Edgar Filing: TD AMERITRADE HOLDING CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

for the quarterly period ended June 30, 2012

¨	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: 1-35509

TD Ameritrade Holding Corporation

(Exact name of registrant as specified in its charter)


Delaware		82-0543156
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4211 South 102^nd Street, Omaha, Nebraska, 68127

(Address of principal executive offices) (Zip Code)

(402) 331-7856

(Registrant’s telephone number, including area code)

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 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes x No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of July 30, 2012, there were 546,503,934 outstanding shares of the registrant’s common stock.

TD AMERITRADE HOLDING CORPORATION

INDEX


		Page No.
	PART 1 – FINANCIAL INFORMATION

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

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		41

Item 4.	Controls and Procedures		42

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		42

Item 1A.	Risk Factors		43

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities		43

Item 6.	Exhibits		44

	Signatures		45

PART I – FINANCIAL INFORMATION

Item 1. – Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

TD Ameritrade Holding Corporation

We have reviewed the condensed consolidated balance sheet of TD Ameritrade Holding Corporation and subsidiaries (the Company) as of June 30, 2012, and the related condensed consolidated statements of income for the three-month and nine-month periods ended June 30, 2012 and 2011, and the condensed consolidated statements of cash flows for the nine-month periods ended June 30, 2012 and 2011. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of TD Ameritrade Holding Corporation and subsidiaries as of September 30, 2011, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein) and in our report dated November 18, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2011, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ ERNST & YOUNG LLP

Chicago, Illinois

August 8, 2012

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Columnar amounts in thousands)


	June 30, 2012			September 30, 2011
	(Unaudited)
ASSETS

Cash and cash equivalents	$	909,766		$	1,031,963
Short-term investments		129,619			3,557
Cash and investments segregated in compliance with federal regulations (including reverse repurchase agreements of $2.4 billion at June 30, 2012 and $1.9 billion at September 30, 2011)		3,546,772			2,519,249
Receivable from brokers, dealers and clearing organizations		1,053,066			834,469
Receivable from clients, net		8,738,710			8,059,410
Receivable from affiliates		81,525			92,963
Other receivables, net		96,898			115,316
Securities owned, at fair value		345,678			446,609
Property and equipment at cost, net		401,366			340,690
Goodwill		2,466,967			2,466,978
Acquired intangible assets, net		955,074			1,024,352
Deferred income taxes		2,197			4,642
Other assets		186,247			185,564

Total assets	$	18,913,885		$	17,125,762


LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Payable to brokers, dealers and clearing organizations	$	2,184,238		$	1,709,572
Payable to clients		10,099,387			8,979,327
Accounts payable and accrued liabilities		551,731			585,720
Payable to affiliates		4,288			3,912
Deferred revenue		31,810			42,230
Long-term debt		1,341,644			1,336,789
Capitalized lease obligations		6,719			10,784
Deferred income taxes		353,679			341,611

Total liabilities		14,573,496			13,009,945


Stockholders’ equity:
Preferred stock, $0.01 par value; 100 million shares authorized, none issued		—			—
Common stock, $0.01 par value; one billion shares authorized; June 30, 2012 - 631,399,374 shares issued; September 30, 2011 - 631,381,860 shares issued; June 30, 2012 - 546,783,330 outstanding; September 30, 2011 - 554,285,716 outstanding		6,314			6,314
Additional paid-in capital		1,602,161			1,583,327
Retained earnings		3,989,475			3,645,846
Treasury stock, common, at cost - June 30, 2012 - 84,616,044 shares; September 30, 2011 - 77,096,144 shares		(1,257,917	)		(1,119,969	)
Deferred compensation		141			146
Accumulated other comprehensive income		215			153

Total stockholders’ equity		4,340,389			4,115,817

Total liabilities and stockholders’ equity	$	18,913,885		$	17,125,762

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended June 30,						Nine Months Ended June 30,
	2012			2011			2012			2011
Revenues:
Transaction-based revenues:
Commissions and transaction fees	$	266,078		$	281,591		$	831,516		$	912,607

Asset-based revenues:
Interest revenue		119,975			132,334			338,869			371,959
Brokerage interest expense		(1,607	)		(1,052	)		(4,459	)		(3,581	)

Net interest revenue		118,368			131,282			334,410			368,378

Insured deposit account fees		206,339			196,817			620,590			562,759
Investment product fees		54,034			43,938			143,753			125,075

Total asset-based revenues		378,741			372,037			1,098,753			1,056,212

Other revenues		22,446			31,154			63,530			90,382

Net revenues		667,265			684,782			1,993,799			2,059,201


Operating expenses:
Employee compensation and benefits		176,455			168,564			523,442			500,632
Clearing and execution costs		21,891			22,648			66,064			71,566
Communications		28,470			27,057			83,332			81,782
Occupancy and equipment costs		36,342			36,318			111,317			104,663
Depreciation and amortization		18,334			16,914			53,015			49,629
Amortization of acquired intangible assets		22,941			24,083			69,278			72,747
Professional services		39,708			42,882			128,893			123,257
Advertising		50,248			48,109			190,419			204,092
Other		18,739			35,668			66,269			71,291

Total operating expenses		413,128			422,243			1,292,029			1,279,659


Operating income		254,137			262,539			701,770			779,542

Other expense:
Interest on borrowings		7,060			6,916			21,378			25,227
Loss on debt refinancing		—			1,435			—			1,435

Total other expense		7,060			8,351			21,378			26,662


Pre-tax income		247,077			254,188			680,392			752,880

Provision for income taxes		93,248			96,793			237,904			278,778


Net income	$	153,829		$	157,395		$	442,488		$	474,102


Earnings per share - basic	$	0.28		$	0.28		$	0.81		$	0.83
Earnings per share - diluted	$	0.28		$	0.27		$	0.80		$	0.82

Weighted average shares outstanding - basic		547,682			570,287			548,673			573,034
Weighted average shares outstanding - diluted		553,043			576,784			554,237			579,168

Dividends declared per share	$	0.06		$	0.05		$	0.18		$	0.15

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands, except share amounts)


	Nine Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net income	$	442,488		$	474,102
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		53,015			49,629
Amortization of acquired intangible assets		69,278			72,747
Deferred income taxes		14,513			7,394
Loss on disposal of property		7,445			16,720
Loss on debt refinancing		—			1,435
Stock-based compensation		34,961			25,995
Excess tax benefits on stock-based compensation		(17,707	)		(9,370	)
Other, net		(1,961	)		185
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with federal regulations		(1,027,523	)		616,766
Receivable from brokers, dealers and clearing organizations		(218,597	)		174,703
Receivable from clients, net		(679,300	)		(1,323,229	)
Receivable from/payable to affiliates, net		12,145			(7,879	)
Other receivables, net		18,418			(23,685	)
Securities owned		100,931			151,900
Other assets		5,329			(7,945	)
Payable to brokers, dealers and clearing organizations		474,666			148,699
Payable to clients		1,120,060			458,621
Accounts payable and accrued liabilities		(16,606	)		(2,125	)
Deferred revenue		(10,420	)		(17,224	)


Net cash provided by operating activities		381,135			807,439


Cash flows from investing activities:
Purchase of property and equipment		(121,135	)		(109,904	)
Cash received in sale of business		—			5,228
Cash transferred in disposal of subsidiary		—			(3,453	)
Purchase of short-term investments		(127,540	)		(1,045	)
Proceeds from sale and maturity of short-term investments		1,000			1,100
Purchase of investments		(536	)		(5,006	)
Other, net		1,854			550


Net cash used in investing activities		(246,357	)		(112,530	)

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited)

(In thousands, except share amounts)


	Nine Months Ended June 30,
	2012			2011
Cash flows from financing activities:
Payment of debt issuance costs	$	—		$	(1,783	)
Principal payments on long-term debt		—			(4,262	)
Principal payments on capital lease obligations		(4,065	)		(8,100	)
Proceeds from exercise of stock options; Nine months ended June 30, 2012 - 1,248,626 shares; 2011 - 628,293 shares		5,061			3,204
Purchase of treasury stock; Nine months ended June 30, 2012 - 10,643,037 shares; 2011 - 7,068,892 shares		(176,848	)		(144,245	)
Return of prepayment on structured stock repurchase		—			118,834
Payment of cash dividends		(98,859	)		(85,936	)
Excess tax benefits on stock-based compensation		17,707			9,370


Net cash used in financing activities		(257,004	)		(112,918	)


Effect of exchange rate changes on cash and cash equivalents		29			163


Net increase (decrease) in cash and cash equivalents		(122,197	)		582,154

Cash and cash equivalents at beginning of period		1,031,963			741,492

Cash and cash equivalents at end of period	$	909,766		$	1,323,646


Supplemental cash flow information:
Interest paid	$	25,396		$	35,687
Income taxes paid	$	213,831		$	233,713

Noncash financing activities:
Settlement of structured stock repurchase; 3,159,360 shares	$	—		$	50,366

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three-Month and Nine-Month Periods Ended June 30, 2012 and 2011

(Unaudited)

1. BASIS OF PRESENTATION

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

These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments, which are all of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report filed on Form 10-K for the fiscal year ended September 30, 2011.

Recently Adopted Accounting Pronouncements

ASU 2011-04 — On January 1, 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in ASU 2011-04 change the wording used to describe many of the requirements in U.S. Generally Accepted Accounting Principles for measuring fair value and for disclosing information about fair value measurements. Some of the amendments clarify the intent of the Financial Accounting Standards Board (“FASB”) about the application of existing fair value measurement and disclosure requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The adoption of ASU 2011-04 did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

ASU 2011-11 — In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. The amendments in ASU 2011-11 will enhance disclosures by requiring improved information about financial and derivative instruments that are either (1) offset (netting assets and liabilities) in accordance with Section 210-20-45 or Section 815-10-45 of the FASB Accounting Standards Codification or (2) subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 is effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods, and requires retrospective disclosures for comparative periods presented. Therefore, ASU 2011-11 will be effective for the Company’s fiscal year beginning October 1, 2013. Adoption of ASU 2011-11 is not expected to have a material impact on the Company’s financial statements.

2. CASH AND CASH EQUIVALENTS

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


	June 30, 2012		September 30, 2011
Corporate	$	424,373	$	259,986
Broker-dealer subsidiaries		386,693		656,206
Trust company subsidiary		74,230		108,587
Investment advisory subsidiaries		24,470		7,184

Total	$	909,766	$	1,031,963

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

3. INCOME TAXES

The Company’s effective income tax rate for the nine months ended June 30, 2012 was 35.0%, compared to 37.0% for the nine months ended June 30, 2011. The provision for income taxes for the nine months ended June 30, 2012 was significantly lower than normal primarily due to $18.5 million of favorable resolutions of state income tax matters. This favorably impacted the Company’s earnings for the nine months ended June 30, 2012 by approximately three cents per share. The provision for income taxes for the nine months ended June 30, 2011 was somewhat lower than normal due to $5.5 million of favorable resolutions of state income tax matters and $1.2 million of favorable deferred income tax adjustments resulting from state income tax law changes. These items favorably impacted the Company’s earnings for the nine months ended June 30, 2011 by approximately one cent per share.

4. LONG-TERM DEBT

Long-term debt consists of the following (dollars in thousands):


June 30, 2012	Face Value		Unamortized Discount			Fair Value Adjustment ⁽¹⁾		Net Carrying Value
Senior Notes:
2.950% Senior Notes due 2012	$	250,000	$	(36	)	$	1,540	$	251,504
4.150% Senior Notes due 2014		500,000		(239	)		27,727		527,488
5.600% Senior Notes due 2019		500,000		(511	)		63,163		562,652

Total long-term debt	$	1,250,000	$	(786	)	$	92,430	$	1,341,644


September 30, 2011	Face Value		Unamortized Discount			Fair Value Adjustment ⁽¹⁾		Net Carrying Value
Senior Notes:
2.950% Senior Notes due 2012	$	250,000	$	(100	)	$	4,170	$	254,070
4.150% Senior Notes due 2014		500,000		(313	)		33,223		532,910
5.600% Senior Notes due 2019		500,000		(562	)		50,371		549,809

Total long-term debt	$	1,250,000	$	(975	)	$	87,764	$	1,336,789

(1)	Fair value adjustments relate to changes in the fair value of the debt while in a fair value hedging relationship. See “Interest Rate Swaps” below.

Interest Rate Swaps – The Company is exposed to changes in the fair value of its fixed-rate Senior Notes resulting from interest rate fluctuations. To hedge this exposure, on December 30, 2009, the Company entered into fixed-for-variable interest rate swaps on the 2.950% Senior Notes due December 1, 2012 (the “2012 Notes”) and the 4.150% Senior Notes due December 1, 2014 (the “2014 Notes”) for notional amounts of $250 million and $500 million, respectively, with maturity dates matching the respective maturity dates of the 2012 Notes and 2014 Notes. In addition, on January 7, 2011, the Company entered into a fixed-for-variable interest rate swap on the 5.600% Senior Notes due December 1, 2019 (the “2019 Notes”) for a notional amount of $500 million, with a maturity date matching the maturity date of the 2019 Notes. The interest rate swaps effectively change the fixed-rate interest on the Senior Notes to variable-rate interest. Under the terms of the interest rate swap agreements, the Company receives semi-annual fixed-rate interest payments based on the same rates applicable to the Senior Notes, and makes quarterly variable-rate interest payments based on three-month LIBOR plus (a) 0.9693% for the swap on the 2012 Notes, (b) 1.245% for the swap on the 2014 Notes and (c) 2.3745% for the swap on the 2019 Notes. As of June 30, 2012, the weighted-average effective interest rate on the Senior Notes was 2.11%.

The interest rate swaps are accounted for as fair value hedges and qualify for the shortcut method of accounting. Changes in the payment of interest resulting from the interest rate swaps are recorded in interest on borrowings on the Condensed Consolidated Statements of Income. Changes in fair value of the interest rate swaps are completely offset by changes in fair value of the related notes, resulting in no effect on net income. The following table summarizes gains and losses resulting from changes in the fair value of the interest rate swaps and the hedged fixed-rate debt for the periods indicated (dollars in thousands):


	Three Months Ended June 30,						Nine Months Ended June 30,
	2012			2011			2012			2011
Gain (loss) on fair value of interest rate swaps	$	14,902		$	11,294		$	4,666		$	(7,729	)
Gain (loss) on fair value of hedged fixed-rate debt		(14,902	)		(11,294	)		(4,666	)		7,729

Net gain (loss) recorded in interest on borrowings	$	—		$	—		$	—		$	—

The following table summarizes the fair value of outstanding derivatives designated as hedging instruments on the Condensed Consolidated Balance Sheets (dollars in thousands):


	June 30,		September 30,
	2012		2011
Derivatives recorded under the caption “Other assets”:
Interest rate swap assets	$	92,430	$	87,764

The interest rate swaps are subject to counterparty credit risk. Credit risk is managed by limiting activity to approved counterparties that meet a minimum credit rating threshold and by entering into credit support agreements. The bilateral credit support agreements related to the interest rate swaps require daily collateral coverage, in the form of cash or U.S. Treasury securities, for the aggregate fair value of the interest rate swaps. As of June 30, 2012, the interest rate swap counterparties for the Senior Notes had pledged $97.3 million of collateral to the Company in the form of cash. As of September 30, 2011, the interest rate swap counterparty for the 2012 Notes and 2014 Notes had pledged $50.1 million of collateral to the Company in the form of U.S. Treasury securities and the interest rate swap counterparty for the 2019 Notes had pledged $57.5 million of collateral in the form of cash. A liability for collateral pledged to the Company in the form of cash is recorded in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets.

5. CAPITAL REQUIREMENTS

The Company’s broker-dealer subsidiaries are subject to the SEC Uniform Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934, or the “Exchange Act”), administered by the SEC and Financial Industry Regulatory Authority (“FINRA”), which requires the maintenance of minimum net capital, as defined. Net capital and the related net capital requirement may fluctuate on a daily basis.

TD Ameritrade Clearing, Inc. (“TDAC”), the Company’s clearing broker-dealer subsidiary, and TD Ameritrade, Inc., the Company’s introducing broker-dealer subsidiary, compute net capital under the alternative method as permitted by Rule 15c3-1. TDAC is required to maintain minimum net capital of the greater of $1.5 million, which is based on the type of business conducted by the broker-dealer, or 2% of aggregate debit balances arising from client transactions.

Under Rule 15c3-1, TD Ameritrade, Inc. is required to maintain minimum net capital of the greater of $250,000 or 2% of aggregate debit balances. As a futures commission merchant registered with the Commodity Futures Trading Commission (“CFTC”), TD Ameritrade, Inc. is also subject to CFTC Regulation 1.17 under the Commodity Exchange Act, administered by the CFTC and the National Futures Association, which requires the maintenance of minimum net capital of the greatest of (a) $1.0 million, (b) its futures risk-based capital requirement, equal to 8% of the total risk margin requirement for all futures positions carried by the futures commission merchant in client and nonclient accounts, or (c) its Rule 15c3-1 net capital requirement.

Under the alternative method, a broker-dealer may not repay any subordinated borrowings, pay cash dividends or make any unsecured advances or loans to its parent company or employees if such payment would result in a net capital amount of (a) less than 5% of aggregate debit balances, (b) less than 110% of its risk-based capital requirement under Regulation 1.17, or (c) less than 120% of its minimum dollar requirement. These net capital thresholds, which are specified in Exchange Act Rule 17a-11 and CFTC Regulation 1.12, are typically referred to as “early warning” net capital thresholds.

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


TD Ameritrade Clearing, Inc.
							Net Capital
							in Excess of
			Required				Early Warning
			Net Capital		Net Capital		Threshold		Ratio of
			(2% of		in Excess of		(5% of		Net Capital
			Aggregate		Required		Aggregate		to Aggregate
Date	Net Capital		Debit Balances)		Net Capital		Debit Balances)		Debit Balances
June 30, 2012	$	1,288,311	$	202,723	$	1,085,588	$	781,503		12.71	%
September 30, 2011	$	1,263,535	$	199,308	$	1,064,227	$	765,265		12.68	%

TD Ameritrade, Inc.
							Net Capital
			Required				in Excess of
			Net Capital				Early Warning
			(8% of Total		Net Capital		Threshold
			Risk Margin or		in Excess of		(110% or 120%
			Minimum Dollar		Required		of Required
Date	Net Capital		Requirement)		Net Capital		Net Capital)
June 30, 2012	$	218,174	$	5,590	$	212,584	$	212,025
September 30, 2011	$	374,907	$	1,000	$	373,907	$	373,707

The Company’s non-depository trust company subsidiary, TD Ameritrade Trust Company (“TDATC”), is subject to capital requirements established by the State of Maine, which require TDATC to maintain minimum Tier 1 capital, as defined. TDATC’s Tier 1 capital was $19.8 million and $18.6 million as of June 30, 2012 and September 30, 2011, respectively, which exceeded the required Tier 1 capital by $9.8 million and $8.6 million, respectively.

6. COMMITMENTS AND CONTINGENCIES

Reserve Fund Matters – During September 2008, The Reserve, an independent mutual fund company, announced that the net asset value of the Reserve Yield Plus Fund declined below $1.00 per share. The Yield Plus Fund was not a money market mutual fund, but its stated objective was to maintain a net asset value of $1.00 per share. TD Ameritrade, Inc.’s clients continue to hold shares in the Yield Plus Fund (now known as “Yield Plus Fund – In Liquidation”), which is being liquidated. On July 23, 2010, The Reserve announced that through that date it had distributed approximately 94.8% of the Yield Plus Fund assets as of September 15, 2008 and that the Yield Plus Fund had approximately $39.7 million in total remaining assets. The Reserve stated that the fund’s Board of Trustees has set aside almost the entire amount of the remaining assets to cover potential claims, fees and expenses. The Company estimates that TD Ameritrade, Inc. clients’ current positions held in the Reserve Yield Plus Fund amount to approximately 79% of the fund.

TD Ameritrade, Inc. has received subpoenas and other requests for documents and information from the SEC and other regulatory authorities regarding TD Ameritrade, Inc.’s offering of the Yield Plus Fund to clients. TD Ameritrade, Inc. is cooperating with the investigations and requests. On January 27, 2011, TD Ameritrade, Inc. entered into a settlement with the SEC, agreeing to the entry of an “Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions” (“Order”). In the Order, the SEC found that TD Ameritrade, Inc. failed reasonably to supervise its registered representatives with a view to preventing their violations of Section 17(a)(2) of the Securities Act of 1933 in connection with their offer and sale of the Yield Plus Fund. TD Ameritrade, Inc. did not admit or deny any of the findings in the Order, and no fine was imposed. Under the settlement agreement, TD Ameritrade, Inc. agreed to pay $0.012 per share to all eligible current or former clients that purchased shares of the Yield Plus Fund and continued to own those shares. Clients who purchased Yield Plus Fund shares through independent registered investment advisors were not eligible for the payment. In February 2011, the Company paid clients approximately $10 million under the settlement agreement.

The Pennsylvania Securities Commission has filed an administrative order against TD Ameritrade, Inc. involving the sale of Yield Plus Fund securities to certain Pennsylvania clients. An administrative hearing will be held to determine whether there have been violations of certain provisions of the Pennsylvania Securities Act of 1972 and rules thereunder and to determine what, if any, administrative sanctions should be imposed. TD Ameritrade, Inc. is defending the action.

In November 2008, a purported class action lawsuit was filed with respect to the Yield Plus Fund. The lawsuit is captioned Ross v. Reserve Management Company, Inc. et al. and is pending in the U.S. District Court for the Southern District of New York. The Ross lawsuit is on behalf of persons who purchased shares of Reserve Yield Plus Fund. On November 20, 2009, the plaintiffs filed a first amended complaint naming as defendants the fund’s advisor, certain of its affiliates and the Company and certain of its directors, officers and shareholders as alleged control persons. The complaint alleges claims of violations of the federal securities laws and other claims based on allegations that false and misleading statements and omissions were made in the Reserve Yield Plus Fund prospectuses and in other statements regarding the fund. The complaint seeks an unspecified amount of compensatory damages including interest, attorneys’ fees, rescission, exemplary damages and equitable relief. On January 19, 2010, the defendants submitted motions to dismiss the complaint. The motions are pending.

The Company estimates that its clients’ current aggregate shortfall, based on the original par value of their holdings in the Yield Plus Fund, less the value of fund distributions to date and the value of payments under the Company’s SEC settlement, is approximately $37 million. This amount does not take into account any assets remaining in the fund that may become available for future distributions.

The Company is unable to predict the outcome or the timing of the ultimate resolution of the Pennsylvania action and the Ross lawsuit, or the potential loss, if any, that may result from these unresolved matters. However, management believes 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.

Other Legal and Regulatory Matters – The Company is subject to other lawsuits, arbitrations, claims and other legal proceedings in connection with its business. Some of these legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations and cash flows or could cause the Company significant reputational harm. Management believes the Company has adequate legal defenses with respect to these legal proceedings to which it is a defendant or respondent and the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, the Company is unable to predict the outcome or the timing of the ultimate resolution of these matters, or the potential losses, if any, that may result from these matters.

In the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry. These matters could result in censures, fines, penalties 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 or the timing of the ultimate resolution of these matters, or the potential fines, penalties or injunctive or other equitable relief, if any, that may result from these matters.

Income Taxes – The Company’s federal and state income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is subject to varying interpretations, amounts reported in the condensed consolidated financial statements could be significantly changed at a later date upon final determinations by taxing authorities. The Toronto-Dominion Bank (“TD”) has agreed to indemnify the Company for tax obligations, if any, pertaining to activities of TD Waterhouse Group, Inc. (“TD Waterhouse”) prior to the Company’s acquisition of TD Waterhouse in January 2006.

General Contingencies — In the ordinary course of business, there are various contingencies that are not reflected in the condensed consolidated financial statements. These include the Company’s broker-dealer subsidiaries’ client activities involving the execution, settlement and financing of various client securities, options, futures and foreign exchange transactions. These activities may expose the Company to credit risk in the event the clients are unable to fulfill their contractual obligations.

The Company extends margin credit and leverage to its clients. In margin transactions, the Company extends credit to the client, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the client’s account. In connection with these activities, the Company also executes and clears client transactions involving the sale of securities not yet purchased (“short sales”). Such margin-related transactions may expose the Company to credit risk in the event a client’s assets are not sufficient to fully cover losses that the client may incur. Leverage involves securing a large

potential future obligation with a lesser amount of cash and securities. The risks associated with margin credit and leverage increase during periods of rapid market movements, or in cases where leverage or collateral is concentrated and market movements occur. In the event the client fails to satisfy its obligations, the Company has the authority to purchase or sell financial instruments in the client’s account at prevailing market prices in order to fulfill the client’s obligations. However, during periods of rapid market movements, clients who utilize margin credit or leverage and who have collateralized their obligations with securities may find that the securities have a rapidly depreciating value and may not be sufficient to cover their obligations in the event of liquidation. The Company seeks to mitigate the risks associated with its client margin and leverage activities by requiring clients to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels throughout each trading day and, pursuant to such guidelines, requires clients to deposit additional collateral, or to reduce positions, when necessary.

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

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

The Company transacts in reverse repurchase agreements (securities purchased under agreements to resell) in connection with its broker-dealer business. The Company’s policy is to take possession or control of securities with a market value in excess of the principal amount loaned, plus accrued interest, in order to collateralize resale agreements. The Company monitors the market value of the underlying securities that collateralize the related receivable on resale agreements on a daily basis and may require additional collateral when deemed appropriate.

As of June 30, 2012, client excess margin securities of approximately $12.2 billion and stock borrowings of approximately $0.8 billion were available to the Company to utilize as collateral on various borrowings or for other purposes. The Company had loaned approximately $2.2 billion and repledged approximately $1.5 billion of that collateral as of June 30, 2012.

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

The Company clears its clients’ futures transactions on an omnibus account basis through an unaffiliated clearing firm. The Company has agreed to indemnify the unaffiliated clearing firm for any loss that it may incur for the client transactions introduced to it by the Company.

See “Insured Deposit Account Agreement” in Note 10 for a description of a guarantee included in that agreement.

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, as well as stock award acceleration and severance payments in the event of termination of employment under certain defined circumstances or changes in control of the Company. Incentive compensation, a portion of which is awarded in the form of stock-based compensation, is based on the Company’s financial performance and other factors.

7. FAIR VALUE DISCLOSURES

FASB Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

•

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

•

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

•

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

The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and September 30, 2011 (dollars in thousands):


	As of June 30, 2012
	Level 1		Level 2		Level 3		Fair Value
Assets:
Cash equivalents:
Money market mutual funds	$	819,811	$	—	$	—	$	819,811

Short-term investments:
U.S. government debt securities		—		128,590		—		128,590
U.S. government agency debt securities		—		1,029		—		1,029

Subtotal - Short-term investments		—		129,619		—		129,619


Investments segregated in compliance with federal regulations:
U.S. government debt securities		—		754,232		—		754,232

Securities owned:
Auction rate securities		—		—		6,039		6,039
Money market and other mutual funds		—		—		1,102		1,102
Equity securities		3,918		275		—		4,193
U.S. government debt securities		—		332,486		—		332,486
Municipal debt securities		—		1,290		—		1,290
Corporate debt securities		—		267		—		267
Other debt securities		—		301		—		301

Subtotal - Securities owned		3,918		334,619		7,141		345,678


Other assets:
Interest rate swaps⁽¹⁾		—		92,430		—		92,430


Total assets at fair value	$	823,729	$	1,310,900	$	7,141	$	2,141,770

Liabilities:
Accounts payable and accrued liabilities:
Securities sold, not yet purchased:
Equity securities	$	9,368	$	14	$	—	$	9,382
Municipal debt securities		—		255		—		255
Corporate debt securities		—		43		—		43


Total liabilities at fair value	$	9,368	$	312	$	—	$	9,680

(1)	See “Interest Rate Swaps” in Note 4 for details.


	As of September 30, 2011
	Level 1		Level 2		Level 3		Fair Value
Assets:
Cash equivalents:
Money market mutual funds	$	949,804	$	—	$	—	$	949,804

Short-term investments:
U.S. government debt securities		—		2,528		—		2,528
U.S. government agency debt securities		—		1,029		—		1,029

Subtotal - Short-term investments		—		3,557		—		3,557


Securities owned:
Auction rate securities		—		—		19,609		19,609
Money market and other mutual funds		—		—		1,098		1,098
Equity securities		521		278		—		799
U.S. government debt securities		—		423,010		—		423,010
Municipal debt securities		—		972		—		972
Corporate debt securities		—		653		—		653
Other debt securities		—		468		—		468

Subtotal - Securities owned		521		425,381		20,707		446,609


Other assets:
Interest rate swaps ⁽¹⁾		—		87,764		—		87,764


Total assets at fair value	$	950,325	$	516,702	$	20,707	$	1,487,734

Liabilities:
Accounts payable and accrued liabilities:
Securities sold, not yet purchased:
Equity securities	$	4,600	$	55	$	—	$	4,655
Municipal debt securities		—		178		—		178
Corporate debt securities		—		9		—		9


Total liabilities at fair value	$	4,600	$	242	$	—	$	4,842

(1)	See “Interest Rate Swaps” in Note 4 for details.

There were no transfers between any levels of the fair value hierarchy during the periods presented in the tables below. The following tables present the changes in Level 3 assets measured at fair value on a recurring basis for the three months and nine months ended June 30, 2012 and 2011 (dollars in thousands):


	Three Months Ended June 30, 2012						Nine Months Ended June 30, 2012
	Securities Owned						Securities Owned
	Auction Rate Securities			Money Market and Other Mutual Funds			Auction Rate Securities			Money Market and Other Mutual Funds
Balance, beginning of period	$	7,379		$	1,099		$	19,609		$	1,098
Net gains (losses) included in earnings⁽¹⁾		77			(2	)		(88	)		(2	)
Purchases		185			5			625			6
Sales		(562	)		—			(2,117	)		—
Settlements		(1,040	)		—			(11,990	)		—

Balance, end of period	$	6,039		$	1,102		$	6,039		$	1,102

(1)	Net gains (losses) on securities owned are recorded in other revenues on the Condensed Consolidated Statements of Income.


	Three Months Ended June 30, 2011					Nine Months Ended June 30, 2011
	Securities Owned					Securities Owned
	Auction Rate Securities			Money Market and Other Mutual Funds		Auction Rate Securities			Money Market and Other Mutual Funds
Balance, beginning of period	$	109,385		$	1,026	$	209,288		$	5,404
Net gains included in earnings⁽¹⁾		714			—		3,685			—
Purchases, sales, issuances and settlements, net		(48,148	)		41		(151,022	)		(4,337	)

Balance, end of period	$	61,951		$	1,067	$	61,951		$	1,067

(1)	Net gains on auction rate securities are recorded in other revenues on the Condensed Consolidated Statements of Income. For the nine months ended June 30, 2011, net gains on auction rate securities include $0.4 million of net unrealized gains on assets held as of June 30, 2011.

There were no nonfinancial assets or liabilities measured at fair value during the three months and nine months ended June 30, 2012 and 2011.

Valuation Techniques

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

Level 2 Measurements:

Debt Securities – Fair values for debt securities are based on prices obtained from an independent pricing vendor. The primary inputs to the valuation include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. The Company validates the vendor pricing by periodically comparing it to pricing from another independent pricing service.

Interest Rate Swaps – These derivatives are valued by the counterparties using a model that incorporates interest rate yield curves, which are observable for substantially the full term of the contract. The valuation model is widely accepted in the financial services industry and does not involve significant judgment because most of the inputs are observable in the marketplace. Counterparty credit risk is not an input to the valuation because the Company has possession of collateral, in the form of cash or U.S. Treasury securities, in amounts equal to or exceeding the fair value of the interest rate swaps. The Company validates the counterparty valuations by comparing them to a valuation model provided by another third party service.

Level 3 Measurements:

Money Market and Other Mutual Funds – The fair value of positions in money market and other mutual funds managed by The Reserve is estimated by management based on the underlying portfolio holdings data published by The Reserve.

Auction Rate Securities (“ARS”) – ARS are long-term variable rate securities tied to short-term interest rates that are reset through a “Dutch auction” process, which generally occurs every seven to 35 days. Holders of ARS were previously able to liquidate their holdings to prospective buyers by participating in the auctions. During fiscal 2008, the Dutch auction process failed and holders were no longer able to liquidate their holdings through the auction process. The fair value of Company ARS holdings is primarily estimated based on an internal pricing model. The pricing model takes into consideration the characteristics of the underlying securities, as well as multiple inputs, including counterparty credit quality, expected timing of redemptions and an estimated yield premium that a market participant would require over otherwise comparable securities to compensate for the illiquidity of the ARS. These inputs require significant management judgment.

The following table summarizes quantitative information about Level 3 unobservable inputs as of June 30, 2012:


Asset	Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities	Discounted cash flow	Constant prepayment rate (Annual)	15% - 20%	18%
Auction Rate Securities	Discounted cash flow	Yield premium for illiquidity	2%	2%

Fair Value of Financial Instruments Not Recorded at Fair Value

Cash and investments segregated in compliance with federal regulations include reverse repurchase agreements (securities purchased under agreements to resell). Reverse repurchase agreements are treated as collateralized financing transactions and are carried at amounts at which the securities will subsequently be resold, plus accrued interest. The Company’s reverse repurchase agreements generally have a maturity of seven days and are collateralized by U.S. Treasury securities in amounts exceeding the carrying value of the resale agreements. Accordingly, the carrying value approximates fair value (categorized as Level 2 of the fair value hierarchy).

Senior Notes – As of June 30, 2012, the Company’s Senior Notes had an aggregate estimated fair value, based on quoted market prices (categorized as Level 1 of the fair value hierarchy), of approximately $1.357 billion, compared to the aggregate carrying value of the Senior Notes on the Condensed Consolidated Balance Sheet of $1.342 billion. As of September 30, 2011, the Company’s Senior Notes had an aggregate estimated fair value, based on quoted market prices, of approximately $1.340 billion, compared to the aggregate carrying value of the Senior Notes on the Condensed Consolidated Balance Sheet of $1.337 billion.

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 for the periods indicated (in thousands, except per share amounts):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2012		2011		2012		2011

Net income	$	153,829	$	157,395	$	442,488	$	474,102


Weighted average shares outstanding - basic		547,682		570,287		548,673		573,034
Effect of dilutive securities:
Common stock equivalent shares related to stock-based compensation		5,361		6,497		5,564		6,134

Weighted average shares outstanding - diluted ⁽¹⁾		553,043		576,784		554,237		579,168


Earnings per share - basic	$	0.28	$	0.28	$	0.81	$	0.83
Earnings per share - diluted	$	0.28	$	0.27	$	0.80	$	0.82

(1)

The Company excluded from the calculation of diluted earnings per share 2.5 million and 0.2 million shares underlying stock-based compensation awards for the three months ended June 30, 2012 and 2011, respectively, and 2.5 million and 1.0 million shares underlying stock-based compensation awards for the nine months ended June 30, 2012 and 2011, respectively, because their inclusion would have been antidilutive.

9. COMPREHENSIVE INCOME

Comprehensive income is as follows for the periods indicated (dollars in thousands):


	Three Months Ended June 30,						Nine Months Ended June 30,
	2012			2011			2012		2011

Net income	$	153,829		$	157,395		$	442,488	$	474,102

Other comprehensive income:
Net unrealized investment gains (losses)		32			(2	)		36		(1	)
Foreign currency translation adjustment		(16	)		21			26		161

Total other comprehensive income		16			19			62		160

Comprehensive income	$	153,845		$	157,414		$	442,550	$	474,262

10. RELATED PARTY TRANSACTIONS

Transactions with TD and Affiliates

As a result of the acquisition of TD Waterhouse during fiscal 2006, TD became an affiliate of the Company. TD owned approximately 45.2% of the Company’s common stock as of June 30, 2012, of which 45% is permitted to be voted under the terms of the Stockholders Agreement among TD, the Company and certain other stockholders. Pursuant to the Stockholders Agreement, TD has the right to designate five of twelve members of the Company’s board of directors. The Company transacts business and has extensive relationships with TD and certain of its affiliates. Transactions with TD and its affiliates are discussed and summarized below.

Insured Deposit Account Agreement

The Company is party to an insured deposit account (“IDA”) agreement with TD Bank USA, N.A. (“TD Bank USA”), TD Bank, N.A. and TD. Under the IDA agreement, TD Bank USA and TD Bank, N.A. (together, the “Depository Institutions”) make available to clients of the Company FDIC-insured money market deposit accounts as either designated sweep vehicles or as non-sweep deposit accounts. The Company provides marketing, recordkeeping and support services for the Depository Institutions with respect to the money market deposit accounts. In exchange for providing these services, the Depository Institutions pay the Company a fee based on the yield earned on the client IDA assets, less the actual interest paid to clients, a flat fee to the Depository Institutions of 25 basis points and the cost of FDIC insurance premiums.

The IDA agreement has a term of five years beginning July 1, 2008, and is automatically renewable for successive five-year terms, provided that it may be terminated by any party upon two years’ prior written notice. As of June 30, 2012, neither the Company nor TD has exercised its termination rights. The fee earned on the IDA agreement is calculated based on two primary components: (a) the yield on fixed-rate investments, based on prevailing fixed rates for identical balances and maturities in the interest rate swap market (generally LIBOR-based) at the time such investments were added to the IDA portfolio and (b) floating-rate investments, based on the monthly average rate for 30-day LIBOR. The agreement provides that, from time to time, the Company may request amounts and maturity dates for the fixed-rate investments in the IDA portfolio, subject to the approval of the Depository Institutions. As of June 30, 2012, the IDA portfolio was comprised of approximately 92% fixed rate investments and 8% floating rate investments.

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

In addition, the Company has various other services agreements and transactions with TD and its affiliates. The following tables summarize revenues and expenses resulting from transactions with TD and its affiliates for the periods indicated (dollars in thousands):


		Revenues from TD and Affiliates
	Statement of Income Classification	Three months ended June 30,				Nine months ended June 30,
Description	Statement of Income Classification	2012		2011		2012		2011
Insured Deposit Account Agreement	Insured deposit account fees	$	206,339	$	196,817	$	620,590	$	562,759
Mutual Fund Agreements	Investment product fees		1,136		1,418		2,785		7,290
Referral and Strategic Alliance Agreement	Various		2,480		1,223		5,446		2,909
Securities borrowing and lending, net	Net interest revenue		694		895		2,162		3,167
TD Waterhouse Canada Order Routing Agreement	Other revenues		561		574		1,896		1,989
TD Waterhouse UK Servicing Agreement	Commissions and transaction fees		105		116		331		365

Total revenues		$	211,315	$	201,043	$	633,210	$	578,479


		Expenses to TD and Affiliates
	Statement of Income Classification	Three months ended June 30,				Nine months ended June 30,
Description	Statement of Income Classification	2012		2011		2012		2011
Canadian Call Center Services Agreement	Professional services	$	4,394	$	4,525	$	13,398	$	13,521
Certificates of Deposit Brokerage Agreement	Advertising		—		—		1,095		1,845
Cash Management Services Agreement	Clearing and execution costs		399		216		1,154		644
Referral and Strategic Alliance Agreement	Various		138		449		868		1,508

Total expenses		$	4,931	$	5,190	$	16,515	$	17,518

The following table summarizes the classification and amount of receivables from and payables to TD and its affiliates on the Condensed Consolidated Balance Sheets resulting from related party transactions (dollars in thousands):


	June 30,		September 30,
	2012		2011
Assets:
Receivable from brokers, dealers and clearing organizations	$	367	$	206
Receivable from affiliates		81,525		92,963

Liabilities:
Payable to brokers, dealers and clearing organizations	$	84,285	$	87,771
Payable to affiliates		4,288		3,912

Receivables from and payables to TD affiliates resulting from client cash sweep activity are generally settled in cash the next business day. Receivables from and payables to brokers, dealers and clearing organizations primarily relate to securities borrowing and lending activity and are settled in accordance with the contractual terms. Other receivables from and payables to affiliates of TD are generally settled in cash on a monthly basis.

11. SUBSEQUENT EVENT

On August 6, 2012, the Company entered into a securities purchase agreement with Knight Capital Group, Inc. (“Knight”). Under the agreement, the Company purchased 40,000 shares of Knight 2% convertible preferred stock for $40 million in cash. Each preferred share will be convertible to 666.667 shares of Knight Class A common stock, subject to regulatory approvals and customary anti-dilution adjustments. This conversion ratio equates to an effective price of $1.50 per Knight common share. Assuming the conversion of all Knight convertible preferred stock to common stock, the Company estimates that it would own approximately 7% of Knight’s common stock following such conversion. The Company has classified its Knight shares as available-for-sale securities.

The Company clears its clients’ futures transactions on an omnibus account basis through a subsidiary of Knight. The Company also routes certain client orders for equities and other securities to Knight subsidiaries for execution.

12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Senior Notes are jointly and severally and fully and unconditionally guaranteed by TD Ameritrade Online Holdings Corp. (“TDAOH”), a wholly-owned subsidiary of the Company. Presented below is condensed consolidating financial information for the Company, its guarantor subsidiary and its non-guarantor subsidiaries for the periods indicated.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2012

(Unaudited)

(In thousands)


			Guarantor		Non-Guarantor
	Parent		Subsidiary		Subsidiaries		Eliminations			Total
ASSETS
Cash and cash equivalents	$	183,300	$	6,041	$	720,425	$	—		$	909,766
Short-term investments		126,083		—		3,536		—			129,619
Cash and investments segregated in compliance with federal regulations		—		—		3,546,772		—			3,546,772
Receivable from brokers, dealers and clearing organizations		—		—		1,053,066		—			1,053,066
Receivable from clients, net		—		—		8,738,710		—			8,738,710
Investments in subsidiaries		5,437,038		5,226,221		548,478		(11,211,737	)		—
Receivable from affiliates		13,521		4,084		77,488		(13,568	)		81,525
Goodwill		—		—		2,466,967		—			2,466,967
Acquired intangible assets, net		—		145,674		809,400		—			955,074
Other, net		144,887		5,599		913,518		(31,618	)		1,032,386

Total assets	$	5,904,829	$	5,387,619	$	18,878,360	$	(11,256,923	)	$	18,913,885


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations	$	—	$	—	$	2,184,238	$	—		$	2,184,238
Payable to clients		—		—		10,099,387		—			10,099,387
Accounts payable and accrued liabilities		222,781		—		334,514		(5,564	)		551,731
Payable to affiliates		15		—		17,841		(13,568	)		4,288
Long-term debt		1,341,644		—		—		—			1,341,644
Other		—		49,289		368,973		(26,054	)		392,208

Total liabilities		1,564,440		49,289		13,004,953		(45,186	)		14,573,496

Stockholders’ equity		4,340,389		5,338,330		5,873,407		(11,211,737	)		4,340,389

Total liabilities and stockholders’ equity	$	5,904,829	$	5,387,619	$	18,878,360	$	(11,256,923	)	$	18,913,885

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2011

(Unaudited)

(In thousands)


	Parent		Guarantor Subsidiary		Non-Guarantor Subsidiaries		Eliminations			Total
ASSETS
Cash and cash equivalents	$	93,469	$	7,170	$	931,324	$	—		$	1,031,963
Short-term investments		—		—		3,557		—			3,557
Cash and investments segregated in compliance with federal regulations		—		—		2,519,249		—			2,519,249
Receivable from brokers, dealers and clearing organizations		—		—		834,469		—			834,469
Receivable from clients, net		—		—		8,059,410		—			8,059,410
Investments in subsidiaries		5,431,356		5,240,332		555,001		(11,226,689	)		—
Receivable from affiliates		6,016		3,754		89,352		(6,159	)		92,963
Goodwill		—		—		2,466,978		—			2,466,978
Acquired intangible assets, net		—		145,674		878,678		—			1,024,352
Other, net		148,759		5,773		969,580		(31,291	)		1,092,821

Total assets	$	5,679,600	$	5,402,703	$	17,307,598	$	(11,264,139	)	$	17,125,762


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations	$	—	$	—	$	1,709,572	$	—		$	1,709,572
Payable to clients		—		—		8,979,327		—			8,979,327
Accounts payable and accrued liabilities		226,883		—		364,574		(5,737	)		585,720
Payable to affiliates		111		38		9,922		(6,159	)		3,912
Long-term debt		1,336,789		—		—		—			1,336,789
Other		—		49,118		371,061		(25,554	)		394,625

Total liabilities		1,563,783		49,156		11,434,456		(37,450	)		13,009,945

Stockholders’ equity		4,115,817		5,353,547		5,873,142		(11,226,689	)		4,115,817

Total liabilities and stockholders’ equity	$	5,679,600	$	5,402,703	$	17,307,598	$	(11,264,139	)	$	17,125,762

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

THREE MONTHS ENDED JUNE 30, 2012

(Unaudited)

(In thousands)


	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Total
Net revenues	$	14,678		$	—		$	667,225		$	(14,638	)	$	667,265
Operating expenses		12,006			3			415,757			(14,638	)		413,128

Operating income (loss)		2,672			(3	)		251,468			—			254,137
Other expense (income)		7,414			—			(354	)		—			7,060

Income (loss) before income taxes and equity in income of subsidiaries		(4,742	)		(3	)		251,822			—			247,077
Provision for (benefit from) income taxes		(1,307	)		(1	)		94,556			—			93,248

Income (loss) before equity in income of subsidiaries		(3,435	)		(2	)		157,266			—			153,829
Equity in income of subsidiaries		157,264			148,452			8,403			(314,119	)		—

Net income	$	153,829		$	148,450		$	165,669		$	(314,119	)	$	153,829

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

THREE MONTHS ENDED JUNE 30, 2011

(Unaudited)

(In thousands)


	Parent			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Eliminations			Total
Net revenues	$	5,720		$	60	$	684,781		$	(5,779	)	$	684,782
Operating expenses		6,178			47		421,797			(5,779	)		422,243

Operating income (loss)		(458	)		13		262,984			—			262,539
Other expense (income)		8,426			—		(75	)		—			8,351

Income (loss) before income taxes and equity in income of subsidiaries		(8,884	)		13		263,059			—			254,188
Provision for (benefit from) income taxes		(2,746	)		5		99,534			—			96,793

Income (loss) before equity in income of subsidiaries		(6,138	)		8		163,525			—			157,395
Equity in income of subsidiaries		163,533			169,238		9,580			(342,351	)		—

Net income	$	157,395		$	169,246	$	173,105		$	(342,351	)	$	157,395

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

NINE MONTHS ENDED JUNE 30, 2012

(Unaudited)

(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Total
Net revenues	$	28,193		$	1		$	1,993,760		$	(28,155	)	$	1,993,799

Operating expenses		25,345			9			1,294,830			(28,155	)		1,292,029

Operating income (loss)		2,848			(8	)		698,930			—			701,770

Other expense (income)		22,133			—			(755	)		—			21,378

Income (loss) before income taxes and equity in income of subsidiaries		(19,285	)		(8	)		699,685			—			680,392
Provision for (benefit from) income taxes		(17,251	)		(902	)		256,057			—			237,904

Income (loss) before equity in income of subsidiaries		(2,034	)		894			443,628			—			442,488
Equity in income of subsidiaries		444,522			433,889			24,610			(903,021	)		—

Net income	$	442,488		$	434,783		$	468,238		$	(903,021	)	$	442,488

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF INCOME

NINE MONTHS ENDED JUNE 30, 2011

(Unaudited)

(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiary			Subsidiaries		Eliminations			Total
Net revenues	$	11,014		$	181		$	2,059,175	$	(11,169	)	$	2,059,201

Operating expenses		10,617			172			1,280,039		(11,169	)		1,279,659

Operating income		397			9			779,136		—			779,542

Other expense		26,590			—			72		—			26,662

Income (loss) before income taxes and equity in income of subsidiaries		(26,193	)		9			779,064		—			752,880
Provision for (benefit from) income taxes		(11,779	)		(344	)		290,901		—			278,778

Income (loss) before equity in income of subsidiaries		(14,414	)		353			488,163		—			474,102
Equity in income of subsidiaries		488,516			501,805			28,424		(1,018,745	)		—

Net income	$	474,102		$	502,158		$	516,587	$	(1,018,745	)	$	474,102

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2012

(Unaudited)

(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiary			Subsidiaries			Total
Net cash provided by operating activities	$	30,408		$	871		$	349,856		$	381,135

Cash flows from investing activities:
Purchase of property and equipment		—			—			(121,135	)		(121,135	)
Purchase of short-term investments		(126,506	)		—			(1,034	)		(127,540	)
Other, net		—			—			2,318			2,318

Net cash used in investing activities		(126,506	)		—			(119,851	)		(246,357	)


Cash flows from financing activities:
Purchase of treasury stock		(176,848	)		—			—			(176,848	)
Payment of cash dividends		(98,859	)		—			—			(98,859	)
Other, net		22,768			—			(4,065	)		18,703

Net cash used in financing activities		(252,939	)		—			(4,065	)		(257,004	)


Intercompany investing and financing activities, net		438,868			(2,000	)		(436,868	)		—

Effect of exchange rate changes on cash and cash equivalents		—			—			29			29

Net increase (decrease) in cash and cash equivalents		89,831			(1,129	)		(210,899	)		(122,197	)

Cash and cash equivalents at beginning of period		93,469			7,170			931,324			1,031,963

Cash and cash equivalents at end of period	$	183,300		$	6,041		$	720,425		$	909,766

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2011

(Unaudited)

(In thousands)


				Guarantor			Non-Guarantor
	Parent			Subsidiary			Subsidiaries			Total
Net cash provided by operating activities	$	32,904		$	4,426		$	770,109		$	807,439

Cash flows from investing activities:
Purchase of property and equipment		—			—			(109,904	)		(109,904	)
Other, net		—			—			(2,626	)		(2,626	)

Net cash used in investing activities		—			—			(112,530)			(112,530)

Cash flows from financing activities:
Purchase of treasury stock		(144,245	)		—			—			(144,245	)
Return of prepayment on structured stock repurchase		118,834			—			—			118,834
Payment of cash dividends		(85,936	)		—			—			(85,936	)
Other, net		11,580			—			(13,151	)		(1,571	)

Net cash used in financing activities		(99,767	)		—			(13,151	)		(112,918	)


Intercompany investing and financing activities, net		115,944			(5,000	)		(110,944	)		—

Effect of exchange rate changes on cash and cash equivalents		—			—			163			163

Net increase (decrease) in cash and cash equivalents		49,081			(574	)		533,647			582,154

Cash and cash equivalents at beginning of period		67,033			25,058			649,401			741,492

Cash and cash equivalents at end of period	$	116,114		$	24,484		$	1,183,048		$	1,323,646

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

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2011, and the Condensed Consolidated Financial Statements and Notes thereto contained in this quarterly report on Form 10-Q.

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

The Company’s actual results could differ materially from those anticipated in such forward-looking statements. Important factors that may cause such differences include, but are not limited to: general economic and political conditions and other securities industry risks; fluctuations in interest rates; stock market fluctuations and changes in client trading activity; credit risk with clients and counterparties; increased competition; systems failures, delays and capacity constraints; network security risks; liquidity risk; new laws and regulations affecting our business; regulatory and legal matters and uncertainties and the other risks and uncertainties set forth under Item 1A. – Risk Factors of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2011. 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, except to the extent required by the federal securities laws.

The preparation of our financial statements requires us to make judgments and estimates that may have a significant impact upon our financial results. Note 1 of our Notes to Consolidated Financial Statements for the fiscal year ended September 30, 2011, contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions. We believe that the following areas are particularly subject to management’s judgments and estimates and could materially affect our results of operations and financial position: valuation of goodwill and acquired intangible assets; valuation of stock-based compensation; estimates of effective income tax rates, deferred income taxes and related valuation allowances; accruals for contingent liabilities; and valuation of guarantees. These areas are discussed in further detail under the heading “Critical Accounting Policies and Estimates” in Item 7 of our annual report on Form 10-K for the fiscal year ended September 30, 2011.

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

GLOSSARY OF TERMS

In discussing and analyzing our business, we utilize several metrics and other terms that are defined in the following Glossary of Terms. Italics indicate other defined terms that appear elsewhere in the Glossary. The term “GAAP” refers to U.S. generally accepted accounting principles.

Activity rate – funded accounts — Average client trades per day during the period divided by the average number of funded accounts during the period.

Asset-based revenues — Revenues consisting of (1) net interest revenue, (2) insured deposit account fees and (3) investment product fees. The primary factors driving our asset-based revenues are average balances and average rates. Average balances consist primarily of average client margin balances, average segregated cash balances, average client credit balances, average client insured deposit account balances, average fee-based investment balances and average securities borrowing and securities lending balances. Average rates consist of the average interest rates and fees earned and paid on such balances.

Average client trades per funded account (annualized) — Total trades divided by the average number of funded accounts during the period, annualized based on the number of trading days in the fiscal year.

Average client trades per day — Total trades divided by the number of trading days in the period. This metric is also known as daily average revenue trades (“DARTs”).

Average commissions and transaction fees per trade — Total commissions and transaction fee revenues as reported on the Company’s Consolidated Statements of Income (excluding revenues from the active trader business acquired from thinkorswim Group Inc. (“thinkorswim”) and clearing revenues from TD Waterhouse UK) divided by total trades for the period. Commissions and transaction fee revenues primarily consist of trading commissions, revenue-sharing arrangements with market destinations (also referred to as “payment for order flow”) and markups on riskless principal transactions in fixed-income securities.

Basis point — When referring to interest rates, one basis point represents one one-hundredth of one percent.

Beneficiary accounts — Brokerage accounts managed by a custodian, guardian, conservator or trustee on behalf of one or more beneficiaries. Examples include accounts maintained under the Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA), guardianship, conservatorship and trust arrangements and pension or profit plan for small business accounts.

Brokerage accounts — Accounts maintained by the Company on behalf of clients for securities brokerage activities. The primary types of brokerage accounts are cash accounts, margin accounts, IRA accounts and beneficiary accounts.

Cash accounts — Brokerage accounts that do not have margin account approval.

Client assets — The total value of cash and securities in brokerage accounts.

Client cash and money market assets – The sum of all client cash balances, including client credit balances and client cash balances swept into insured deposit accounts or money market mutual funds.

Client credit balances — Client cash held in brokerage accounts, excluding balances generated by client short sales on which no interest is paid. Interest paid on client credit balances is a reduction of net interest revenue. Client credit balances are included in “payable to clients” on our Consolidated Balance Sheets.

Client margin balances — The total amount of cash loaned to clients in margin accounts. Such loans are secured by client assets. Interest earned on client margin balances is a component of net interest revenue. Client margin balances are included in “receivable from clients” on our Consolidated Balance Sheets.

Conduit-based assets — Deposits paid on securities borrowing associated with our conduit-based securities borrowing/lending business. In our conduit business, we act as an intermediary by borrowing securities from one counterparty and lending the same securities to another counterparty. We generally earn a net interest spread equal to the excess of interest earned on securities borrowing deposits over the interest paid on securities lending deposits.

Daily average revenue trades (“DARTs”) – Total trades divided by the number of trading days in the period. This metric is also known as average client trades per day.

EBITDA — EBITDA (earnings before interest, taxes, depreciation and amortization) is a non-GAAP financial measure. We consider EBITDA to be an important measure of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA is used as the denominator in the consolidated leverage ratio calculation for covenant purposes under our holding company’s senior revolving credit facility. EBITDA eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization. EBITDA should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities.

EPS excluding amortization of intangible assets – Earnings per share (“EPS”) excluding amortization of intangible assets is a non-GAAP financial measure. We define EPS excluding amortization of intangible assets as earnings (loss) per share, adjusted to remove the after-tax effect of amortization of acquired intangible assets. We consider EPS excluding amortization of intangible assets an important measure of our financial performance. Amortization of acquired intangible assets is excluded because we believe it is not indicative of underlying business performance. EPS excluding amortization of intangible assets should be considered in addition to, rather than as a substitute for, GAAP earnings per share.

EPS from ongoing operations — EPS from ongoing operations is a non-GAAP financial measure. We define EPS from ongoing operations as earnings (loss) per share, adjusted to remove any significant unusual gains or charges. We consider EPS from ongoing operations an important measure of the financial performance of our ongoing business. Unusual gains and charges are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. EPS from ongoing operations should be considered in addition to, rather than as a substitute for, GAAP earnings per share.

Fee-based investment balances — Client assets invested in money market mutual funds, other mutual funds and Company programs such as AdvisorDirect^® and Amerivest,^TM on which we earn fee revenues. Fee revenues earned on these balances are included in investment product fees on our Consolidated Statements of Income.

Funded accounts – All open client accounts with a total liquidation value greater than zero.

Insured deposit account — The Company is party to an Insured Deposit Account (“IDA”) agreement with TD Bank USA, N.A. (“TD Bank USA”), TD Bank, N.A. and The Toronto-Dominion Bank (“TD”). Under the IDA agreement, TD Bank USA and TD Bank, N.A. (together, the “Depository Institutions”) make available to clients of the Company FDIC-insured money market deposit accounts as either designated sweep vehicles or as non-sweep deposit accounts. The Company provides marketing, recordkeeping and support services for the Depository Institutions with respect to the money market deposit accounts. In exchange for providing these services, the Depository Institutions pay the Company a fee based on the yield earned on the client IDA assets, less the actual interest paid to clients, a flat fee to the Depository Institutions of 25 basis points and the cost of FDIC insurance premiums.

Interest rate-sensitive assets – Consist of spread-based assets and client cash invested in money market mutual funds.

Investment product fees – Revenues earned on fee-based investment balances. Investment product fees include fees earned on money market mutual funds, other mutual funds and through Company programs such as AdvisorDirect^® and Amerivest^TM.

IRA accounts (Individual Retirement Arrangements) — A personal trust account for the exclusive benefit of a U.S. individual (or his or her beneficiaries) that provides tax advantages in accumulating funds to save for retirement or other qualified purposes. These accounts are subject to numerous restrictions on additions to and withdrawals from the account, as well as prohibitions against certain investments or transactions conducted within the account. The Company offers traditional, Roth, Savings Incentive Match Plan for Employees (SIMPLE) and Simplified Employee Pension (SEP) IRA accounts.

Liquid assets – management target — “Liquid assets – management target” is a non-GAAP financial measure. We define “liquid assets – management target” as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments and (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 10% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of a minimum operational target established by management ($50 million in the case of our primary introducing broker-dealer, TD Ameritrade, Inc.). We include the excess capital of our broker-dealer subsidiaries in “liquid assets – management target,” rather than simply including broker-dealer cash and cash equivalents, because capital requirements may limit the amount of cash available for dividend from the broker-dealer subsidiaries to the parent company. Excess capital, as defined under clause (c) above, is generally available for dividend from the broker-dealer subsidiaries to the parent company. “Liquid assets – management target” is based on more conservative measures of broker-dealer net capital than “liquid assets – regulatory threshold” (defined below) because we prefer to maintain significantly more conservative levels of net capital at the broker-dealer subsidiaries than the regulatory thresholds require. We consider “liquid assets – management target” to be a measure that reflects our liquidity that would be readily available for corporate investing and financing activities under normal operating circumstances. “Liquid assets – regulatory threshold” is a related metric that reflects our liquidity that would be available for corporate investing and financing activities under unusual operating circumstances, such as the need to provide funding for significant strategic business transactions. Our liquid assets metrics should be considered as supplemental measures of liquidity, rather than as substitutes for cash and cash equivalents.

Liquid assets – regulatory threshold — “Liquid assets – regulatory threshold” is a non-GAAP financial measure. We define “liquid assets – regulatory threshold” as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments, (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 5% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of the applicable “early warning” net capital requirement and (d) Tier 1 capital of our trust company in excess of the minimum dollar requirement. We include the excess capital of our broker-dealer and trust company subsidiaries in “liquid assets – regulatory threshold,” rather than simply including broker-dealer and trust company cash and cash equivalents, because capital requirements may limit the amount of cash available for dividend from the broker-dealer and trust company subsidiaries to the parent company. Excess capital, as defined under clauses (c) and (d) above, is generally available for dividend from the broker-dealer and trust company subsidiaries to the parent company. We consider “liquid assets – regulatory threshold” to be a measure that reflects our liquidity that would be available for corporate investing and financing activities under unusual operating circumstances, such as the need to provide funding for significant strategic business transactions. “Liquid assets – management target” is a related metric that reflects our liquidity that would be readily available for corporate investing and financing activities under normal operating circumstances. Our liquid assets metrics should be considered as supplemental measures of liquidity, rather than as substitutes for cash and cash equivalents.

Liquidation value — The net value of a client’s account holdings as of the close of a regular trading session. Liquidation value includes client cash and the value of long security positions, less margin balances and the cost to buy back short security positions.

Margin accounts — Brokerage accounts in which clients may borrow from the Company to buy securities or for any other purpose, subject to regulatory and Company-imposed limitations.

Net interest margin (“NIM”) — A measure of the net yield on our average spread-based assets. Net interest margin is calculated for a given period by dividing the annualized sum of net interest revenue (excluding net interest revenue from conduit-based assets) and insured deposit account fees by average spread-based assets.

Net interest revenue — Net interest revenue is interest revenues less brokerage interest expense. Interest revenues are generated by charges to clients on margin balances maintained in margin accounts, the investment of cash from operations and segregated cash in short-term marketable securities and interest earned on securities borrowing. Brokerage interest expense consists of amounts paid or payable to clients based on credit balances maintained in brokerage accounts and interest incurred on securities lending. Brokerage interest expense does not include interest on Company non-brokerage borrowings.

Net new assets – Consists of total client asset inflows, less total client asset outflows, excluding activity from business combinations. Client asset inflows include interest and dividend payments and exclude changes in client assets due to market fluctuations. Net new assets are measured based on the market value of the assets as of the date of the inflows and outflows.

Net new asset growth rate (annualized) – Annualized net new assets as a percentage of client assets as of the beginning of the period.

New accounts – The number of new client accounts (funded and unfunded) opened in a specified period.

Operating expenses excluding advertising — Operating expenses excluding advertising is a non-GAAP financial measure. Operating expenses excluding advertising consists of total operating expenses, adjusted to remove advertising expense. We consider operating expenses excluding advertising 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, can vary significantly from period to period based on market conditions and generally relates to the acquisition of future revenues through new accounts rather than current revenues from existing accounts. Operating expenses excluding advertising should be considered in addition to, rather than as a substitute for, total operating expenses.

Return on client assets (ROCA) — Annualized pre-tax income divided by average client assets during the period.

Securities borrowing – We borrow securities temporarily from other broker-dealers in connection with our broker-dealer business. We deposit cash as collateral for the securities borrowed, and generally earn interest revenue on the cash deposited with the counterparty.

Securities lending – We loan securities temporarily to other broker-dealers in connection with our broker-dealer business. We receive cash as collateral for the securities loaned, and generally incur interest expense on the cash deposited with us.

Segregated cash — Client cash and investments segregated in compliance with Rule 15c3-3 of the Securities Exchange Act of 1934 (the Customer Protection Rule) and other regulations. Interest earned on segregated cash is a component of net interest revenue.

Spread-based assets — Client and brokerage-related asset balances, including client margin balances, segregated cash, insured deposit account balances, deposits paid on securities borrowing (excluding conduit-based assets) and other cash and interest-earning investment balances. Spread-based assets is used in the calculation of our net interest margin.

Total trades — Revenue-generating client securities trades, which are executed by the Company’s broker-dealer subsidiaries, excluding trades related to the active trader business acquired from thinkorswim and trades processed for TD Waterhouse UK. Total trades are a significant source of the Company’s revenues. Such trades include, but are not limited to, trades in equities, options, futures, foreign exchange, mutual funds and debt instruments. Trades generate revenue from commissions, markups on riskless principal transactions in fixed income securities, transaction fees and/or revenue-sharing arrangements with market destinations (also known as “payment for order flow”).

Trading days — Days in which the U.S. equity markets are open for a full trading session. Reduced exchange trading sessions are treated as half trading days.

Transaction-based revenues — Revenues generated from client trade execution, consisting primarily of commissions, markups on riskless principal transactions in fixed income securities, transaction clearing fees and revenue sharing arrangements with market destinations (also known as “payment for order flow”).

RESULTS OF OPERATIONS

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

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

Financial Performance Metrics

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

We consider EBITDA an important measure of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA is used as the denominator in the consolidated leverage ratio calculation for covenant purposes under our holding company’s senior revolving credit facility. EBITDA eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization. EBITDA should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities.

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


	Three months ended June 30,												Nine months ended June 30,
	2012						2011						2012						2011
				% of Net						% of Net						% of Net						% of Net
	$			Revenue			$			Revenue			$			Revenue			$			Revenue
EBITDA
EBITDA	$	295,412			44.3	%	$	302,101			44.1	%	$	824,063			41.3	%	$	900,483			43.7	%
Less:
Depreciation and amortization		(18,334	)		(2.7	%)		(16,914	)		(2.5	%)		(53,015	)		(2.7	%)		(49,629	)		(2.4	%)
Amortization of acquired intangible assets		(22,941	)		(3.4	%)		(24,083	)		(3.5	%)		(69,278	)		(3.5	%)		(72,747	)		(3.5	%)
Interest on borrowings		(7,060	)		(1.1	%)		(6,916	)		(1.0	%)		(21,378	)		(1.1	%)		(25,227	)		(1.2	%)
Provision for income taxes		(93,248	)		(14.0	%)		(96,793	)		(14.1	%)		(237,904	)		(11.9	%)		(278,778	)		(13.5	%)

Net income	$	153,829			23.1	%	$	157,395			23.0	%	$	442,488			22.2	%	$	474,102			23.0	%

Our EBITDA decreased 8% for the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011, primarily due to a 3% decrease in net revenues and a 1% increase in operating expenses. The decrease in net revenues was due primarily to a decrease of 33 basis points in net interest margin earned on spread-based balances, a 6% decrease in total client trades and a 3% decrease in average commissions and transaction fees per trade, partially offset by the effects of a 22% increase in average spread-based balances and a 14% increase in other fee-based investment balances. Detailed analysis of net revenues and operating expenses is presented later in this discussion.

Operating Metrics

Our largest sources of revenues are asset-based revenues and transaction-based revenues. For the nine months ended June 30, 2012, asset-based revenues and transaction-based revenues accounted for 55% and 42% of our net revenues, respectively. Asset-based revenues consist of (1) net interest revenue, (2) insured deposit account fees and (3) investment product fees. The primary factors driving our asset-based revenues are average balances and average rates. Average balances consist primarily of

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

Asset-Based Revenue Metrics

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


	Three months ended									Nine months ended
	June 30,						Increase/ (Decrease)			June 30,						Increase/ (Decrease)
	2012			2011			Increase/ (Decrease)			2012			2011			Increase/ (Decrease)
Avg. interest-earning assets (excluding conduit business)	$	14,850		$	14,034		$	816		$	14,658		$	13,547		$	1,111
Avg. insured deposit account balances		58,981			48,590			10,391			58,709			46,705			12,004

Avg. spread-based balances	$	73,831		$	62,624		$	11,207		$	73,367		$	60,252		$	13,115


Net interest revenue (excluding conduit business)	$	118.3		$	131.2		$	(12.9	)	$	334.2		$	368.1		$	(33.9	)
Insured deposit account fee revenue		206.3			196.8			9.5			620.6			562.8			57.8

Spread-based revenue	$	324.6		$	328.0		$	(3.4	)	$	954.8		$	930.9		$	23.9


Avg. annualized yield - interest-earning assets (excluding conduit business)		3.15	%		3.70	%		(0.55	%)		3.00	%		3.58	%		(0.58	%)
Avg. annualized yield - insured deposit account fees		1.38	%		1.60	%		(0.22	%)		1.39	%		1.59	%		(0.20	%)
Net interest margin (NIM)		1.74	%		2.07	%		(0.33	%)		1.71	%		2.04	%		(0.33	%)

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


	Interest Revenue (Expense)									Interest Revenue (Expense)
	Three months ended									Nine months ended
	June 30,						Increase/ (Decrease)			June 30,						Increase/ (Decrease)
	2012			2011			Increase/ (Decrease)			2012			2011			Increase/ (Decrease)
Segregated cash	$	1.0		$	0.4		$	0.6		$	2.4		$	2.2		$	0.2
Client margin balances		91.2			103.4			(12.2	)		257.5			295.2			(37.7	)
Securities borrowing (excluding conduit business)		27.2			28.1			(0.9	)		77.4			73.0			4.4
Other cash and interest-earning investments		0.3			0.1			0.2			1.0			0.8			0.2
Client credit balances		(0.2	)		(0.4	)		0.2			(1.0	)		(1.3	)		0.3
Securities lending (excluding conduit business)		(1.2	)		(0.4	)		(0.8	)		(3.1	)		(1.8	)		(1.3	)

Net interest revenue (excluding conduit business)		118.3			131.2			(12.9	)		334.2			368.1			(33.9	)

Securities borrowing - conduit business		0.3			0.3			—			0.5			0.7			(0.2	)
Securities lending - conduit business		(0.2	)		(0.2	)		—			(0.3	)		(0.4	)		0.1

Net interest revenue	$	118.4		$	131.3		$	(12.9	)	$	334.4		$	368.4		$	(34.0	)


	Average Balance							Average Balance
	Three months ended							Nine months ended
	June 30,				%			June 30,				%
	2012		2011		Change			2012		2011		Change
Segregated cash	$	4,037	$	2,871		41	%	$	4,577	$	3,046		50	%
Client margin balances		8,731		9,469		(8	%)		8,119		8,849		(8	%)
Securities borrowing (excluding conduit business)		510		485		5	%		484		500		(3	%)
Other cash and interest-earning investments		1,572		1,209		30	%		1,478		1,152		28	%

Interest-earning assets (excluding conduit business)		14,850		14,034		6	%		14,658		13,547		8	%
Securities borrowing - conduit business		369		329		12	%		264		323		(18	%)

Interest-earning assets	$	15,219	$	14,363		6	%	$	14,922	$	13,870		8	%


Client credit balances	$	9,139	$	8,656		6	%	$	9,341	$	8,366		12	%
Securities lending (excluding conduit business)		1,932		1,757		10	%		1,683		1,654		2	%

Interest-bearing liabilities (excluding conduit business)		11,071		10,413		6	%		11,024		10,020		10	%
Securities lending - conduit business		369		329		12	%		264		323		(18	%)

Interest-bearing liabilities	$	11,440	$	10,742		6	%	$	11,288	$	10,343		9	%


	Avg. Annualized Yield (Cost)									Avg. Annualized Yield (Cost)
	Three months ended						Net Yield			Nine months ended						Net Yield
	June 30,						Increase/			June 30,						Increase/
	2012			2011			(Decrease)			2012			2011			(Decrease)
Segregated cash		0.10	%		0.05	%		0.05	%		0.07	%		0.09	%		(0.02	%)
Client margin balances		4.13	%		4.32	%		(0.19	%)		4.17	%		4.40	%		(0.23	%)
Other cash and interest-earning investments		0.06	%		0.06	%		0.00	%		0.09	%		0.10	%		(0.01	%)
Client credit balances		(0.01	%)		(0.02	%)		0.01	%		(0.01	%)		(0.02	%)		0.01	%
Net interest revenue (excluding conduit business)		3.15	%		3.70	%		(0.55	%)		3.00	%		3.58	%		(0.58	%)
Securities borrowing - conduit business		0.30	%		0.31	%		(0.01	%)		0.24	%		0.28	%		(0.04	%)
Securities lending - conduit business		(0.20	%)		(0.25	%)		0.05	%		(0.14	%)		(0.18	%)		0.04	%
Net interest revenue		3.08	%		3.62	%		(0.54	%)		2.94	%		3.50	%		(0.56	%)

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


	Fee Revenue									Fee Revenue
	Three months ended									Nine months ended
	June 30,						Increase/			June 30,						Increase/
	2012			2011			(Decrease)			2012			2011			(Decrease)
Money market mutual fund	$	1.1		$	1.4		$	(0.3	)	$	2.8		$	7.3		$	(4.5	)
Other investment product fees		52.9			42.5			10.4			141.0			117.8			23.2

Total investment product fees	$	54.0		$	43.9		$	10.1		$	143.8		$	125.1		$	18.7


	Average Balance									Average Balance
	Three months ended									Nine months ended
	June 30,						%			June 30,						%
	2012			2011			Change			2012			2011			Change
Money market mutual fund	$	4,851		$	8,761			(45	%)	$	5,189		$	8,799			(41	%)
Other fee-based investment balances		83,329			73,247			14	%		78,457			68,820			14	%

Total fee-based investment balances	$	88,180		$	82,008			8	%	$	83,646		$	77,619			8	%


	Average Annualized Yield									Average Annualized Yield
	Three months ended									Nine months ended
	June 30,						Increase/			June 30,						Increase/
	2012			2011			(Decrease)			2012			2011			(Decrease)
Money market mutual fund		0.09	%		0.06	%		0.03	%		0.07	%		0.11	%		(0.04	%)
Other investment product fees		0.25	%		0.23	%		0.02	%		0.24	%		0.23	%		0.01	%
Total investment product fees		0.24	%		0.21	%		0.03	%		0.23	%		0.21	%		0.02	%

Transaction-Based Revenue Metrics

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


	Three months ended									Nine months ended
	June 30,						% Change			June 30,						% Change
	2012			2011			% Change			2012			2011			% Change
Total trades (in millions)		22.39			23.29			(4	%)		69.39			74.14			(6	%)
Average commissions and transaction fees per trade ⁽¹⁾	$	11.88		$	12.08			(2	%)	$	11.98		$	12.30			(3	%)
Average client trades per day		355,449			369,716			(4	%)		370,081			393,297			(6	%)
Average client trades per funded account (annualized)		15.5			16.7			(7	%)		16.3			18.0			(9	%)
Activity rate - funded accounts		6.2	%		6.6	%		(6	%)		6.5	%		7.1	%		(8	%)
Trading days		63.0			63.0			0	%		187.5			188.5			(1	%)

(1)	Average commissions and transaction fees per trade excludes the TD Waterhouse UK business.

Client Account and Client Asset Metrics

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


	Three months ended									Nine months ended
	June 30,						% Change			June 30,						% Change
	2012			2011			% Change			2012			2011			% Change
New accounts opened		171,000			154,000			11	%		494,000			495,000			(0	%)

Funded accounts (beginning of period)		5,703,000			5,547,000			3	%		5,617,000			5,455,000			3	%
Funded accounts (end of period)		5,736,000			5,592,000			3	%		5,736,000			5,592,000			3	%
Percentage change during period		1	%		1	%					2	%		3	%

Client assets (beginning of period, in billions)	$	452.4		$	412.3			10	%	$	378.7		$	354.8			7	%
Client assets (end of period, in billions)	$	445.0		$	413.7			8	%	$	445.0		$	413.7			8	%
Percentage change during period		(2	%)		0	%					18	%		17	%

Net new assets (in billions)	$	9.7		$	7.9			23	%	$	30.7		$	29.1			5	%

Net new assets annualized growth rate⁽¹⁾		9	%		8	%					11	%		11	%

(1)	Annualized net new assets as a percentage of client assets as of the beginning of the period.

Condensed Consolidated Statements of Income Data

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


	Three months ended									Nine months ended
	June 30,						% Change			June 30,						% Change
	2012			2011			% Change			2012			2011			% Change
Revenues:
Transaction-based revenues:
Commissions and transaction fees	$	266.1		$	281.6			(6	%)	$	831.5		$	912.6			(9	%)

Asset-based revenues:
Interest revenue		120.0			132.3			(9	%)		338.9			372.0			(9	%)
Brokerage interest expense		(1.6	)		(1.1	)		53	%		(4.5	)		(3.6	)		25	%

Net interest revenue		118.4			131.3			(10	%)		334.4			368.4			(9	%)

Insured deposit account fees		206.3			196.8			5	%		620.6			562.8			10	%
Investment product fees		54.0			43.9			23	%		143.8			125.1			15	%

Total asset-based revenues		378.7			372.0			2	%		1,098.8			1,056.2			4	%

Other revenues		22.4			31.2			(28	%)		63.5			90.4			(30	%)

Net revenues		667.3			684.8			(3	%)		1,993.8			2,059.2			(3	%)


Operating expenses:
Employee compensation and benefits		176.5			168.6			5	%		523.4			500.6			5	%
Clearing and execution costs		21.9			22.6			(3	%)		66.1			71.6			(8	%)
Communications		28.5			27.1			5	%		83.3			81.8			2	%
Occupancy and equipment costs		36.3			36.3			0	%		111.3			104.7			6	%
Depreciation and amortization		18.3			16.9			8	%		53.0			49.6			7	%
Amortization of acquired intangible assets		22.9			24.1			(5	%)		69.3			72.7			(5	%)
Professional services		39.7			42.9			(7	%)		128.9			123.3			5	%
Advertising		50.2			48.1			4	%		190.4			204.1			(7	%)
Other		18.7			35.7			(47	%)		66.3			71.3			(7	%)

Total operating expenses		413.1			422.2			(2	%)		1,292.0			1,279.7			1	%


Operating income		254.1			262.5			(3	%)		701.8			779.5			(10	%)

Other expense:
Interest on borrowings		7.1			6.9			2	%		21.4			25.2			(15	%)
Loss on debt refinancing		—			1.4			(100	%)		—			1.4			(100	%)

Total other expense		7.1			8.4			(15	%)		21.4			26.7			(20	%)

Pre-tax income		247.1			254.2			(3	%)		680.4			752.9			(10	%)
Provision for income taxes		93.2			96.8			(4	%)		237.9			278.8			(15	%)

Net income	$	153.8		$	157.4			(2	%)	$	442.5		$	474.1			(7	%)


Other information:
Effective income tax rate		37.7	%		38.1	%					35.0	%		37.0	%
Average debt outstanding	$	1,257.1		$	1,264.1			(1	%)	$	1,258.0		$	1,268.8			(1	%)
Average interest rate incurred on borrowings		2.16	%		1.97	%					2.14	%		2.40	%

Note:

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

Three-Month Periods Ended June 30, 2012 and 2011

Net Revenues

Commissions and transaction fees decreased 6% to $266.1 million, primarily due to lower client trades per day and lower average commissions and transaction fees per trade. Average client trades per day decreased 4% to 355,449 for the third quarter of fiscal 2012 compared to 369,716 for the third quarter of fiscal 2011. Average client trades per funded account (annualized) were 15.5 for the third quarter of fiscal 2012 compared to 16.7 for the third quarter of fiscal 2011. Average commissions and transaction fees per trade decreased to $11.88 for the third quarter of fiscal 2012 from $12.08 for the third quarter of fiscal 2011, primarily due to (1) a higher percentage of reduced commission trades, including negotiated rates for our active trader clients and promotional trades to attract new accounts and client assets, (2) lower average contracts per trade on option trades and (3) increased futures trades, which earn somewhat lower average commissions and transaction fees per trade and do not generate payment for order flow revenue. These decreases were partially offset by higher payment for order flow revenue per trade during the third quarter of fiscal 2012.

Net interest revenue decreased 10% to $118.4 million, due primarily to an 8% decrease in average client margin balances and a decrease of 19 basis points in the average yield earned on client margin balances for the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011.

Insured deposit account fees increased 5% to $206.3 million, due primarily to a 21% increase in average client IDA balances, partially offset by a decrease of 22 basis points in the average yield earned on the IDA assets during the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011. We expect that, absent an increase in interest rates, the average yield earned on IDA assets will continue to decrease somewhat, as investments in the IDA portfolio mature and are reinvested at lower rates. The increased IDA balances are partly due to our success in attracting net new client assets over the past year and partly due to our strategy of migrating client cash held in client credit balances or swept to money market mutual funds to the IDA offering. During the first quarter of fiscal 2012, we moved approximately $3 billion of client cash out of money market mutual funds, consisting of approximately $1 billion that was moved directly to insured deposit accounts and $2 billion that was initially moved to client credit balances and was subsequently moved to insured deposit accounts during the third quarter of fiscal 2012. We expect our migration strategy to position the Company to earn higher net revenues, as we generally earn a higher yield on IDA balances than on money market mutual fund or client credit balances.

Investment product fees increased 23% to $54.0 million, primarily due to a 14% increase in average other fee-based investment balances and an increase of 2 basis points in the average yield earned on those balances.

Other revenues decreased 28% to $22.4 million, due primarily to lower client education revenue and decreased fees from processing corporate securities reorganizations in the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011.

Operating Expenses

Employee compensation and benefits expense increased 5% to $176.5 million, primarily due to higher stock-based compensation expense during the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011 due to the effect of retirement eligibility provisions in certain stock award agreements.

Professional services decreased 7% to $39.7 million, primarily due to lower usage of consulting and contract services during the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011.

Advertising expense increased 4% to $50.2 million, as increased retail advertising was mostly offset by decreased investor education promotion costs. We generally adjust our level of advertising spending in relation to stock market activity and other market conditions in an effort to maximize the number of new accounts while minimizing the advertising cost per new account. We find trading volumes in the stock market to be an effective indicator of self-directed investor engagement. When self-directed investors are actively engaged in the stock market, we tend to experience more success with our advertising, resulting in a lower cost per new account. We also find that self-directed investors tend to demonstrate more interest in financial products and services during certain times of the year, such as in the months immediately preceding the annual April tax filing deadline, and less interest during certain other times, such as the summer months. In addition, in periods when advertising market demand is weak, we may adjust our spending to take advantage of attractive advertising rates.

Other operating expenses decreased 47% to $18.7 million, primarily due to lower losses on disposal of property, client education travel and venue costs, and bad debt expense during the third quarter of fiscal 2012 compared to the third quarter of fiscal 2011. The third quarter of fiscal 2011 included $14.8 million of losses on disposal of property, primarily related to our decision to cease development of a new back office system, as well as technology assets written off related to exiting our Kansas City data center.

Other Expenses and Income Taxes

Loss on debt refinancing of $1.4 million during the third quarter of fiscal 2011 consisted of a charge to write off the unamortized balance of debt issuance costs associated with our holding company’s prior unsecured revolving credit facility under our November 25, 2009 amended and restated credit agreement. On June 28, 2011, our holding company replaced that facility with a new senior unsecured revolving credit facility.

Our effective income tax rate was 37.7% for the third quarter of fiscal 2012, compared to 38.1% for the third quarter of fiscal 2011. We expect our effective income tax rate to approximate 38% for the remainder of fiscal 2012, excluding the effect of any adjustments related to remeasurement or resolution of uncertain tax positions. However, we expect to experience some volatility in our quarterly and annual effective income tax rate because current accounting rules for uncertain tax positions require that any change in measurement of a tax position taken in a prior tax year be recognized as a discrete event in the period in which the change occurs.

Nine-Month Periods Ended June 30, 2012 and 2011

Net Revenues

Commissions and transaction fees decreased 9% to $831.5 million, primarily due to decreased client trading activity and lower average commissions and transaction fees per trade. Average client trades per day decreased 6% to 370,081 for the first nine months of fiscal 2012 compared to 393,297 for the first nine months of fiscal 2011, and there was one less trading day during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011. Average client trades per funded account (annualized) were 16.3 for the first nine months of fiscal 2012 compared to 18.0 for the first nine months of fiscal 2011. Average commissions and transaction fees per trade decreased to $11.98 for the first nine months of fiscal 2012 from $12.30 for the first nine months of fiscal 2011, primarily due to (1) a higher percentage of reduced commission trades, including negotiated rates for our active trader clients and promotional trades to attract new accounts and client assets, (2) lower average contracts per trade on option trades and (3) increased futures and foreign exchange trades, which earn somewhat lower average commissions and transaction fees per trade and do not generate payment for order flow revenue. These decreases were partially offset by higher payment for order flow revenue per trade during the first nine months of fiscal 2012.

Net interest revenue decreased 9% to $334.4 million, due primarily to an 8% decrease in average client margin balances and a decrease of 23 basis points in the average yield earned on client margin balances, partially offset by a $3.0 million increase in net interest revenue from our securities borrowing/lending program for the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011.

Insured deposit account fees increased 10% to $620.6 million, due primarily to a 26% increase in average client IDA balances, partially offset by a decrease of 20 basis points in the average yield earned on the IDA assets during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011. The increased IDA balances are partly due to our success in attracting net new client assets over the past year and partly due to our strategy of migrating client cash held in client credit balances or swept to money market mutual funds to the IDA offering. During the first quarter of fiscal 2012, we moved approximately $3 billion of client cash out of money market mutual funds, consisting of approximately $1 billion that was moved directly to insured deposit accounts and $2 billion that was initially moved to client credit balances and was subsequently moved to insured deposit accounts during the third quarter of fiscal 2012.

Investment product fees increased 15% to $143.8 million, primarily due to a 14% increase in average other fee-based investment balances and an increase of 1 basis point in the average yield earned on those balances, partially offset by a 41% decrease in average client money market mutual fund balances in the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011. The decrease in average money market mutual fund balances resulted primarily from our client cash migration strategy discussed above.

Other revenues decreased 30% to $63.5 million, due primarily to lower client education revenue and decreased fees from processing corporate securities reorganizations for the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011, and the effect of $3.7 million of net gains on auction rate securities in the first nine months of fiscal 2011.

Operating Expenses

Employee compensation and benefits expense increased 5% to $523.4 million, primarily due to higher average headcount during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011 and higher stock-based compensation expense during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011 due to the effect of retirement eligibility provisions in certain stock award agreements. The average number of full-time equivalent employees was 5,427 for the first nine months of fiscal 2012 compared to 5,307 for the first nine months of fiscal 2011.

Clearing and execution costs decreased 8% to $66.1 million primarily due to a decrease in outsourced clearing fees for our thinkorswim business during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011. We completed the thinkorswim clearing conversion during the fourth quarter of fiscal 2011.

Occupancy and equipment costs increased 6% to $111.3 million primarily due to upgrades to our technology infrastructure and facilities.

Professional services increased 5% to $128.9 million, primarily due to higher usage of consulting and contract services in connection with lean process improvement initiatives during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011.

Advertising expense decreased 7% to $190.4 million primarily due to lower investor education promotion costs during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011.

Other operating expenses decreased 7% to $66.3 million, primarily due to lower losses on disposal of property and client education travel and venue costs, partially offset by higher bad debt and arbitration expenses during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011. The first nine months of fiscal 2012 included $7.4 million of losses on disposal of property, primarily related to our discontinued use of certain software and hardware during the second quarter of fiscal 2012. The first nine months of fiscal 2011 included $16.7 million of losses on disposal of property, primarily related to our decision to cease development of a new back office system, as well as technology assets written off related to exiting our Kansas City data center.

Other Expenses and Income Taxes

Interest on borrowings decreased 15% to $21.4 million, due primarily to lower average interest rates incurred on our debt during the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011. The average interest rate incurred on our debt was 2.14% for the first nine months of fiscal 2012, compared to 2.40% for the first nine months of fiscal 2011. The lower average interest rate incurred on our debt during the first nine months of fiscal 2012 was primarily due to the effect of the fixed-for-variable interest rate swap on our $500 million 5.600% Senior Notes due 2019 entered into on January 7, 2011. We incur variable interest under this interest rate swap at a rate equal to three-month LIBOR plus 2.3745%, or approximately 2.84% as of June 30, 2012.

Loss on debt refinancing of $1.4 million during the first nine months of fiscal 2011 consisted of a charge to write off the unamortized balance of debt issuance costs associated with our holding company’s prior unsecured revolving credit facility under our November 25, 2009 amended and restated credit agreement. On June 28, 2011, our holding company replaced that facility with a new senior unsecured revolving credit facility.

Our effective income tax rate was 35.0% for the first nine months of fiscal 2012, compared to 37.0% for the first nine months of fiscal 2011. The effective tax rate for the first nine months of fiscal 2012 was significantly lower than normal primarily due to $18.5 million of favorable resolutions of state income tax matters. This favorably impacted the Company’s earnings for the nine months ended June 30, 2012 by approximately three cents per share. The effective tax rate for the first nine months of fiscal 2011 was somewhat lower than normal due to $5.5 million of favorable resolutions of state income tax matters and $1.2 million of favorable deferred income tax adjustments resulting from state income tax law changes. These items favorably impacted the Company’s earnings for the first nine months of fiscal 2011 by approximately one cent per share.

LIQUIDITY AND CAPITAL RESOURCES

As a holding company, TD Ameritrade Holding Corporation conducts substantially all of its business through its operating subsidiaries, principally its broker-dealer subsidiaries.

We have historically financed our liquidity and capital needs primarily through the use of funds generated from subsidiary operations and from borrowings under our credit agreements. We have also issued common stock and long-term debt to finance mergers and acquisitions and for other corporate purposes. Our liquidity needs during the first nine months of fiscal 2012 were financed primarily from our subsidiaries’ earnings and cash on hand. We plan to finance our operational capital and liquidity needs during the remainder of fiscal 2012 primarily from our subsidiaries’ earnings, cash on hand and, if necessary, borrowings on our parent company and broker-dealer credit facilities.

Dividends from our subsidiaries are the primary source of liquidity for the parent company. Some of our subsidiaries are subject to requirements of the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”), the Commodity Futures Trading Commission (“CFTC”), the National Futures Association (“NFA”) and other regulators relating to liquidity, capital standards and the use of client funds and securities, which may limit funds available for the payment of dividends to the parent company.

Broker-dealer Subsidiaries

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

Each of our broker-dealer subsidiaries may not repay any subordinated borrowings, pay cash dividends or make any unsecured advances or loans to its parent company or employees if such payment would result in a net capital amount of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement. These net capital thresholds, which are specified in Rule 17a-11 under the Exchange Act, are typically referred to as “early warning” net capital thresholds. As of June 30, 2012, our clearing and introducing broker-dealer subsidiaries had $1,288 million and $218 million of net capital, respectively, which exceeded the early warning net capital thresholds by $782 million and $212 million, respectively.

Our clearing broker-dealer subsidiary, TD Ameritrade Clearing, Inc. (“TDAC”), engages in such activities as settling client securities transactions with clearinghouses, extending credit to clients through margin lending, securities lending and borrowing transactions and processing client cash sweep transactions to and from insured deposit accounts and money market mutual funds. These types of broker-dealer activities require active daily liquidity management.

Most of TDAC’s assets are readily convertible to cash, consisting primarily of cash and investments segregated for the exclusive benefit of clients, receivables from clients and receivables from brokers, dealers and clearing organizations. Cash and investments segregated for the exclusive benefit of clients may be held in cash, reverse repurchase agreements (collateralized by U.S. Treasury securities), U.S. Treasury securities and other qualified securities. Receivables from clients consist of margin loans, which are demand loan obligations secured by readily marketable securities. Receivables from brokers, dealers and clearing organizations primarily arise from current open transactions, which usually settle or can be settled within a few business days.

TDAC is subject to cash deposit and collateral requirements with clearinghouses such as the Depository Trust & Clearing Corporation (“DTCC”) and the Options Clearing Corporation (“OCC”), which may fluctuate significantly from time to time based on the nature and size of our clients’ trading activity. As of June 30, 2012, TDAC had $173 million of cash deposited with clearing organizations for the clearing of client equity and option trades.

TDAC’s liquidity needs relating to client trading and margin borrowing are met primarily through cash balances in client brokerage accounts, which were $10.0 billion as of June 30, 2012. Cash balances in client brokerage accounts not used for client trading and margin borrowing activity are not generally available for other liquidity purposes and must be segregated for the exclusive benefit of clients under Rule 15c3-3 of the Exchange Act. At June 30, 2012, TDAC had $3.5 billion of cash and investments segregated in compliance with federal regulations in special reserve bank accounts for the exclusive benefit of clients under Rule 15c3-3.

For general liquidity needs, TDAC also maintains a senior unsecured revolving credit facility in an aggregate principal amount of $300 million. There were no borrowings outstanding on this facility as of June 30, 2012.

Liquid Assets

We consider our liquid assets metrics to be important measures of our liquidity and of our ability to fund corporate investing and financing activities. Our liquid assets metrics are considered non-GAAP financial measures. We include the excess capital of our broker-dealer and trust company subsidiaries in the calculation of our liquid assets metrics, rather than simply including broker-dealer and trust company cash and cash equivalents, because capital requirements may limit the amount of cash available for dividend from the broker-dealer and trust company subsidiaries to the parent company. Excess capital, as defined below, is generally available for dividend from the broker-dealer and trust company subsidiaries to the parent company. The liquid assets metrics should be considered as supplemental measures of liquidity, rather than as substitutes for cash and cash equivalents.

We define “liquid assets—management target” as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments and (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 10% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of a minimum operational target established by management ($50 million in the case of our primary introducing broker-dealer, TD Ameritrade, Inc.). “Liquid assets – management target” is based on more conservative measures of broker-dealer net capital than “liquid assets – regulatory threshold” (defined below) because we prefer to maintain significantly more conservative levels of net capital at the broker-dealer subsidiaries than the regulatory thresholds require. We consider “liquid assets—management target” to be a measure that reflects our liquidity that would be readily available for corporate investing or financing activities under normal operating circumstances.

We define “liquid assets—regulatory threshold” as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments, (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 5% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of the applicable “early warning” net capital requirement and (d) Tier 1 capital of our trust company in excess of the minimum dollar requirement. For more information about the regulatory capital requirements of our broker-dealer and trust subsidiaries, please see Note 5 – CAPITAL REQUIREMENTS under Item 1, Financial Statements – Notes to Condensed Consolidated Financial Statements. We consider “liquid assets—regulatory threshold” to be a measure that reflects our liquidity that would be available for corporate investing or financing activities under unusual operating circumstances, such as the need to provide funding for significant strategic business transactions.

The following table sets forth a reconciliation of cash and cash equivalents, which is the most directly comparable GAAP measure, to our liquid assets metrics (dollars in thousands):


	Liquid Assets -									Liquid Assets -
	Management Target									Regulatory Threshold
	Jun. 30,			Sept. 30,						Jun. 30,			Sept. 30,
	2012			2011			Change			2012			2011			Change
Cash and cash equivalents	$	909,766		$	1,031,963		$	(122,197	)	$	909,766		$	1,031,963		$	(122,197	)
Less: Broker-dealer cash and cash equivalents		(386,693	)		(656,206	)		269,513			(386,693	)		(656,206	)		269,513
Trust company cash and cash equivalents		(74,230	)		(108,587	)		34,357			(74,230	)		(108,587	)		34,357
Investment advisory cash and cash equivalents		(24,470	)		(7,184	)		(17,286	)		(24,470	)		(7,184	)		(17,286	)

Corporate cash and cash equivalents		424,373			259,986			164,387			424,373			259,986			164,387

Plus: Corporate short-term investments		126,083			—			126,083			126,083			—			126,083
Excess trust company Tier 1 capital		—			—			—			9,849			8,555			1,294
Excess broker-dealer regulatory net capital		442,868			591,902			(149,034	)		993,528			1,138,972			(145,444	)

Liquid assets	$	993,324		$	851,888		$	141,436		$	1,553,833		$	1,407,513		$	146,320

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


	Liquid Assets
	Management Target			Regulatory Threshold
Liquid assets as of September 30, 2011	$	851,888		$	1,407,513

Plus: EBITDA⁽¹⁾		824,063			824,063
Proceeds from exercise of stock options		5,061			5,061
Other investing activities		1,854			1,854

Less: Income taxes paid		(213,831	)		(213,831	)
Interest paid		(25,396	)		(25,396	)
Purchase of property and equipment		(121,135	)		(121,135	)
Purchase of investments		(536	)		(536	)
Purchase of treasury stock		(176,848	)		(176,848	)
Principal payments on capital lease obligations		(4,065	)		(4,065	)
Payment of cash dividends		(98,859	)		(98,859	)
Additional net capital requirement due to increase in aggregate debits		(17,077	)		(8,538	)
Other changes in working capital and regulatory net capital		(31,795	)		(35,450	)


Liquid assets as of June 30, 2012	$	993,324		$	1,553,833

(1)	See “Financial Performance Metrics” earlier in this section for a description of EBITDA.

Stock Repurchase Programs

On August 5, 2010, our board of directors authorized the repurchase of up to 30 million shares of our common stock. During the first quarter of fiscal 2012, we completed the August 5, 2010 stock repurchase authorization by repurchasing the remaining 6.7 million shares at a weighted average purchase price of $15.91 per share. From the inception of the stock repurchase authorization through December 31, 2011, we repurchased a total of 30 million shares at a weighted average purchase price of $16.73 per share.

On October 20, 2011, our board of directors authorized the repurchase of up to an additional 30 million shares of our common stock. During the third quarter of fiscal 2012, we repurchased approximately 2.5 million shares at a weighted average purchase price of $17.77 per share. From the inception of the stock repurchase authorization through June 30, 2012, we have repurchased approximately 3.3 million shares at a weighted average purchase price of $18.07 per share. As of June 30, 2012, we had approximately 26.7 million shares remaining on the stock repurchase authorization.

Cash Dividends

Our board of directors declared a $0.06 per share quarterly cash dividend on our common stock during each quarter of fiscal 2012. We paid a total of $98.9 million to fund the dividends for the first three quarters of fiscal 2012. We expect to pay approximately $33 million on August 14, 2012 to fund the fourth quarter dividend.

CONTRACTUAL OBLIGATIONS

The following item constitutes a material change in our contractual obligations outside the ordinary course of business since September 30, 2011:

Effective November 28, 2011, TD Ameritrade Services Company, Inc., one of our wholly-owned subsidiaries, entered into a Guaranteed Maximum Price Amendment to its construction agreement with Kiewit Building Group, Inc., dated December 1, 2009, to construct our Omaha campus. Under the amendment, the guaranteed maximum price to be paid by the Company increased by $55 million to $197 million to incorporate the interior construction. Completion of the work to be performed under the construction agreement is expected by June 2013.

OFF-BALANCE SHEET ARRANGEMENTS

We enter into guarantees and other off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of our clients and manage our asset-based revenues. For information on these arrangements, see the following sections under Item 1, Financial Statements – Notes to Condensed Consolidated Financial Statements: “Guarantees” under Note 6 – COMMITMENTS AND CONTINGENCIES and “Insured Deposit Account Agreement” under Note 10 – RELATED PARTY TRANSACTIONS. The IDA agreement accounts for a significant percentage of our revenues (31% of our net revenues for the nine months ended June 30, 2012) and enables our clients to invest in an FDIC-insured deposit product without the need for the Company to maintain a bank charter.

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.

Market-related Credit Risk

Two primary sources of credit risk inherent in our business are (1) client credit risk related to client margin lending and leverage and (2) counterparty credit risk related to securities lending and borrowing. We manage risk on client margin lending and leverage by requiring clients to maintain margin collateral in compliance with regulatory and internal guidelines. The risks associated with margin lending and leverage increase during periods of rapid market movements, or in cases where leverage or collateral is concentrated and market movements occur. We monitor required margin levels daily and, pursuant to such guidelines, require our clients to deposit additional collateral, or to reduce positions, when necessary. We continuously monitor client accounts to detect excessive concentration, large orders or positions, patterns of day trading and other activities that indicate increased risk to us. We manage risks associated with our securities lending and borrowing activities by requiring credit approvals for counterparties, by monitoring the market value of securities loaned and collateral values for securities borrowed on a daily basis and requiring additional cash as collateral for securities loaned or return of collateral for securities borrowed when necessary, and by participating in a risk-sharing program offered through the Options Clearing Corporation.

The interest rate swaps on our Senior Notes are subject to counterparty credit risk. Credit risk on derivative financial instruments is managed by limiting activity to approved counterparties that meet a minimum credit rating threshold and by entering into credit support agreements. The bilateral credit support agreements related to the interest rate swaps require daily collateral coverage, in the form of cash or U.S. Treasury securities, for the aggregate fair value of the interest rate swaps.

Interest Rate Risk

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

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

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

The simulations assume that the asset and liability structure of our Condensed Consolidated Balance Sheet and the insured deposit account arrangement would not be changed as a result of a simulated change in interest rates. The results of the simulations based on our financial position as of June 30, 2012 indicate that a gradual 1% (100 basis points) increase in interest rates over a 12-month period would result in approximately $100 million higher pre-tax income, while a gradual 1% (100 basis points) decrease in interest rates over a 12-month period would result in approximately $44 million lower pre-tax income. The results of the simulations reflect the fact that short-term interest rates remain at historically low levels, including the federal funds target rate, which is currently a range of zero to 0.25%.

Other Market Risks

Substantially all of our revenues and financial instruments are denominated in U.S. dollars. We generally do not enter into derivative transactions, except for hedging purposes.

Item 4. – Controls and Procedures

Disclosure Controls and Procedures

Management, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2012. Management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of June 30, 2012.

Changes in Internal Control over Financial Reporting

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

Reserve Fund Matters – During September 2008, The Reserve, an independent mutual fund company, announced that the net asset value of the Reserve Yield Plus Fund declined below $1.00 per share. The Yield Plus Fund was not a money market mutual fund, but its stated objective was to maintain a net asset value of $1.00 per share. TD Ameritrade, Inc.’s clients continue to hold shares in the Yield Plus Fund (now known as “Yield Plus Fund – In Liquidation”), which is being liquidated. On July 23, 2010, The Reserve announced that through that date it had distributed approximately 94.8% of the Yield Plus Fund assets as of September 15, 2008 and that the Yield Plus Fund had approximately $39.7 million in total remaining assets. The Reserve stated that the fund’s Board of Trustees has set aside almost the entire amount of the remaining assets to cover potential claims, fees and expenses. The Company estimates that TD Ameritrade, Inc. clients’ current positions held in the Reserve Yield Plus Fund amount to approximately 79% of the fund.

Item 1A. – Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under Item 1A— “Risk Factors” in our annual report on Form 10-K for the year ended September 30, 2011, which could materially affect our business, financial condition or future results of operations. The risks described in our Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

There have been no material changes from the risk factors disclosed in the Company’s Form 10-K for the fiscal year ended September 30, 2011.

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


ISSUER PURCHASES OF EQUITY SECURITIES
					Total Number of		Maximum Number
					Shares Purchased as		of Shares that May
	Total Number of		Average Price		Part of Publicly		Yet Be Purchased
Period	Shares Purchased		Paid per Share		Announced Program		Under the Program
April 1, 2012 – April 30, 2012		667,346	$	18.86		650,000		28,575,000
May 1, 2012 – May 31, 2012		1,527,640	$	17.57		1,525,000		27,050,000
June 1, 2012 – June 30, 2012		432,238	$	16.56		300,000		26,750,000

Total – Three months ended June 30, 2012		2,627,224	$	17.73		2,475,000		26,750,000

On October 20, 2011, our board of directors authorized the repurchase of up to 30 million shares of our common stock. We disclosed this authorization on November 18, 2011 in our annual report on Form 10-K. This program was the only stock repurchase program in effect and no programs expired during the third quarter of fiscal 2012.

During the quarter ended June 30, 2012, 152,224 shares were repurchased from employees for income tax withholding in connection with distributions of stock-based compensation.

Item 6. – Exhibits



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

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

4.1		First Supplemental Indenture, dated November 25, 2009, among TD Ameritrade Holding Corporation, TD Ameritrade Online Holdings Corp., as guarantor, and The Bank of New York Mellon Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on November 25, 2009)

4.2		Form of 2.950% Senior Note due 2012 (included in Exhibit 4.1)

4.3		Form of 4.150% Senior Note due 2014 (included in Exhibit 4.1)

4.4		Form of 5.600% Senior Note due 2019 (included in Exhibit 4.1)

15.1		Awareness Letter of Independent Registered Public Accounting Firm

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation

101.LAB		XBRL Taxonomy Extension Label

101.PRE		XBRL Taxonomy Extension Presentation

101.DEF		XBRL Taxonomy Extension Definition

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 8, 2012


TD Ameritrade Holding Corporation
(Registrant)

By:		/s/ FREDRIC J. TOMCZYK
		Fredric J. Tomczyk
		President and Chief Executive Officer (Principal Executive Officer)

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