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements include the accounts of TD AMERITRADE Holding Corporation and its wholly-owned subsidiaries (collectively, the “Company”). Intercompany balances and transactions have been eliminated.

These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) 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 U.S. generally accepted accounting principles. The Company evaluated subsequent events through August 7, 2009, the date on which this quarterly report on Form 10-Q was filed with the SEC. 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 for the fiscal year ended September 30, 2008.

Significant Accounting Policies:

Note 1 of our Notes to Consolidated Financial Statements for the fiscal year ended September 30, 2008 contains a summary of our significant accounting policies. As a result of the acquisition of thinkorswim Group Inc. (“thinkorswim”) described below in Note 2, the Company has adopted the following additional accounting policy:

Education Revenue Recognition— The Company recognizes education revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 104,Revenue Recognition, and EITF No. 00-21,Accounting for Revenue Arrangements with Multiple Deliverables.Revenue is not recognized until it is realized or realizable and earned. The criteria to meet this guideline are: (a) persuasive evidence of an arrangement exists; (b) delivery has occurred or services have been rendered; (c) the price to the buyer is fixed or determinable; and (d) collectibility is reasonably assured.

The Company sells investor education products separately and in various bundles that contain multiple deliverables including on-demand coaching services, website subscriptions, educational workshops, online courses and other products and services. In accordance with EITF 00-21, sales arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the arrangement meet the following criteria: (a) the product has value to the client on a standalone basis; (b) there is objective and reliable evidence of the fair value of undelivered items; and (c) delivery or performance of any undelivered item is probable and substantially in the Company’s control. The fair value of each separate element is generally determined by prices charged when sold separately. In certain arrangements, the Company offers these products bundled together at a discount. The discount is allocated pro rata to each element based on the relative fair value of each element when fair value support exists for each element in the arrangement. Deferred revenue arises because the payments are received before the services have been rendered. Deferred revenue is generally recognized into revenue for each element over the period that the services are performed or the time that the contract period expires.

The Company provides some limited rights of return in connection with investor education products and services. The Company estimates its returns based on historical experience and maintains an allowance for estimated returns, which is included in deferred revenue on the Condensed Consolidated Balance Sheets.

Reclassifications:

Approximately $0.2 million has been reclassified from receivable from affiliates to receivable from brokers, dealers and clearing organizations as of September 30, 2008 on the Condensed Consolidated Balance Sheets. Approximately $15.0 million has been reclassified from payable to affiliates to payable to brokers, dealers and clearing organizations as of September 30, 2008 on the Condensed Consolidated Balance Sheets. Approximately $1.6 million has been reclassified from accounts payable and accrued liabilities to deferred revenue as of September 30, 2008 on the Condensed Consolidated Balance Sheets. Each of these reclassifications was made in order to conform to the current financial statement presentation.

Recently Adopted Accounting Pronouncements:

SFAS No. 157— On October 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157,Fair Value Measurements, for financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company will not adopt this statement until October 1, 2009 for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 clarifies the definition of fair value and the methods used to measure fair value and expands disclosures about fair value measurements. The adoption of SFAS No. 157 did not have a material impact on the Company’s financial position, results of operations or cash flows. See Note 10 – FAIR VALUE DISCLOSURES for additional information.

The Financial Accounting Standards Board (“FASB”) issued the following standards, which are effective for interim and/or annual periods ending after June 15, 2009 and shall be applied prospectively. The Company adopted these standards effective April 1, 2009. The adoption of these standards did not have a material impact on the Company’s financial position, results of operations or cash flows.

FSP No. 157-4 —FASB Staff Position (“FSP”) No. 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP No. 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly.

FSP No. 107-1 and Accounting Principles Board Opinions (“APB”) 28-1 —FSP No. 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments,expands the fair value disclosures required for all financial instruments within the scope of SFAS No. 107,Disclosures about Fair Value of Financial Instruments, to interim periods ending after initial adoption.

SFAS No. 165—SFAS No. 165,Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.

Recently Issued Accounting Pronouncements:

SFAS No. 141R— In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations.SFAS No. 141R generally requires an acquirer to recognize the identifiable assets acquired, liabilities assumed, contingent purchase consideration and any noncontrolling interest in the acquiree at fair value on the date of acquisition. It also requires an acquirer to recognize as expense most transaction and restructuring costs as incurred, rather than include such items in the cost of the acquired entity. For the Company, SFAS No. 141R will apply prospectively to business combinations for which the acquisition date is on or after October 1, 2009. The Company will evaluate the impact of SFAS No. 141R on any potential future business combinations that may occur on or after the effective date.

SFAS No. 168— In June 2009, the FASB issued SFAS No. 168,The FASB Accounting Standards Codification^TM and The Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162.The FASB Accounting Standards Codification (“Codification”) will become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. The issuance of this statement and the Codification will not change GAAP. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Therefore, SFAS No. 168 will be effective for the Company’s fiscal year ending September 30, 2009. Adoption of SFAS No. 168 is not expected to have a material impact on the Company’s consolidated financial statements.

2. BUSINESS COMBINATIONS

On June 11, 2009, the Company completed the acquisition of thinkorswim for approximately 27.1 million shares of Company common stock and approximately $225.4 million in cash. thinkorswim offers online brokerage, investor education and related financial products and services for self-directed investors and active traders. The Company’s condensed consolidated financial statements include the results of operations for thinkorswim beginning June 12, 2009.

The preliminary purchase price for thinkorswim was comprised of the following (dollars in thousands):


Common stock issued	$	362,967
Cash paid at closing		225,447
Cash and cash equivalents acquired		(86,423	)
Long-term debt assumed⁽¹⁾		74,000
Fair value of assumed stock-based compensation awards		22,669
Acquisition costs		8,491
Exit and involuntary termination costs		6,917

Total preliminary purchase price	$	614,068


(1)		Immediately following the closing of the acquisition, the Company repaid the entire $74.0 million of long-term debt.

The preliminary purchase price allocation for thinkorswim is summarized as follows (dollars in thousands):


Receivable from brokers, dealers and clearing organizations	$	16,707
Receivable from clients		721
Other receivables — net		25,697
Securities owned, at fair value		298
Property and equipment		17,725
Goodwill		477,578
Acquired intangible assets		295,574
Other assets		6,833

Total assets acquired		841,133


Accounts payable and accrued liabilities		(75,705	)
Deferred revenue		(60,759	)
Capitalized lease obligations		(243	)
Deferred income taxes		(90,358	)

Total liabilities assumed		(227,065	)


Total preliminary purchase price allocated	$	614,068

Based on preliminary results of an independent valuation, the Company allocated approximately $295.6 million of the purchase price to acquired intangible assets. The following table summarizes the major classes of thinkorswim acquired intangible assets and the respective weighted-average amortization periods (dollars in thousands):


			Weighted-
			Average
			Amortization
	Amount		Period (Years)
Client relationships	$	179,084		10.8
Technology and content		100,904		6.9
Trade names		10,100		1.9
Non-competition agreement		5,486		3.0

	$	295,574		8.9

On February 4, 2008, the Company completed the acquisition of Fiserv Trust Company, an investment support services business and wholly-owned subsidiary of Fiserv, Inc. (“Fiserv”). The Company paid $274.5 million in cash during fiscal 2008 for this acquisition. Pursuant to the stock purchase agreement, an additional earn-out payment of up to $100 million in cash was payable following the first anniversary of the acquisition based on the achievement of revenue targets. In May 2009, based on revenues through the February 4, 2009 anniversary date, the Company paid approximately $41.3 million for the earn-out obligation. The Company’s condensed consolidated financial statements include the results of operations for Fiserv Trust Company beginning February 5, 2008.

3. GOODWILL AND ACQUIRED INTANGIBLE ASSETS

The Company has recorded goodwill for purchase business combinations to the extent the purchase price of each completed acquisition exceeded the fair value of the net identifiable tangible and intangible assets of each acquired company. The following table summarizes changes in the carrying amount of goodwill for the nine months ended June 30, 2009 (dollars in thousands):


Balance as of September 30, 2008	$	1,947,102

Goodwill recorded in purchase of thinkorswim Group Inc. (see Note 2)		477,578
Fiserv Trust Company earn-out payment		41,266
Purchase accounting adjustments, net of income taxes⁽¹⁾		94
Tax benefit of option exercises⁽²⁾		(366	)


Balance as of June 30, 2009	$	2,465,674


(1)		Purchase accounting adjustments primarily consist of $0.4 million of net adjustments to accruals for uncertain tax positions relating to the merger with Datek Online Holdings Corp. (“Datek”) in fiscal 2002, partially offset by $0.3 million of adjustments to liabilities related to the acquisition of Fiserv Trust Company in fiscal 2008.

(2)		Represents the tax benefit of exercises of replacement stock options that were issued in connection with the Datek merger and the thinkorswim acquisition. The tax benefit of an option exercise is recorded as a reduction of goodwill to the extent the Company recorded fair value of the replacement option in the purchase accounting. To the extent any gain realized on an option exercise exceeds the fair value of the replacement option recorded in the purchase accounting, the tax benefit on the excess is recorded as additional paid-in capital.

The Company’s acquired intangible assets consist of the following as of June 30, 2009 (dollars in thousands):


	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Amount
Client relationships	$	1,230,469	$	(241,130	)	$	989,339
Technology and content		100,904		(804	)		100,100
Trade names		10,100		(296	)		9,804
Non-competition agreement		5,486		(100	)		5,386
Trademark license		145,674		—			145,674

	$	1,492,633	$	(242,330	)	$	1,250,303

Estimated future amortization expense for acquired intangible assets outstanding as of June 30, 2009 is as follows (dollars in thousands):


	Estimated
	Amortization
Fiscal Year	Expense
2009 Remaining	$	25,371
2010		100,469
2011		96,725
2012		92,901
2013		91,630
2014		91,174
Thereafter (to 2025)		606,359

Total	$	1,104,629

4. CASH AND CASH EQUIVALENTS

The Company’s cash and cash equivalents is summarized in the following table (dollars in thousands):


	June 30,		September 30,
	2009		2008
Corporate	$	179,680	$	184,632
Broker-dealer subsidiaries		858,350		418,626
Trust company subsidiaries		65,805		61,430
Investment advisory subsidiaries		15,989		9,447

Total	$	1,119,824	$	674,135

Capital requirements may limit the amount of cash available for dividend from the broker-dealer and trust company subsidiaries to the parent company. Cash and cash equivalents of the investment advisory subsidiaries is generally not available for corporate purposes.

5. SHORT-TERM INVESTMENTS

Short-term investments consist of the following (dollars in thousands):


	June 30,		September 30,
	2009		2008
Money market mutual funds	$	50,971	$	368,066
Federal National Mortgage Association discount notes		1,100		1,067


Total short-term investments	$	52,071	$	369,133

As of September 30, 2008, the Company had holdings with a fair value of approximately $585.5 million in the Primary Fund, a money market mutual fund managed by The Reserve, an independent mutual fund company. In September 2008, the net asset value of the Primary Fund declined below $1.00 per share and the fund announced it was liquidating under the supervision of the SEC. In order to facilitate an orderly liquidation, the SEC allowed the fund to suspend redemptions until the fund could liquidate portfolio securities without further impairing the net asset value. As of September 30, 2008, the Company classified approximately $217.4 million of its Primary Fund holdings as cash and cash equivalents, based on its estimated share of the partial redemption. The remaining $368.1 million of the Company’s Primary Fund holdings was reclassified to short-term investments due to uncertainty as to whether these holdings could be converted to cash within three months. From October 31, 2008 through April 17, 2009, the Company has received $534.5 million of cash as The Reserve has redeemed approximately 90% of the shares of the fund. The Company cannot predict when The Reserve will redeem the remaining shares of the fund.

6. ACQUISITION EXIT LIABILITIES

The following tables summarize activity in the Company’s acquisition exit liabilities for the three-month and nine-month periods ended June 30, 2009, which are included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets (dollars in thousands):


	Three Months Ended June 30, 2009
	Balance at		Exit Costs							Balance at
	Mar. 31, 2009		Recorded		Utilized			Adjustments		June 30, 2009
Employee compensation and benefits	$	2,103	$	6,847	$	(169	)	$	—	$	8,781
Occupancy and equipment costs		12,806		70		(670	)		—		12,206

Total acquisition exit liabilities	$	14,909	$	6,917	$	(839	)	$	—	$	20,987


	Nine Months Ended June 30, 2009
	Balance at		Exit Costs							Balance at
	Sept. 30, 2008		Recorded		Utilized			Adjustments		June 30, 2009
Employee compensation and benefits	$	2,575	$	6,847	$	(641	)	$	—	$	8,781
Occupancy and equipment costs		12,742		70		(2,081	)		1,475		12,206

Total acquisition exit liabilities	$	15,317	$	6,917	$	(2,722	)	$	1,475	$	20,987

The exit liabilities primarily relate to the acquisition of TD Waterhouse Group, Inc. (“TD Waterhouse”) during fiscal 2006 and thinkorswim during fiscal 2009. The exit costs recorded during the three-month and nine-month periods ended June 30, 2009 relate to the acquisition of thinkorswim described in Note 2. The adjustments to occupancy and equipment exit liabilities were included in the determination of net income for the nine-month period ended June 30, 2009. Employee compensation exit liabilities are expected to be paid over contractual periods ending in fiscal 2012. Remaining occupancy and equipment exit liabilities are expected to be utilized over the related lease periods through fiscal 2016.

7. INCOME TAXES

The Company’s effective income tax rate for the nine months ended June 30, 2009 was 39.5%, compared to 35.8% for the nine months ended June 30, 2008. The provision for income taxes for the nine months ended June 30, 2009 was higher than normal due to unfavorable income tax adjustments of $8.9 million resulting from recent state income tax law changes and capital loss limitations on the Company’s Reserve Primary Fund holdings. These items unfavorably impacted the Company’s earnings for the nine months ended June 30, 2009 by approximately $0.02 per share. The provision for income taxes for the nine months ended June 30, 2008 was unusually low due to $7.2 million of favorable resolutions of state income tax matters and $11.1 million of adjustments to current and deferred income taxes resulting from a revision to estimated state income tax expense. The revision was based on the Company’s actual state income tax returns filed for calendar year 2006 and similar adjustments applied to estimated state income tax rates for 2007 and future years. These items favorably impacted the Company’s earnings for the nine months ended June 30, 2008 by approximately $0.03 per share.

8. CAPITAL REQUIREMENTS

The Company’s broker-dealer subsidiaries are subject to the SEC Uniform Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Exchange Act”)), which requires the maintenance of minimum net capital, as defined. Net capital is calculated for each broker-dealer subsidiary individually. Excess net capital of one broker-dealer subsidiary may not be used to offset a net capital deficiency of another broker-dealer subsidiary. Net capital and the related net capital requirement may fluctuate on a daily basis.

Net capital and net capital requirements for the Company’s broker-dealer subsidiaries are summarized in the following table (dollars in thousands):


	June 30, 2009						September 30, 2008
			Minimum						Minimum
			Net Capital		Excess				Net Capital		Excess
	Net Capital		Required		Net Capital		Net Capital		Required		Net Capital
TD AMERITRADE Clearing, Inc.	$	827,252	$	114,316	$	712,936	$	836,531	$	157,458	$	679,073
TD AMERITRADE, Inc.		229,901		500		229,401		44,039		250		43,789
thinkorswim, Inc.		49,534		1,282		48,252		N/A		N/A		N/A


Totals	$	1,106,687	$	116,098	$	990,589	$	880,570	$	157,708	$	722,862

TD AMERITRADE Clearing, Inc. (“TDA Clearing”) is a clearing broker-dealer and TD AMERITRADE, Inc. (“TDA Inc.”) and thinkorswim, Inc. are introducing broker-dealers.

The Company’s non-depository trust company subsidiary, TD AMERITRADE Trust Company (“TDATC”), is subject to capital requirements established by the State of Maine, which requires TDATC to maintain minimum Tier 1 capital, as defined. TDATC’s Tier 1 capital was $16.2 million and $112.4 million as of June 30, 2009 and September 30, 2008, respectively, which exceeded the required Tier 1 capital by $6.2 million and $102.4 million, respectively.

9. COMMITMENTS AND CONTINGENCIES

Spam Litigation– A purported class action, captionedElvey v. TD Ameritrade, Inc., was filed on May 31, 2007 in the United States District Court for the Northern District of California. The complaint alleges that there was a breach in TDA Inc.’s systems, which allowed access to e-mail addresses and other personal information of account holders, and that as a result account holders received unsolicited e-mail from spammers promoting certain stocks and have been subjected to an increased risk of identity theft. The complaint requests unspecified damages and injunctive and other equitable relief. A second lawsuit, captionedZigler v. TD Ameritrade, Inc., was filed on September 26, 2007, in the same jurisdiction on behalf of a purported nationwide class of account holders. The factual allegations of the complaint and the relief sought are substantially the same as those in the first lawsuit. The cases were consolidated under the captionIn re TD Ameritrade Accountholders Litigation. The Company hired an independent consultant to investigate whether identity theft occurred as a result of the breach. The consultant has conducted four investigations since August 2007 and reported that it found no evidence of identity theft. The parties entered into an agreement to settle the lawsuits on a class basis subject to court approval. On May 1, 2009, the Court granted preliminary approval of the proposed settlement, which had been revised, and set a hearing on final approval for September 10, 2009. Some class members have filed objections and opt-outs. The settlement is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows.

Auction Rate Securities Matters— Beginning in March 2008, lawsuits were filed against various financial services firms by customers related to their investments in auction rate securities (“ARS”). The plaintiffs in these lawsuits allege that the defendants made material misrepresentations and omissions in statements to customers about investments in ARS and the manner in which the ARS market functioned in violation of provisions of the federal securities laws. Two purported class action complaints have been filed alleging such conduct with respect to TDA Inc. and TD AMERITRADE Holding Corporation. The cases, which are pending in the U.S. District Court for the Southern District of New York, have been consolidated under the captionIn re Humphrys v. TD Ameritrade Holding Corp. An amended complaint was filed in February 2009. The amended complaint seeks an unspecified amount of damages, equitable relief, interest and attorneys’ fees. In April 2009 the Company filed a motion to dismiss the amended complaint. The Court has not yet ruled on the motion.

The SEC and other regulatory authorities conducted investigations regarding the sale of ARS. On July 20, 2009, TDA Inc. finalized settlements with the SEC and other regulatory authorities, concluding investigations by the regulators into TDA Inc.’s offer and sale of ARS. Under these settlement agreements, TDA Inc. will extend a tender offer to purchase, from certain current and former account holders, eligible ARS that were purchased through TDA Inc. on or before February 13, 2008, provided the ARS were not transferred away from the firm prior to January 24, 2006. This offer will not extend to clients who purchased ARS through independent registered investment advisors or through another firm and transferred such securities to TDA Inc. TDA Inc. will complete the program in two phases, based on the amount of assets a client holds at TDA Inc., and will use best efforts to complete all repurchases by March 31, 2010, but no later than June 30, 2010. In addition, TDA Inc. will make whole any losses sustained by eligible clients who purchased ARS through TDA Inc. on or before February 13, 2008 and sold such securities at a loss prior to July 20, 2009. TDA Inc. will reimburse clients whose borrowing costs exceeded the amount they earned in interest or dividends from their eligible ARS at the time they borrowed money from TDA Inc. to satisfy liquidity needs. TDA Inc. will participate in a special arbitration process for the purpose of arbitrating eligible investors’ consequential damages claims arising from their inability to sell their eligible ARS. No fines were imposed by the regulators under the settlement agreements.

TDA Inc. estimates that ARS with a total par value of approximately $400 million to $500 million may be outstanding and eligible for the tender offer. The Company is accounting for the ARS settlement as a market value guarantee under FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Company expects to record a charge to earnings of approximately $0.05 to $0.10 per share for the estimated fair value of this guarantee during the fourth quarter of fiscal 2009.

Reserve Fund Matters —During September 2008, The Reserve, an independent mutual fund company, announced that the net asset value of two of its money market mutual funds (the Primary Fund and the International Liquidity Fund) declined below $1.00 per share. In addition, The Reserve announced that the net asset value of the Reserve Yield Plus Fund, which is not a money market mutual fund but sought to maintain a stable net asset value of $1.00 per share, declined below $1.00 per share. TDA Inc.’s clients hold shares in these funds, which The Reserve announced are being liquidated. From October 31, 2008 through August 7, 2009, Primary Fund, International Liquidity Fund and Yield Plus Fund shareholders have received distributions totaling approximately $0.90 per share, $0.79 per share and $0.85 per share, respectively. The SEC and other regulatory authorities are conducting investigations regarding TDA Inc.’s offering of The Reserve funds to clients. TDA Inc. has received subpoenas and other requests for documents and information from the regulatory authorities. TDA Inc. is cooperating with the investigations and requests.

In November 2008 a purported class action lawsuit was filed with respect to the Yield Plus Fund. The lawsuit is captionedRoss v. Reserve Management Company, Inc. et al.in the U.S. District Court for the Southern District of New York. The Ross lawsuit is on behalf of persons who purchased shares of Reserve Yield Plus Fund. The complaint names as defendants a number of entities and individuals related to The Reserve. The Company is also named as a defendant. The complaint alleges claims of violations of the federal securities laws and other claims based on allegations that false and misleading statements and omissions were made in the Reserve Yield Plus Fund prospectus and in other statements regarding the fund. The complaint seeks an unspecified amount of compensatory damages, interest and attorneys’ fees.

Other Legal and Regulatory Matters— The Company is subject to lawsuits, arbitrations, claims and other legal proceedings in connection with its business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. Management believes 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 pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, the Company is unable to predict the outcome of these matters.

In the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry. These matters could result in censures, fines or other sanctions. Management believes the outcome of any resulting actions will not be material to the Company’s financial condition, results of operations or cash flows. However, the Company is unable to predict the outcome of these matters.

Income Taxes— The Company’s federal and state income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is subject to varying interpretations, amounts reported in the condensed consolidated financial statements could be significantly changed at a later date upon final determinations by taxing authorities. The Toronto-Dominion Bank (“TD”) has agreed to indemnify the Company for tax obligations, if any, pertaining to activities of TD Waterhouse prior to the Company’s acquisition of TD Waterhouse.

General Contingencies— In the ordinary course of business, there are various contingencies that are not reflected in the condensed consolidated financial statements. These include the Company’s broker-dealer subsidiaries’ client activities involving the execution, settlement and financing of various client securities transactions. These activities may expose the Company to credit risk in the event the clients are unable to fulfill their contractual 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 credit risk in the event a client’s assets are not sufficient to fully cover losses that the client may incur. In the event the client fails to satisfy its obligations, the Company has the authority to purchase or sell financial instruments in the client’s account at prevailing market prices in order to fulfill the client’s obligations. The Company seeks to mitigate the risks associated with its client securities activities by requiring clients to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels throughout each trading day and, pursuant to such guidelines, requires clients to deposit additional collateral, or to reduce positions, when necessary.

The Company loans securities temporarily to other broker-dealers in connection with its broker-dealer business. The Company receives cash as collateral for the securities loaned. Increases in securities prices may cause the market value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its client obligations. The Company mitigates this risk by requiring credit approvals for counterparties, by monitoring the market value of securities loaned on a daily basis and requiring additional cash as collateral when necessary, and by participating in a risk-sharing program offered through the Options Clearing Corporation (“OCC”).

The Company borrows securities temporarily from other broker-dealers in connection with its broker-dealer business. The Company deposits cash as collateral for the securities borrowed. Decreases in securities prices may cause the market value of the securities borrowed to fall below the amount of cash deposited as collateral. In the event the counterparty to these transactions does not return the cash deposited, the Company may be exposed to the risk of selling the securities at prevailing market prices. The Company mitigates this risk by requiring credit approvals for counterparties, by monitoring the collateral values on a daily basis and requiring collateral to be returned by the counterparties when necessary, and by participating in a risk-sharing program offered through the OCC.

As of June 30, 2009, client excess margin securities of approximately $6.9 billion and stock borrowings of approximately $1.3 billion were available to the Company to utilize as collateral on various borrowings or for other purposes. The Company had loaned approximately $2.3 billion and repledged approximately $0.8 billion of that collateral as of June 30, 2009.

Guarantees— The Company is a member of and provides guarantees to securities clearinghouses and exchanges. Under related agreements, the Company is generally required to guarantee the performance of other members. Under these agreements, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted to the clearinghouse as collateral. However, the potential for the Company to be required to make payments under these agreements is considered remote. Accordingly, no contingent liability is carried on the Condensed Consolidated Balance Sheets for these guarantees.

See “Money Market Deposit Account Agreement” in Note 13 for a description of a guarantee included in that agreement.

During September 2008, the net asset value of two money market mutual funds held by some of the Company’s clients, the Primary Fund and the International Liquidity Fund, declined below $1.00 per share. These funds are managed by The Reserve, an independent mutual fund company. The Reserve subsequently announced it was suspending redemptions of these funds to effect an orderly liquidation. The Company announced a commitment of up to $55 million to protect its clients’ positions in these funds. In the event the Company’s clients receive less than $1.00 per share for these funds upon an orderly liquidation, the Company will commit up to $50 million (or $0.03 per share of the fund) for clients in the Primary Fund and up to $5 million for clients in the International Liquidity Fund to mitigate client losses. Based on information from The Reserve and other publicly available information, the Company has accrued an estimated fair value of $27.0 million for this obligation as of June 30, 2009 and September 30, 2008, which is included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets.

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 and incentive compensation, stock award acceleration and severance payments in the event of termination of employment under certain defined circumstances or changes in control of the Company. Incentive compensation amounts are based on the Company’s financial performance and other factors.

10. FAIR VALUE DISCLOSURES

Effective October 1, 2008, the Company adopted SFAS No. 157 for financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 clarifies the definition of fair value and the methods used to measure fair value and expands disclosures about fair value measurements.

Fair Value Measurement — Definition and Hierarchy

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches, including market, income and/or cost approaches. SFAS No. 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

	•		Level 1— Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. This category includes active exchange-traded funds, mutual funds and equity securities.

	•		Level 2— Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. This category includes most debt securities and other interest-sensitive investment securities.

	•		Level 3 — Unobservable inputs for the asset or liability, where there is little, if any, observable market activity or data for the asset or liability. This category includes assets and liabilities related to money market mutual funds managed by The Reserve for which the net asset value has declined below $1.00 per share and the funds are being liquidated. This category also includes auction rate securities for which the periodic auctions have failed.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured on a recurring basis as of June 30, 2009 (dollars in thousands):


	Level 1		Level 2		Level 3		Fair Value
Assets:
Short-term investments:
Money market mutual funds	$	—	$	—	$	50,971	$	50,971
U.S. government debt securities		—		1,100		—		1,100

Subtotal — Short-term investments		—		1,100		50,971		52,071


Securities owned:
Auction rate securities		—		—		20,525		20,525
Money market mutual funds		—		—		4,894		4,894
Equity securities		568		32		—		600
U.S. government debt securities		—		259		—		259
Municipal debt securities		—		3,012		—		3,012
Corporate debt securities		—		1,179		—		1,179
Other debt securities		—		103		—		103

Subtotal — Securities owned		568		4,585		25,419		30,572


Other investments:
Auction rate securities		—		—		8,820		8,820


Total assets at fair value	$	568	$	5,685	$	85,210	$	91,463


Liabilities:
Securities sold, not yet purchased:
Equity securities	$	5,142	$	10	$	—	$	5,152
Money market mutual funds		—		—		2		2
Municipal debt securities		—		363		—		363
Corporate debt securities		—		78		—		78

Subtotal — Securities sold, not yet purchased⁽¹⁾		5,142		451		2		5,595


Client Reserve Fund commitment⁽¹⁾		—		—		26,994		26,994


Total liabilities at fair value	$	5,142	$	451	$	26,996	$	32,589


(1)		Amounts are included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets.

The following table presents the changes in Level 3 assets and liabilities measured on a recurring basis for the nine months ended June 30, 2009 (dollars in thousands):


						Purchases,
			Realized Losses			Sales,
	October 1,		Included in			Issuances and			June 30,
	2008		Earnings			Settlements, Net			2009
Assets:
Cash and cash equivalents⁽¹⁾	$	217,471	$	—		$	(217,471	)	$	—

Short-term investments:
Money market mutual funds		368,066		(80	)		(317,015	)		50,971

Securities owned:
Auction rate securities		6,925		—			13,600			20,525
Money market mutual funds		46,662		—			(41,768	)		4,894

Subtotal — Securities owned		53,587		—			(28,168	)		25,419

Other investments:
Auction rate securities		10,000		—			(1,180	)		8,820


Total assets at fair value	$	649,124	$	(80	)	$	(563,834	)	$	85,210


Liabilities:
Securities sold, not yet purchased:
Money market mutual funds	$	4,636	$	—		$	(4,634	)	$	2

Client Reserve Fund commitment		26,994		—			—			26,994


Total liabilities at fair value	$	31,630	$	—		$	(4,634	)	$	26,996


(1)		Represents positions in the Primary Fund that were classified as cash and cash equivalents as of September 30, 2008.

Valuation Techniques

In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to the Company’s Level 1 investments. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology applies to the Company’s Level 2 investments.

The fair value of money market mutual fund positions in the Primary Fund is estimated based on portfolio holdings data published by The Reserve and is categorized in Level 3 of the fair value hierarchy. The fair value of the client Reserve Fund commitment, which is described under “Guarantees” in Note 9, is estimated based on portfolio holdings data published by The Reserve for the Primary Fund and International Liquidity Fund.

Fair Value of Long-Term Debt

The Company’s long-term debt had an estimated fair value based on quoted market prices of $1.37 billion and $1.35 billion as of June 30, 2009 and September 30, 2008, respectively, compared to the Condensed Consolidated Balance Sheet carrying value of $1.42 billion and $1.44 billion, respectively.

11. EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share (in thousands, except per share amounts):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2009		2008		2009		2008
Net income	$	170,537	$	204,362	$	486,965	$	631,918


Weighted average shares outstanding — basic		563,792		592,948		576,420		594,071
Effect of dilutive securities:
Stock options		5,986		7,480		6,128		7,747
Restricted stock units		1,887		1,835		1,978		1,520
Deferred compensation shares		107		73		97		64


Weighted average shares outstanding — diluted		571,772		602,336		584,623		603,402


Earnings per share — basic	$	0.30	$	0.34	$	0.84	$	1.06
Earnings per share — diluted	$	0.30	$	0.34	$	0.83	$	1.05

12. COMPREHENSIVE INCOME

Comprehensive income is as follows (dollars in thousands):


	Three Months Ended June 30,						Nine Months Ended June 30,
	2009			2008			2009			2008
Net income	$	170,537		$	204,362		$	486,965		$	631,918

Other comprehensive income (loss):
Net unrealized gains (losses) on investment securities available-for-sale		640			(983	)		(481	)		(983	)

Adjustment for deferred income taxes on net unrealized losses (gains)		(227	)		354			182			354

Reclassification adjustment for realized losses (gains) on investment securities included in net income		2,088			—			2,088			(540	)

Reclassification adjustment for deferred income taxes on realized investment gains (losses)		(758	)		—			(758	)		200

Foreign currency translation adjustment		200			28			(257	)		(45	)


Total other comprehensive income (loss), net of tax		1,943			(601	)		774			(1,014	)


Comprehensive income	$	172,480		$	203,761		$	487,739		$	630,904

13. RELATED PARTY TRANSACTIONS

Stock Repurchase

On February 17, 2009, the Company entered into a stock purchase agreement with Marlene M. Ricketts and the Joe and Marlene Ricketts Grandchildren’s Trust to purchase approximately 34 million shares of common stock of the Company for approximately $403 million in cash ($11.85 per share). J. Joe Ricketts serves on the Company’s board of directors. The purchase and sale of the stock occurred on February 20, 2009.

Transactions with TD and Affiliates

As a result of the acquisition of TD Waterhouse during fiscal 2006, TD became an affiliate of the Company. TD owned approximately 45.2% of the Company’s common stock as of June 30, 2009, of which 45% is permitted to be voted under the terms of the Stockholders Agreement among TD, the Company and certain other stockholders. Pursuant to the Stockholders Agreement, TD has the right to designate five of twelve members to the Company’s board of directors. The Company

transacts business and has extensive relationships with TD and certain of its affiliates. A description of significant transactions with TD and its affiliates is set forth below.

Money Market Deposit Account Agreement

The Company is party to a money market deposit account (“MMDA”) agreement with TD Bank USA, N.A. (“TD Bank USA”) and TD, which was originally entered into on January 24, 2006 in connection with the TD Waterhouse acquisition. Under the MMDA agreement, TD Bank USA makes available to clients of the Company money market deposit accounts as designated sweep vehicles. The Company provides marketing, recordkeeping and support services for TD Bank USA with respect to the money market deposit accounts. In exchange for providing these services, TD Bank USA pays the Company a fee based on the yield earned by TD Bank USA on the client MMDA assets, less the actual interest paid to clients, actual interest cost incurred on borrowings, a flat fee to TD Bank USA of 25 basis points and the cost of FDIC insurance premiums.

Effective July 1, 2008, the Company entered into an amendment to the MMDA agreement. The amended agreement has a term of five years beginning July 1, 2008, and is automatically renewable for successive five-year terms, provided that it may be terminated by any party upon two years’ prior written notice. The amended agreement provides that the marketing fee earned on the MMDA agreement is calculated based on three primary components: (a) the actual yield earned on investments in place as of July 1, 2008, which were primarily fixed-income securities backed by Canadian government guarantees, (b) the yield on other fixed-rate investments, based on prevailing fixed rates for identical balances and maturities in the interest rate swap market (generally LIBOR-based) at the time such investments were added to the MMDA portfolio and (c) floating-rate investments, based on the monthly average rate for 30-day LIBOR. The amendment provides that, from time to time, the Company may request amounts and maturity dates for the other fixed-rate investments (component (b) above) in the MMDA portfolio, subject to the approval of TD Bank USA. For the month of June 2009, the MMDA portfolio was comprised of approximately 25% component (a) investments, 58% component (b) investments and 17% component (c) investments.

In the event the fee computation results in a negative amount, the Company must pay TD Bank USA the negative amount. This effectively results in the Company guaranteeing TD Bank USA revenue of 25 basis points on the MMDA agreement, plus the reimbursement of FDIC insurance premiums. The fee computation under the MMDA agreement is affected by many variables, including the type, duration, credit quality, principal balance and yield of the investment portfolio at TD Bank USA, the prevailing interest rate environment, the amount of client deposits and the yield paid on client deposits. Because a negative MMDA fee computation would arise only if there were extraordinary movements in many of these variables, the maximum potential amount of future payments the Company could be required to make under this arrangement cannot be reasonably estimated. Management believes the potential for the fee calculation to result in a negative amount is remote and the fair value of the guarantee is not material. Accordingly, no contingent liability is carried on the Condensed Consolidated Balance Sheets for the MMDA agreement.

The Company earned fee income associated with the money market deposit account agreement of $125.1 million and $424.9 million for the three months and nine months ended June 30, 2009, respectively, and $155.7 million and $467.6 million for the three months and nine months ended June 30, 2008, respectively, which is reported as money market deposit account fees on the Condensed Consolidated Statements of Income.

Mutual Fund Agreements

The Company and an affiliate of TD are parties to a services agreement, transfer agency agreement, shareholder services agreement and a dealer agreement pursuant to which certain mutual funds are made available as money market sweep or direct purchase options to Company clients. The Company performs marketing support services with respect to those funds. In consideration for offering the funds and performing the marketing support services, an affiliate of TD compensates the Company in accordance with the provisions of the services agreement. The Company also performs certain services for the applicable fund and earns fees for those services. In the event compensation under the transfer agency agreement, shareholder services agreement and dealer agreement is less than the minimum compensation called for by the services agreement, the deficit is earned by the Company under the services agreement. The services agreement had an initial term of two years and was automatically renewed for an additional two-year term on January 24, 2008. The agreement is automatically renewable for successive two-year terms (so long as certain related agreements are in effect). It may be terminated by any party upon one year’s prior written notice. The Company earned fee income associated with these agreements of $19.0 million and $102.0 million for the three months and nine months ended June 30, 2009, respectively, and $51.5 million and $147.9 million for the three months and nine months ended June 30, 2008, respectively, which is included in investment product fees on the Condensed Consolidated Statements of Income.

Securities Borrowing and Lending

In connection with its brokerage business, the Company engages in securities borrowing and lending with TD Securities, Inc. (“TDSI”), an affiliate of TD. Receivable from brokers, dealers and clearing organizations includes $0.5 million and $0.2 million of receivables from TDSI as of June 30, 2009 and September 30, 2008, respectively. Payable to brokers, dealers and clearing organizations includes $40.0 million and $15.0 million of payables to TDSI as of June 30, 2009 and September 30, 2008, respectively. The Company earned net interest revenue of $0.2 million for the three months ended June 30, 2009 and incurred net interest expense of $0.2 million for the nine months ended June 30, 2009 associated with securities borrowing and lending with TDSI. The Company earned net interest revenue associated with securities borrowing and lending with TDSI of $0.1 million and $0.2 million for the three months and nine months ended June 30, 2008, respectively.

Cash Management Services Agreement

Pursuant to a cash management services agreement, TD Bank USA provides cash management services to clients of TDA Inc. In exchange for such services, the Company pays TD Bank USA service-based fees agreed upon by the parties. The Company incurred expense associated with the cash management services agreement of $0.2 million and $0.6 million for the three months and nine months ended June 30, 2009, respectively, and $0.1 million and $0.8 million for the three months and nine months ended June 30, 2008, respectively, which is included in clearing and execution costs on the Condensed Consolidated Statements of Income. The cash management services agreement will continue in effect for as long as the MMDA agreement remains in effect, provided that it may be terminated by TDA Inc. without cause upon 60 days’ prior written notice to TD Bank USA.

Indemnification Agreement for Phantom Stock Plan Liabilities

Pursuant to an indemnification agreement, the Company agreed to assume TD Waterhouse liabilities related to the payout of awards under The Toronto-Dominion Bank 2002 Phantom Stock Incentive Plan following the completion of the TD Waterhouse acquisition. Under this plan, participants were granted units of stock appreciation rights (“SARs”) based on TD’s common stock that generally vest over four years. Upon exercise, the participant receives cash representing the appreciated value of the units between the grant date and the redemption date. In connection with the payout of awards under the 2002 Phantom Stock Incentive Plan, TD Discount Brokerage Holdings LLC (“TDDBH”), a wholly-owned subsidiary of TD, agreed to indemnify the Company for any liabilities incurred by the Company in excess of the provision for such liability included on the closing date balance sheet of TD Waterhouse. In addition, in the event that the liability incurred by the Company in connection with the 2002 Phantom Stock Incentive Plan is less than the provision for such liability included on the closing date balance sheet of TD Waterhouse, the Company agreed to pay the difference to TDDBH. There were 47,745 and 50,940 SARs outstanding as of June 30, 2009 and September 30, 2008, respectively, with an approximate value of $1.1 million and $1.7 million, respectively. The indemnification agreement effectively protects the Company against fluctuations in TD’s common stock price with respect to the SARs, so there will be no net effect on the Company’s results of operations resulting from such fluctuations.

Restricted Share Units and Related Swap Agreements

The Company assumed TD Waterhouse restricted share unit plan liabilities following the completion of the acquisition of TD Waterhouse. Restricted share units are phantom share units with a value equivalent to the Toronto Stock Exchange closing price of TD common shares on the day before the award issuance. These awards vest and mature on the third or fourth anniversary of the award date at the average of the high and low prices for the 20 trading days preceding the redemption date. The redemption value, after tax withholdings, is paid in cash. Under these plans, participants were granted phantom share units equivalent to TD’s common stock that vest on a specified date after three or four years. On the acquisition date of TD Waterhouse, the Company entered into equity swap agreements with an affiliate of TD to offset changes in TD’s common stock price. During December 2007, most of the restricted share units vested and were settled and all the equity swap agreements expired. In May 2008, the remaining restricted share units vested and were settled. The Company recorded a loss on fair value adjustments to the equity swap agreements of $0.8 million for the nine months ended June 30, 2008, which is reported as fair value adjustments of compensation-related derivative instruments on the Condensed Consolidated Statements of Income. Because the swap agreements were not designated for hedge accounting, the fair value adjustments were not recorded in the same category of the Condensed Consolidated Statements of Income as the corresponding compensation expense, which was recorded in the employee compensation and benefits category.

Canadian Call Center Services Agreement

Pursuant to the Canadian call center services agreement, TD receives and services client calls at its London, Ontario site for clients of TDA Inc. After May 1, 2013, either party may terminate this agreement without cause and without penalty by providing 24 months’ prior written notice. In consideration of the performance by TD of the call center services, the Company pays TD, on a monthly basis, an amount approximately equal to TD’s monthly cost. The Company incurred expenses associated with the Canadian call center services agreement of $4.0 million and $11.8 million for the three months and nine months ended June 30, 2009, respectively, and $5.2 million and $13.8 million for the three months and nine months ended June 30, 2008, respectively, which is included in professional services expense on the Condensed Consolidated Statements of Income.

Certificates of Deposit Brokerage Agreements

Effective as of September 24, 2008, TDA Inc. entered into a certificates of deposit brokerage agreement with TD Bank USA, under which TDA Inc. acts as agent for its clients in purchasing certificates of deposit from TD Bank USA. Under the agreement, TD Bank USA pays TDA Inc. a placement fee for each certificate of deposit issued in an amount agreed to by both parties. During the second quarter of fiscal 2009, TDA Inc. promoted a limited time offer to purchase a three-month TD Bank USA certificate of deposit with a premium yield to clients that made a deposit or transferred $25,000 into their TDA Inc. brokerage account during a specified time period. Under this promotion, TDA Inc. reimburses TD Bank USA for the subsidized portion of the premium yield paid to its clients. The Company incurred net costs to TD Bank USA associated with this promotional offer of $3.3 million for the nine-months ended June 30, 2009, which is included in advertising expense on the Condensed Consolidated Statements of Income.

Under a previous certificates of deposit brokerage agreement entered into on December 12, 2007 between TDA Inc. and TD Bank USA, TDA Inc. acted as an agent for its clients in purchasing certificates of deposit from TD Bank USA. Fees were calculated under the agreement in a manner consistent with the methodology of the MMDA agreement described above. The Company incurred net fee expense associated with the agreement of $0.8 million and $2.4 million for the three months and nine months ended June 30, 2008, respectively, which is included in net interest revenue on the Condensed Consolidated Statements of Income. This agreement was superseded by the September 24, 2008 certificates of deposit brokerage agreement.

Sale of thinkorswim Canada, Inc. and Trading Platform Hosting and Services Agreement

On June 11, 2009, immediately following the closing of the thinkorswim acquisition, the Company completed the sale of thinkorswim Canada, Inc. (“thinkorswim Canada”) to TD Waterhouse Canada Inc. (“TDW Canada”), a wholly-owned subsidiary of TD, for cash equal to the total tangible equity of thinkorswim Canada immediately prior to the closing of the transaction. On the closing date of the transaction, the Company received gross proceeds from the sale of approximately $1.5 million. The final sale price is subject to a cash adjustment based on the closing date balance sheet. The Company estimates the cash adjustment will result in additional sale proceeds of approximately $0.3 million, which was recorded in receivable from affiliates on the Condensed Consolidated Balance Sheets as of June 30, 2009. The Company did not recognize a gain or loss on the sale of thinkorwim Canada.

In connection with the sale of thinkorswim Canada, the Company and TDW Canada entered into a trading platform hosting and services agreement. The agreement has an initial term of five years beginning June 11, 2009, and will automatically renew for additional periods of two years, unless either party provides notice of non-renewal to the other party at least 90 days prior to the end of the then-current term. Because this agreement represents contingent consideration to be paid for the sale of thinkorswim Canada, the Company recorded a $10.7 million receivable for the fair value of this agreement, which is included in receivable from affiliates on the Condensed Consolidated Balance Sheets as of June 30, 2009. Under this agreement, TDW Canada will use the thinkorswim, Inc. trading platform and thinkorswim, Inc. will provide the services to support the platform. In consideration for the performance by thinkorswim, Inc. of all its obligations under this agreement, TDW Canada will pay thinkorswim, Inc., on a monthly basis, a fee based on average client trades per day and transactional revenues. Fees earned under the agreement will be recorded as a reduction of the contingent consideration receivable until the receivable is reduced to zero, and thereafter will be recorded as fee revenue.

Other Related Party Transactions

TD Options LLC, a subsidiary of TD, pays the Company the amount of exchange-sponsored payment for order flow that it receives for routing TDA Inc. client orders to the exchanges. The Company earned $1.7 million and $3.3 million of payment for order flow revenues from TD Options LLC for the three months and nine months ended June 30, 2009, respectively, and

$1.0 million and $2.7 million for the three months and nine months ended June 30, 2008, respectively, which is included in commissions and transaction fees on the Condensed Consolidated Statements of Income.

Except as otherwise indicated, receivables from and payables to TD and affiliates of TD resulting from the related party transactions described above are included in receivable from affiliates and payable to affiliates, respectively, on the Condensed Consolidated Balance Sheets. Receivables from and payables to TD affiliates resulting from client cash sweep activity are generally settled in cash the next business day. Other receivables from and payables to affiliates of TD are generally settled in cash on a monthly basis.


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 for the fiscal year ended September 30, 2008, and the Condensed Consolidated Financial Statements and Notes thereto contained in this quarterly report on Form 10-Q.

This discussion contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar expressions. In particular, forward-looking statements contained in this discussion include our expectations regarding: the effect of client trading activity on our results of operations; the effect of changes in interest rates on our net interest spread; our migration of client cash balances into the money market deposit account (“MMDA”) offering; our effective income tax rate; our capital and liquidity needs and our plans to finance such needs; and the impact of recently issued accounting pronouncements.

The Company’s actual results could differ materially from those anticipated in such forward-looking statements. Important factors that may cause such differences include, but are not limited to: general economic and political conditions; interest rates; stock market fluctuations and changes in client trading activity; increased competition; systems failures and capacity constraints; network security risks; ability to service debt obligations; ability to achieve the benefits of the thinkorswim Group Inc. (“thinkorswim”) acquisition; regulatory and legal matters and uncertainties and the other risks and uncertainties set forth under Item 1A. – Risk Factors of the Company’s annual report on Form 10-K, as amended, for the fiscal year ended September 30, 2008. The forward-looking statements contained in this report speak only as of the date on which the statements were made. We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise.

The preparation of our financial statements requires us to make judgments and estimates that may have a significant impact upon our financial results. Note 1 of our Notes to Consolidated Financial Statements for the fiscal year ended September 30, 2008, contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions. We believe that the following areas are particularly subject to management’s judgments and estimates and could materially affect our results of operations and financial position: valuation of goodwill and acquired intangible assets; valuation of stock-based compensation; estimates of effective income tax rates, deferred income taxes and valuation allowances; valuation of guarantees; and investor education revenue recognition. These areas are discussed in further detail under the heading “Critical Accounting Policies and Estimates” in Item 7 of our annual report on Form 10-K for the fiscal year ended September 30, 2008 and Note 1 of the Notes to Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.

Unless otherwise indicated, the terms “we,” “us” or “Company” in this report refer to TD AMERITRADE Holding Corporation and its wholly-owned subsidiaries. The term “GAAP” refers to U.S. generally accepted accounting principles.

GLOSSARY OF TERMS

In discussing and analyzing our business, we utilize several metrics and other terms that are defined in a Glossary of Terms that is available on our website atwww.amtd.com (in the “Investors” section under the heading “Financial Reports”) and is included in Item 7 of our annual report on Form 10-K for the fiscal year ended September 30, 2008. Since the issuance of the Form 10-K, the definitions of “Activity rate” and “Total trades” have been updated. These updated definitions are as follows (italicsindicate other defined terms that appear elsewhere in the glossary):

Activity rate - total accounts—Average client trades per dayduring the period divided by the average number oftotal accountsduring the period.

Activity rate — funded accounts—Average client trades per dayduring the period divided by the average number offunded accountsduring the period.

Total trades— Revenue-generating client securities trades, which are executed by the Company’s broker-dealer subsidiaries on an agency basis, excluding thinkorswim, Inc.’s institutional activity. Total trades are a significant source of the Company’s revenues. Such trades include, but are not limited to, trades in equities, options, futures, foreign exchange, mutual funds and debt instruments. Trades generate revenue from commissions, transaction fees and/or revenue-sharing arrangements with market destinations (also known as “payment for order flow”).

RESULTS OF OPERATIONS

Conditions in the U.S. equity markets significantly impact the volume of our clients’ trading activity. There is a direct correlation between the volume of our clients’ trading activity and our results of operations. We cannot predict future trading volumes in the U.S. equity markets. If client trading activity increases, we expect that it would have a positive impact on our results of operations. If client trading activity declines, we expect that it would have a negative impact on our results of operations.

Changes in average balances, especially client margin, credit, MMDA and mutual fund balances, may significantly impact our results of operations. Changes in interest rates also impact our results of operations. We seek to mitigate interest rate risk by aligning the average duration of our interest-earning assets with that of our interest-bearing liabilities. We cannot predict the direction of interest rates or the levels of client balances. If interest rates rise, we generally expect to earn a larger net interest spread. Conversely, a falling interest rate environment generally would result in our earning a smaller net interest spread.

Financial Performance Metrics

Pre-tax income, net income, earnings per share and EBITDA (earnings before interest, taxes, depreciation and amortization) are key metrics we use in evaluating our financial performance. EBITDA is a non-GAAP financial measure.

We consider EBITDA an important measure of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA is used as the denominator in the consolidated leverage ratio calculation for our senior credit facilities. The consolidated leverage ratio determines the interest rate margin charged on the senior credit facilities. EBITDA eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization. EBITDA should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities.

The following table sets forth EBITDA in dollars and as a percentage of net revenues for the periods indicated and provides reconciliations to pre-tax income, which is the most directly comparable GAAP measure (dollars in thousands):


	Three months ended June 30,												Nine months ended June 30,
	2009						2008						2009						2008
				% of Net						% of Net						% of Net						% of Net
	$			Revenue			$			Revenue			$			Revenue			$			Revenue
EBITDA
EBITDA	$	316,824			51.6	%	$	369,702			59.3	%	$	918,402			52.5	%	$	1,117,672			59.2	%
Less:
Depreciation and amortization		(11,162	)		(1.8	%)		(9,841	)		(1.6	%)		(33,299	)		(1.9	%)		(26,423	)		(1.4	%)
Amortization of acquired intangible assets		(17,551	)		(2.9	%)		(15,337	)		(2.5	%)		(48,289	)		(2.8	%)		(43,809	)		(2.3	%)
Interest on borrowings		(8,365	)		(1.4	%)		(16,344	)		(2.6	%)		(32,246	)		(1.8	%)		(62,674	)		(3.3	%)

Pre-tax income	$	279,746			45.6	%	$	328,180			52.6	%	$	804,568			46.0	%	$	984,766			52.2	%

Our pre-tax income and EBITDA decreased for the first nine months of fiscal 2009, compared to the first nine months of fiscal 2008, primarily due to a 7% decrease in net revenues and a 4% increase in total expenses. The decrease in net revenues was driven primarily by lower asset-based revenues resulting from lower net interest margin earned on spread-based balances, partially offset by increased transaction-based revenues resulting from higher client trading volumes. Detailed analysis of net revenues and expenses is presented later in this discussion.

Operating Metrics

Our largest sources of revenues are asset-based revenues and transaction-based revenues. For the nine months ended June 30, 2009, asset-based revenues and transaction-based revenues accounted for 48% and 51% of our net revenues, respectively. Asset-based revenues consist of (1) net interest revenue, (2) MMDA fees and (3) investment product fees. The primary factors driving our asset-based revenues are average balances and average rates. Average balances consist primarily of average client margin balances, average segregated cash balances, average client credit balances, average client MMDA balances, average

fee-based investment balances and average securities borrowing and lending balances. Average rates consist of the average interest rates and fees earned and paid on such balances. The primary factors driving our transaction-based revenues are total client trades and average commissions and transaction fees per trade. We also consider client account and client asset metrics, although we believe they are generally of less significance to our results of operations for any particular period than our metrics for asset-based and transaction-based revenues.

Asset-Based Revenue Metrics

We calculate the return on our interest-earning assets (excluding conduit-based assets) and our MMDA balances using a measure we refer to as net interest margin. Net interest margin is calculated for a given period by dividing the annualized sum of net interest revenue (excluding net interest revenue from conduit-based assets) and MMDA fees by average spread-based assets. Spread-based assets consist of client and brokerage-related asset balances, including client margin balances, segregated cash, MMDA balances, deposits paid on securities borrowing (excluding conduit-based assets) and other cash and interest-earning investment balances. The following table sets forth net interest margin and average spread-based assets (dollars in millions):


	Three months ended									Nine months ended
	June 30,						Increase/			June 30,						Increase/
	2009			2008			(Decrease)			2009			2008			(Decrease)
Avg. interest-earning assets (excluding conduit business)	$	10,002		$	10,324		$	(322	)	$	8,296		$	9,920		$	(1,624	)
Avg. MMDA balances		22,474			15,619			6,855			19,876			15,460			4,416

Avg. spread-based balances	$	32,476		$	25,943		$	6,533		$	28,172		$	25,380		$	2,792


Net interest revenue (excluding conduit business)	$	98.2		$	129.1		$	(30.9	)	$	247.1		$	409.9		$	(162.8	)
MMDA fee revenue		125.1			155.7			(30.6	)		424.9			467.6			(42.7	)

Spread-based revenue	$	223.3		$	284.8		$	(61.5	)	$	672.0		$	877.5		$	(205.5	)


Avg. annualized yield - interest-earning assets (excluding conduit business)		3.88	%		4.95	%		(1.07	%)		3.93	%		5.43	%		(1.50	%)

Avg. annualized yield — MMDA fees		2.20	%		3.94	%		(1.74	%)		2.82	%		3.97	%		(1.15	%)
Net interest margin (NIM)		2.72	%		4.34	%		(1.62	%)		3.15	%		4.54	%		(1.39	%)

The following tables set forth key metrics that we use in analyzing net interest revenue, which, exclusive of the conduit business, is a component of net interest margin (dollars in millions):


	Interest Revenue (Expense)									Interest Revenue (Expense)
	Three months ended									Nine months ended
	June 30,						Increase/			June 30,						Increase/
	2009			2008			(Decrease)			2009			2008			(Decrease)
Segregated cash	$	1.5		$	—		$	1.5		$	3.8		$	0.2		$	3.6
Client margin balances		54.7			117.3			(62.6	)		169.2			415.2			(246.0	)
Securities borrowing (excluding conduit business)		42.9			16.7			26.2			76.3			38.1			38.2
Other cash and interest-earning investments, net		0.4			9.4			(9.0	)		3.3			26.7			(23.4	)
Client credit balances		(0.7	)		(4.8	)		4.1			(3.0	)		(21.9	)		18.9
Securities lending (excluding conduit business)		(0.6	)		(9.5	)		8.9			(2.5	)		(48.4	)		45.9

Net interest revenue (excluding conduit business)		98.2			129.1			(30.9	)		247.1			409.9			(162.8	)

Securities borrowing - conduit business		1.5			29.4			(27.9	)		10.1			148.7			(138.6	)
Securities lending - conduit business		(1.1	)		(26.6	)		25.5			(6.3	)		(139.7	)		133.4

Net interest revenue	$	98.6		$	131.9		$	(33.3	)	$	250.9		$	418.9		$	(168.0	)


	Average Balance							Average Balance
	Three months ended							Nine months ended
	June 30,				%			June 30,				%
	2009		2008		Change			2009		2008		Change
Segregated cash	$	4,159	$	9		N/A		$	2,599	$	10		N/A
Client margin balances		4,340		8,200		(47	%)		4,240		8,288		(49	%)
Securities borrowing (excluding conduit business)		583		473		23	%		381		435		(12	%)
Other cash and interest-earning investments		920		1,642		(44	%)		1,076		1,187		(9	%)

Interest-earning assets (excluding conduit business)		10,002		10,324		(3	%)		8,296		9,920		(16	%)
Securities borrowing — conduit business		1,165		5,448		(79	%)		1,400		5,778		(76	%)

Interest-earning assets	$	11,167	$	15,772		(29	%)	$	9,696	$	15,698		(38	%)


Client credit balances	$	6,129	$	4,666		31	%	$	4,837	$	4,214		15	%
Securities lending (excluding conduit business)		1,322		3,197		(59	%)		1,185		3,330		(64	%)

Interest-bearing liabilities (excluding conduit business)		7,451		7,863		(5	%)		6,022		7,544		(20	%)
Securities lending — conduit business		1,165		5,448		(79	%)		1,400		5,778		(76	%)

Interest-bearing liabilities	$	8,616	$	13,311		(35	%)	$	7,422	$	13,322		(44	%)


	Avg. Annualized Yield (Cost)									Avg. Annualized Yield (Cost)
	Three months ended						Net Yield			Nine months ended						Net Yield
	June 30,						Increase/			June 30,						Increase/
	2009			2008			(Decrease)			2009			2008			(Decrease)
Segregated cash		0.14	%		2.03	%		(1.89	%)		0.19	%		3.23	%		(3.04	%)

Client margin balances		4.99	%		5.66	%		(0.67	%)		5.26	%		6.58	%		(1.32	%)
Other cash and interest-earning investments, net		0.17	%		2.25	%		(2.08	%)		0.40	%		2.94	%		(2.54	%)
Client credit balances		(0.05	%)		(0.40	%)		0.35	%		(0.08	%)		(0.68	%)		0.60	%

Net interest revenue (excluding conduit business)		3.88	%		4.95	%		(1.07	%)		3.93	%		5.43	%		(1.50	%)

Securities borrowing — conduit business		0.52	%		2.13	%		(1.61	%)		0.96	%		3.38	%		(2.42	%)
Securities lending — conduit business		(0.36	%)		(1.93	%)		1.57	%		(0.59	%)		(3.18	%)		2.59	%

Net interest revenue		3.49	%		3.31	%		0.18	%		3.41	%		3.51	%		(0.10	%)

The following table sets forth key metrics that we use in analyzing investment product fee revenues (dollars in millions):


	Three months ended									Nine months ended
	June 30,						Increase/			June 30,						Increase/
	2009			2008			(Decrease)			2009			2008			(Decrease)
Fee revenue	$	39.1		$	77.6		$	(38.5	)	$	156.3		$	223.2		$	(66.9	)
Average balance	$	58,976		$	78,346			(25	%)	$	60,239		$	69,216			(13	%)
Average annualized yield		0.26	%		0.39	%		(0.13	%)		0.34	%		0.42	%		(0.08	%)

Transaction-Based Revenue Metrics

The following table sets forth several key metrics regarding client trading activity, which we utilize in measuring and evaluating performance and the results of our operations:


	Three months ended									Nine months ended
	June 30,						%			June 30,						%
	2009			2008⁽¹⁾			Change			2009			2008⁽¹⁾			Change
Total trades (in millions)		24.66			18.39			34	%		66.99			56.37			19	%
Average commissions and transaction fees per trade⁽²⁾	$	13.66		$	13.53			1	%	$	13.28		$	13.38			(1	%)
Average client trades per day		391,506			287,349			36	%		358,232			299,845			19	%
Average client trades per account (annualized)		13.5			10.7			26	%		12.6			11.4			11	%
Activity rate — total accounts		5.4	%		4.2	%		29	%		5.0	%		4.5	%		11	%
Activity rate — funded accounts		7.6	%		5.9	%		29	%		7.1	%		6.3	%		13	%
Trading days		63.0			64.0			(2	%)		187.0			188.0			(1	%)


(1)		Trading activity metrics for the three and nine months ended June 30, 2008 have been revised to exclude non-revenue generating mutual fund trades.

(2)		Average commissions and transaction fees per trade excludes thinkorswim active trader business.

Client Account and Client Asset Metrics

The following table sets forth certain metrics regarding client accounts and client assets, which we use to analyze growth and trends in our client base:


	Three months ended									Nine months ended
	June 30,						%			June 30,						%
	2009			2008			Change			2009			2008			Change

Total accounts (beginning of period)		7,195,000			6,731,000			7	%		6,895,000			6,380,000			8	%
New accounts opened		176,000			148,000			19	%		586,000			511,000			15	%
Accounts purchased		197,000			—			N/A			197,000			102,000			93	%
Accounts closed		(77,000	)		(69,000	)		12	%		(187,000	)		(183,000	)		2	%

Total accounts (end of period)		7,491,000			6,810,000			10	%		7,491,000			6,810,000			10	%


Percentage change during period		4	%		1	%					9	%		7	%

Funded accounts (beginning of period)		5,105,000			4,814,000			6	%		4,918,000			4,597,000			7	%
Funded accounts (end of period)		5,291,000			4,868,000			9	%		5,291,000			4,868,000			9	%
Percentage change during period		4	%		1	%					8	%		6	%

Client assets (beginning of period, in billions)	$	224.9		$	306.1			(27	%)	$	278.0		$	302.7			(8	%)
Client assets (end of period, in billions)	$	265.0		$	309.2			(14	%)	$	265.0		$	309.2			(14	%)
Percentage change during period		18	%		1	%					(5	%)		2	%

Net new assets (in billions)	$	6.9		$	4.0			73	%	$	21.2		$	20.0			6	%

In connection with our purchase of Fiserv Trust Company on February 4, 2008, we acquired approximately 102,000 total accounts, approximately 81,000 funded accounts and approximately $25 billion in client assets. In connection with our purchase of thinkorswim on June 11, 2009, we acquired approximately 197,000 total accounts, approximately 113,000 funded accounts and approximately $4 billion in client assets.

Consolidated Statements of Income Data

The following table summarizes certain data from our Condensed Consolidated Statements of Income for analysis purposes (dollars in millions):


	Three months ended									Nine months ended
	June 30,						%			June 30,						%
	2009			2008			Change			2009			2008			Change
Revenues:
Transaction-based revenues:
Commissions and transaction fees	$	338.5		$	248.9			36	%	$	891.0		$	754.0			18	%

Asset-based revenues:
Interest revenue		101.2			174.9			(42	%)		264.0			636.0			(58	%)
Brokerage interest expense		(2.6	)		(43.0	)		(94	%)		(13.1	)		(217.1	)		(94	%)

Net interest revenue		98.6			131.9			(25	%)		250.9			418.9			(40	%)

Money market deposit account fees		125.1			155.7			(20	%)		424.9			467.6			(9	%)
Investment product fees		39.1			77.6			(50	%)		156.3			223.2			(30	%)

Total asset-based revenues		262.8			365.2			(28	%)		832.1			1,109.8			(25	%)

Other revenues		12.5			9.6			31	%		26.9			24.3			11	%


Net revenues		613.8			623.6			(2	%)		1,750.0			1,888.1			(7	%)


Expenses:
Employee compensation and benefits		128.2			129.0			(1	%)		366.4			367.2			(0	%)
Fair value adjustments of compensation- related derivative instruments		—			—			N/A			—			0.8			(100	%)
Clearing and execution costs		16.1			11.1			45	%		46.8			32.5			44	%
Communications		20.8			17.9			16	%		57.4			52.9			9	%
Occupancy and equipment costs		30.0			24.0			25	%		89.6			74.3			21	%
Depreciation and amortization		11.2			9.8			13	%		33.3			26.4			26	%
Amortization of acquired intangible assets		17.6			15.3			14	%		48.3			43.8			10	%
Professional services		45.9			29.0			59	%		95.3			76.8			24	%
Interest on borrowings		8.4			16.3			(49	%)		32.2			62.7			(49	%)
Other		14.5			6.4			126	%		34.8			37.5			(7	%)
Advertising		39.4			36.7			7	%		139.2			129.5			7	%


Total expenses		332.0			295.7			12	%		943.4			904.3			4	%


Income before other income (expense) and income taxes		281.7			327.9			(14	%)		806.6			983.8			(18	%)
Other income (expense):
Gain (loss) on sale of investments		(2.0	)		0.3			N/A			(2.0	)		0.9			N/A


Pre-tax income		279.7			328.2			(15	%)		804.6			984.8			(18	%)
Provision for income taxes		109.2			123.8			(12	%)		317.6			352.8			(10	%)


Net income	$	170.5		$	204.4			(17	%)	$	487.0		$	631.9			(23	%)


Other information:
Number of interest days in period		91			91			0	%		273			274			(0	%)
Effective income tax rate		39.0	%		37.7	%					39.5	%		35.8	%


Note: Details may not sum to totals and subtotals due to rounding differences. Change percentages are based on non-rounded amounts from the Condensed Consolidated Statements of Income.

Three-Month Periods Ended June 30, 2009 and 2008

Net Revenues

Commissions and transaction fees increased 36% to $338.5 million, primarily due to higher average client trades per day. Average client trades per day increased 36% to 391,506 for the third quarter of fiscal 2009 compared to 287,349 for the third quarter of fiscal 2008. Average client trades per account (annualized) were 13.5 for the third quarter of fiscal 2009 compared to 10.7 for the third quarter of fiscal 2008. Average commissions and transaction fees per trade increased slightly to $13.66 per trade for the third quarter of fiscal 2009 from $13.53 for the third quarter of fiscal 2008, primarily due to higher payment

for order flow revenue per trade. This increase was partially offset by slightly lower percentages of option and mutual fund trades, and an increase in promotional trades related to our new account growth during the third quarter of fiscal 2009.

Net interest revenue decreased 25% to $98.6 million, due primarily to a 47% decrease in average client margin balances, a decrease of 67 basis points in the average yield earned on client margin balances, a 44% decrease in average other cash and interest-earning investment balances and a decrease of 208 basis points in the average yield earned on other cash and interest-earning investments for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008. These decreases were partially offset by a $32.7 million increase in net interest revenue from our securities borrowing/lending program and a decrease of 35 basis points in the average interest rate paid on client credit balances in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008.

MMDA fees decreased 20% to $125.1 million, due primarily to a decrease of 174 basis points in the average yield earned on the client MMDA assets during the third quarter of fiscal 2009, of which 23 basis points ($13.3 million) resulted from a FDIC special regulatory assessment. This decrease was partially offset by a 44% increase in average MMDA balances during the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008.

Investment product fees decreased 50% to $39.1 million, primarily due to a 25% decrease in average fee-based investment balances and a decrease of 13 basis points in the average yield earned in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008. The decrease in the average yield earned in the third quarter of fiscal 2009 was primarily due to our decision to voluntarily begin waiving fees on certain money market mutual funds during the first quarter of fiscal 2009 in order to prevent our clients’ yields on such funds from becoming negative.

By January 2010, we expect to migrate approximately $10 to $14 billion of client cash held in client credit balances or swept to money market mutual funds into the MMDA offering. During the third quarter of fiscal 2009, we began this migration and moved approximately $2.9 billion of client cash into the MMDA offering. This migration is expected to result in an increase in MMDA fee revenues and a decrease in investment product fee revenues, but is not expected to have a material impact on overall net revenues during fiscal 2009. We expect this migration to position the Company to earn higher net revenues if interest rates begin to rise.

Other revenues increased 31% to $12.5 million, primarily due to an increase in education revenues as a result of the thinkorswim acquisition in June 2009.

Expenses

Employee compensation and benefits expense decreased slightly to $128.2 million, due primarily to lower incentive-based compensation related to Company and individual performance in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008, mostly offset by the addition of thinkorswim compensation costs during June 2009. The average number of full-time equivalent employees increased to 4,709 for the third quarter of fiscal 2009 compared to 4,571 for the third quarter of fiscal 2008.

Clearing and execution costs increased 45% to $16.1 million, due primarily to higher client trading volumes and less favorable annual rebates from clearing organizations during the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008, and outsourced clearing costs related to thinkorswim beginning in June 2009.

Communications expense increased 16% to $20.8 million, due primarily to increased costs for quotes and market information related to the higher client trading volume during the third quarter of fiscal 2009.

Occupancy and equipment costs increased 25% to $30.0 million due to higher costs for technology infrastructure and facilities resulting from our fiscal 2008 growth initiatives.

Depreciation and amortization increased 13% to $11.2 million, due primarily to increased depreciation on technology infrastructure upgrades and leasehold improvements resulting from our fiscal 2008 growth initiatives and due to depreciation of assets recorded in the thinkorswim acquisition.

Amortization of acquired intangible assets increased 14% to $17.6 million, due to amortization of intangible assets recorded in the thinkorswim acquisition.

Professional services increased 59% to $45.9 million, primarily due to a $13 million acquisition earn-out payment, a $5 million write-off of software development costs and due to the addition of thinkorswim professional services costs in the third quarter

of fiscal 2009. These increases were partially offset by fees incurred during the third quarter of fiscal 2008 under the transition services agreements related to the February 2008 acquisition of Fiserv Trust Company.

Interest on borrowings decreased 49% to $8.4 million, due primarily to lower average interest rates incurred on our debt during the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008. The average interest rate incurred on our debt was 1.93% for the third quarter of fiscal 2009, compared to 4.19% for the third quarter of fiscal 2008.

Other expenses increased 126% to $14.5 million primarily due to favorable litigation settlements and lower bad debt and other client-related trading losses in the third quarter of fiscal 2008 and due to increased regulatory fees in the third quarter of fiscal 2009.

Advertising expense increased 7% to $39.4 million primarily due to the acquisition of thinkorswim. We generally adjust our level of advertising spending in relation to stock market activity and other market conditions in an effort to maximize the number of new accounts while minimizing the advertising cost per new account.

Our effective income tax rate was 39.0% for the third quarter of fiscal 2009, compared to 37.7% for the third quarter of fiscal 2008. The increase was primarily due to unfavorable income tax adjustments of approximately $1.7 million during the third quarter of fiscal 2009 resulting from recent state income tax law changes. We expect our effective income tax rate to be approximately 39% for the remainder of fiscal 2009. However, we expect that accounting under FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN No. 48”), will result in increased volatility in our quarterly and annual effective income tax rate because FIN No. 48 requires that any change in measurement of a tax position taken in a prior tax year be recognized as a discrete event in the period in which it occurs.

Nine-Month Periods Ended June 30, 2009 and 2008

Net Revenues

Commissions and transaction fees increased 18% to $891.0 million, primarily due to higher average client trades per day, partially offset by slightly lower commissions and transaction fees per trade. Average client trades per day increased 19% to 358,232 for the first nine months of fiscal 2009 compared to 299,845 for the first nine months of fiscal 2008. Average client trades per account (annualized) were 12.6 for the first nine months of fiscal 2009 compared to 11.4 for the first nine months of fiscal 2008. Average commissions and transaction fees per trade decreased 1% to $13.28 per trade for the first nine months of fiscal 2009 from $13.38 for the first nine months of fiscal 2008, primarily due to a lower percentage of option trades and an increase in promotional trades related to our new account growth during the first nine months of fiscal 2009, partially offset by higher payment for order flow revenue per trade during the first nine months of fiscal 2009.

Net interest revenue decreased 40% to $250.9 million, due primarily to a 49% decrease in average client margin balances, a decrease of 132 basis points in the average yield earned on client margin balances and a decrease of 254 basis points in the average yield earned on other cash and interest-earning investments for the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008. These decreases were partially offset by a $78.9 million increase in net interest revenue from our securities borrowing/lending program and a decrease of 60 basis points in the average interest rate paid on client credit balances in the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008.

MMDA fees decreased 9% to $424.9 million, due primarily to a decrease of 115 basis points in the average yield earned on the client MMDA assets during the first nine months of fiscal 2009, of which 9 basis points ($13.3 million) resulted from a FDIC special regulatory assessment. This decrease was partially offset by a 29% increase in average MMDA balances during the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008.

Investment product fees decreased 30% to $156.3 million, primarily due to a decrease of 8 basis points in the average yield earned and a 13% decrease in average fee-based investment balances for the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008.

Other revenues increased 11% to $26.9 million, primarily due to an increase in education revenues as a result of the thinkorswim acquisition in June 2009.

Expenses

Employee compensation and benefits expense decreased slightly to $366.4 million, due primarily to lower incentive-based compensation related to actual Company and individual performance compared to the first nine months of fiscal 2008. This

decrease was mostly offset by an increase in average headcount resulting from our fiscal 2008 growth initiatives and an increase of approximately $2.9 million in severance costs related to staff reductions during the first nine months of fiscal 2009. The average number of full-time equivalent employees was 4,657 for the first nine months of fiscal 2009 compared to 4,309 in the first nine months of 2008. Our full-time equivalent employee headcount has further increased to 5,209 as of June 30, 2009 primarily due to the thinkorswim acquisition.

Clearing and execution costs increased 44% to $46.8 million, due primarily to higher client trading volumes and less favorable annual rebates from clearing organizations during the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008.

Communications expense increased 9% to $57.4 million, due primarily to increased costs for quotes and market information related to the higher client trading volume during the first nine months of fiscal 2009.

Occupancy and equipment costs increased 21% to $89.6 million due to higher costs for technology infrastructure and facilities resulting from our fiscal 2008 growth initiatives.

Depreciation and amortization increased 26% to $33.3 million, due primarily to increased depreciation on technology infrastructure upgrades and leasehold improvements resulting from our fiscal 2008 growth initiatives.

Amortization of acquired intangible assets increased 10% to $48.3 million, primarily due to amortization of the intangible assets recorded in the acquisitions of Fiserv Trust Company in February 2008 and thinkorswim in June 2009.

Professional services increased 24% to $95.3 million, primarily due to a $13 million acquisition earn-out payment, a $5 million write-off of software development costs, higher usage of consulting and contract services in connection with new product development and technology infrastructure upgrades related to our growth initiatives and due to the addition of thinkorswim professional services costs during the first nine months of fiscal 2009. These increases were partially offset by fees incurred during the second and third quarters of fiscal 2008 under the transition services agreements related to the acquisition of Fiserv Trust Company.

Interest on borrowings decreased 49% to $32.2 million, due primarily to lower average interest rates incurred on our debt during the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008. The average interest rate incurred on our debt was 2.65% for the first nine months of fiscal 2009, compared to 5.33% for the first nine months of fiscal 2008.

Other expenses decreased 7% to $34.8 million primarily due to lower bad debt and other client-related trading losses in the first nine months of fiscal 2009 compared to the first nine months quarter of fiscal 2008. This decrease was partially offset by the effect of favorable litigation settlements during the first nine months of fiscal 2008.

Advertising expense increased 7% to $139.2 million during the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008, primarily due to increased spending in response to competitive market share opportunities.

Our effective income tax rate was 39.5% for the first nine months of fiscal 2009 compared to 35.8% for the first nine months of fiscal 2008. The effective income tax rate for the first nine months of fiscal 2009 was higher than normal due to unfavorable income tax adjustments of approximately $8.9 million resulting from recent state income tax law changes and capital loss limitations on our Reserve Primary Fund holdings. These items unfavorably impacted our earnings for the first nine months of fiscal 2009 by approximately $0.02 per share. The effective income tax rate for the first nine months of fiscal 2008 was unusually low due primarily to $7.2 million of favorable resolutions of state income tax matters and $11.1 million of adjustments to current and deferred income taxes resulting from a revision to estimated state income tax expense. The revision was based on our actual state income tax returns filed for calendar year 2006 and similar adjustments applied to estimated state income tax rates for 2007 and future years. These items favorably impacted our earnings for the first nine months of fiscal 2008 by approximately $0.03 per share.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our liquidity and capital needs primarily through the use of funds generated from operations and from borrowings under our credit agreements. We have also issued common stock and long-term debt to finance mergers and acquisitions and for other corporate purposes. Our liquidity needs during the first nine months of fiscal 2009 were financed primarily from our earnings and cash on hand. We plan to finance our operational capital and liquidity needs during the remainder of fiscal 2009 primarily from our earnings, cash and short-term investments on hand and, if necessary, borrowings on our parent company and broker-dealer credit facilities.

As of September 30, 2008, we had holdings with a fair value of approximately $585.5 million in the Primary Fund, a money market mutual fund managed by The Reserve, an independent mutual fund company. During September 2008, the net asset value of the Primary Fund declined below $1.00 per share and the fund announced it was liquidating under the supervision of the Securities and Exchange Commission (“SEC”). In order to facilitate an orderly liquidation, the SEC allowed the fund to suspend redemptions until the fund could liquidate portfolio securities without further impairing the net asset value. From October 31, 2008 through June 30, 2009, we have received $534.5 million of cash as The Reserve redeemed approximately 90% of the shares of the fund. We cannot predict when The Reserve will redeem the remaining shares of the fund.

Dividends from our subsidiaries are a source of liquidity for the parent company. Some of our subsidiaries are subject to requirements of the SEC, the Financial Industry Regulatory Authority (“FINRA”) and other regulators relating to liquidity, capital standards and the use of client funds and securities, which may limit funds available for the payment of dividends to the parent company.

Under the SEC’s Uniform Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Exchange Act”)), our broker-dealer subsidiaries are required to maintain, at all times, at least the minimum level of net capital required under Rule 15c3-1. For clearing broker-dealers, this minimum net capital level is determined by a calculation described in Rule 15c3-1 that is primarily based on each broker-dealer’s “aggregate debits,” which primarily are a function of client margin balances at our clearing broker-dealer subsidiary. Since our aggregate debits may fluctuate significantly, our minimum net capital requirements may also fluctuate significantly from period to period. The parent company may make cash capital contributions to broker-dealer subsidiaries, if necessary, to meet minimum net capital requirements.

Liquid Assets

We consider liquid assets an important measure of our liquidity and of our ability to fund corporate investing and financing activities. Liquid assets is a non-GAAP financial measure. We define liquid assets as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments, (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 5% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of 120% of the minimum dollar net capital requirement or in excess of 8 1/3% of aggregate indebtedness and (d) Tier 1 capital of our trust company in excess of the minimum dollar requirement. We include the excess capital of our broker-dealer and trust company subsidiaries in liquid assets, rather than simply including broker-dealer and trust cash and cash equivalents, because capital requirements may limit the amount of cash available for dividend from the broker-dealer and trust subsidiaries to the parent company. Excess capital, as defined under clauses (c) and (d) above, is generally available for dividend from the broker-dealer and trust subsidiaries to the parent company. Liquid assets should be considered as a supplemental measure of liquidity, rather than as a substitute for cash and cash equivalents. The following table sets forth a reconciliation of cash and cash equivalents, which is the most directly comparable GAAP measure, to liquid assets (dollars in thousands):


		June 30,			September 30,
		2009			2008			Change
Cash and cash equivalents		$	1,119,824		$	674,135		$	445,689
Less:	Broker-dealer cash and cash equivalents		(858,350	)		(418,626	)		(439,724	)
	Trust company cash and cash equivalents		(65,805	)		(61,430	)		(4,375	)
	Investment advisory cash and cash equivalents		(15,989	)		(9,447	)		(6,542	)

	Corporate cash and cash equivalents		179,680			184,632			(4,952	)

Plus:	Corporate short-term investments		49,496			14,491			35,005
	Excess trust Tier 1 capital		6,213			102,427			(96,214	)
	Excess broker-dealer regulatory net capital		818,695			486,625			332,070

Liquid assets		$	1,054,084		$	788,175		$	265,909

The increase in liquid assets is summarized as follows (dollars in thousands):


Liquid assets as of September 30, 2008		$	788,175

Plus:	Pre-tax income		804,568
	Cash provided by stock option exercises		27,074
	Corporate cash and cash equivalents acquired in business combinations		16,525
	Proceeds from the sale of other investments available-for-sale		2,868
	Reduction in net capital requirements due to decrease in aggregate debits		107,855
	Excess broker-dealer net capital acquired in business combinations		42,675
	Other changes in working capital and regulatory net capital		409,559

Less:	Income taxes paid		(262,863	)
	Purchase of property and equipment		(45,799	)
	Purchase of treasury stock		(465,452	)
	Principal payments on long-term debt and capital lease obligations		(104,388	)
	Cash paid in business combinations		(266,713	)


Liquid assets as of June 30, 2009		$	1,054,084

Stock Repurchase Program

On August 2, 2006, our board of directors authorized a program to repurchase up to 12 million shares of our common stock in the open market and in block trades. On November 15, 2006, the board of directors added 20 million shares to the original authorization, increasing the total authorization to 32 million shares.

On January 8, 2009, we entered into a definitive agreement to acquire thinkorswim for approximately 28 million shares of Company common stock and approximately $225 million in cash. In connection with the acquisition and in addition to the existing program, our board of directors authorized the Company to repurchase up to 28.3 million shares of its common stock, which was intended to be approximately equal to the number of shares to be issued in the acquisition.

On February 17, 2009, we entered into a stock purchase agreement with Marlene M. Ricketts and the Joe and Marlene Ricketts Grandchildren’s Trust to purchase approximately 34 million shares of common stock of the Company for approximately $403 million in cash ($11.85 per share). The purchase and sale of the stock occurred on February 20, 2009. The number of shares of common stock under the stock purchase agreement consisted of approximately 4.4 million shares remaining under the 2006 stock repurchase program, 28.3 million shares that were authorized to be repurchased in connection with the thinkorswim acquisition and approximately 1.3 million of incremental shares authorized by our board of directors at the time of the stock purchase agreement.

From the inception of the 2006 stock repurchase program through the completion of our stock repurchase programs in February 2009, we repurchased a total of approximately 61.6 million shares at a weighted-average purchase price of $13.94 per share under the stock repurchase programs and stock purchase agreement described above. We currently have no plans for further stock repurchase programs.

Contractual Obligations

The following items constitute material changes in our contractual obligations outside the ordinary course of business since September 30, 2008:

On July 20, 2009, TDA Inc. finalized settlements with the SEC and other regulatory authorities, concluding investigations by the regulators into TDA Inc.’s offer and sale of auction rate securities (“ARS”). Under these settlement agreements, TDA Inc. will extend a tender offer to purchase, from certain current and former account holders, eligible ARS that were purchased through TDA Inc. on or before February 13, 2008, provided the ARS were not transferred away from the firm prior to January 24, 2006. This offer will not extend to clients who purchased ARS through independent registered investment advisors or through another firm and transferred such securities to TDA Inc. TDA Inc. will complete the program in two phases, based on the amount of assets a client holds at TDA Inc. and will use best efforts to complete all repurchases by March 31, 2010, but no

later than June 30, 2010. In addition, TDA Inc. will make whole any losses sustained by eligible clients who purchased ARS through TDA Inc. on or before February 13, 2008 and sold such securities at a loss prior to July 20, 2009. TDA Inc. will reimburse clients whose borrowing costs exceeded the amount they earned in interest or dividends from their eligible ARS at the time they borrowed money from TDA Inc. to satisfy liquidity needs. TDA Inc. will participate in a special arbitration process for the purpose of arbitrating eligible investors’ consequential damages claims arising from their inability to sell their eligible ARS. TDA Inc. estimates that ARS with a total par value of approximately $400 million to $500 may be outstanding and eligible for the tender offer. The potential amount of future payments that may be required to be made for loss reimbursements, excess borrowing costs and consequential damage claims is currently unknown.

On February 4, 2008, we completed the acquisition of Fiserv Trust Company, an investment support services business and wholly-owned subsidiary of Fiserv, Inc. (“Fiserv”). Pursuant to the stock purchase agreement, an earn-out payment of up to $100 million in cash was payable following the first anniversary of the acquisition based on the achievement of revenue targets. In May 2009, based on revenues through the February 4, 2009 anniversary date, we paid approximately $41.3 million for the earn-out obligation.

Our income taxes payable increased from approximately $243.0 million as of September 30, 2008 to approximately $368.7 million as of June 30, 2009. Income taxes payable as of June 30, 2009 primarily consists of liabilities for uncertain tax positions and related interest and penalties. The timing of payments, if any, on liabilities for uncertain tax positions cannot be predicted with reasonable accuracy.

Off-Balance Sheet Arrangements

We enter into guarantees and other off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of our clients and manage our asset-based revenues. For information on these arrangements, see the following sections under Item 1, Financial Statements – Notes to Condensed Consolidated Financial Statements: “Auction Rate Securities Matters” and “Guarantees” under Note 9 – COMMITMENTS AND CONTINGENCIES and “Money Market Deposit Account Agreement” under Note 13 – RELATED PARTY TRANSACTIONS. The MMDA agreement accounts for a significant percentage of our revenues (24% of our net revenues for the nine months ended June 30, 2009) and enables our clients to invest in an FDIC-insured deposit product without the need for the Company to maintain a bank charter.

NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

SFAS No. 157— On October 1, 2008, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 157,Fair Value Measurementsfor financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We will not adopt this statement until October 1, 2009 for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 clarifies the definition of fair value and the methods used to measure fair value and expands disclosures about fair value measurements. The adoption of SFAS No. 157 did not have a material impact on our financial position, results of operations or cash flows. See Note 10 – FAIR VALUE DISCLOSURES for additional information.

The Financial Accounting Standards Board (“FASB”) issued the following standards, which are effective for interim and/or annual periods ending after June 15, 2009 and shall be applied prospectively. We adopted these standards effective April 1, 2009. The adoption of these standards did not have a material impact on our financial position, results of operations or cash flows.

SFAS No. 165— SFAS No. 165,Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.

Recently Issued Accounting Pronouncements

SFAS No. 141R— In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations.SFAS No. 141R generally requires an acquirer to recognize the identifiable assets acquired, liabilities assumed, contingent purchase consideration and any noncontrolling interest in the acquiree at fair value on the date of acquisition. It also requires an acquirer to recognize as expense most transaction and restructuring costs as incurred, rather than include such items in the cost of the acquired entity. For the Company, SFAS No. 141R will apply prospectively to business combinations for which the acquisition date is on or after October 1, 2009. We will evaluate the impact of SFAS No. 141R on any potential future business combinations that may occur on or after the effective date.

SFAS No. 168— In June 2009, the FASB issued SFAS No. 168,The FASB Accounting Standards Codification^TM and The Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162.The FASB Accounting Standards Codification (“Codification”) will become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. The issuance of this statement and the Codification will not change GAAP. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Therefore, SFAS No. 168 will be effective for our fiscal year ending September 30, 2009. Adoption of SFAS No. 168 is not expected to have a material impact on our consolidated financial statements.


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. We do not hold any material market risk-sensitive instruments for trading purposes.

Credit Risk

Two primary sources of credit risk inherent in our business are client margin lending and securities lending and borrowing. We manage risk on client margin lending by requiring clients to maintain margin collateral in compliance with regulatory and internal guidelines. We monitor required margin levels daily and, pursuant to such guidelines, require our clients to deposit additional collateral, or to reduce positions, when necessary. We continuously monitor client accounts to detect excessive concentration, large orders or positions, patterns of day trading and other activities that indicate increased risk to us. We manage risks associated with our securities lending and borrowing activities by requiring credit approvals for counterparties, by monitoring the market value of securities loaned and collateral values for securities borrowed on a daily basis and requiring additional cash as collateral for securities loaned or return of collateral for securities borrowed when necessary and by participating in a risk-sharing program offered through the Options Clearing Corporation.

Interest Rate Risk

As a fundamental part of our brokerage business, we invest in interest-earning assets and are obligated on interest-bearing liabilities. In addition, we earn fees on our MMDA sweep arrangement with TD Bank USA and on money market mutual funds, which are subject to interest rate risk. Changes in interest rates could affect the interest earned on assets differently than interest paid on liabilities. A rising interest rate environment generally results in our earning a larger net interest spread. Conversely, a falling interest rate environment generally results in our earning a smaller net interest spread.

Our most prevalent form of interest rate risk is referred to as “gap” risk. This risk occurs when the interest rates we earn on our assets change at a different frequency or amount than the interest rates we pay on our liabilities. We have an Asset/Liability Committee as the governance body with the responsibility of managing interest rate risk, including gap risk.

We use net interest simulation modeling techniques to evaluate the effect that changes in interest rates might have on pre-tax income. Our model includes all interest-sensitive assets and liabilities of the Company and interest-sensitive assets and liabilities associated with the MMDA agreement. The simulations involve assumptions that are inherently uncertain and, as a result, cannot precisely predict the impact that changes in interest rates will have on pre-tax income. Actual results may differ from simulated results due to differences in timing and frequency of rate changes, changes in market conditions and changes in management strategy that lead to changes in the mix of interest-sensitive assets and liabilities.

The weighted average federal funds rate for fiscal 2008 was 2.96%. Since September 30, 2008, the Federal Open Market Committee has lowered the federal funds rate to between 0% and 0.25%. We estimate that this lower interest rate

environment, along with changes in the mix of our average spread-based balances and market-driven reductions in our average fee-based investment balances, could reduce our asset-based revenues by $215 million to $450 million and our pre-tax income by $175 million to $410 million for the full fiscal year 2009 compared to fiscal 2008.

In addition to the analysis above related to the actual decreases in short-term interest rates, we have performed a simulation of a hypothetical increase in interest rates. This simulation assumes that the asset and liability structure of the Condensed Consolidated Balance Sheet and the MMDA arrangement would not be changed as a result of a simulated change in interest rates. The result of the simulation based on our financial position as of June 30, 2009 indicates that a gradual 1% (100 basis points) increase in interest rates over a 12-month period would result in approximately $110 million higher pre-tax income.

Other Market Risks

Our revenues and financial instruments are denominated in U.S. dollars. We generally do not invest in derivative instruments, except for economic hedging purposes.


Item 4.		— Controls and Procedures

Disclosure Controls and Procedures

Management, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2009. Management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of June 30, 2009.

Changes in Internal Control over Financial Reporting

As a result of the acquisition of thinkorswim on June 11, 2009, the Company has implemented internal controls over financial reporting to include consolidation of thinkorswim, as well as acquisition-related accounting and disclosures. The acquisition of thinkorswim represents a material change in internal control over financial reporting since management’s last assessment of the Company’s internal control over financial reporting, which was completed as of September 30, 2008. thinkorswim utilizes separate information and accounting systems and processes.

The Company intends to extend its Sarbanes-Oxley 404 compliance program to include thinkorswim. The Company’s management is reviewing and evaluating its internal control procedures and the design of those control procedures relating to the thinkorswim acquisition and anticipates that it will complete an evaluation and review of the thinkorswim internal control over financial reporting as of September 30, 2009, the date of management’s next assessment of the Company’s internal control over financial reporting.

There have been no other changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II — OTHER INFORMATION


Item 1.		— Legal Proceedings

Spam Litigation— A purported class action, captionedElvey v. TD Ameritrade, Inc., was filed on May 31, 2007 in the United States District Court for the Northern District of California. The complaint alleges that there was a breach in TDA Inc.’s systems, which allowed access to e-mail addresses and other personal information of account holders, and that as a result account holders received unsolicited e-mail from spammers promoting certain stocks and have been subjected to an increased risk of identity theft. The complaint requests unspecified damages and injunctive and other equitable relief. A second lawsuit, captionedZigler v. TD Ameritrade, Inc., was filed on September 26, 2007, in the same jurisdiction on behalf of a purported nationwide class of account holders. The factual allegations of the complaint and the relief sought are substantially the same as those in the first lawsuit. The cases were consolidated under the captionIn re TD Ameritrade Accountholders Litigation. The Company hired an independent consultant to investigate whether identity theft occurred as a result of the breach. The consultant has conducted four investigations since August 2007 and reported that it found no evidence of identity theft. The parties entered into an agreement to settle the lawsuits on a class basis subject to court approval. On May 1, 2009, the Court granted preliminary approval of the proposed settlement, which had been revised, and set a hearing on final approval for September 10, 2009. Some class members have filed objections and opt-outs. The settlement is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows.

Auction Rate Securities Matters– Beginning in March 2008, lawsuits were filed against various financial services firms by customers related to their investments in auction rate securities (“ARS”). The plaintiffs in these lawsuits allege that the defendants made material misrepresentations and omissions in statements to customers about investments in ARS and the

manner in which the ARS market functioned in violation of provisions of the federal securities laws. Two purported class action complaints have been filed alleging such conduct with respect to TDA Inc. and TD AMERITRADE Holding Corporation. The cases, which are pending in the U.S. District Court for the Southern District of New York, have been consolidated under the captionIn re Humphrys v. TD Ameritrade Holding Corp.An amended complaint was filed in February 2009. The amended complaint seeks an unspecified amount of compensatory damages, equitable relief, interest and attorneys’ fees. In April 2009, the Company filed a motion to dismiss the amended complaint. The Court has not yet ruled on the motion.

The SEC and other regulatory authorities conducted investigations regarding the sale of ARS. On July 20, 2009, TDA Inc. finalized settlements with the SEC and other regulatory authorities, concluding investigations by the regulators into TDA Inc.’s offer and sale of ARS. Under these settlement agreements, TDA Inc. will extend a tender offer to purchase, from certain current and former account holders, eligible ARS that were purchased through TDA Inc. on or before February 13, 2008, provided the ARS were not transferred away from the firm prior to January 24, 2006. This offer will not extend to clients who purchased ARS through independent registered investment advisors or through another firm and transferred such securities to TDA Inc. TDA Inc. will complete the program in two phases, based on the amount of assets a client holds at TDA Inc. and will use best efforts to complete all repurchases by March 31, 2010, but no later than June 30, 2010. In addition, TDA Inc. will make whole any losses sustained by eligible clients who purchased ARS through TDA Inc. on or before February 13, 2008 and sold such securities at a loss prior to July 20, 2009. TDA Inc. will reimburse clients whose borrowing costs exceeded the amount they earned in interest or dividends from their eligible ARS at the time they borrowed money from TDA Inc. to satisfy liquidity needs. TDA Inc. will participate in a special arbitration process for the purpose of arbitrating eligible investors’ consequential damages claims arising from their inability to sell their eligible ARS. No fines were imposed by the regulators under the settlement agreements.

Other Legal and Regulatory Matters– The Company is subject to lawsuits, arbitrations, claims and other legal proceedings in connection with its business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. Management believes 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 pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, the Company is unable to predict the outcome of these matters.

outcome of any resulting actions will not be material to the Company’s financial condition, results of operations or cash flows. However, the Company is unable to predict the outcome of these matters.


Item 1A.		— Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under Item 1A — “Risk Factors” in our annual report on Form 10-K, as amended, for the year ended September 30, 2008, which could materially affect our business, financial condition or future results of operations. The risks described in our Form 10-K, as amended, are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

There have been no material changes from the risk factors disclosed in the Company’s Form 10-K, as amended, for the fiscal year ended September 30, 2008.


Item 2.		— Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities


ISSUER PURCHASES OF EQUITY SECURITIES
					Total Number of		Maximum Number
					Shares Purchased as		of Shares that May
	Total Number of		Average Price		Part of Publicly		Yet Be Purchased
Period	Shares Purchased		Paid per Share		Announced Program		Under the Program
April 1, 2009 – April 30, 2009		1,124	$	14.74		—

May 1, 2009 – May 31, 2009		1,897	$	16.53		—

June 1, 2009 – June 30, 2009		—		—		—


Total — Three months ended June 30, 2009		3,021	$	15.86		—		N/A

All of the shares purchased during the quarter ended June 30, 2009, were repurchased from employees for income tax withholding in connection with restricted stock unit distributions. There were no stock repurchase programs in effect and no programs expired during the third quarter of fiscal 2009.

J. Joe Ricketts, Director and Founder of the Company, purchased shares of Company common stock upon the exercise of stock options during the third quarter of fiscal 2009. The following table summarizes the shares purchased by Mr. Ricketts upon exercise of stock options:


AFFILIATE PURCHASES OF EQUITY SECURITIES
					Total Number of		Maximum Number
					Shares Purchased as		of Shares that May
	Total Number of		Average Price		Part of Publicly		Yet Be Purchased
Period	Shares Purchased		Paid per Share		Announced Program		Under the Program
April 1, 2009 – April 30, 2009		925,000	$	10.30		—

May 1, 2009 – May 31, 2009		1,517,385	$	5.39		—

June 1, 2009 – June 30, 2009		—		—		—


Total — Three months ended June 30, 2009		2,442,385	$	7.25		—		N/A


Item 6.		— Exhibits

	3.1		Amended and Restated Certificate of Incorporation of TD AMERITRADE Holding Corporation, dated January 24, 2006 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on January 27, 2006)

	3.2		Amended and Restated By-Laws of TD AMERITRADE Holding Corporation, effective March 9, 2006 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on March 15, 2006)

	10.1		TD AMERITRADE, Inc. Offer of Settlement before the Securities and Exchange Commission, effective July 20, 2009

	10.2		Assurance of Discontinuance Pursuant to Executive Law Section 63(15) between TD AMERITRADE, Inc. and the Attorney General of the State of New York Investor Protection Bureau, effective July 20, 2009

	10.3		TD AMERITRADE, Inc. Offer of Settlement before the Pennsylvania Securities Commission, effective July 20, 2009

	15.1		Awareness Letter of Independent Registered Public Accounting Firm

	31.1		Certification of Fredric J. Tomczyk, Principal Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2		Certification of William J. Gerber, Principal Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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: August 7, 2009


	TD AMERITRADE Holding Corporation (Registrant)
	By:	/s/ FREDRIC J. TOMCZYK
		Fredric J. Tomczyk
		President and Chief Executive Officer (Principal Executive Officer)



	By:	/s/ WILLIAM J. GERBER
		William J. Gerber
		Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

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TD Ameritrade Holding 10-Q2009 Q3 Quarterly report

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