TD Ameritrade Holding 10-Q 2005 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 24, 2005

OR

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past ninety days. Yesþ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yesþ Noo

As of July 15, 2005, there were 404,771,569 outstanding shares of the registrant’s Common Stock.

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 Operations		5
	Condensed Consolidated Statements of Cash Flows		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4.	Controls and Procedures		25
	Part II - OTHER INFORMATION
Item 1.	Legal Proceedings		25
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities		26
Item 6.	Exhibits		27
	Signatures		28
Executive Employment Agreement
Executive Employment Agreement
Awareness Letter of Independent Registered Public Accounting Firm
Section 302 Certification
Section 302 Certification
Section 906 Certification

2

Part I - FINANCIAL INFORMATION

Item 1. –Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Ameritrade Holding Corporation
Omaha, Nebraska

We have reviewed the accompanying condensed consolidated balance sheet of Ameritrade Holding Corporation and subsidiaries (collectively “the Company”) as of June 24, 2005, and the related condensed consolidated statements of operations for the three-month and nine-month periods ended June 24, 2005 and June 25, 2004, and of cash flows for the nine-month periods ended June 24, 2005 and June 25, 2004. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews 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 standards of the Public Company Accounting Oversight Board (United States), 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 reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Ameritrade Holding Corporation and subsidiaries as of September 24, 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated December 9, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 24, 2004 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP

Omaha, Nebraska
July 22, 2005

3

Ameritrade Holding Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share amounts)

	June 24,			September 24,
	2005			2004
ASSETS
Cash and cash equivalents	$	267,316		$	137,392
Short-term investments		20,000			17,950
Cash and investments segregated in compliance with federal regulations		7,757,897			7,802,575
Receivable from brokers, dealers and clearing organizations		3,837,529			2,818,726
Receivable from clients and correspondents - net of allowance for doubtful accounts		3,440,170			3,100,572
Property and equipment - net of accumulated depreciation and amortization		28,292			29,870
Goodwill		769,347			770,094
Acquired intangible assets - net of accumulated amortization		263,426			247,052
Investments in equity securities		64,583			73,759
Other assets		57,311			279,031
Total assets	$	16,505,871		$	15,277,021
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations	$	4,563,519		$	3,441,802
Payable to clients and correspondents		10,251,193			10,322,539
Accounts payable and accrued liabilities		143,581			146,108
Prepaid variable forward derivative instrument		16,912			28,738
Prepaid variable forward contract obligation		39,058			37,803
Deferred income taxes		89,485			89,123
Total liabilities		15,103,748			14,066,113
Commitments and contingencies
Stockholders’ equity:
Preferred Stock, $0.01 par value; 100,000,000 shares authorized, none issued		—			—
Common Stock, $0.01 par value; 650,000,000 shares authorized; 435,081,860 shares issued		4,351			4,351
Additional paid-in capital		1,182,943			1,195,218
Retained earnings		568,756			330,519
Treasury stock, Common, at cost - June 24, 2005 - 30,554,697 shares; Sept. 24, 2004 - 27,871,600 shares		(383,423	)		(346,060	)
Deferred compensation		941			993
Accumulated other comprehensive income		28,555			25,887
Total stockholders’ equity		1,402,123			1,210,908
Total liabilities and stockholders’ equity	$	16,505,871		$	15,277,021

See notes to condensed consolidated financial statements.

4

Ameritrade Holding Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended					Nine Months Ended
	June 24,		June 25,			June 24,			June 25,
	2005		2004			2005			2004
Revenues:
Commissions and clearing fees	$	113,077	$	136,231		$	394,596		$	457,635
Interest revenue		137,396		71,302			366,797			200,144
Brokerage interest expense		38,678		8,604			93,526			26,768
Net interest revenue		98,718		62,698			273,271			173,376
Other		22,559		21,063			60,973			62,285
Net revenues		234,354		219,992			728,840			693,296
Expenses:
Employee compensation and benefits		43,972		40,384			130,811			118,588
Clearing and execution costs		7,181		8,260			20,081			24,155
Communications		8,307		10,936			27,203			31,382
Occupancy and equipment costs		12,424		10,720			33,018			32,080
Depreciation and amortization		5,897		5,897			17,543			17,458
Professional services		7,947		8,957			26,722			24,053
Interest on borrowings		497		565			1,503			1,959
Loss/(gain) on disposal of property		26		(199	)		(220	)		(575	)
Other		4,041		5,254			13,146			16,607
Advertising		21,672		27,197			72,307			80,414
Total expenses		111,964		117,971			342,114			346,121
Pre-tax income		122,390		102,021			386,726			347,175
Provision for income taxes		47,718		39,763			148,489			132,023
Net income	$	74,672	$	62,258		$	238,237		$	215,152
Basic earnings per share	$	0.19	$	0.15		$	0.59		$	0.51
Diluted earnings per share	$	0.18	$	0.15		$	0.58		$	0.50
Weighted average shares outstanding - basic		403,017		415,252			403,911			420,599
Weighted average shares outstanding - diluted		411,074		424,002			412,250			430,386

See notes to condensed consolidated financial statements.

5

Ameritrade Holding Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine Months Ended
	June 24, 2005			June 25, 2004
Cash flows from operating activities:
Net income	$	238,237		$	215,152
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		7,324			8,469
Amortization of acquired intangible assets		10,219			8,989
Deferred income taxes		(699	)		(1,008	)
Gain on disposal of property		(220	)		(575	)
Loss on debt retirement		—			791
Other non-cash expenses, net		2,666			1,825
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with federal regulations		44,678			187,641
Brokerage receivables		(1,358,386	)		(1,030,228	)
Other assets		221,727			(239,356	)
Brokerage payables		1,050,371			1,129,936
Accounts payable and accrued liabilities		9,237			(16,199	)
Net cash flows from operating activities		225,154			265,437
Cash flows from investing activities:
Purchase of property and equipment		(6,217	)		(6,011	)
Proceeds from sale of property and equipment		—			15
Cash paid in business combinations, net		(25,919	)		(56,350	)
Purchase of short-term investments		(246,625	)		(55,975	)
Proceeds from sale of short-term investments		244,575			55,975
Proceeds from sale of investments in equity securities		807			—
Purchase of investments in equity securities		(185	)		(36	)
Net cash flows from investing activities		(33,564	)		(62,382	)
Cash flows from financing activities:
Proceeds from notes payable		280,000			42,500
Principal payments on notes payable		(280,000	)		(89,328	)
Proceeds from exercise of stock options		15,281			13,103
Purchase of treasury stock		(77,229	)		(288,633	)
Payments received on stockholder loans		—			428
Net cash flows from financing activities		(61,948	)		(321,930	)
Effect of exchange rate changes on cash and cash equivalents		282			8
Net increase (decrease) in cash and cash equivalents		129,924			(118,867	)
Cash and cash equivalents at beginning of period		137,392			248,623
Cash and cash equivalents at end of period	$	267,316		$	129,756
Supplemental cash flow information:
Interest paid	$	87,776		$	29,142
Income taxes paid	$	131,318		$	128,672
Noncash investing and financing activities:
Tax benefit on exercise of stock options	$	11,885		$	12,154

See notes to condensed consolidated financial statements.

6

AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three-Month and Nine-Month Periods Ended June 24, 2005 and June 25, 2004
(Unaudited)
(Columnar amounts in thousands, except per share amounts)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements include the accounts of Ameritrade Holding Corporation and its wholly owned subsidiaries (collectively, the “Company”). All 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 accounting principles generally accepted in the United States of America. 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 24, 2004.

The Company has changed its classification of investments in auction rate securities from cash and cash equivalents to short-term investments on the condensed consolidated balance sheets. Auction rate securities are long-term variable rate bonds tied to short-term interest rates that are reset through a “Dutch auction” process which occurs every seven to 35 days. Holders of auction rate securities may liquidate their holdings to prospective buyers by participating in the auctions. The Company previously accounted for auction rate securities as cash equivalents because they are highly liquid due to the auction process. On March 4, 2005, the SEC issued guidance regarding the classification of investments in auction rate securities. The SEC’s guidance indicates that auction rate securities do not qualify as cash equivalents because they have long-term maturity dates and there is no guarantee that holders will be able to liquidate their holdings through the auction process. Accordingly, the Company has reclassified approximately $18.0 million of investments in auction rate securities from cash and cash equivalents to short-term investments as of September 24, 2004. Purchases and sales of auction rate securities are presented as investing activities in the condensed consolidated statements of cash flows.

Certain items in prior year condensed consolidated financial statements have been reclassified to conform to the current presentation.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),Share-Based Payment(“No. 123R”). SFAS No. 123R is a revision of SFAS No. 123,Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees(“APB No. 25”), and its related implementation guidance. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS No. 123R requires public entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). SFAS No. 123R was originally scheduled to be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 for public entities that do not file as small business issuers. On April 14, 2005, the SEC announced the adoption of a new rule amending the compliance date to the beginning of the first annual reporting period that begins after June 15, 2005 for public entities that do not file as small business issuers. Therefore, SFAS No. 123R will be effective for the Company’s next fiscal year beginning October 1, 2005. As of the required effective date, public entities will apply SFAS No. 123R using a modified version of the prospective transition method. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123 for either recognition or pro forma disclosures. The Company estimates adoption of SFAS No. 123R will result in additional stock-based compensation expense for the unvested portion of awards previously accounted for under APB No. 25 of approximately $5.6 million for the Company’s fiscal year ending September 29, 2006.

7

2. BUSINESS COMBINATIONS, GOODWILL AND ACQUIRED INTANGIBLE ASSETS

On June 22, 2005, the Company entered into an Agreement of Sale and Purchase (the “Purchase Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), pursuant to which Ameritrade agreed to purchase from TD (the “Share Purchase”) all of the capital stock of TD Waterhouse Group, Inc., a Delaware corporation and wholly owned subsidiary of TD (“Waterhouse”), in exchange for 193,600,000 shares of Company Common Stock and $20,000 in cash. The shares of Common Stock issuable to TD in the Share Purchase will represent approximately 32% of the outstanding shares of the Company after giving effect to the transaction. In connection with the acquisition, the Company will change its name to TD Ameritrade Holding Corporation effective at the completion of the transaction.

The Purchase Agreement specifies that, prior to the consummation of the Share Purchase, Waterhouse will conduct a reorganization in which it will transfer its Canadian retail securities brokerage business and TD Waterhouse Bank, N.A. to TD such that, at the time of consummation of the Share Purchase, Waterhouse will retain only its United States retail securities brokerage business. Waterhouse will also distribute to TD any excess capital of Waterhouse above certain thresholds prior to the consummation of the Share Purchase. The Purchase Agreement further contemplates that the Company will pay a special cash dividend of $6.00 per share in respect of the shares of Company Common Stock outstanding prior to the consummation of the Share Purchase.

Consummation of the Share Purchase is subject to customary conditions, including regulatory and stockholder approvals and the Company’s ability to pay the special cash dividend of $6.00 per share, and is expected to occur by early calendar 2006.

The Purchase Agreement contains certain termination rights for both the Company and TD and further provides that, upon termination of the Purchase Agreement under specified circumstances, the Company may be required to pay TD a termination fee of $97 million. In connection with the Purchase Agreement, TD was given rights to have its shares registered for resale with the SEC, and TD licensed the Company to use the “TD” name in connection with the operation of the TD Ameritrade business. The parties also agreed to establish bank sweep account and mutual fund relationships.

In connection with the Purchase Agreement, the Company; TD; and J. Joe Ricketts, the Company’s Chairman and Founder, and certain of his affiliates also entered into a Stockholders Agreement (the “Stockholders Agreement”). The Stockholders Agreement sets forth certain governance arrangements and contains various provisions relating to stock ownership, voting, election of directors and other matters. The Stockholders Agreement also contemplates changes to the Company’s certificate of incorporation and bylaws to give effect to and facilitate the provisions contained in the Stockholders Agreement.

In addition, the Company and TD also entered into a stock purchase agreement which provides for the purchase by TD of Ameritrade Canada, Inc. for $60 million in cash. After the consummation of the Share Purchase, the Company will not compete or own any portion of a business that competes with TD in Canada (including in the retail securities brokerage business).

On October 8, 2004, the Company completed the purchase of approximately 45,000 retail client accounts from JB Oxford & Company, a subsidiary of JB Oxford Holdings, Inc. The purchase price was approximately $25.9 million. The entire purchase price has been allocated to acquired intangible assets for the fair value of the JB Oxford client relationships. This intangible asset is being amortized over a 20-year period.

The Company has recorded goodwill for purchase business combinations to the extent the purchase price of each acquisition exceeded the fair value of the net identifiable assets of the acquired company. The following table summarizes changes in the carrying amount of goodwill by reportable segment for the nine months ended June 24, 2005:

	Private Client			All
	Division			Other		Total
Balance as of September 24, 2004	$	770,005		$	89	$	770,094
Purchase accounting adjustments, net of income taxes (1)		476			—		476
Tax benefit of option exercises (2)		(1,223	)		—		(1,223	)
Balance as of June 24, 2005	$	769,258		$	89	$	769,347

(1) Purchase accounting adjustments consist of approximately $1.2 million of adjustments to liabilities relating to the Company’s January 2004 acquisition of Bidwell & Company, partially offset by an adjustment to reclassify approximately $0.7 million of the purchase price of the Bidwell acquisition to acquired intangible assets for the Bidwell client relationships.

8

(2) Represents the tax benefit of exercises of replacement stock options that were issued in connection with the Datek Online Holdings Corp. (“Datek”) merger. 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 primarily of client relationship intangible assets and had a carrying value of $263.4 million, net of $34.6 million of accumulated amortization as of June 24, 2005. The Company estimates amortization expense on existing acquired intangible assets will be $3.7 million for the remainder of fiscal 2005 and approximately $13.8 million for each of the five succeeding fiscal years.

3. INVESTMENTS IN EQUITY SECURITIES

The Company’s investments in equity securities consist primarily of ownership of approximately 7.9 million shares of Knight Capital Group, Inc. (“Knight”), representing approximately seven percent of Knight’s outstanding common shares as of June 24, 2005. Knight is a publicly held company that is a market maker in equity securities. The Company accounts for its investment in Knight as a marketable equity security available-for-sale. As of June 24, 2005 and September 24, 2004, the Company’s investment in Knight was valued at $61.4 million and $72.8 million, respectively. The Company’s cost basis is $0.7 million; therefore the gross unrealized gain was $60.7 million and $72.1 million at June 24, 2005 and September 24, 2004, respectively.

During fiscal 2003, the Company and a counterparty entered into a series of prepaid variable forward contracts on the Knight shares. The forward contracts mature on various dates in fiscal years 2006 and 2007. The forward contracts each contain a zero-cost embedded collar on the value of the Knight shares, with a weighted average floor price of $5.13 per share and a weighted average cap price of $6.17 per share. The Company has designated the forward contracts as cash flow hedges of the forecasted future sales of 7.9 million Knight shares. Accordingly, all changes in the fair value of the embedded collars are recorded in other comprehensive income, net of income taxes. As of June 24, 2005 and September 24, 2004, the total fair value of the embedded collars was approximately $16.9 million and $28.7 million, respectively, and was included under the caption “Prepaid variable forward derivative instrument” on the Condensed Consolidated Balance Sheet.

The following table summarizes the Company’s investments in equity securities, liabilities associated with the prepaid variable forward contracts, and related deferred income tax effects (see Note 11 for a complete summary of comprehensive income):

							Effect on Other
	June 24,			September 24,			Comprehensive
	2005			2004			Income
Assets
Investment in Knight	$	61,440		$	72,827		$	(11,387	)
Investment in The Nasdaq Stock Market, Inc. (1)		—			447			(447	)
Investment in International Securities Exchange, Inc.		2,920			447			2,473
Original cost of investment in Nasdaq (1)		N/A			N/A			855
Realized loss on sale of investment in Nasdaq (1)		N/A			N/A			(48	)
Total marketable equity securities		64,360			73,721			N/A
Other investments		223			38			N/A
Total investments in equity securities	$	64,583		$	73,759			N/A
Total effect of investments in equity securities on other comprehensive income							$	(8,554	)
Liabilities
Prepaid variable forward derivative instrument	$	(16,912	)	$	(28,738	)	$	11,826
Prepaid variable forward contract obligation	$	(39,058	)	$	(37,803	)		N/A
Deferred income taxes on unrealized (gains)/losses:
Marketable equity securities	$	(24,325	)	$	(27,958	)	$	3,633
Derivative instrument		6,511			11,208			(4,697	)
Tax effect of realized loss on sale of investment in Nasdaq (1)		N/A			N/A			18
Deferred income taxes on unrealized (gains)/losses, net	$	(17,814	)	$	(16,750	)		N/A
Total effect of deferred income taxes on other comprehensive income							$	(1,046	)

(1) The Company sold its investment in Nasdaq in March 2005 for approximately $807,000, resulting in a realized pre-tax loss on the sale of approximately $48,000.

9

4. ACQUISITION EXIT LIABILITIES

The following table summarizes activity in the Company’s acquisition exit liabilities for the three-month and nine-month periods ended June 24, 2005:

	Three Months Ended June 24, 2005
					Paid and
	Balance at		Restructuring		Charged Against		Balance at
	Mar. 25, 2005		Charges		Liability		June 24, 2005
Employee compensation and benefits	$	136	$	—	$	—	$	136
Occupancy and equipment costs		4,533		—		420		4,113
Total acquisition exit liabilities	$	4,669	$	—	$	420	$	4,249

	Nine Months Ended June 24, 2005
					Paid and
	Balance at		Restructuring		Charged Against		Balance at
	Sept. 24, 2004		Charges		Liability		June 24, 2005
Employee compensation and benefits	$	577	$	—	$	441	$	136
Occupancy and equipment costs		5,113		216		1,216		4,113
Total acquisition exit liabilities	$	5,690	$	216	$	1,657	$	4,249

Acquisition employee compensation liabilities are expected to be paid over contractual periods ending in fiscal 2009. Remaining acquisition occupancy and equipment exit liabilities are expected to be utilized over the respective lease periods through fiscal 2011.

5. CREDIT FACILITIES

On December 13, 2004, the Company entered into an amendment to its revolving credit agreement. The revolving credit agreement, as amended, permits borrowings of up to $105 million through December 12, 2005, and is secured primarily by the Company’s stock in its subsidiaries and personal property. The interest rate on borrowings is equal to one month LIBOR (determined monthly) plus a spread (determined quarterly) of 1.75 percent or 2.00 percent based on a specified financial ratio. At June 24, 2005, the interest rate on the revolving credit agreement would have been 4.89 percent. The Company also pays a commitment fee of 0.25 percent of the unused credit facility through the maturity date. The Company had no outstanding indebtedness under the revolving credit agreement at June 24, 2005 and no outstanding indebtedness under the prior revolving credit agreement at September 24, 2004. The revolving credit agreement contains certain covenants and restrictions, including maintenance of a minimum level of net worth, requiring prior written consent of the revolving lenders for certain business combinations and investments, and prohibiting the payment of cash dividends to stockholders. The Company was in compliance with or obtained waivers for all covenants under the revolving credit agreements.

The Company, through its wholly owned broker-dealer subsidiary Ameritrade, Inc., had access to secured uncommitted credit facilities with financial institutions of up to $180 million as of June 24, 2005 and September 24, 2004. Ameritrade, Inc. also had access to an unsecured uncommitted credit facility of up to $310 million as of June 24, 2005 and September 24, 2004. The financial institutions may make loans under line of credit arrangements or, in some cases, issue letters of credit under these facilities. The secured credit facilities require the Company to pledge qualified client securities to secure outstanding obligations under these facilities. Borrowings under the secured and unsecured credit facilities bear interest at a variable rate based on the federal funds rate. There were no borrowings outstanding or letters of credit issued under the secured or unsecured credit facilities as of June 24, 2005 or September 24, 2004. As of June 24, 2005 and September 24, 2004, approximately $490 million was available to Ameritrade, Inc. for either loans or, in some cases, letters of credit.

6. NET CAPITAL

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 and the related net capital requirement may fluctuate on a daily basis.

10

Reflecting the effect of a regulatory matter related to an insured deposit sweep program discussed in the following paragraphs, the Company’s broker-dealer subsidiaries had aggregate net capital of $388.2 million and $30.6 million as of June 24, 2005 and September 24, 2004, respectively, resulting in excess aggregate minimum net capital of $308.6 million as of June 24, 2005 and an aggregate net capital deficiency of $40.3 million as of September 24, 2004. Excluding the effect of the regulatory matter, the Company’s aggregate net capital would have been $262.3 million as of September 24, 2004, which would have exceeded aggregate minimum net capital requirements by $191.4 million.

On November 12, 2004, the Company’s broker-dealer subsidiary Ameritrade, Inc. was notified by the staff of the NASD and the staff of the SEC Division of Market Regulation (collectively the “Staffs”) that they believe that for regulatory purposes certain funds held in banks on behalf of clients are liabilities and assets of Ameritrade, Inc. rather than liabilities and assets only of the banks. The resulting assets have not been allowed for purposes of Ameritrade, Inc.’s regulatory net capital calculation. Accordingly, in the Staffs’ view Ameritrade, Inc.’s net capital was below its minimum amount required under Exchange Act Rule 15c3-1. Ameritrade, Inc. cured the asserted deficiency on November 15, 2004, the first business day following the notification.

The asserted deficiency was based upon the Staffs’ concerns regarding a Federal Deposit Insurance Corporation (“FDIC”) insured deposit sweep program available to Ameritrade, Inc.’s clients wherein funds were deposited, through an intermediary agent, into FDIC-insured deposit accounts at banks (“Program Banks”). The Staffs’ view is that Ameritrade, Inc. did not for regulatory purposes effectively move client free credit balances to bank accounts established in client names at the Program Banks. Ameritrade, Inc. was also notified, on November 5, 2004, by the NASD that client funds deposited in the FDIC-insured sweep program should be included in Ameritrade, Inc.’s computation of reserve requirements under Exchange Act Rule 15c3-3. A deposit into Ameritrade, Inc.’s reserve account was made to fund the asserted Rule 15c3-3 requirement effective November 5, 2004. As of September 24, 2004, a deposit of $231.7 million into Ameritrade, Inc.’s reserve account would have been required in accordance with the Staffs’ position.

Ameritrade, Inc. informed the Staffs that it believes that the free credit balances were effectively transferred to the Program Banks in accordance with well-established banking law, that the accounts held at the Program Banks were the obligations of the Program Banks to each client and not obligations of Ameritrade, Inc., that the FDIC insurance passed through to each client in accordance with FDIC regulations and that it has been in compliance with Rules 15c3-1 and 15c3-3.

At the direction of the NASD, Ameritrade, Inc. filed a notice describing the asserted net capital deficiency as well as Ameritrade, Inc.’s position on the matter on November 12, 2004 in accordance with Exchange Act Rule 17a-11. Ameritrade, Inc. cured the asserted deficiency the first business day following the notification by causing the transfer of the cash in the FDIC-insured accounts to a money market fund in accounts in the names of the clients. No client funds were lost and the Company believes that the client balances in the FDIC-insured deposit accounts at the Program Banks were, at all times, protected by FDIC insurance on a pass-through basis and no client balance was at risk. Ameritrade, Inc. has ceased offering the FDIC-insured product pending resolution of this matter. At the direction of the NASD, Ameritrade, Inc. filed, on December 8, 2004, amended Form X-17A-5 Financial and Operational Combined Uniform Single (FOCUS) Reports for the months of May through September 2004 reflecting the Staffs’ position.

This matter had no impact on the Company’s results of operations or net cash flows for any period presented.

The NASD continues to investigate this matter and Ameritrade, Inc. is fully cooperating with the investigation. The SEC or NASD may elect to pursue disciplinary or other action with respect to this matter, which could result in censures, fines, suspensions or other sanctions. The Company is unable to predict the outcome of this matter.

The NASD and SEC have also inquired about the effect on Ameritrade, Inc.’s net capital of certain deferred income tax liabilities arising from acquisitions. The issue is whether deferred tax liabilities may offset the acquired intangible client relationship assets to which they relate before the acquired intangible client relationship assets, which are not allowable assets for regulatory net capital purposes, are deducted in the net capital calculation. Following discussions with the SEC, Ameritrade, Inc. decided to prospectively exclude these deferred income tax liabilities from the net capital calculation, beginning with the March 25, 2005 calculation, until the regulators provided guidance concerning this issue. In June 2005, the SEC confirmed that it was appropriate for Ameritrade, Inc., in calculating its net capital, to offset the Datek acquired intangible client relationship asset with its associated deferred tax liability for periods prior to March 2005 and for the month of May 2005 and beyond. The Datek transaction was not a taxable asset purchase. The deferred income tax liability associated with the Datek acquired intangible client relationship asset totaled $78.2 million as of June 24, 2005. The SEC has not provided guidance as to whether it is appropriate, in calculating net capital, to offset an acquired intangible asset associated with a taxable asset purchase with its associated deferred tax liability. Accordingly, deferred tax liabilities totaling $14.7 million for acquired intangible assets related to taxable asset purchases have been excluded from Ameritrade, Inc.’s net capital calculation as of June 24, 2005.

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7. STOCK OPTION AND INCENTIVE PLANS

Effective September 27, 2003, the Company adopted the fair value based method of accounting for stock-based compensation under SFAS No. 123, using the prospective transition method of SFAS No. 148,Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123. Stock-based employee compensation expense for the three months and nine months ended June 24, 2005 was $0.5 million and $1.3 million, respectively. Pro forma information regarding stock-based compensation expense, net income and earnings per share is required by SFAS No. 148. This information is presented as if the Company had accounted for its stock-based awards under the fair value method for all periods:

	Three Months Ended						Nine Months Ended
	June 24,			June 25,			June 24,			June 25,
	2005			2004			2005			2004
Net income, as reported	$	74,672		$	62,258		$	238,237		$	215,152
Add: Stock-based compensation expense included in reported net income, net of related income tax effects		323			16			788			24
Less: Total stock-based compensation determined under the fair value based method, net of related income tax effects		(1,601	)		(3,665	)		(8,460	)		(10,971	)
Pro forma net income	$	73,394		$	58,609		$	230,565		$	204,205
Basic earnings per share:
As reported	$	0.19		$	0.15		$	0.59		$	0.51
Pro forma	$	0.18		$	0.14		$	0.57		$	0.49
Diluted earnings per share:
As reported	$	0.18		$	0.15		$	0.58		$	0.50
Pro forma	$	0.18		$	0.14		$	0.56		$	0.47

8. EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share:

	Three Months Ended				Nine Months Ended
	June 24,		June 25,		June 24,		June 25,
	2005		2004		2005		2004
Net income	$	74,672	$	62,258	$	238,237	$	215,152
Weighted average shares outstanding - basic		403,017		415,252		403,911		420,599
Effect of dilutive securities:
Stock options		8,036		8,730		8,318		9,766
Deferred compensation shares		21		20		21		21
Weighted average shares outstanding - diluted		411,074		424,002		412,250		430,386
Earnings per share - basic	$	0.19	$	0.15	$	0.59	$	0.51
Earnings per share - diluted	$	0.18	$	0.15	$	0.58	$	0.50

9. COMMITMENTS AND CONTINGENCIES

Legal- In September 1998, a putative class action complaint was filed against the Company by Zannini, et al. in the District Court of Douglas County, Nebraska, claiming the Company was not able to handle the volume of subscribers to its Internet brokerage services. The complaint, as amended, sought injunctive relief enjoining alleged deceptive, fraudulent and misleading practices, equitable relief compelling the Company to increase capacity, and unspecified compensatory damages. In May 2001, the Company filed a motion for summary judgment in the matter, which the plaintiffs opposed. The District Court granted summary judgment for the Company on January 2, 2002, and the plaintiffs appealed. On August 1, 2003, the Nebraska Supreme Court reversed the District Court’s grant of summary judgment and remanded the case to the District Court for further proceedings. The Nebraska Supreme Court did not decide whether the plaintiffs’ claims have merit. On October 8, 2003, the Company filed with the District Court a renewed motion for summary judgment. On August 13, 2004, the District Court

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dismissed the plaintiffs’ class action allegations and the claims of fraud, misrepresentation, unjust enrichment and injunction. The District Court stayed the case pending arbitration of individual claims of breach of contract under the customer agreements. Plaintiffs appealed. On November 1, 2004, the Company filed a motion for summary dismissal of the appeal for lack of jurisdiction on the ground that the District Court’s order was not presently appealable. On December 15, 2004, plaintiffs filed a motion to dismiss their appeal as premature. The Nebraska Supreme Court dismissed the appeal on January 7, 2005. The Company believes it has adequate legal defenses and intends to continue to vigorously defend against plaintiffs’ action.

In August 2003, the Company, as a successor to National Discount Brokers Corporation (“NDB”), was served with a lawsuit filed in the District Court of Harris County, Texas, by Robert Ketchand, a court appointed receiver, against a number of defendants including Christopher A. Slaga, a bank, and NDB. The complaint, as amended, alleges that Slaga defrauded investors who invested approximately $21 million in limited partnerships that Slaga created and controlled and converted the moneys entrusted to him for investment. Two of the investors, who allegedly invested approximately $18 million, intervened in the lawsuit. The complaint states that Slaga, presently incarcerated, pled guilty to federal wire fraud violations in connection with the conduct alleged in the complaint and that the federal court in the criminal proceeding ordered Slaga to make restitution to the investors in the amount of approximately $19.7 million. As it pertained to the Company, the complaint alleged that Slaga wire transferred funds from the partnerships’ bank accounts into his personal brokerage account at NDB and that Slaga used the money for highly speculative investments. The complaint alleged that an inquiry by NDB would have disclosed that money in Slaga’s personal accounts belonged to the partnerships and that NDB failed to examine the trading activities of Slaga and should have discovered the impropriety of his investments. The complaint included causes of action against NDB for aiding and abetting Slaga’s securities fraud under the Texas Securities Act, for unjust enrichment, and for funds transferred to NDB under a theory of implied contract. The receiver and the interveners requested damages in an amount to be proven at trial, including the amount of the restitution order, plus interest, attorneys’ fees and costs. An agreement was reached to settle the claims against the Company as successor to NDB. On March 11, 2005, the Court entered an order approving the settlement and dismissing with prejudice the claims against the Company and on April 18, 2005, the Court entered a final judgment. The settlement was completed in June 2005. The settlement did not have a material effect on the Company’s results of operations, financial condition or cash flows.

In May 2005, four putative class action lawsuits were filed in the Delaware Court of Chancery against the Company and its directors. The plaintiffs, Judith Friedman, Margaret Carroll, Mirfred Partners LLC and Irgun Torah, bring the actions on behalf of themselves and other stockholders of the Company. The complaints allege that defendants breached their fiduciary duties by refusing to consider a merger and acquisition proposal by E*Trade Financial Corporation. The complaints request injunctive relief and unspecified damages. On May 31, 2005, the Court entered an order consolidating the actions under the caption In re Ameritrade Holding Corp. Shareholders Litigation. Under the order, the plaintiffs are to file a consolidated amended complaint and the defendants are not required to respond to the original complaints. The plaintiffs have not yet filed a consolidated amended complaint. The defendants believe that these actions are without merit and intend to vigorously defend against them.

The nature of the Company’s business subjects it to lawsuits, arbitrations, claims and other legal proceedings. Management cannot predict with certainty the outcome of pending legal proceedings. A substantial adverse judgment or other resolution regarding the proceedings could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. However, in the opinion of management, after consultation with legal counsel, the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent and the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Company is in discussions with its regulators about matters 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. See Note 6 for further discussion of a regulatory matter concerning an FDIC-insured deposit sweep program.

General Contingencies- In the ordinary course of business, there are various contingencies which are not reflected in the condensed consolidated financial statements. These include Ameritrade, Inc. 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 contracted obligations.

Client securities activities are transacted on either a cash or margin basis. In margin transactions, the Company may extend 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 each client’s assets are not sufficient to fully cover losses which clients may incur. In the event the client fails to satisfy

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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 control the risks associated with its client activities by requiring clients to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels 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 controls 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 a securities clearinghouse.

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 controls this risk by requiring credit approvals for counterparties, by monitoring the collateral values on a daily basis, and by requiring collateral to be returned by the counterparties when necessary.

As of June 24, 2005, client margin securities of approximately $4.8 billion and stock borrowings of approximately $3.8 billion were available to the Company to utilize as collateral on various borrowings or for other purposes. The Company had loaned or repledged approximately $5.1 billion of that collateral as of June 24, 2005.

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 the 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 as collateral. However, the potential for the Company to be required to make payments under these agreements is remote. Accordingly, no contingent liability is carried on the Condensed Consolidated Balance Sheet for these transactions.

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 option acceleration and severance payments in the event of termination of employment under certain defined circumstances or changes in control of the Company. Compensation is subject to adjustments according to the Company’s financial performance and other factors.

10. SEGMENT INFORMATION

Financial information for the Company’s Private Client Division, which is currently the Company’s only reportable segment, and all other segments, is presented in the following tables. The totals are equal to the Company’s consolidated amounts as reported in the Condensed Consolidated Statements of Operations.

	Three Months Ended June 24, 2005							Nine Months Ended June 24, 2005
	Private Client		All					Private Client		All
	Division		Other			Total		Division		Other			Total
Non-interest revenues	$	131,159	$	4,477		$	135,636	$	442,159	$	13,410		$	455,569
Interest revenue, net		96,102		2,616			98,718		267,097		6,174			273,271
Net revenues	$	227,261	$	7,093		$	234,354	$	709,256	$	19,584		$	728,840
Pre-tax income (loss)	$	126,840	$	(4,450	)	$	122,390	$	391,679	$	(4,953	)	$	386,726

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	Three Months Ended June 25, 2004							Nine Months Ended June 25, 2004
	Private Client		All					Private Client		All
	Division		Other			Total		Division		Other			Total
Non-interest revenues	$	151,972	$	5,322		$	157,294	$	503,606	$	16,314		$	519,920
Interest revenue, net		60,590		2,108			62,698		167,434		5,942			173,376
Net revenues	$	212,562	$	7,430		$	219,992	$	671,040	$	22,256		$	693,296
Pre-tax income (loss)	$	109,446	$	(7,425	)	$	102,021	$	361,611	$	(14,436	)	$	347,175

On March 15, 2005, the Company announced a reorganization of its operational structure to more closely align the Company’s operations with its client-centric strategy. In connection with the reorganization, the Company is developing a new management financial reporting structure. The Company intends to reevaluate its segment reporting in light of the new reporting structure upon its completion, which is expected to occur later in 2005. However, completion of the new reporting structure may be affected by the timing of the Waterhouse acquisition discussed in Note 2.

11. COMPREHENSIVE INCOME

Comprehensive income is as follows:

	Three Months Ended						Nine Months Ended
	June 24, 2005			June 25, 2004			June 24, 2005			June 25, 2004
Net income	$	74,672		$	62,258		$	238,237		$	215,152
Other comprehensive income (loss):
Net unrealized holding gains (losses) on investment securities available-for-sale arising during the period		(14,866	)		(19,116	)		(8,554	)		(10,315	)
Net unrealized holding gains (losses) on derivative instrument arising during the period		14,495			17,675			11,826			10,117
Adjustment for deferred income taxes on net unrealized holding gains/losses		143			562			(1,046	)		500
Reclassification adjustment for realized loss on investment securities included in net income, net of tax		—			—			30			—
Foreign currency translation adjustment		(49	)		77			412			12
Total other comprehensive income (loss), net of tax		(277	)		(802	)		2,668			314
Comprehensive income	$	74,395		$	61,456		$	240,905		$	215,466

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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 24, 2004, and the Condensed Consolidated Financial Statements and Notes thereto contained in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements. 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, inability to obtain stockholder or regulatory approval for our planned acquisition of the U.S. brokerage business of TD Waterhouse Group, Inc., delay or failure to close such transaction or to meet the conditions necessary to such closing, the cost or lack of availability of financing necessary to pay the proposed special cash dividend of $6.00 per share, other regulatory and legal matters and uncertainties and the other risks and uncertainties set forth under the heading “Risk Factors” in Item 7 of the Company’s annual report on Form 10-K for the fiscal year ended September 24, 2004. 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.

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 short-term interest rates on our net interest spread; the effect of changes in the number of qualified accounts on our results of operations; average commissions and clearing fees per trade; amounts of commissions and clearing fees, net interest revenue and other revenue; the effect of client trading activity on account maintenance fee revenues; amounts of employee compensation and benefits, clearing and execution, communications, occupancy and equipment costs, professional services and advertising expenses; our effective income tax rate; our capital and liquidity needs and our plans to finance such needs; our planned acquisition of the U.S. brokerage business of TD Waterhouse Group, Inc., including our ability to obtain adequate financing for and to pay the proposed special cash dividend; our stock repurchase program; and the impact of recently issued accounting pronouncements.

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 24, 2004 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 intangible assets; valuation and accounting for derivative financial instruments; and estimates of effective income tax rates, deferred income taxes and valuation allowances. 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 24, 2004.

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

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 in the “Investors” section of our website atwww.amtd.com and is included in Item 7 of our annual report on Form 10-K for the fiscal year ended September 24, 2004. Since the issuance of the Form 10-K, the definition of “Liquid assets” has been updated and a definition for “Net new accounts or Net account growth” has been added to the glossary. These definitions are as follows:

Liquid assets- Liquid assets is considered a Non-GAAP financial measure as defined by SEC Regulation G. We define liquid assets as the sum of a) non broker-dealer cash and cash equivalents, b) non broker-dealer short-term investments and c) regulatory net capital of our broker-dealer subsidiaries in excess of 5% of aggregate debit items. We consider liquid assets an important measure of our liquidity and of our ability to fund corporate investing and financing activities. Liquid assets should be considered as a supplemental measure of liquidity, rather than as a substitute for cash and cash equivalents.

Net new accounts or Net account growth- The number of new client accounts (funded and unfunded) opened in a specified period minus the number of client accounts closed in the same period.

RESULTS OF OPERATIONS

Our results of operations are significantly impacted by conditions in the U.S. equity markets. 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

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operations. If client trading activity were to decline, we expect that it would have a negative impact on our results of operations.

Changes in short-term interest rates and in client margin and client cash balances also impact our results of operations. We cannot predict the direction of short-term interest rates or the level of client margin and client cash balances. If short-term interest rates rise, we generally expect to earn a larger net interest spread. Conversely, a falling short-term 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, operating margin and EBITDA (earnings before interest, taxes, depreciation and amortization) are key metrics we use in evaluating our financial performance. Operating margin and EBITDA are both considered non-GAAP financial measures as defined by SEC Regulation G.

We define operating margin as pre-tax income, adjusted to remove advertising expense and any unusual gains or charges. We consider operating margin an important measure of the financial performance of our ongoing business. Advertising spending is excluded because it is largely at the discretion of the Company, varies significantly from period to period based on market conditions and relates to the acquisition of future revenues through new accounts rather than current revenues from existing accounts. Unusual gains and charges are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. Operating margin should be considered in addition to, rather than as a substitute for, pre-tax income, net income and earnings per share.

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 eliminates the non-cash effect of tangible asset depreciation 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 tables set forth operating margin and EBITDA in dollars and as a percentage of net revenues for the periods indicated, and provide reconciliations to pre-tax income, which is the most directly comparable GAAP measure (dollars in thousands):

	Three months ended												Nine months ended
	June 24, 2005						June 25, 2004						June 24, 2005						June 25, 2004
	$			% of Rev.			$			% of Rev.			$			% of Rev.			$			% of Rev.
Operating Margin
Operating margin	$	144,088			61.5	%	$	129,019			58.6	%	$	458,813			63.0	%	$	427,014			61.6	%
Less:
Advertising		(21,672	)		(9.2	%)		(27,197	)		(12.4	%)		(72,307	)		(9.9	%)		(80,414	)		(11.6	%)
Gain/(loss) on disposal of property		(26	)		(0.0	%)		199			0.1	%		220			0.0	%		575			0.1	%
Pre-tax income	$	122,390			52.2	%	$	102,021			46.4	%	$	386,726			53.1	%	$	347,175			50.1	%
EBITDA
EBITDA	$	128,784			55.0	%	$	108,483			49.3	%	$	405,772			55.7	%	$	366,592			52.9	%
Less:
Depreciation and amortization		(5,897	)		(2.5	%)		(5,897	)		(2.7	%)		(17,543	)		(2.4	%)		(17,458	)		(2.5	%)
Interest on borrowings		(497	)		(0.2	%)		(565	)		(0.3	%)		(1,503	)		(0.2	%)		(1,959	)		(0.3	%)
Pre-tax income	$	122,390			52.2	%	$	102,021			46.4	%	$	386,726			53.1	%	$	347,175			50.1	%

Our improved pre-tax income, operating margin and EBITDA for the three-month and nine-month periods ended June 24, 2005 compared to the three-month and nine-month periods ended June 25, 2004 are largely due to increased net interest revenue resulting primarily from increased client margin and credit balances and higher net interest rates earned on such balances, partially offset by decreased revenue from commissions and clearing fees resulting from decreased client trading activity and decreased commissions and clearing fees per trade.

More detailed analysis of net revenues and expenses is presented later in this discussion.

Operating Metrics

Our largest sources of revenue are 1) commissions and clearing fees and 2) net interest revenue. For the three months ended June 24, 2005, commissions and clearing fees and net interest revenue accounted for 48 percent and 42 percent of our net revenues, respectively. The primary factors driving our revenues from commissions and clearing fees are total client trades and average commissions and clearing fees per trade. The primary factors driving our net interest revenue are average client margin balances, average segregated cash balances, average client credit balances and the average interest rates earned and paid on such balances. 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 trading activity and net interest revenue metrics.

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Trading Activity Metrics

The following table sets forth several 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 24, 2005			June 25, 2004			Change			June 24, 2005			June 25, 2004			Change
Total trades (in millions)		8.89			10.16			(13	%)		29.99			33.95			(12	%)
Average commissions and clearing fees per trade	$	12.72		$	13.41			(5	%)	$	13.16		$	13.48			(2	%)
Average client trades per day		138,930			163,906			(15	%)		159,102			183,013			(13	%)
Average client trades per account (annualized)		9.7			11.8			(18	%)		11.2			13.7			(18	%)
Activity rate		3.8	%		4.7	%		(19	%)		4.4	%		5.5	%		(20	%)
Trading days		64.0			62.0			3	%		188.5			185.5			2	%

Net Interest Revenue Metrics

The following tables set forth metrics that we use in analyzing net interest revenue:

	Three months ended June 24, 2005					Three months ended June 25, 2004					Percentage			Average
	Average		Average			Average		Average			Change in			Annualized
	Balance		Annualized			Balance		Annualized			Average			Yield/Cost
	(millions)		Yield/(Cost)			(millions)		Yield/(Cost)			Balances			Inc./(Dec.)
Segregated cash	$	7,608		2.80	%	$	7,481		1.00	%		2	%		1.80	%
Client margin balances	$	3,441		5.79	%	$	3,550		4.86	%		(3	%)		0.93	%
Client credit balances	$	9,311		(0.53	%)	$	9,104		(0.12	%)		2	%		0.41	%

	Nine months ended June 24, 2005					Nine months ended June 25, 2004					Percentage			Average
	Average		Average			Average		Average			Change in			Annualized
	Balance		Annualized			Balance		Annualized			Average			Yield/Cost
	(millions)		Yield/(Cost)			(millions)		Yield/(Cost)			Balances			Inc./(Dec.)
Segregated cash	$	7,831		2.33	%	$	7,577		0.99	%		3	%		1.34	%
Client margin balances	$	3,497		5.42	%	$	3,213		4.89	%		9	%		0.53	%
Client credit balances	$	9,501		(0.39	%)	$	8,858		(0.12	%)		7	%		0.27	%

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 24, 2005			June 25, 2004			Change			June 24, 2005			June 25, 2004			Change
Qualified accounts (beginning of period)		1,730,000			1,700,000			2	%		1,677,000			1,520,000			10	%
Qualified accounts (end of period)		1,730,000			1,720,000			1	%		1,730,000			1,720,000			1	%
Percentage increase (decrease) during period		0	%		1	%					3	%		13	%
Total accounts (beginning of period)		3,665,000			3,425,000			7	%		3,520,000			3,171,000			11	%
Total accounts (end of period)		3,689,000			3,487,000			6	%		3,689,000			3,487,000			6	%
Percentage increase (decrease) during period		1	%		2	%					5	%		10	%
Client assets (beginning of period, in billions)	$	75.6		$	71.9			5	%	$	68.8		$	54.8			26	%
Client assets (end of period, in billions)	$	78.8		$	71.5			10	%	$	78.8		$	71.5			10	%
Percentage increase (decrease) during period		4	%		(1	%)					15	%		30	%

Qualified accounts are all open client accounts with a total liquidation value of $2,000 or more, except clearing accounts. Qualified accounts are our most significant measure of client accounts because they have historically generated the vast majority of our revenues. Total accounts are all open client accounts (funded and unfunded), except clearing accounts.

Our total number of qualified accounts was unchanged for the third quarter of fiscal 2005. We are carefully monitoring the number of qualified accounts and are taking actions designed to increase the number of qualified accounts. Such actions include our recently announced reorganization of our operational structure to more closely align it with our client-focused strategy. If we were to experience significant decreases in the number of qualified accounts, it could have a material adverse effect on our future results of operations.

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Consolidated Statements of Operations Data

The following table summarizes certain data from our Condensed Consolidated Statements of Operations for analysis purposes (in millions, except percentages and interest days):

	Three months ended						%			Nine months ended						%
	June 24, 2005			June 25, 2004			Change			June 24, 2005			June 25, 2004			Change
Revenues:
Commissions and clearing fees	$	113.1		$	136.2			(17	%)	$	394.6		$	457.6			(14	%)
Interest revenue		137.4			71.3			93	%		366.8			200.1			83	%
Brokerage interest expense		38.7			8.6			350	%		93.5			26.8			249	%
Net interest revenue		98.7			62.7			57	%		273.3			173.4			58	%
Other		22.6			21.1			7	%		61.0			62.3			(2	%)
Net revenues		234.4			220.0			7	%		728.8			693.3			5	%
Expenses:
Employee compensation and benefits		44.0			40.4			9	%		130.8			118.6			10	%
Clearing and execution costs		7.2			8.3			(13	%)		20.1			24.2			(17	%)
Communications		8.3			10.9			(24	%)		27.2			31.4			(13	%)
Occupancy and equipment costs		12.4			10.7			16	%		33.0			32.1			3	%
Depreciation and amortization		5.9			5.9			0	%		17.5			17.5			0	%
Professional services		7.9			9.0			(11	%)		26.7			24.1			11	%
Interest on borrowings		0.5			0.6			(12	%)		1.5			2.0			(23	%)
Loss/(gain) on disposal of property		0.0			(0.2	)		(113	%)		(0.2	)		(0.6	)		(62	%)
Other		4.0			5.3			(23	%)		13.1			16.6			(21	%)
Advertising		21.7			27.2			(20	%)		72.3			80.4			(10	%)
Total expenses		112.0			118.0			(5	%)		342.1			346.1			(1	%)
Pre-tax income		122.4			102.0			20	%		386.7			347.2			11	%
Provision for income taxes		47.7			39.8			20	%		148.5			132.0			12	%
Net income	$	74.7		$	62.3			20	%	$	238.2		$	215.2			11	%
Other information:
Number of interest days in period		91			91			0	%		273			273			0	%
Effective income tax rate		39.0	%		39.0	%					38.4	%		38.0	%

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

Three-Month Periods Ended June 24, 2005 and June 25, 2004

Net Revenues.

Commissions and clearing fees decreased 17 percent, primarily due to a 13 percent decrease in total trades and a five percent decrease in average commissions and clearing fees per trade. Average client trades per day decreased 15 percent to 138,930 for the third quarter of fiscal 2005 from 163,906 for the third quarter of fiscal 2004; however the effect of this decrease was partially offset by two more trading days in the third quarter of fiscal 2005 than in the third quarter of fiscal 2004. Average client trades per account (annualized) were 9.7 for the third quarter of fiscal 2005, compared to 11.8 for the third quarter of fiscal 2004. The number of qualified accounts, which have historically generated the vast majority of our revenues, was unchanged. Average commissions and clearing fees per trade decreased to $12.72 in the third quarter of fiscal 2005 from $13.41 for the third quarter of fiscal 2004, due primarily to a decrease in our options contract pricing and decreased payment for order flow revenue per trade. In March 2005, we lowered our options contract pricing from $1.50 to $0.75 per contract. We expect average commissions and clearing fees to range from approximately $12.50 to $13.00 per trade during the fourth quarter of fiscal 2005, depending on the mix of client trading activity, level of payment for order flow revenue and other factors. We expect revenues from commissions and clearing fees to range from $95.1 million to $126.7 million for the fourth quarter of fiscal 2005, depending on the volume of client trading activity, average commissions and clearing fees per trade and other factors.

Net interest revenue increased 57 percent, due primarily to an increase of 180 basis points in the average interest rate earned on segregated cash, an increase of 93 basis points in the average interest rate charged on client margin balances and a $2.7 million increase in net interest earned on our securities lending program in the third quarter of fiscal 2005 compared to the third quarter of fiscal 2004. The increased net interest revenue resulting from these factors was partially offset by an increase of 41 basis points in the average interest rate paid on client credit balances in the third quarter of fiscal 2005 from the third quarter of fiscal

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2004. We expect net interest revenue to increase to between $115.4 million and $125.7 million for the fourth quarter of fiscal 2005, due primarily to seven more interest days compared to the third quarter of fiscal 2005 and expected increases in the average yield earned on segregated cash balances and in the average interest rate charged on client margin balances.

Other revenues increased seven percent, due primarily to an increase in reorganization, solicitation and tender fee revenues. We expect other revenues to range from $19 million to $23 million for the fourth quarter of fiscal 2005.

Expenses.

Employee compensation and benefits expense increased nine percent. Full-time equivalent employees increased to 2,041 at June 24, 2005, from 1,970 at June 25, 2004, primarily due to the addition of client service and technology employees in fiscal 2004 and 2005. We have continued to invest in our technology and call centers in order to maintain our position as a leader in innovative trading tools and to improve client service. We expect employee compensation expense to range between $45 million and $48 million for the fourth quarter of fiscal 2005.

Clearing and execution costs decreased 13 percent, due primarily to lower client trading volumes. We expect clearing and execution costs to range between $7 million and $8 million for the fourth quarter of fiscal 2005, depending largely on the level of client trading activity.

Communications expense decreased 24 percent, due primarily to reduced telecommunications costs resulting from recent contract negotiations. We expect communications expense to range between $8 million and $9 million for the fourth quarter of fiscal 2005.

Occupancy and equipment costs increased 16 percent, due primarily to costs associated with moving technology employees to a larger facility in New Jersey during the third quarter of fiscal 2005. We expect occupancy and equipment costs to be approximately $11 million for the fourth quarter of fiscal 2005.

Professional services expense decreased 11 percent, due primarily to decreased client communications consulting expenses, partially offset by higher spending on corporate development initiatives in the third quarter of fiscal 2005 compared to the third quarter of fiscal 2004. We expect professional services expense to be approximately $9 million for the fourth quarter of fiscal 2005.

Advertising expense decreased 20 percent, as we reduced expenditures in response to lackluster stock market conditions. We expect approximately $17 million to $22 million of advertising expenditures for the fourth quarter of fiscal 2005, depending on market conditions. We generally adjust our level of advertising spending in relation to stock market activity, in an effort to maximize the number of new accounts while minimizing the advertising cost per new account.

Our effective income tax rate was approximately 39 percent for the third quarters of both fiscal 2005 and fiscal 2004. We expect our effective income tax rate for the remainder of fiscal 2005 to range between 38.5 percent and 39 percent.

Nine-Month Periods Ended June 24, 2005 and June 25, 2004

Net Revenues.

Commissions and clearing fees decreased 14 percent, primarily due to a 12 percent decrease in total trades, and a two percent decrease in average commissions and clearing fees per trade. Average client trades per day decreased 13 percent to 159,102 for the first nine months of fiscal 2005 from 183,013 in the first nine months of fiscal 2004; however the effect of this decrease was partially offset by three more trading days in the first nine months of fiscal 2005 than the first nine months of fiscal 2004. Average client trades per account (annualized) were 11.2 for the first nine months of fiscal 2005, compared to 13.7 for the first nine months of fiscal 2004. Average commissions and clearing fees per trade decreased to $13.16 in the first nine months of fiscal 2005 from $13.48 for the first nine months of fiscal 2004, due primarily to the decrease in our options contract pricing in March 2005 and decreased payment for order flow revenue per trade.

Net interest revenue increased 58 percent, due primarily to an increase of 134 basis points in the average interest rate earned on segregated cash, an increase of 53 basis points in the average interest rate charged on client margin balances, a nine percent increase in average client margin balances and a $9.6 million increase in net interest earned on our securities lending program in the first nine months of fiscal 2005 compared to the first nine months of fiscal 2004. The increased net interest revenue resulting from these factors was partially offset by an increase of 27 basis points in the average interest rate paid on client credit balances in the first nine months of fiscal 2005 from the first nine months of fiscal 2004.

Other revenues decreased two percent, due primarily to a decrease in account maintenance, statement and confirm and other fee revenue, partially offset by higher solicitation and tender offer fees and money market fee income. Account maintenance fees are charged based on client assets and trading activity, therefore fluctuations in client assets or trades per account may result in fluctuations in revenues from account maintenance fees.

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Expenses.

Employee compensation and benefits expense increased 10 percent, due primarily to an increase in full-time equivalent employees to 2,041 at June 24, 2005, from 1,970 at June 25, 2004.

Clearing and execution costs decreased 17 percent, due primarily to lower client trading volumes, decreased order routing costs resulting from our implementation of a single web architecture trading platform during fiscal 2004 and a non-recurring refund of Nasdaq trading activity fees of approximately $1 million during the first quarter of fiscal 2005.

Communications expense decreased 13 percent, due primarily to reduced telecommunications costs resulting from recent contract negotiations.

Occupancy and equipment costs increased three percent, due primarily to costs associated with moving technology employees to a larger facility in New Jersey during the third quarter of fiscal 2005, partially offset by slightly lower computer equipment leasing costs.

Professional services expense increased 11 percent, due primarily to increased spending on corporate development initiatives in fiscal 2005 and increased legal fees incurred for regulatory matters, partially offset by decreased client communications consulting expenses.

Advertising expenses decreased 10 percent, as we reduced expenditures in response to stock market conditions.

Our effective income tax rate was approximately 38.4 percent for the first nine months of fiscal 2005, compared to 38.0 percent for the first nine months of fiscal 2004. The Datek integration resulted in a larger percentage of our payroll and assets being located in lower income tax states. An adjustment to our net deferred income tax liabilities in fiscal 2004 to apply the lower income tax rate resulted in a lower normal effective income tax rate for the first nine months of that fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our liquidity and capital needs primarily through funds generated from operations and from borrowings under our credit agreements. We have also issued Common Stock and convertible subordinated notes to finance mergers and acquisitions and for other corporate purposes. Our liquidity and capital needs during the first nine months of fiscal 2005 were financed from our earnings, cash on hand and borrowings on our broker-dealer credit facilities. We plan to finance our ordinary capital and liquidity needs primarily from our earnings and cash on hand. In addition, we may utilize our revolving credit facility or issue equity or debt securities.

To complete our planned acquisition of the U.S. brokerage business of TD Waterhouse Group, Inc. (“Waterhouse”), we plan to issue 193.6 million shares of Common Stock, subject to regulatory and stockholder approvals. We also expect to declare a $6.00 per share special cash dividend, subject to closing of the acquisition. We expect to fund the approximately $2.4 billion special dividend with up to approximately $0.4 billion from cash on hand, approximately $0.4 billion from excess capital in Waterhouse at closing and the remaining $1.6 to $2.0 billion primarily by issuing private and/or public long-term debt. Although we believe we will be able to obtain adequate financing for the special dividend, there can be no assurance that financing will be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to declare the special dividend and complete the acquisition. See Note 2 of the notes to condensed consolidated financial statements for further information about the Waterhouse acquisition.

Dividends from our subsidiaries are another source of liquidity for the holding company. Some of our subsidiaries are subject to requirements of the SEC and NASD 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 holding company.

Under the SEC’s Uniform Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934), our broker-dealer subsidiaries are required to maintain at all times at least the minimum level of net capital required under Rule 15c3-1. This minimum net capital level is determined based upon an involved 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 broker-dealer subsidiaries. Since our aggregate debits may fluctuate significantly, our minimum net capital requirements may also fluctuate significantly from period to period. The holding company may make cash capital contributions to broker-dealer subsidiaries, if necessary, to meet net capital requirements.

On November 12, 2004, our broker-dealer subsidiary Ameritrade, Inc. was notified by the staff of the NASD and the staff of the SEC Division of Market Regulation (collectively the “Staffs”) that in their view Ameritrade, Inc.’s net capital was below its minimum amount required under Exchange Act Rule 15c3-1. The asserted deficiency was based upon the Staffs’ concerns regarding a Federal Deposit Insurance Corporation (“FDIC”) insured deposit sweep program available to Ameritrade, Inc.’s clients. Ameritrade, Inc. cured the asserted deficiency the next business day, November 15, 2004. The NASD continues to

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investigate this matter and Ameritrade, Inc. is fully cooperating with the investigation. We are unable to predict the outcome of this matter. See Note 6 of the notes to condensed consolidated financial statements for further discussion of this matter.

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 considered a Non-GAAP financial measure as defined by SEC Regulation G. We define liquid assets as the sum of a) non broker-dealer cash and cash equivalents, b) non broker-dealer short-term investments and c) regulatory net capital of our broker-dealer subsidiaries in excess of five percent of aggregate debit items. We include the excess regulatory net capital of our broker-dealer subsidiaries in liquid assets rather than simply including broker-dealer cash and cash equivalents, because regulatory net capital requirements may limit the amount of cash available for dividend from the broker-dealer subsidiaries to the holding 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 to liquid assets for the periods indicated (in thousands):

	June 24,			September 24,
	2005			2004			Change
Cash and cash equivalents	$	267,316		$	137,392		$	129,924
Less: Broker-dealer cash and cash equivalents		(205,408	)		(99,400	)		(106,008	)
Non broker-dealer cash and cash equivalents		61,908			37,992			23,916
Plus: Non broker-dealer short-term investments		20,000			17,950			2,050
Plus: Excess broker-dealer regulatory net capital*		189,209			—			189,209
Liquid assets*	$	271,117		$	55,942		$	215,175

* Includes the impact of a regulatory matter related to an FDIC-insured deposit sweep program as of September 24, 2004. Excluding the impact of the regulatory matter, excess broker-dealer regulatory net capital would be approximately $85.4 million and liquid assets would be approximately $141.3 million as of September 24, 2004. See Note 6 of the notes to condensed consolidated financial statements for further discussion of the regulatory matter.

The increase in liquid assets from September 24, 2004 to June 24, 2005 is primarily due to the impact of curing the FDIC-insured deposit sweep program regulatory matter of $85.4 million and net income of $238.2 million, partially offset by an increase in aggregate debit items that resulted in increased regulatory net capital required of $22.3 million, cash used in investing and financing activities, excluding short-term investments, of $93.5 million (see “Cash Flow” below) and the impact of a net capital calculation issue discussed in the following paragraph of $14.7 million. The remaining $22.1 million of the increase in liquid assets is due to increased non broker-dealer working capital due to timing of income tax and other payments, non-cash expenses that are reflected in net income, and other miscellaneous changes in excess regulatory net capital.

The NASD and SEC have inquired about the effect on Ameritrade, Inc.’s net capital of certain deferred income tax liabilities arising from acquisitions. The issue is whether deferred tax liabilities may offset the acquired intangible client relationship assets to which they relate before the acquired intangible client relationship assets, which are not allowable assets for regulatory net capital purposes, are deducted in the net capital calculation. Following discussions with the SEC, Ameritrade, Inc. decided to prospectively exclude these deferred income tax liabilities from the net capital calculation, beginning with the March 25, 2005 calculation, until the regulators provided guidance concerning this issue. In June 2005, the SEC confirmed that it was appropriate for Ameritrade, Inc., in calculating its net capital, to offset the Datek acquired intangible client relationship asset with its associated deferred tax liability for periods prior to March 2005 and for the month of May 2005 and beyond. The Datek transaction was not a taxable asset purchase. The deferred income tax liability associated with the Datek acquired intangible client relationship asset totaled $78.2 million as of June 24, 2005. The SEC has not provided guidance as to whether it is appropriate, in calculating net capital, to offset an acquired intangible asset associated with a taxable asset purchase with its associated deferred tax liability. Accordingly, deferred tax liabilities totaling $14.7 million for acquired intangible assets related to taxable asset purchases have been excluded from Ameritrade, Inc.’s net capital calculation as of June 24, 2005.

Cash Flow

Cash provided by operating activities was $225.2 million for the first nine months of fiscal 2005, compared to $265.4 million for the first nine months of fiscal 2004. The decrease was primarily due to changes in broker-dealer working capital, partially offset by higher net income in the first nine months of fiscal 2005.

Cash used in investing activities was $33.6 million for the first nine months of fiscal 2005, compared to $62.4 million for the first nine months of fiscal 2004. The cash used in investing activities in the first nine months of fiscal 2005 consisted primarily of $25.9 million paid in the acquisition of the online retail client accounts of JB Oxford & Company. The cash used in

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investing activities for the first nine months of fiscal 2004 consisted primarily of $55.1 million paid in the acquisition of Bidwell & Company.

Cash used in financing activities was $61.9 million for the first nine months of fiscal 2005, compared to $321.9 million for the first nine months of fiscal 2004. The financing activities in the first nine months of fiscal 2005 included $77.2 million of stock repurchases, compared to $288.6 million of stock repurchases and an early redemption of convertible subordinated notes for $46.8 million during the first nine months of fiscal 2004. Our broker-dealer subsidiary, Ameritrade, Inc., also borrowed and subsequently repaid $280 million on its unsecured credit facilities during the first quarter of fiscal 2005 to cure the asserted Exchange Act Rule 15c3-3 deficiency described in Note 6 of the notes to condensed consolidated financial statements. In fiscal 2004, we borrowed and repaid $25.0 million on our revolving credit agreement and $17.5 million on Ameritrade Northwest, Inc.’s (formerly Bidwell) secured credit facility to fund daily liquidity needs.

Loan Facilities

On December 13, 2004, we entered into an amendment to our revolving credit agreement. The revolving credit agreement, as amended, permits borrowings of up to $105 million through December 12, 2005, and is secured primarily by our stock in our subsidiaries and personal property. The interest rate on borrowings is equal to one month LIBOR (determined monthly) plus a spread (determined quarterly) of 1.75 percent or 2.00 percent based on a specified financial ratio. At June 24, 2005, the interest rate on the revolving credit agreement would have been 4.89 percent. We also pay a commitment fee of 0.25 percent of the unused credit facility through the maturity date. We had no outstanding indebtedness under the revolving credit agreement at June 24, 2005 and no outstanding indebtedness under the prior revolving credit agreement at September 24, 2004. The revolving credit agreement contains certain covenants and restrictions, including maintenance of a minimum level of net worth, requiring prior written consent of the revolving lenders for certain business combinations and investments, and prohibiting the payment of cash dividends to stockholders. We were in compliance with or obtained waivers for all covenants under the revolving credit agreements.

Our wholly owned broker-dealer subsidiary, Ameritrade, Inc., had access to secured uncommitted credit facilities with financial institutions of up to $180 million as of June 24, 2005 and September 24, 2004. Ameritrade, Inc. also had access to an unsecured uncommitted credit facility of up to $310 million as of June 24, 2005 and September 24, 2004. The financial institutions may make loans under line of credit arrangements or, in some cases, issue letters of credit under these facilities. The secured credit facilities require Ameritrade, Inc. to pledge qualified client securities to secure outstanding obligations under these facilities. Borrowings under the secured and unsecured credit facilities bear interest at a variable rate based on the federal funds rate. There were no borrowings outstanding or letters of credit issued under the secured or unsecured credit facilities as of June 24, 2005 or September 24, 2004. As of June 24, 2005 and September 24, 2004, approximately $490 million was available to Ameritrade, Inc. for either loans or, in some cases, letters of credit.

Prepaid Variable Forward Contracts

During fiscal 2003, we entered into a series of prepaid variable forward contracts (the “forward contracts”) with a counterparty with a total notional amount of approximately $41.4 million on 7.9 million underlying Knight shares. The forward contracts each contain a zero-cost embedded collar on the value of the Knight shares, with a weighted average floor price of $5.13 per share and a weighted average cap price of $6.17 per share. At the inception of the forward contracts, we received cash of approximately $35.5 million, equal to approximately 86 percent of the notional amount. The forward contracts mature on various dates in fiscal years 2006 and 2007. At maturity, we may settle the forward contracts in shares of Knight or in cash, at our option. If the market price of the Knight stock at maturity is equal to or less than the floor price, the counterparty will be entitled to receive one share of Knight or its cash equivalent for each underlying share. If the market price of the Knight stock at maturity is greater than the cap price, the counterparty will be entitled to receive the number of shares of Knight or its cash equivalent equal to the ratio of the floor price plus the excess of the market price over the cap price, divided by the market price, for each underlying share. If the market price at maturity is greater than the floor price but less than or equal to the cap price, the counterparty will be entitled to receive the number of Knight shares or its cash equivalent equal to the ratio of the floor price divided by the market price for each underlying share. Regardless of whether the forward contract is settled in Knight shares or in cash, we intend to sell the underlying Knight shares at maturity.

We have designated the forward contracts as cash flow hedges of the forecasted future sales of 7.9 million Knight shares. The forward contracts are expected to be perfectly effective hedges against changes in the cash flows associated with the forecasted future sales outside the price ranges of the collars. Accordingly, all changes in the fair value of the embedded collars are recorded in other comprehensive income, net of income taxes. As of June 24, 2005 and September 24, 2004, the total fair value of the embedded collars was approximately $16.9 million and $28.7 million, respectively, and was included under the caption “Prepaid variable forward derivative instrument” on the Condensed Consolidated Balance Sheet.

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The $35.5 million of cash received on the forward contracts is accounted for as an obligation on the Condensed Consolidated Balance Sheet. We are accreting interest on the obligation to the notional maturity amount of $41.4 million over the terms of the forward contracts using effective interest rates with a weighted average of approximately 4.3 percent. Upon settlement of each forward contract, the fair value of the collar and the realized gain or loss on the Knight stock delivered to the counterparty or otherwise sold will be reclassified from other comprehensive income into earnings.

Stock Repurchase Program

On September 9, 2002, our Board of Directors authorized a program to repurchase up to 40 million shares of our Common Stock from time to time over a two-year period beginning September 19, 2002. On May 5, 2004, our Board of Directors extended the stock repurchase program through May 5, 2006. Under the stock repurchase program, as extended, we may repurchase, from time to time, up to 70 million shares of our Common Stock, a 30 million-share increase from the previous authorization. Through June 24, 2005, we have repurchased a total of approximately 48.4 million shares at a weighted average purchase price of $10.15 per share. During the first six months of fiscal 2005, we repurchased approximately 6.0 million shares at a weighted average purchase price of $12.77 per share. We did not make any repurchases under the program during the third quarter of fiscal 2005, and do not expect to make any repurchases during the fourth quarter of fiscal 2005.

Off-Balance Sheet Arrangements

The Company does not have any obligations which meet the definition of an off-balance sheet arrangement and which have or are reasonably likely to have a material effect on our financial statements.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),Share-Based Payment(“No. 123R”). SFAS No. 123R is a revision of SFAS No. 123,Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees(“APB No. 25”), and its related implementation guidance. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS No. 123R requires public entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). SFAS No. 123R was originally scheduled to be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 for public entities that do not file as small business issuers. On April 14, 2005, the SEC announced the adoption of a new rule amending the compliance date to the beginning of the first annual reporting period that begins after June 15, 2005 for public entities that do not file as small business issuers. Therefore, SFAS No. 123R will be effective for our next fiscal year beginning October 1, 2005. As of the required effective date, public entities will apply SFAS No. 123R using a modified version of the prospective transition method. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123 for either recognition or pro forma disclosures. We estimate adoption of SFAS No. 123R will result in additional stock-based compensation expense for the unvested portion of awards previously accounted for under APB No. 25 of approximately $5.6 million for our fiscal year ending September 29, 2006.

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 market risk-sensitive instruments for trading purposes.

We seek to control the risks associated with our client activities 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 seek to control 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 a securities clearinghouse.

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As a fundamental part of our brokerage business, we hold interest earning assets, mainly funds required to be segregated in compliance with federal regulations. These funds totaled $7.8 billion at June 24, 2005 and September 24, 2004. We invest these funds in repurchase agreements, fixed-rate U.S. Treasury securities and other qualified securities. Our interest earning assets are financed primarily by short-term interest bearing liabilities, totaling $10.3 billion at June 24, 2005 and $10.1 billion at September 24, 2004, in the form of client credit balances. We earn a net interest spread on the difference between amounts earned on client margin balances and amounts paid on client credit balances. Because we establish the rate paid on client credit balances and the rate charged on client margin balances, a substantial portion of our interest rate risk is under our direct management. However, changes in interest rates may have a beneficial or adverse affect on our results of operations. We might not change interest rates paid on client credit balances proportionately to changes in interest rates charged on client margin balances. As a result, a rising interest rate environment generally would result in our earning a larger net interest spread. Conversely, a falling interest rate environment generally would result in our earning a smaller net interest spread.

We had no borrowings outstanding under our $105 million revolving credit agreement, which bears interest at a floating rate, as of June 24, 2005 and no borrowings outstanding under the prior revolving credit agreement as of September 24, 2004. We currently hold two marketable equity securities, our investments in approximately 7.9 million shares of Knight and 112,887 shares of International Securities Exchange, Inc., which were recorded at fair value of $64.4 million ($40.0 million net of tax) at June 24, 2005 and have exposure to market price risk. The potential loss in fair value resulting from a hypothetical 10 percent adverse change in prices quoted by the stock exchanges was approximately $6.4 million at June 24, 2005. During fiscal 2003, we entered into a series of prepaid variable forward contracts with a total notional amount of approximately $41.4 million on 7.9 million underlying Knight shares. The forward contracts each contain an embedded collar on the value of the Knight shares, with a weighted average floor price of $5.13 per share and a weighted average cap price of $6.17 per share. We have designated the forward contracts as cash flow hedges of the forecasted future sales of 7.9 million Knight shares. As of June 24, 2005 and September 24, 2004, the fair value of the embedded collars was approximately $16.9 million and $28.7 million, respectively, and was included under the caption “Prepaid variable forward derivative instrument” on the Condensed Consolidated Balance Sheet. The forward contracts are expected to be perfectly effective hedges against changes in cash flows associated with changes in the value of Knight shares outside the price ranges of the collars.

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

Item 4. - 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 24, 2005. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in its periodic reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

There have been no 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

In May 2005, four putative class action lawsuits were filed in the Delaware Court of Chancery against the Company and its directors. The plaintiffs, Judith Friedman, Margaret Carroll, Mirfred Partners LLC and Irgun Torah, bring the actions on behalf of themselves and other stockholders of the Company. The complaints allege that defendants breached their fiduciary duties by refusing to consider a merger and acquisition proposal by E*Trade Financial Corporation. The complaints request injunctive relief and unspecified damages. On May 31, 2005, the Court entered an order consolidating the actions under the caption In re Ameritrade Holding Corp. Shareholders Litigation. Under the order, the plaintiffs are to file a consolidated amended complaint and the defendants are not required to respond to the original complaints. The plaintiffs have not yet filed a consolidated amended complaint. The defendants believe that these actions are without merit and intend to vigorously defend against them.

The nature of the Company’s business subjects it to lawsuits, arbitrations, claims and other legal proceedings. We cannot predict with certainty the outcome of pending legal proceedings. A substantial adverse judgment or other resolution regarding the proceedings could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. However, in the opinion of management, after consultation with legal counsel, the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent and the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

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The Company is in discussions with its regulators about matters 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.

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
March 26, 2005 - April 29, 2005		34,466	$	10.27		—		21,614,343
April 30, 2005 - May 27, 2005		—		N/A		—		21,614,343
May 28, 2005 - June 24, 2005		—		N/A		—		21,614,343
Total - Three months ended June 24, 2005		34,466	$	10.27		—		21,614,343

The Company’s Common Stock repurchase program was announced on September 9, 2002. The Company’s Board of Directors authorized the Company to repurchase up to 40 million shares over a two-year period expiring September 9, 2004. On May 5, 2004, the Company’s Board of Directors extended the stock repurchase program through May 5, 2006. Under the stock repurchase program, as extended, the Company may repurchase, from time to time, up to 70 million shares of Common Stock, a 30 million-share increase from the previous authorization. The September 9, 2002 program, as extended, is the only program currently in effect and there have been no programs that have expired during the period covered by this report. The shares repurchased during the fiscal month ended April 29, 2005 were repurchased from an employee in connection with the exercise of employee stock options issued by the Company. The Company did not make any repurchases pursuant to the publicly announced program during the quarter covered by this report. The Company does not expect to make any repurchases pursuant to the publicly announced program during the fourth quarter of fiscal 2005.

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Item 6. - Exhibits

2.1	Agreement of Sale and Purchase between Ameritrade Holding Corporation and The Toronto-Dominion Bank dated as of June 22, 2005 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on June 28, 2005)
3.1	Restated Certificate of Incorporation of Ameritrade Holding Corporation (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-A filed on September 5, 2002)
3.2	Amended and Restated By-Laws of Ameritrade Holding Corporation (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-K filed on November 7, 2003)
10.1	Stockholders Agreement among Ameritrade Holding Corporation, The Toronto-Dominion Bank, J. Joe Ricketts and certain of his affiliates dated as of June 22, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 28, 2005)
10.2	Voting Agreement among The Toronto-Dominion Bank, J. Joe Ricketts and certain of his affiliates, TA Associates and certain of its affiliates, and Silver Lake Partners and certain of its affiliates, dated as of June 22, 2005 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on June 28, 2005)
10.3	Executive Employment Agreement, dated as of May 10, 2005, between Bryce B. Engel and Ameritrade Holding Corporation
10.4	Executive Employment Agreement, dated as of May 10, 2005, between Lawrence Szczech and Ameritrade Holding Corporation
15.1	Awareness Letter of Independent Registered Public Accounting Firm
31.1	Certification of Joseph H. Moglia, Principal Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of John R. MacDonald, 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

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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: July 22, 2005

Ameritrade Holding Corporation
(Registrant) 

by:	/s/ Joseph H. Moglia
	Joseph H. Moglia
	Chief Executive Officer (Principal Executive Officer)

by:	/s/ John R. MacDonald
	John R. MacDonald
	Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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