e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
September 30,
2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 0-49992
TD AMERITRADE Holding
Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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82-0543156
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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4211 South 102nd Street,
Omaha, Nebraska 68127
(Address of principal
executive offices and zip code)
(402) 331-7856
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock $0.01 par value
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
Title of class
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
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 (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant was approximately
$3.2 billion computed by reference to the closing sale
price of the stock on the Nasdaq Global Select Market on
March 31, 2009, the last trading day of the
registrants most recently completed second fiscal quarter.
The number of shares of common stock outstanding as of
November 9, 2009 was 587,563,413 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Definitive Proxy Statement relating to the registrants
2010 Annual Meeting of Stockholders to be filed hereafter
(incorporated into Part III hereof).
TD
AMERITRADE HOLDING CORPORATION
INDEX
2
Unless otherwise indicated, references to we,
us, Company, or TD
AMERITRADE mean TD AMERITRADE Holding Corporation and
its subsidiaries, and references to fiscal mean the
Companys fiscal year ended September 30 (for fiscal years
2009, 2008 and 2007) or the last Friday of September (for
fiscal years prior to 2007). References to the parent
company mean TD AMERITRADE Holding Corporation.
PART I
Form of
Organization
The Company was established in 1971 as a local investment
banking firm and began operations as a retail discount
securities brokerage firm in 1975. The Company is a Delaware
corporation.
Operations
We are a leading provider of securities brokerage services and
technology-based financial services to retail investors and
business partners. We provide our services predominantly through
the Internet, a national branch network and relationships with
independent registered investment advisors (RIAs).
We believe that our services appeal to a broad market of
independent, value-conscious retail investors, traders,
financial planners and institutions. We use our efficient
platform to offer brokerage services to retail investors and
institutions under a simple, low-cost commission structure.
We have been an innovator in electronic brokerage services since
entering the retail securities brokerage business in 1975. We
believe that we were the first brokerage firm to offer the
following products and services to retail clients: touch-tone
trading; trading over the Internet; unlimited, streaming, free
real-time quotes; extended trading hours; direct access to
market destinations; and commitment on the speed of order
execution. Since initiating online trading, we have
substantially increased our number of brokerage accounts,
average daily trading volume and total assets in client
accounts. We have also built, and continue to invest in, a
proprietary trade processing platform that is both
cost-efficient and highly scalable, significantly lowering our
operating costs per trade. In addition, we have made significant
and effective investments in building the TD AMERITRADE brand.
Strategy
We intend to capitalize on the growth and consolidation of the
retail brokerage industry in the United States and leverage our
low-cost infrastructure to grow our market share and
profitability. Our long-term growth strategy is to increase our
market share of total assets in client accounts by providing
superior offerings to long-term investors, RIAs and active
traders. We strive to enhance the client experience by providing
sophisticated asset management products and services, enhanced
technological capabilities that enable self-directed investors
to trade and invest in new asset classes and a superior,
proprietary, single-platform system to support RIAs. The key
elements of our strategy are as follows:
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Focus on retail brokerage services. We
continue to focus on attracting active traders, long-term
investors and RIAs to our retail brokerage services. This
focused strategy is designed to enable us to maintain our low
operating cost structure while offering our clients outstanding
products and services.
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Provide a comprehensive long-term investor
solution. We continue to expand our suite of
diversified investment products and services to best serve
investors needs. We help clients make investment decisions
by providing
simple-to-use
investment tools, guidance, education and objective third-party
research.
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Maintain industry leadership and market share with active
traders. We help active traders make
better-informed investment decisions by offering fast access to
markets, insight into market trends and innovative tools such as
strategy back-testing and comprehensive options research and
trading capabilities.
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Continue to be a leader in the RIA
industry. We provide RIAs with comprehensive
brokerage and custody services supported by our robust
integrated technology platform, customized personal service and
practice management solutions.
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Leverage our infrastructure to add incremental
revenue. Through our proprietary technology, we
are able to provide a very robust online experience for
long-term investors and active traders. Our low-cost, scalable
platform provides speed, reliability and quality trade execution
services for clients. The scalable capacity of our trading
system allows us to add a significant number of transactions
while incurring minimal additional fixed costs.
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Continue to be a low-cost provider of quality
services. We intend to continue to lower our
operating costs per trade by creating economies of scale,
utilizing our single-platform proprietary system, continuing to
automate processes and locating much of our operations in
low-cost geographical areas. This low fixed-cost infrastructure
provides us with significant financial flexibility.
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Continue to differentiate our offerings through innovative
technologies and service enhancements. We have
been an innovator in our industry over our
30-year
history. We continually strive to provide our clients with the
ability to customize their trading experience. We provide our
clients greater choice by tailoring our features and
functionality to meet their specific needs.
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Leverage the TD AMERITRADE brand. We believe
that we have a superior brand identity and that our advertising
has established TD AMERITRADE as a leading brand in the retail
brokerage market.
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Continue to aggressively pursue growth through
acquisitions. When evaluating potential
acquisitions, we look for transactions that will give us
operational leverage, technological leverage, increased market
share or other strategic opportunities.
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On June 11, 2009, we acquired thinkorswim Group Inc.
(thinkorswim). The acquisition enhanced our industry
leadership position in client trades per day and will provide
our clients with access to thinkorswims advanced trading
technology, tools and services, as well as a leading investor
education program. This acquisition is discussed in further
detail in Item 8, Financial Statements and Supplementary
Data Notes to Consolidated Financial Statements:
Note 2 Business Combinations.
On February 4, 2008, we purchased a portion of Fiserv,
Inc.s (Fiserv) investment support services
business by acquiring all of the outstanding capital stock of
Fiserv Trust Company, a wholly-owned subsidiary of Fiserv.
The acquisition added approximately $25 billion in client
assets to TD AMERITRADE, including $15 billion held in more
than 75,000 accounts managed by approximately 500 independent
RIAs and $10 billion held in more than 2,000 plans
administered by 80 independent third party administrators
(TPAs). This acquisition is discussed in further
detail in Item 8, Financial Statements and Supplementary
Data Notes to Consolidated Financial Statements:
Note 2 Business Combinations.
On January 24, 2006, we acquired the U.S. brokerage
business of TD Waterhouse Group, Inc.
(TD Waterhouse) from The Toronto-Dominion Bank
(TD). The transaction combined highly complementary
franchises to create a retail broker that we believe has the
scale, breadth and financial strength to be a leading player in
the increasingly competitive and consolidating investor services
industry. The acquisition of TD Waterhouse provided us with a
national network of over 100 branches, as well as relationships
with one of the largest groups of independent RIAs. It also
enabled us to provide our clients with a Federal Deposit
Insurance Corporation (FDIC)-insured deposit account
sweep alternative for their cash through an arrangement with TD
Bank USA, N.A. (TD Bank USA).
Client
Offerings
We deliver products and services aimed at providing a
comprehensive, personalized experience for active traders,
long-term investors and independent RIAs. Our client offerings
are described below:
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TD
AMERITRADE®
is our core offering for self-directed retail investors. We
offer sophisticated tools and services, including TD AMERITRADE
Command Center 2.0,
SnapTicket,tm
Trade
Triggers,tm
QuoteScope,tm
Advanced
Analyzer,tm
Market Motion Detector, Pattern
Matcher,tm
StrategyDesktm
and
WealthRuler.tm
We offer Ameritrade
Apextm
for clients who place an average of five trades per month over a
three-month period or maintain a total account value of at least
$100,000. Apex clients receive free access to
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services that are normally available on a paid subscription
basis, as well as access to exclusive services and content.
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TD AMERITRADE Institutional is a leading provider of
comprehensive brokerage and custody services to more than 4,000
independent RIAs and their clients. Our advanced technology
platform, coupled with personal support from our dedicated
service teams, allows RIAs to run their practices more
effectively and efficiently while optimizing time with clients.
Additionally, TD AMERITRADE Institutional provides a robust
offering of products, programs and services. These services are
all designed to help advisors build their businesses.
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thinkorswim, Inc. (TOS Inc.) provides a suite
of trading platforms serving self-directed and institutional
traders and money managers. thinkorswim platforms have
easy-to-use interfaces, sophisticated analytical and research
tools, and fast and efficient order execution for complex
trading strategies. thinkorswim clients trade a broad range of
products including stock and stock options, index options,
futures and futures options, foreign exchange, mutual funds and
fixed income.
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thinkorswim from TD AMERITRADE is a feature-rich platform
that delivers several innovative trading tools and investment
analytics. Currently the platform is available to a limited
number of our TD AMERITRADE brokerage clients. We intend to
offer this platform to additional TD AMERITRADE clients as we
increase functionality by adding futures and foreign exchange
trading and the ability to enter three- and four-leg complex
options orders.
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thinkorswims Investools Inc. subsidiary
(Investools) offers a comprehensive suite of
investor education products and services for stock, option,
foreign exchange, futures, mutual fund and fixed-income
investors. As we progress with the integration of thinkorswim,
we plan to expand access to these educational products and
services to our TD AMERITRADE brokerage clients.
Investools educational products and services are primarily
built around an investing method that is designed to teach both
experienced and beginning investors how to approach the
selection process for investment securities and actively manage
their investment portfolios. Course offerings are generally
combined with web-based tools, personalized instruction
techniques and ongoing service and support and are offered in a
variety of learning formats. Designed for the advanced student,
continuing education programs offer students comprehensive
access to a multitude of products and services priced either
individually or on a bundled basis. Typically included in the
continuing education bundles are additional curriculum, online
courses, live workshops and coaching services.
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Amerivesttm
is an online advisory service that develops portfolios of
exchange-traded funds (ETFs) to help long-term
investors pursue their financial goals. Our subsidiary,
Amerivest Investment Management, LLC, recommends an investment
portfolio based on our proprietary automated five-step process
centered on an investors goals and risk tolerance.
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TD AMERITRADE Corporate Services provides self-directed
brokerage services to employees and executives of corporations,
either directly in partnership with the employer or through
joint marketing relationships with third-party administrators,
such as 401(k) providers and employee benefit consultants.
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Products
and Services
We strive to provide the best value of retail brokerage services
to our clients. The products and services available to our
clients include:
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Common and preferred stock. Clients can
purchase common and preferred stocks and American Depository
Receipts traded on any United States exchange or quotation
system.
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Exchange-Traded Funds. ETFs are baskets of
securities (stocks or bonds) that typically track recognized
indices. They are similar to mutual funds, except they trade the
same way that a stock trades, on a stock exchange. We have
launched an online resource dedicated to ETFs that offers tools,
education and information for active and long-term investors
seeking alternatives for pursuing their investment strategies.
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Option trades. We offer a full range of option
trades, including spreads, straddles and strangles. All option
trades, including complex trades, are accessible on our trading
platform.
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Futures and foreign exchange trades. Through
our TOS Inc. broker-dealer subsidiary, we offer futures and
foreign exchange trades on the thinkorswim trading platform.
Within the next 18 months, we plan to phase in
functionality for futures and foreign exchange trading for our
TD AMERITRADE brokerage clients.
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Mutual funds. Clients can compare and select
from a portfolio of over 13,000 mutual funds from leading fund
families, including a broad range of no-transaction-fee
(NTF) funds. Clients can also easily exchange funds
within the same mutual fund family.
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Fixed income. We offer our clients access to a
variety of Treasury, corporate, government agency and municipal
bonds, as well as mortgage-backed securities and certificates of
deposit.
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Margin lending. We extend credit to clients
that maintain margin accounts.
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Cash management services. Through third-party
banking relationships, we offer FDIC-insured deposit accounts
and money market mutual funds to our clients as cash sweep
alternatives. We also offer checking and ATM services through
these relationships.
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We earn commissions and transaction fees on client trades in
common and preferred stock, ETFs, options, futures, foreign
exchange, mutual funds and fixed income securities. Margin
lending and the related securities lending business generate net
interest revenue. Cash management services and fee-based mutual
funds generate insured deposit account fees and investment
product fee revenues. The following table presents the
percentage of net revenues contributed by each class of similar
services during the last three fiscal years:
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Percentage of Net Revenues
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Fiscal Year Ended September 30,
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Class of Service
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2009
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2008
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2007
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Commissions and transaction fees
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52.0
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%
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40.1
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%
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37.4
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%
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Net interest revenue
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14.4
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%
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21.7
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%
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25.6
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%
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Insured deposit account fees
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23.6
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%
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24.8
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%
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24.6
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%
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Investment product fees
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7.7
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%
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12.2
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%
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10.7
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%
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Other revenues
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2.3
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%
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1.2
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%
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1.7
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%
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Net revenues
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100.0
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%
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100.0
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%
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100.0
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%
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We provide our clients with an array of channels to access our
products and services. These include the Internet, our network
of retail branches, wireless telephone or personal digital
assistant, interactive voice response and registered
representatives via telephone.
Client
Service and Support
We strive to provide the best client service in the industry as
measured by: (1) speed of response time to telephone calls,
(2) turnaround time responding to client inquiries and
(3) client satisfaction with the account relationship.
We endeavor to optimize our highly-rated client service by:
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Ensuring prompt response to client service calls through
adequate staffing with properly trained and motivated personnel
in our client service departments, a majority of whom hold the
Series 7 license;
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Tailoring client service to the particular expectations of the
clients of each of our client segments and
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Expanding our use of technology to provide automated responses
to the most typical inquiries generated in the course of
clients securities trading and related activities.
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We provide access to client service and support through the
following means:
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Web sites. Our Web sites provide basic
information on how to use our services, as well as an in-depth
education center that includes a guide to online investing and
an encyclopedia of finance. Ted, our Virtual
Investment Consultant, is a Web tool that allows retail clients
to interact with a virtual representative to ask questions
regarding our products, tools and services.
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Branches. We offer a nationwide network of
over 100 retail branches, located primarily in large
metropolitan areas.
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E-mail. Clients
are encouraged to use
e-mail to
contact our client service representatives. Our operating
standards require a response within 24 hours of receipt of
the e-mail;
however, we strive to respond within four hours after receiving
the original message.
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Telephone. For clients who choose to call or
whose inquiries necessitate calling one of our client service
representatives, we provide a toll-free number that connects to
advanced call handling systems. These systems provide automated
answering and directing of calls to the proper department. Our
systems also allow linkage between caller identification and the
client database to give the client service representative
immediate access to the clients account data when the call
is received. Client service representatives are available
24 hours a day, seven days a week (excluding market
holidays).
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Technology
and Information Systems
Our technological capabilities and systems are central to our
business and are critical to our goal of providing the best
execution at the best value to our clients. Our operations
require reliable, scalable systems that can handle complex
financial transactions for our clients with speed and accuracy.
We maintain sophisticated and proprietary technology that
automates traditionally labor-intensive securities transactions.
Our ability to effectively leverage and adopt new technology to
improve our services is a key component of our success.
We continue to make investments in technology and information
systems. We have spent a significant amount of resources to
increase capacity and improve speed and reliability. To provide
for system continuity during potential power outages, we have
equipped our data centers with uninterruptible power supply
units and
back-up
generators.
Our TD AMERITRADE trading platform currently has the capacity to
process approximately 800,000 trades per day and approximately
33,000 client login connections per second. The greatest number
of trades our clients have made in a single day is 648,000.
Advertising
and Marketing
We intend to continue to grow and increase our market share by
advertising online, on television, in print and direct mail and
on our own Web sites. We invest heavily in advertising programs
designed to bring greater brand recognition to our services. We
intend to continue to aggressively advertise our services. From
time to time, we may choose to increase our advertising to
target specific groups of investors or to decrease advertising
in response to market conditions.
Advertising for retail clients is generally conducted through
Web sites, financial news networks and other television and
cable networks. We also place print advertisements in a broad
range of business publications and use direct mail advertising.
Advertising for institutional clients is significantly less than
for retail clients and is generally conducted through
highly-targeted media. We also utilize third-party partners to
market our investor education offerings at live events.
To monitor the success of our various marketing efforts, we use
a data gathering and tracking system. This system enables us to
determine the type of advertising that best appeals to our
target market so that we can invest in these programs in the
future. Additionally, through the use of our database tools, we
are working to more efficiently determine the needs of our
various client segments and tailor our services to their
individual needs. We intend to utilize this system to strengthen
our client relationships and support marketing campaigns to
attract new clients. Our methods and uses of client information
are disclosed in our privacy statement.
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All of our brokerage-related communications with the public are
regulated by the Financial Industry Regulatory Authority
(FINRA).
Clearing
Operations
Our subsidiary, TD AMERITRADE Clearing, Inc. (TDA
Clearing), provides clearing and execution services to our
primary introducing broker-dealer subsidiary, TD AMERITRADE,
Inc. (TDA Inc.). Clearing services include the
confirmation, receipt, settlement, delivery and record-keeping
functions involved in processing securities transactions. Our
clearing broker-dealer subsidiary provides the following back
office functions:
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Maintaining client accounts;
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Extending credit in a margin account to the client;
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Engaging in securities lending and borrowing transactions;
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Settling securities transactions with clearinghouses such as The
Depository Trust & Clearing Corporation and The
Options Clearing Corporation;
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Settling commissions and transaction fees;
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Preparing client trade confirmations and statements;
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Performing designated cashiering functions, including the
delivery and receipt of funds and securities to or from the
client;
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Possession, control and safeguarding funds and securities in
client accounts;
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Processing cash sweep transactions to and from insured deposit
accounts and money market mutual funds;
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Transmitting tax accounting information to the client and to the
applicable tax authority and
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Forwarding prospectuses, proxy materials and other shareholder
information to clients.
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Competition
We believe that the principal determinants of success in the
retail brokerage market are brand recognition, size of client
base and client assets, ability to attract new clients and
client assets, client trading activity, efficiency of
operations, technology infrastructure and access to financial
resources. We also believe that the principal factors considered
by clients in choosing a brokerage firm are reputation, client
service quality, price, convenient locations, product offerings,
quality of trade execution, platform capabilities, innovation
and overall value. Based on our experience, focus group research
and the success we have enjoyed to date, we believe that we
presently compete successfully in each of these categories.
The market for brokerage services, particularly electronic
brokerage services, continues to evolve and is intensely
competitive. We have seen intense competition during the past
five years and expect this competitive environment to continue.
We encounter direct competition from numerous other brokerage
firms, many of which provide online brokerage services. These
competitors include E*TRADE Financial Corporation, Charles
Schwab & Co., Inc., Fidelity Investments and
Scottrade, Inc. We also encounter competition from established
full-commission brokerage firms such as Merrill Lynch and Morgan
Stanley Smith Barney, as well as financial institutions, mutual
fund sponsors and other organizations, some of which provide
online brokerage services.
Regulation
The securities industry is subject to extensive regulation under
federal and state law. Broker-dealers are required to register
with the U.S. Securities and Exchange Commission
(SEC) and to be members of FINRA. In addition, our
introducing broker-dealer subsidiaries are registered with the
Commodity Futures Trading Commission (CFTC) and are
members of and the corresponding services functions are
regulated by the National Futures Association (NFA).
Our broker-dealer subsidiaries are subject to the requirements
of the Securities Exchange Act of 1934 (the Exchange
Act) relating to broker-dealers. These regulations
establish, among other
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things, minimum net capital requirements for our broker-dealer
subsidiaries. For our clearing broker-dealer subsidiary (TDA
Clearing), this minimum net capital level is determined by a
calculation described in
Rule 15c3-1
that is primarily based on aggregate debits, which
primarily are a function of client margin balances. TDA Clearing
is required to maintain minimum net capital of 2% of aggregate
debits. Since our aggregate debits may fluctuate significantly,
our minimum net capital requirements may also fluctuate
significantly from period to period. We have two introducing
broker-dealer subsidiaries, TDA Inc. and TOS Inc. TDA Inc. is
required to maintain a minimum dollar amount of net capital,
which was $500,000 as of September 30, 2009. TOS Inc. is
required to maintain minimum net capital of
62/3%
of aggregate indebtedness.
Certain of our subsidiaries are also registered as investment
advisors under the Investment Advisers Act of 1940. We are also
subject to regulation in all 50 states and the District of
Columbia, including registration requirements.
In its capacity as a securities clearing firm, TDA Clearing is a
member of The Depository Trust & Clearing Corporation
and The Options Clearing Corporation, each of which is
registered as a clearing agency with the SEC. As a member of
these clearing agencies, TDA Clearing is required to comply with
the rules of such clearing agencies, including rules relating to
possession and control of client funds and securities, margin
lending and execution and settlement of transactions.
Margin lending activities are subject to limitations imposed by
regulations of the Federal Reserve System and FINRA. In general,
these regulations provide that, in the event of a significant
decline in the value of securities collateralizing a margin
account, we are required to obtain additional collateral from
the borrower or liquidate security positions.
We are subject to a number of state and federal laws applicable
to companies conducting business on the Internet that address
client privacy, system security and safeguarding practices and
the use of client information. For additional, important
information relating to government regulation, please review the
information set forth under the heading Risk Factors
Relating to the Regulatory Environment in
Item 1A Risk Factors.
Intellectual
Property Rights
Our success and ability to compete are dependent to a
significant degree on our intellectual property, which includes
our proprietary technology, trade secrets and client base. We
rely on copyright, trade secret, trademark, domain name, patent
and contract laws to protect our intellectual property and have
utilized the various methods available to us, including filing
applications for patents and trademark registrations with the
United States Patent and Trademark Office and entering into
written licenses and other technology agreements with third
parties. Our patented and patent pending technologies include
stock indexing and investor education technologies, as well as
innovative trading and analysis tools. Our trademarks include
both our primary brand TD AMERITRADE as well as brands for other
products and services. A substantial portion of our intellectual
property is protected by trade secrets. The source and object
code for our proprietary software is also protected using
applicable methods of intellectual property protection and
general protections afforded to confidential information. In
addition, it is our policy to enter into confidentiality and
intellectual property ownership agreements with our employees
and confidentiality and noncompetition agreements with our
independent contractors and business partners and to control
access to and distribution of our intellectual property.
Employees
As of September 30, 2009, we had 5,196 full-time
equivalent employees. This number has increased from
4,660 full-time equivalent employees as of the end of
fiscal 2008, due primarily to the thinkorswim acquisition. None
of our employees is covered by a collective bargaining
agreement. We believe that our relations with our employees are
good.
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Financial
Information about Segments and Geographic Areas
We primarily operate in the securities brokerage industry and
have no other reportable segments. Our revenues from external
clients for the fiscal years ended September 30, 2009, 2008
and 2007 were derived from our operations in the United States.
Internet
Address
Additional information concerning our business can be found on
our Web site at www.amtd.com. We make available free of
charge on our Web site our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports, as soon as reasonably
practicable after we electronically file such material with or
furnish it to the SEC.
In addition to the other information set forth in this report,
you should carefully consider the following factors which could
materially affect our business, financial condition or future
results of operations. Although the risks described below are
those that management believes are the most significant, these
are not the only risks facing our company. Additional risks and
uncertainties not currently known to us or that we currently do
not deem to be material also may materially affect our business,
financial condition or future results of operations.
Risk
Factors Relating to Our Business Operations
Economic
conditions and other securities industry risks could adversely
affect our business.
Substantially all of our revenues are derived from our
securities brokerage business. Like other securities brokerage
businesses, we are directly affected by economic and political
conditions, broad trends in business and finance and changes in
volume and price levels of securities transactions. Events in
global financial markets over the past year, including failures
and government bailouts of large financial services companies,
resulted in substantial market volatility and increased client
trading volume. However, any sustained downturn in general
economic conditions or U.S. equity markets could result in
reduced client trading volume and net revenues. For example,
events such as the terrorist attacks in the United States on
September 11, 2001 and the invasion of Iraq in 2003
resulted in periods of substantial market volatility and
reductions in trading volume and net revenues. Severe market
fluctuations or weak economic conditions could reduce our
trading volume and net revenues and have a material adverse
effect on our profitability.
We
have exposure to 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 FDIC-insured
deposit account sweep arrangement with TD Bank USA, which are
subject to interest rate risk. During fiscal 2009, the Federal
Open Market Committee reduced the federal funds rate from 2.00%
to between 0% and 0.25%. This lower interest rate environment
has compressed our net interest spread and reduced our
spread-based revenues. It has also resulted in our voluntarily
waiving fees on certain money market mutual funds in order to
prevent our clients yields on such funds from becoming
negative. 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. If we are unable to effectively
manage our interest rate risk, changes in interest rates could
have a material adverse effect on our profitability.
Our
brokerage operations have exposure to liquidity
risk.
Maintaining adequate liquidity is crucial to our brokerage
operations, including key functions such as transaction
settlement and margin lending. Our liquidity needs to support
interest-earning assets are primarily met by client cash
balances or financing created from our securities lending
activities. A reduction of funds available from these sources
may require us to seek other potentially more expensive forms of
financing, such as
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borrowings on our uncommitted lines of credit. Because our
broker-dealer lines of credit are uncommitted, there can be no
assurance that such financing would be available. Our liquidity
could be constrained if we were unable to obtain financing on
acceptable terms, or at all, due to a variety of unforeseen
market disruptions. If we are unable to meet our funding needs
on a timely basis, our business would be adversely affected.
We are
exposed to credit risk with clients and
counterparties.
We make margin loans to clients that are collateralized by
client securities and we borrow and lend securities in
connection with our broker-dealer business. A significant
portion of our net revenues is derived from interest on margin
loans. By permitting clients to purchase securities on margin,
we are subject to risks inherent in extending credit, especially
during periods of rapidly declining markets in which the value
of the collateral held by us could fall below the amount of a
clients indebtedness. In addition, in accordance with
regulatory guidelines, we collateralize borrowings of securities
by depositing cash or securities with lenders. Sharp changes in
market values of substantial amounts of securities and the
failure by parties to the borrowing transactions to honor their
commitments could have a material adverse effect on our revenues
and profitability.
Our
clearing operations expose us to liability for errors in
clearing functions.
Our broker-dealer subsidiary, TDA Clearing, provides clearing
and execution services to our primary introducing broker-dealer
subsidiary. Clearing and execution services include the
confirmation, receipt, settlement and delivery functions
involved in securities transactions. Clearing brokers also
assume direct responsibility for the possession and control of
client securities and other assets and the clearance of client
securities transactions. However, clearing brokers also must
rely on third-party clearing organizations such as The
Depository Trust & Clearing Corporation and The
Options Clearing Corporation in settling client securities
transactions. Self-clearing securities firms are subject to
substantially more regulatory control and examination than
introducing brokers that rely on others to perform clearing
functions. Errors in performing clearing functions, including
clerical and other errors related to the handling of funds and
securities held by us on behalf of clients, could lead to civil
penalties as well as losses and liability in related lawsuits
brought by clients and others.
Systems
failures, delays and capacity constraints could harm our
business.
We receive and process trade orders through a variety of
electronic channels, including the Internet, wireless web,
personal digital assistants and our interactive voice response
system. These methods of trading are heavily dependent on the
integrity of the electronic systems supporting them. Our systems
and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, computer viruses,
distributed denial of service (DDOS) attacks,
spurious spam attacks, intentional acts of vandalism and similar
events. It could take several hours or more to restore full
functionality in the event of an unforeseen disaster.
Extraordinary trading volumes could cause our computer systems
to operate at an unacceptably slow speed or even fail.
Extraordinary Internet traffic caused by DDOS or spam attacks
could cause our Web site to be unavailable or slow to respond.
While we have made significant investments to upgrade the
reliability and scalability of our systems and added hardware to
address extraordinary Internet traffic, there can be no
assurance that our systems will be sufficient to handle such
extraordinary circumstances. We may not be able to project
accurately the rate, timing or cost of any increases in our
business or to expand and upgrade our systems and infrastructure
to accommodate any increases in a timely manner. Systems
failures and delays could occur and could cause, among other
things, unanticipated disruptions in service to our clients,
slower system response time resulting in transactions not being
processed as quickly as our clients desire, decreased levels of
client service and client satisfaction and harm to our
reputation. The occurrence of any of these events could have a
material adverse effect on our results of operations and
financial condition.
Our
networks and client information could be vulnerable to security
risks.
The secure transmission of confidential information over public
networks is a critical element of our operations. Our networks
could be vulnerable to unauthorized access, computer viruses,
phishing schemes and other security problems. We, along with the
financial services industry in general, have experienced losses
related to
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clients login and password information being compromised
while using public computers or due to vulnerabilities of
clients private computers.
Persons who circumvent security measures could wrongfully use
our confidential information or our clients confidential
information or cause interruptions or malfunctions in our
operations. We could be required to expend significant
additional resources to protect against the threat of security
breaches or to alleviate problems caused by any breaches. We may
not be able to implement security measures that will protect
against all security risks. Because we provide a security
guarantee under which we reimburse clients for losses resulting
from unauthorized activity in their accounts, significant
unauthorized activity could have a material adverse effect on
our results of operations.
Substantial
competition could reduce our market share and harm our financial
performance.
The market for electronic brokerage services is continually
evolving and is intensely competitive. The retail brokerage
industry has experienced significant consolidation, which may
continue in the future, and which may increase competitive
pressures in the industry. Consolidation could enable other
firms to offer a broader range of products and services than we
do, or offer them at lower prices. There has been substantial
price competition in the industry, including various free trade
offers. We expect this competitive environment to continue in
the future. We face direct competition from numerous retail
brokerage firms, including E*TRADE Financial Corporation,
Charles Schwab & Co., Inc., Fidelity Investments and
Scottrade, Inc. We also encounter competition from the
broker-dealer affiliates of established full-commission
brokerage firms as well as from financial institutions, mutual
fund sponsors and other organizations, some of which provide
online brokerage services. Some of our competitors have greater
financial, technical, marketing and other resources, offer a
wider range of services and financial products, and have greater
name recognition and a more extensive client base than we do. We
believe that the general financial success of companies within
the retail securities industry will continue to attract new
competitors to the industry, such as banks, software development
companies, insurance companies, providers of online financial
information and others. These companies may provide a more
comprehensive suite of services than we do. Increased
competition, including pricing pressure, could have a material
adverse effect on our results of operations and financial
condition.
We
will need to introduce new products and services and enhance
existing products and services to remain
competitive.
Our future success depends in part on our ability to develop and
enhance our products and services. In addition, the adoption of
new Internet, networking or telecommunications technologies or
other technological changes could require us to incur
substantial expenditures to enhance or adapt our services or
infrastructure. There are significant technical and financial
costs and risks in the development of new or enhanced products
and services, including the risk that we might be unable to
effectively use new technologies, adapt our services to emerging
industry standards or develop, introduce and market enhanced or
new products and services. An inability to develop new products
and services, or enhance existing offerings, could have a
material adverse effect on our profitability.
We
rely on third-party service providers to perform certain key
functions.
We rely on a number of third parties for various services. These
include the services of other broker-dealers, market makers and
exchanges to execute client orders. We contract with third
parties for thinkorswims clearing and related back-office
services. Third-party content providers provide us with
financial information, market news, charts, option and stock
quotes, research reports and other fundamental data that we
offer to clients.
We cannot assure that any third-party providers will be able to
continue to provide these services in an efficient,
cost-effective manner or that they will be able to adequately
expand their services to meet our needs. An interruption in or
the cessation of service by any third-party service provider as
a result of systems failures, capacity constraints, financial
constraints or problems, unanticipated trading market closures
or for any other reason, and our inability to make alternative
arrangements in a smooth and timely manner, if at all, could
have a material adverse effect on our business, results of
operations and financial condition.
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Risk
Factors Relating to the Regulatory Environment
Failure
to comply with net capital requirements could adversely affect
our business.
The SEC, FINRA, CFTC, NFA and various other regulatory agencies
have stringent rules with respect to the maintenance of specific
levels of net capital by securities broker-dealers. Net capital
is a measure, defined by the SEC, of a broker-dealers
readily available liquid assets, reduced by its total
liabilities other than approved subordinated debt. All of our
broker-dealer subsidiaries are required to comply with net
capital requirements. If we fail to maintain the required net
capital, the SEC could suspend or revoke our registration, or
FINRA could expel us from membership, which could ultimately
lead to our liquidation, or they could impose censures, fines or
other sanctions. If the net capital rules are changed or
expanded, or if there is an unusually large charge against net
capital, then our operations that require capital could be
limited. A large operating loss or charge against net capital
could have a material adverse effect on our ability to maintain
or expand our business.
Regulatory
uncertainties could harm our business.
The securities industry is subject to extensive regulation and
broker-dealers are subject to regulations covering all aspects
of the securities business. The SEC, FINRA, CFTC, NFA and other
self-regulatory organizations and state and foreign regulators
can, among other things, censure, fine, issue
cease-and-desist
orders to, suspend or expel a broker-dealer or any of its
officers or employees. We could fail to establish and enforce
procedures to comply with applicable regulations, which could
have a material adverse effect on our business.
Our websites are accessible world-wide over the Internet, and we
currently have account holders located outside the United
States. These accounts comprise approximately 1.5% of our total
accounts and are spread across many jurisdictions. Adverse
action by foreign regulators with respect to regulatory
compliance by us in foreign jurisdictions could adversely affect
our revenues from clients in such countries or regions.
Various regulatory and enforcement agencies have been reviewing
the following areas, among others, related to the brokerage
industry:
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sales practices and suitability of financial products and
services;
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auction rate securities;
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money market mutual funds;
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mutual fund trading;
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client cash sweep arrangements;
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regulatory reporting obligations;
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risk management;
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valuation of financial instruments;
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best execution practices;
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client privacy;
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system security and safeguarding practices;
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advertising claims and
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brokerage services provided to investment advisors.
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These reviews could result in enforcement actions, significant
new regulations or clarification of existing regulations, which
could adversely affect our operations.
In addition, we use the Internet as a major distribution channel
to provide services to our clients. A number of regulatory
agencies have adopted regulations regarding client privacy,
system security and safeguarding practices and the use of client
information by service providers. Additional laws and
regulations relating to the Internet and safeguarding practices
could be adopted in the future, including laws related to
identity theft and regulations
13
regarding the pricing, taxation, content and quality of products
and services delivered over the Internet. Complying with these
laws and regulations may be expensive and time-consuming and
could limit our ability to use the Internet as a distribution
channel, which would have a material adverse effect on our
profitability.
Legislation
or changes in rules and regulations could negatively impact our
business and financial results.
Recently, legislators and regulators have proposed an
unprecedented amount of new legislation, rule changes or changes
in the interpretation or enforcement of existing federal, state
and self-regulatory organization rules and regulations impacting
our industry. The adoption of any such new legislation, rule
changes or enforcement standards could directly affect or change
both the operation and profitability of specific business lines
or the entire Company. Our profitability could also be affected
by rules and regulations that impact the business and financial
communities generally, including changes to the laws governing
fiduciary duties, conflicts of interest, taxation, electronic
commerce, client privacy and security of client data.
We are
subject to litigation and regulatory investigations and
proceedings and may not always be successful in defending
against such claims and proceedings.
The financial services industry faces substantial litigation and
regulatory risks. We are subject to arbitration claims and
lawsuits in the ordinary course of our business, as well as
class actions and other significant litigation. We also are the
subject of inquiries, investigations and proceedings by
regulatory and other governmental agencies. Actions brought
against us may result in settlements, awards, injunctions,
fines, penalties and other results adverse to us. Predicting the
outcome of such matters is inherently difficult, particularly
where claims are brought on behalf of various classes of
claimants or by a large number of claimants, when claimants seek
substantial or unspecified damages or when investigations or
legal proceedings are at an early stage. A substantial judgment,
settlement, fine or penalty could be material to our operating
results or cash flows for a particular period, depending on our
results for that period, or could cause us significant
reputational harm, which could harm our business prospects. In
market downturns, the volume of legal claims and amount of
damages sought in litigation and regulatory proceedings against
financial services companies have historically increased. The
volume of claims and amount of damages claimed in litigation and
the volume of regulatory matters have been increasing and remain
high. From time to time, we are subject to litigation claims
from third parties alleging infringement of their intellectual
property rights. Such litigation can require the expenditure of
significant resources. If we were found to have infringed a
third-party patent or other intellectual property right, then we
could incur substantial liability and in some circumstances
could be enjoined from using the relevant technology or
providing related products and services.
Risk
Factors Relating to Strategic Acquisitions and the Integration
of Acquired Operations
Acquisitions
involve risks that could adversely affect our
business.
We intend to pursue strategic acquisitions of businesses and
technologies. Acquisitions may entail numerous risks, including:
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difficulties in the integration of acquired operations, services
and products;
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failure to achieve expected synergies;
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diversion of managements attention from other business
concerns;
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assumption of unknown material liabilities of acquired companies;
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amortization of acquired intangible assets, which could reduce
future reported earnings;
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potential loss of clients or key employees of acquired
companies and
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dilution to existing stockholders.
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As part of our growth strategy, we regularly consider, and from
time to time engage in, discussions and negotiations regarding
strategic transactions such as acquisitions, mergers and
combinations within our industry. The purchase price for
possible acquisitions could be paid in cash, through the
issuance of common stock or other securities, borrowings or a
combination of these methods.
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We cannot be certain that we will be able to continue to
identify, consummate and successfully integrate strategic
transactions, and no assurance can be given with respect to the
timing, likelihood or business effect of any possible
transaction. For example, we could begin negotiations that we
subsequently decide to suspend or terminate for a variety of
reasons. However, opportunities may arise from time to time that
we will evaluate. Any transactions that we consummate would
involve risks and uncertainties to us. These risks could cause
the failure of any anticipated benefits of an acquisition to be
realized, which could have a material adverse effect on our
revenues and profitability.
Risk
Factors Relating to Owning Our Stock
The
market price of our common stock has experienced, and may
continue to experience, substantial volatility.
Our common stock, and the U.S. securities markets in
general, experience significant price fluctuations. The market
prices of securities of financial services companies, in
particular, have been especially volatile. The price of our
common stock could decrease substantially. Among the factors
that may affect our stock price are the following:
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speculation in the investment community or the press about, or
actual changes in, our competitive position, organizational
structure, executive team, operations, financial condition,
financial reporting and results, effectiveness of cost reduction
initiatives, or strategic transactions;
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the announcement of new products, services, acquisitions, or
dispositions by us or our competitors; and
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increases or decreases in revenue or earnings, changes in
earnings estimates by the investment community, and variations
between estimated financial results and actual financial results.
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Changes in the stock market generally or as it concerns our
industry, as well as geopolitical, economic, and business
factors unrelated to us, may also affect our stock price.
Because the market price of our common stock tends to fluctuate
significantly, we could become the object of securities class
action litigation, which could result in substantial costs and a
diversion of managements attention and resources and could
have a material adverse effect on our business and the price of
our common stock.
We are
restricted by the terms of our senior credit
facilities.
In connection with the acquisition of TD Waterhouse, we entered
into a credit agreement on January 23, 2006, as amended,
for $2.2 billion in senior credit facilities with a
syndicate of lenders. These credit facilities contain various
covenants and restrictions that may limit our ability to:
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incur additional indebtedness;
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create liens;
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sell assets and make capital expenditures;
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pay dividends or make distributions;
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repurchase our common stock;
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make investments;
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merge or consolidate with another entity and
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conduct transactions with affiliates.
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As a result of the covenants and restrictions contained in the
credit facilities, we are limited in how we conduct our
business. We cannot guarantee that we will be able to remain in
compliance with these covenants or be able to obtain waivers for
noncompliance in the future. A failure to comply with these
covenants could have a material adverse effect on our financial
condition by impairing our ability to secure and maintain
financing.
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Our
corporate debt level may limit our ability to obtain additional
financing.
As of September 30, 2009, we had approximately
$1.4 billion of long-term debt. Our ability to meet our
cash requirements, including our debt service obligations, is
dependent upon our future performance, which will be subject to
financial, business and other factors affecting our operations,
many of which are or may be beyond our control. We cannot
provide assurance that our business will generate sufficient
cash flows from operations to fund these cash requirements,
including our debt service obligations. If we are unable to meet
our cash requirements from operations, we would be required to
obtain alternative financing. The degree to which we may be
leveraged as a result of the indebtedness we have incurred could
materially and adversely affect our ability to obtain financing
for working capital, acquisitions or other purposes, could make
us more vulnerable to industry downturns and competitive
pressures or could limit our flexibility in planning for, or
reacting to, changes and opportunities in our industry, which
may place us at a competitive disadvantage. There can be no
assurance that we would be able to obtain alternative financing,
that any such financing would be on acceptable terms or that we
would be permitted to do so under the terms of existing
financing arrangements. In the absence of such financing, our
ability to respond to changing business and economic conditions,
make future acquisitions, react to adverse operating results,
meet our debt service obligations or fund required capital
expenditures could be materially and adversely affected.
TD and
the Ricketts holders exercise significant influence over TD
AMERITRADE.
As of September 30, 2009, TD and J. Joe Ricketts, our
founder, members of his family and trusts held for their benefit
(which we collectively refer to as the Ricketts holders), owned
approximately 45% and 15%, respectively, of the outstanding
voting securities of TD AMERITRADE. TD is permitted under the
terms of a stockholders agreement to own up to 45% of the
outstanding shares of TD AMERITRADE common stock for the
remainder of the term of the stockholders agreement (a maximum
of 10 years following the January 24, 2006 closing of
the TD Waterhouse acquisition), with no restriction on the
number of shares of TD AMERITRADE owned following the
termination of the stockholders agreement. The Ricketts holders
are permitted under the terms of the stockholders agreement to
own up to 29% of the outstanding shares of TD AMERITRADE, with
no restriction on the number of shares of TD AMERITRADE owned
following the termination of the stockholders agreement. As a
result, TD and the Ricketts holders have the ability to
significantly influence the outcome of any matter submitted for
the vote of TD AMERITRADE stockholders. The stockholders
agreement also provides that TD may designate five of the twelve
members of the TD AMERITRADE board of directors and the Ricketts
holders may designate three of the twelve members of the TD
AMERITRADE board of directors, subject to adjustment based on
their respective ownership positions in TD AMERITRADE. As of
September 30, 2009, based on their respective ownership
positions in TD AMERITRADE, TD and the Ricketts holders may
designate five and two of the twelve members of the board of
directors, respectively. Accordingly, TD and the Ricketts
holders are able to significantly influence the outcome of all
matters that come before the TD AMERITRADE board. As a result of
their significant share ownership in TD AMERITRADE, TD or the
Ricketts holders may have the power, subject to applicable law,
to significantly influence actions that might be favorable to TD
or the Ricketts holders, but not necessarily favorable to other
TD AMERITRADE stockholders. In addition, the ownership position
and governance rights of TD and the Ricketts holders could
discourage a third party from proposing a change of control or
other strategic transaction concerning TD AMERITRADE. As a
result, the common stock of TD AMERITRADE could trade at prices
that do not reflect a takeover premium to the same
extent as do the stocks of similarly situated companies that do
not have a stockholder with an ownership interest as large as
TDs and the Ricketts holders combined ownership
interest.
Conflicts
of interest may arise between TD AMERITRADE and TD, which may be
resolved in a manner that adversely affects TD AMERITRADEs
business, financial condition or results of
operations.
We transact business and have extensive relationships with TD
and certain of its affiliates. During fiscal 2009, net revenues
related to cash sweep arrangements with TD and certain of its
affiliates accounted for approximately 28% of our net revenues.
Conflicts of interest may arise between TD AMERITRADE and TD in
areas relating to past, ongoing and future relationships,
including corporate opportunities, potential acquisitions or
financing transactions, sales or other dispositions by TD of its
interests in TD AMERITRADE and the exercise by TD of its
influence over the management and affairs of TD AMERITRADE. Some
of the directors on the TD AMERITRADE board are persons who
are also officers or directors of TD or its subsidiaries.
Service as a director or officer of both TD AMERITRADE and TD or
its
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other subsidiaries could create conflicts of interest if such
directors or officers are faced with decisions that could have
materially different implications for TD AMERITRADE and for TD.
Our amended and restated certificate of incorporation contains
provisions relating to the avoidance of direct competition
between TD AMERITRADE and TD. In addition, an independent
committee of our board of directors reviews and approves
transactions with TD and its affiliates. TD AMERITRADE and TD
have not established any other formal procedures to resolve
potential or actual conflicts of interest between them. There
can be no assurance that any of the foregoing potential
conflicts would be resolved in a manner that does not adversely
affect the business, financial condition or results of
operations of TD AMERITRADE. In addition, the provisions of
the stockholders agreement related to non-competition are
subject to numerous exceptions and qualifications and may not
prevent TD AMERITRADE and TD from competing with each other to
some degree in the future.
The
terms of the stockholders agreement, our charter documents and
Delaware law could inhibit a takeover that stockholders may
consider favorable.
Provisions in the stockholders agreement among TD and the
Ricketts holders, our certificate of incorporation and bylaws
and Delaware law will make it difficult for any party to acquire
control of us in a transaction not approved by the requisite
number of directors. These provisions include:
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the presence of a classified board of directors;
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the ability of the board of directors to issue and determine the
terms of preferred stock;
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advance notice requirements for inclusion of stockholder
proposals at stockholder meetings and
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the anti-takeover provisions of Delaware law.
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These provisions could delay or prevent a change of control or
change in management that might provide stockholders with a
premium to the market price of their common stock.
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Item 1B.
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Unresolved
Staff Comments
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None.
Our corporate headquarters is located in Omaha, Nebraska and
occupies approximately 74,000 square feet of leased space.
The lease expires in April 2019. In the Omaha metropolitan area,
we also lease approximately 397,000 square feet of building
space for administrative and operational facilities. The leases
on these other Omaha-area locations expire on various dates from
2010 through 2020. We are currently establishing a new corporate
campus in Omaha, for which we have purchased land and plan to
construct new facilities. The transition to the new campus is
scheduled to take place in phases and to be completed in 2012.
We lease approximately 185,000 and 140,000 square feet of
building space for additional operations centers in Jersey City,
New Jersey and Ft. Worth, Texas, respectively. The Jersey
City and Ft. Worth leases expire in 2015. We lease smaller
administrative and operational facilities in California,
Colorado, Illinois, Maryland, Missouri, New Jersey, Texas
and Utah. We also lease over 100 branch offices located in large
metropolitan areas in 34 states. We believe that our
facilities are suitable and adequate to meet our needs.
|
|
Item 3.
|
Legal
Proceedings
|
Spam Litigation A purported class action,
captioned Elvey v. TD Ameritrade, Inc., was filed on
May 31, 2007 in the United States District Court for the
Northern District of California. The complaint alleges that
there was a breach in TDA Inc.s systems, which allowed
access to
e-mail
addresses and other personal information of account holders, and
that as a result account holders received unsolicited
e-mail from
spammers promoting certain stocks and have been subjected to an
increased risk of identity theft. The complaint requests
unspecified damages and injunctive and other equitable relief. A
second lawsuit, captioned Zigler v. TD Ameritrade,
Inc., was filed on September 26, 2007, in the same
jurisdiction on behalf of a purported nationwide class of
account holders. The factual allegations of the complaint and
the relief sought are substantially the same as those in the
first lawsuit. The
17
cases were consolidated under the caption In re TD Ameritrade
Accountholders Litigation. The Company hired an independent
consultant to investigate whether identity theft occurred as a
result of the breach. The consultant conducted four
investigations from August 2007 to June 2008 and reported that
it found no evidence of identity theft. The parties entered into
an agreement to settle the lawsuits on a class basis subject to
court approval. On May 1, 2009, the Court granted
preliminary approval of the proposed settlement, which had been
revised. Some class members filed objections and opt-outs. The
court denied final approval of the proposed settlement on
October 23, 2009. The court ruled that the asserted
benefits of the settlement to the class were not sufficient to
warrant approval and that the proposed settlement was not fair,
reasonable and adequate. The court scheduled a case conference
for December 10, 2009.
Auction Rate Securities Matters Beginning in
March 2008, lawsuits were filed against various financial
services firms by customers related to their investments in
auction rate securities (ARS). The plaintiffs in
these lawsuits allege that the defendants made material
misrepresentations and omissions in statements to customers
about investments in ARS and the manner in which the ARS market
functioned in violation of provisions of the federal securities
laws. Two purported class action complaints were filed alleging
such conduct with respect to TDA Inc. and TD AMERITRADE
Holding Corporation. The cases, in the U.S. District Court
for the Southern District of New York, were consolidated under
the caption In re Humphrys v. TD Ameritrade Holding
Corp. An amended complaint was filed in February 2009 by the
lead plaintiff. The amended complaint requested an unspecified
amount of compensatory damages, equitable relief, interest and
attorneys fees. In April 2009, the Company filed a motion
to dismiss the amended complaint. On October 23, 2009,
before the Court ruled on the motion, the lead plaintiff
dismissed the lawsuit without prejudice.
The SEC and other regulatory authorities conducted
investigations regarding the sale of ARS. On July 20, 2009,
TDA Inc. finalized settlements with the SEC and other regulatory
authorities, concluding investigations by the regulators into
TDA Inc.s offer and sale of ARS. Under these settlement
agreements, TDA Inc. commenced a tender offer to purchase, from
certain current and former account holders, eligible ARS that
were purchased through TDA Inc. on or before February 13,
2008, provided the ARS were not transferred away from the firm
prior to January 24, 2006. This offer does not extend to
clients who purchased ARS through independent registered
investment advisors or through another firm and transferred such
securities to TDA Inc. TDA Inc. will complete the program in two
phases, based on the amount of assets a client holds at TDA
Inc., and will complete all repurchases no later than
June 30, 2010. In addition, TDA Inc. offered to make whole
any losses sustained by eligible clients who purchased ARS
through TDA Inc. on or before February 13, 2008 and sold
such securities at a loss prior to July 20, 2009. TDA Inc.
offered to reimburse clients whose borrowing costs exceeded the
amount they earned in interest or dividends from their eligible
ARS at the time they borrowed money from TDA Inc. to satisfy
liquidity needs. TDA Inc. will participate in a special
arbitration process for the purpose of arbitrating eligible
investors consequential damages claims arising from their
inability to sell their eligible ARS. No fines were imposed by
the regulators under the settlement agreements.
The offer commenced on August 10, 2009. Through
October 26, 2009, TDA Inc. had received tenders of eligible
ARS with an aggregate par value of approximately
$271 million, which TDA Inc. expects to purchase by
November 13, 2009. TDA Inc. estimates that, as of
October 27, 2009, ARS up to a total par value of
approximately $121 million may remain outstanding and
eligible for the tender offer. The ultimate amounts of tendered
ARS purchased and remaining ARS eligible for the tender offer
may decrease due to issuer redemptions. The Company is
accounting for the ARS settlement as a financial guarantee. The
Company recorded a charge to earnings of $13.8 million for
the estimated fair value of this guarantee during the fourth
quarter of fiscal 2009, which is included in losses on money
market funds and client guarantees on the Consolidated
Statements of Income. The liability associated with this
guarantee as of September 30, 2009 is included in accounts
payable and accrued liabilities on the Consolidated Balance
Sheets.
Reserve Fund Matters During September
2008, The Reserve, an independent mutual fund company, announced
that the net asset value of two of its money market mutual funds
(the Primary Fund and the International Liquidity Fund) declined
below $1.00 per share. In addition, The Reserve announced that
the net asset value of the Reserve Yield Plus Fund, which is not
a money market mutual fund but sought to maintain a stable net
asset value of $1.00 per share, declined below $1.00 per share.
TDA Inc.s clients hold shares in these funds, which are
being liquidated by The Reserve. From October 31, 2008
through October 2, 2009, Primary Fund, International
Liquidity
18
Fund and Yield Plus Fund shareholders have received
distributions totaling approximately $0.92 per share, $0.79 per
share and $0.91 per share, respectively. The SEC and other
regulatory authorities are conducting investigations regarding
TDA Inc.s offering of The Reserve funds to clients. TDA
Inc. has received subpoenas and other requests for documents and
information from the regulatory authorities. TDA Inc. is
cooperating with the investigations and requests.
In November 2008, a purported class action lawsuit was filed
with respect to the Yield Plus Fund. The lawsuit is captioned
Ross v. Reserve Management Company, Inc. et al. in
the U.S. District Court for the Southern District of New
York. The Ross lawsuit is on behalf of persons who purchased
shares of Reserve Yield Plus Fund. The complaint names as
defendants a number of entities and individuals related to The
Reserve. The Company is also named as a defendant. The complaint
alleges claims of violations of the federal securities laws and
other claims based on allegations that false and misleading
statements and omissions were made in the Reserve Yield Plus
Fund prospectus and in other statements regarding the fund. The
complaint seeks an unspecified amount of compensatory damages,
interest and attorneys fees.
Other Legal and Regulatory Matters The
Company is subject to lawsuits, arbitrations, claims and other
legal proceedings in connection with its business. Some of the
legal actions include claims for substantial or unspecified
compensatory
and/or
punitive damages. A substantial adverse judgment or other
unfavorable resolution of these matters could have a material
adverse effect on the Companys 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 the legal
proceedings to which it is a defendant or respondent and the
outcome of these pending proceedings is not likely to have a
material adverse effect on the financial condition, results of
operations or cash flows of the Company. However, the Company is
unable to predict the outcome or the timing of the ultimate
resolution of these matters, or the eventual loss 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 Companys 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 eventual fines, penalties or injunctive or
other equitable relief that may result from these matters.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of stockholders during the
fourth quarter of fiscal 2009.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Price
Range of Common Stock
Our common stock trades on the Nasdaq Global Select Market under
the symbol AMTD. The following table shows the high
and low sales prices for the common stock for the periods
indicated, as reported by the Nasdaq Global Select Market. The
prices reflect inter-dealer prices and do not include retail
markups, markdowns or commissions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Price
|
|
|
|
For the Fiscal Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
18.43
|
|
|
$
|
9.34
|
|
|
$
|
21.13
|
|
|
$
|
17.15
|
|
Second Quarter
|
|
$
|
14.88
|
|
|
$
|
10.09
|
|
|
$
|
20.64
|
|
|
$
|
15.06
|
|
Third Quarter
|
|
$
|
19.34
|
|
|
$
|
13.23
|
|
|
$
|
19.68
|
|
|
$
|
16.50
|
|
Fourth Quarter
|
|
$
|
20.23
|
|
|
$
|
16.45
|
|
|
$
|
23.49
|
|
|
$
|
16.00
|
|
19
The closing sale price of our common stock as reported on the
Nasdaq Global Select Market on November 2, 2009 was $19.20
per share. As of that date there were 845 holders of record of
our common stock based on information provided by our transfer
agent. The number of stockholders of record does not reflect the
number of individual or institutional stockholders that
beneficially own our stock because most stock is held in the
name of nominees. Based on information available to us, we
believe there are approximately 113,000 beneficial holders of
our common stock.
Dividends
We have not declared or paid regular cash dividends on our
common stock. In connection with our acquisition of TD
Waterhouse in January 2006, we declared and paid a special cash
dividend of $6.00 per share. We currently intend to retain all
of our earnings, if any, for use in our business and do not
anticipate paying any other cash dividends in the foreseeable
future. Our credit agreement has provisions which may limit the
payment of cash dividends to our stockholders. The payment of
any future dividends will be at the discretion of our board of
directors, subject to the provisions of the credit agreement,
and will depend upon a number of factors, including future
earnings, the success of our business activities, capital
requirements, the general financial condition and future
prospects of our business, general business conditions and such
other factors as the board of directors may deem relevant.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information about securities authorized for issuance under the
Companys equity compensation plans is contained in
Item 12 Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.
20
Performance
Graph
The following Company common stock performance information is
not deemed to be soliciting material or to be
filed with the SEC or subject to the SECs
proxy rules or to the liabilities of Section 18 of the
Exchange Act and shall not be deemed to be incorporated by
reference into any prior or subsequent filing by the Company
under the Securities Act of 1933, as amended, or the Exchange
Act.
The following graph and table set forth information comparing
the cumulative total return through the end of the
Companys most recent fiscal year from a $100 investment on
September 24, 2004 in the Companys common stock, a
broad-based stock index and the stocks comprising an industry
peer group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
Index
|
|
9/24/04
|
|
9/30/05
|
|
9/29/06
|
|
9/30/07
|
|
9/30/08
|
|
9/30/09
|
TD AMERITRADE Holding Corporation
|
|
|
100.00
|
|
|
|
183.82
|
|
|
|
211.35
|
|
|
|
204.29
|
|
|
|
186.91
|
|
|
|
220.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500
|
|
|
100.00
|
|
|
|
112.70
|
|
|
|
124.87
|
|
|
|
145.39
|
|
|
|
113.44
|
|
|
|
105.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peer Group
|
|
|
100.00
|
|
|
|
158.53
|
|
|
|
202.60
|
|
|
|
213.25
|
|
|
|
223.01
|
|
|
|
165.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Peer Group is comprised of the following companies that have
significant retail brokerage operations:
E*TRADE Financial Corporation
The Charles Schwab Corporation
21
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
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
|
|
|
July 1, 2009 July 31, 2009
|
|
|
26,882
|
|
|
$
|
16.92
|
|
|
|
|
|
|
|
|
|
August 1, 2009 August 31, 2009
|
|
|
11,129
|
|
|
$
|
19.26
|
|
|
|
|
|
|
|
|
|
September 1, 2009 September 30, 2009
|
|
|
1,212
|
|
|
$
|
19.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Three months ended September 30, 2009
|
|
|
39,223
|
|
|
$
|
17.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the shares purchased during the quarter ended
September 30, 2009, were repurchased from employees for
income tax withholding in connection with restricted stock unit
and restricted stock award distributions. There were no stock
repurchase programs in effect and no programs expired during the
fourth quarter of fiscal 2009.
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
Sept. 30,
|
|
|
Sept. 30,
|
|
|
Sept. 30,
|
|
|
Sept. 29,
|
|
|
Sept. 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006*
|
|
|
2005
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
2,407,926
|
|
|
$
|
2,537,356
|
|
|
$
|
2,176,946
|
|
|
$
|
1,803,531
|
|
|
$
|
1,003,153
|
|
Total expenses
|
|
|
1,346,518
|
|
|
|
1,274,782
|
|
|
|
1,148,124
|
|
|
|
1,027,648
|
|
|
|
449,661
|
|
Other income (expense)
|
|
|
(2,003
|
)
|
|
|
928
|
|
|
|
5,881
|
|
|
|
81,422
|
|
|
|
|
|
Net income
|
|
|
643,705
|
|
|
|
803,917
|
|
|
|
645,900
|
|
|
|
526,759
|
|
|
|
339,753
|
|
Earnings per share basic
|
|
$
|
1.11
|
|
|
$
|
1.35
|
|
|
$
|
1.08
|
|
|
$
|
0.97
|
|
|
$
|
0.84
|
|
Earnings per share diluted
|
|
$
|
1.10
|
|
|
$
|
1.33
|
|
|
$
|
1.06
|
|
|
$
|
0.95
|
|
|
$
|
0.82
|
|
Weighted average shares outstanding basic
|
|
|
578,972
|
|
|
|
593,746
|
|
|
|
598,503
|
|
|
|
544,307
|
|
|
|
404,215
|
|
Weighted average shares outstanding diluted
|
|
|
587,252
|
|
|
|
603,133
|
|
|
|
608,263
|
|
|
|
555,465
|
|
|
|
413,167
|
|
Dividends declared per share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6.00
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
Sept. 30,
|
|
|
Sept. 30,
|
|
|
Sept. 30,
|
|
|
Sept. 29,
|
|
|
Sept. 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006*
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
791,211
|
|
|
$
|
674,135
|
|
|
$
|
413,787
|
|
|
$
|
363,650
|
|
|
$
|
171,064
|
|
Short-term investments
|
|
|
52,071
|
|
|
|
369,133
|
|
|
|
76,800
|
|
|
|
65,275
|
|
|
|
229,819
|
|
Total assets
|
|
|
18,371,810
|
|
|
|
15,951,522
|
|
|
|
18,092,327
|
|
|
|
16,558,469
|
|
|
|
16,417,110
|
|
Long-term obligations
|
|
|
1,443,465
|
|
|
|
1,444,544
|
|
|
|
1,481,948
|
|
|
|
1,710,712
|
|
|
|
45,736
|
|
Stockholders equity
|
|
|
3,551,283
|
|
|
|
2,925,038
|
|
|
|
2,154,921
|
|
|
|
1,730,234
|
|
|
|
1,518,867
|
|
|
|
|
* |
|
The growth in our results of operations and increase in
long-term obligations during fiscal 2006 was primarily due to
our acquisition of TD Waterhouse Group, Inc. on January 24,
2006. We declared and paid a special cash dividend of $6.00 per
share during fiscal 2006 in connection with the TD Waterhouse
acquisition. |
22
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
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; average commissions and transaction fees per
trade; amounts of commissions and transaction fees, asset-based
revenues and other revenues; our migration of client cash
balances into the insured deposit account offering; amounts of
total expenses; our effective income tax rate; our capital and
liquidity needs and our plans to finance such needs; and the
impact of recently-issued accounting pronouncements.
The Companys 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;
fluctuations in interest rates; stock market fluctuations and
changes in client trading activity; credit risk with clients and
counterparties; increased competition; systems failures and
capacity constraints; network security risks; our ability to
service debt obligations; our ability to achieve the benefits of
the thinkorswim Group Inc. (thinkorswim)
acquisition; regulatory and legal uncertainties and the other
risks and uncertainties set forth under Item 1A.
Risk Factors of this
Form 10-K.
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.
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 total accounts Average
client trades per day during the period divided by the
average number of total accounts during the period.
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 lending balances. Average rates consist
of the average interest rates and fees earned and paid on such
balances.
Average client trades per account (annualized)
Total trades divided by the average number of total
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.
Average commissions and transaction fees per
trade Total commissions and transaction fee
revenues as reported on the Companys Consolidated
Statements of Income (excluding revenues from thinkorswim,
Inc.s active trader business) divided by total trades
for the period. Commissions and transaction fee revenues
primarily consist of trading commissions and revenue-sharing
arrangements with market destinations (also referred to as
payment for order flow).
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
23
(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.
Clearing accounts Accounts for which the
Company served as the clearing broker-dealer on behalf of an
unaffiliated introducing broker-dealer. The Company charged a
fee to the introducing broker-dealer to process trades in
clearing accounts.
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.
EBITDA and EBITDA excluding investment
gains/losses EBITDA (earnings before interest,
taxes, depreciation and amortization) and EBITDA excluding
investment gains/losses are non-GAAP financial measures. We
consider EBITDA and EBITDA excluding investment gains/losses to
be important measures of our financial performance and of our
ability to generate cash flows to service debt, fund capital
expenditures and fund other corporate investing and financing
activities. EBITDA is used as the denominator in the
consolidated leverage ratio calculation for our senior credit
facilities. The consolidated leverage ratio determines the
interest rate margin charged on the senior credit facilities.
EBITDA eliminates the non-cash effect of tangible asset
depreciation and amortization and intangible asset amortization.
EBITDA excluding investment gains/losses also eliminates the
effect of non-brokerage investment-related gains and losses that
are not likely to be indicative of the ongoing operations of our
business. EBITDA and EBITDA excluding investment gains/losses
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 investment gains/losses
Earnings per share (EPS) excluding investment
gains/losses is a non-GAAP financial measure. We define EPS
excluding investment gains/losses as earnings (loss) per share,
adjusted to remove the after-tax effect of non-brokerage
investment-related gains and losses. We consider EPS excluding
investment gains/losses an important measure of our financial
performance. Gains/losses on non-brokerage investments and
investment-related derivatives are excluded because we believe
they are not likely to be indicative of the ongoing operations
of our business. EPS excluding investment gains/losses 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.
24
Expenses excluding advertising Expenses
excluding advertising is a non-GAAP financial measure. Expenses
excluding advertising consists of total expenses, adjusted to
remove advertising expense. We consider 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, varies
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. Expenses excluding advertising should be considered in
addition to, rather than as a substitute for, total expenses.
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, except
clearing accounts.
Insured deposit account fees Revenues
resulting from the Money Market Deposit Account
(MMDA) agreement with TD Bank USA, N.A. (TD
Bank USA), a subsidiary of The Toronto-Dominion Bank
(TD). Under the MMDA agreement, TD Bank USA makes
available to clients of our broker-dealer subsidiaries
FDIC-insured deposit accounts as designated sweep vehicles. With
respect to the insured deposit accounts, our broker-dealer
subsidiaries provide marketing and support services and act as
recordkeeper for TD Bank USA and as agent for clients. In
exchange for these services, TD Bank USA pays our broker-dealer
subsidiaries a fee based on the yield earned on the client
insured deposit account assets, less the actual interest cost
paid to clients, actual interest cost incurred on borrowings, a
flat fee to TD Bank USA of 25 basis points and the cost of
FDIC insurance premiums.
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
Amerivesttm.
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 Liquid assets is a non-GAAP
financial measure. We define liquid assets as the sum of
(a) corporate cash and cash equivalents, (b) corporate
short-term investments, (c) regulatory net capital of
(i) our clearing broker-dealer subsidiary in excess of 5%
of aggregate debit items and (ii) our introducing
broker-dealer subsidiaries in excess of 120% of the minimum
dollar net capital requirement or in excess of
81/3%
of aggregate indebtedness and (d) Tier 1 capital of
our trust company in excess of the minimum dollar requirement.
We include the excess capital of our broker-dealer and trust
company subsidiaries in liquid assets, rather than simply
including broker-dealer and trust cash and cash equivalents,
because capital requirements may limit the amount of cash
available for dividend from the broker-dealer and trust
subsidiaries to the parent company. Excess capital, as defined
under clauses (c) and (d) above, is generally
available for dividend from the broker-dealer and trust
subsidiaries to the parent company. We consider liquid assets an
important measure of our liquidity and of our ability to fund
corporate investing and financing activities. Liquid assets
should be considered as a supplemental measure of liquidity,
rather than as a substitute for cash and cash equivalents.
Liquidation value The net value of a
clients 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.
25
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 accounts or Net account growth The
number of new client accounts (funded and unfunded) opened in a
specified period minus the number of client accounts closed in
the same period.
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.
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 accounts All open client accounts
(funded and unfunded), except clearing accounts.
Total trades Revenue generating
client securities trades, which are executed by the
Companys broker-dealer subsidiaries on an agency basis,
excluding thinkorswim, Inc.s active trader business. Total
trades are a significant source of the Companys revenues.
Such trades include, but are not limited to, trades in equities,
options, futures, foreign exchange, mutual funds and debt
instruments. Trades generate revenue from commissions,
transaction fees
and/or
revenue-sharing arrangements with market destinations (also
known as payment for order flow).
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, transaction clearing fees and revenue sharing
arrangements with market destinations (also known as
payment for order flow).
Financial
Statement Overview
We provide securities brokerage and clearing services to our
clients through our introducing and clearing broker-dealers.
Substantially all of our net revenues are derived from our
brokerage activities and clearing and
26
execution services. Our primary focus is serving retail clients
and independent registered investment advisors by providing
services with straightforward, affordable pricing.
Our largest sources of revenues are asset-based revenues and
transaction-based revenues. 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 receive payment for order
flow, which results from arrangements we have with many
execution agents to receive cash payments in exchange for
routing trade orders to these firms for execution. Payment for
order flow revenue is included in commissions and transaction
fees on our Consolidated Statements of Income.
Our largest operating expense generally is employee compensation
and benefits. Employee compensation and benefits expense
includes salaries, bonuses, stock-based compensation, group
insurance, contributions to benefit programs, recruitment and
other related employee costs. Fair value adjustments of
compensation-related derivative instruments represent
adjustments to equity swap agreements that were intended to
economically offset TD Waterhouse Group, Inc. (TD
Waterhouse) stock-based compensation (assumed in the TD
Waterhouse acquisition in fiscal 2006) that was based on
the value of TD stock. During December 2007, the equity swap
agreements were settled in connection with the settlement of
most of the related restricted stock units.
Clearing and execution costs include incremental third-party
expenses that tend to fluctuate as a result of fluctuations in
client accounts or trades. Examples of expenses included in this
category are outsourced clearing services, statement and
confirmation processing and postage costs and clearing expenses
paid to the National Securities Clearing Corporation, option
exchanges and other market centers. Communications expense
includes telecommunications, other postage, news and quote
costs. Occupancy and equipment costs include the costs of
leasing and maintaining our office spaces and the lease expenses
on computer and other equipment. Depreciation and amortization
includes depreciation on property and equipment and amortization
of leasehold improvements. Amortization of acquired intangible
assets consists of amortization of amounts allocated to the
value of intangible assets acquired in business combinations.
Professional services expense includes costs paid to outside
firms for assistance with legal, accounting, technology,
regulatory, marketing and general management issues. Interest on
borrowings consists of interest expense on our long-term debt,
capital leases and other borrowings. Other operating expenses
include provision for bad debt losses, fraud and error losses,
gains or losses on disposal of property, insurance expenses,
travel expenses and other miscellaneous expenses. Advertising
costs include production and placement of advertisements in
various media, including online, television, print and direct
mail, as well as client promotion and development costs.
Advertising expenses may increase or decrease significantly from
period to period.
Losses on money market funds and client guarantees include:
(a) corporate investment losses on money market fund
holdings, (b) losses associated with our commitment to
mitigate our clients losses, up to $55 million, on
their holdings in certain money market funds in the event
clients receive less than $1.00 per share upon the orderly
liquidation of the funds and (c) losses associated with our
guarantee related to auction rate securities settlement
agreements. See Guarantees and Auction Rate
Securities Matters under Note 17 of the Notes to
Consolidated Financial Statements for information regarding the
client guarantees referred to under clauses (b) and
(c) above, respectively.
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements
requires us to make judgments and estimates that may have a
significant impact upon our financial results. Note 1,
under Item 8, Financial Statements and Supplementary
Data Notes to Consolidated Financial Statements, of
this
Form 10-K
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
managements judgments and estimates and could materially
affect our results of operations and financial position.
27
Valuation
of goodwill and acquired intangible assets
We test goodwill for impairment on at least an annual basis, or
whenever events and circumstances indicate that the carrying
value may not be recoverable. In performing the impairment
tests, we utilize quoted market prices of our common stock to
estimate the fair value of the Company as a whole. The estimated
fair value is then allocated to our reporting units, if
applicable, based on operating revenues, and is compared with
the carrying value of the reporting units. No impairment charges
have resulted from our annual impairment tests. We review our
acquired intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of
such asset may not be recoverable. We evaluate recoverability by
comparing the undiscounted cash flows associated with the asset
to the assets carrying amount. We also evaluate the
remaining useful lives of intangible assets each reporting
period to determine if events or trends warrant a revision to
the remaining period of amortization. We have had no events or
trends that have warranted a revision to the originally
estimated useful lives.
Valuation
of stock-based compensation
Stock-based compensation cost is measured at the grant date
based on the value of the award and is recognized as expense
over the requisite service period based on the number of awards
for which the requisite service is expected to be rendered. We
must make assumptions regarding the number of stock-based awards
that will be forfeited. For performance-based awards, we must
also make assumptions regarding the likelihood of achieving
performance goals. If actual results differ significantly from
these estimates, stock-based compensation expense and our
results of operations could be materially affected.
Estimates
of effective income tax rates, deferred income taxes and related
valuation allowances
We estimate our income tax expense based on the various
jurisdictions where we conduct business. This requires us to
estimate our current income tax obligations and to assess
temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities. Temporary
differences result in deferred income tax assets and
liabilities. We must evaluate the likelihood that deferred
income tax assets will be realized. To the extent we determine
that realization is not more likely than not, we
establish a valuation allowance. Establishing or increasing a
valuation allowance results in a corresponding increase to
income tax expense in our Consolidated Statements of Income.
Conversely, to the extent circumstances indicate that a
valuation allowance can be reduced or is no longer necessary,
that portion of the valuation allowance is reversed, reducing
income tax expense.
We must make significant judgments to calculate our provision
for income taxes, our deferred income tax assets and liabilities
and any valuation allowance against our deferred income tax
assets. We must also exercise judgment in determining the need
for, and amount of, any accruals for uncertain tax positions.
Because the application of tax laws and regulations to many
types of transactions is subject to varying interpretations,
amounts reported in our consolidated financial statements could
be significantly changed at a later date upon final
determinations by taxing authorities.
Valuation
of guarantees
We enter into guarantees in the ordinary course of business,
primarily to meet the needs of our clients and to manage our
asset-based revenues. We record a liability for the estimated
fair value of the guarantee at its inception. If actual results
differ significantly from these estimates, our results of
operations could be materially affected. For further details
regarding our guarantees, see the following sections under
Item 8, Financial Statements and Supplementary
Data Notes to Consolidated Financial Statements:
Auction Rate Securities Matters and
Guarantees under Note 17
Commitments and Contingencies and Money Market Deposit
Account Agreement under Note 20 Related
Party Transactions.
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
28
have a positive impact on our results of operations. If client
trading activity were to decline, 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 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 are
key metrics we use in evaluating our financial performance.
EBITDA 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
our senior credit facilities. The consolidated leverage ratio
determines the interest rate margin charged on the senior credit
facilities. EBITDA eliminates the non-cash effect of tangible
asset depreciation and amortization and intangible asset
amortization. EBITDA should be considered in addition to, rather
than as a substitute for, pre-tax income, net income and cash
flows from operating activities.
The following table sets forth EBITDA in dollars and as a
percentage of net revenues for the periods indicated, and
provides reconciliations to pre-tax income, which is the most
directly comparable GAAP measure (dollars in thousands):
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|
Fiscal Year Ended September 30,
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|
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|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
$
|
|
|
% of Rev.
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|
|
$
|
|
|
% of Rev.
|
|
|
$
|
|
|
% of Rev.
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|
|
EBITDA
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|
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|
EBITDA
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|
$
|
1,219,236
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|
|
|
50.6
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%
|
|
$
|
1,438,123
|
|
|
|
56.7
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%
|
|
$
|
1,233,582
|
|
|
|
56.7
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%
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Less:
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Depreciation and amortization
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(45,891
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)
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(1.9
|
)%
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|
|
(36,899
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)
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|
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(1.5
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)%
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(26,237
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)
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|
|
(1.2
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)%
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Amortization of acquired intangible assets
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(73,870
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)
|
|
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(3.1
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)%
|
|
|
(59,275
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)
|
|
|
(2.3
|
)%
|
|
|
(54,469
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)
|
|
|
(2.5
|
)%
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Interest on borrowings
|
|
|
(40,070
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)
|
|
|
(1.7
|
)%
|
|
|
(78,447
|
)
|
|
|
(3.1
|
)%
|
|
|
(118,173
|
)
|
|
|
(5.4
|
)%
|
|
|
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|
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Pre-tax income
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$
|
1,059,405
|
|
|
|
44.0
|
%
|
|
$
|
1,263,502
|
|
|
|
49.8
|
%
|
|
$
|
1,034,703
|
|
|
|
47.5
|
%
|
|
|
|
|
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Our pre-tax income and EBITDA decreased for fiscal 2009 compared
to fiscal 2008, primarily due to a 5% decrease in net revenues
and a 6% increase in total expenses. The decrease in net
revenues was driven primarily by lower asset-based revenues
resulting from lower net interest margin earned on spread-based
balances and investment product fees waived on money market
mutual funds due to the near-zero short-term interest rate
environment during most of fiscal 2009. This decrease was
partially offset by higher average spread-based balances and by
increased transaction-based revenues resulting from higher
client trading volumes. The increase in total expenses was due
primarily to additional business resulting from the thinkorswim
acquisition, partially offset by lower interest on borrowings.
Detailed analysis of net revenues and expenses is presented
later in this discussion.
Operating
Metrics
Our largest sources of revenues are asset-based revenues and
transaction-based revenues. For fiscal 2009, asset-based
revenues and transaction-based revenues accounted for 46% and
52% 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
29
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):
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09 vs. 08
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|
|
08 vs. 07
|
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|
Fiscal Year
|
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|
Increase/
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
Average interest-earning assets (excluding conduit business)
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|
$
|
9,917
|
|
|
$
|
9,835
|
|
|
$
|
9,225
|
|
|
$
|
82
|
|
|
$
|
610
|
|
Average insured deposit account balances
|
|
|
22,003
|
|
|
|
15,640
|
|
|
|
14,898
|
|
|
|
6,363
|
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average spread-based balance
|
|
$
|
31,920
|
|
|
$
|
25,475
|
|
|
$
|
24,123
|
|
|
$
|
6,445
|
|
|
$
|
1,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest revenue (excluding conduit business)
|
|
$
|
342.7
|
|
|
$
|
538.1
|
|
|
$
|
548.8
|
|
|
$
|
(195.4
|
)
|
|
$
|
(10.7
|
)
|
Insured deposit account fee revenue
|
|
|
568.1
|
|
|
|
628.7
|
|
|
|
535.4
|
|
|
|
(60.6
|
)
|
|
|
93.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spread-based revenue
|
|
$
|
910.8
|
|
|
$
|
1,166.8
|
|
|
$
|
1,084.2
|
|
|
$
|
(256.0
|
)
|
|
$
|
82.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average yield interest-earning assets (excluding
conduit business)
|
|
|
3.41
|
%
|
|
|
5.38
|
%
|
|
|
5.85
|
%
|
|
|
(1.97
|
)%
|
|
|
(0.47
|
)%
|
Average yield insured deposit account fees
|
|
|
2.55
|
%
|
|
|
3.95
|
%
|
|
|
3.53
|
%
|
|
|
(1.40
|
)%
|
|
|
0.42
|
%
|
Net interest margin (NIM)
|
|
|
2.81
|
%
|
|
|
4.50
|
%
|
|
|
4.42
|
%
|
|
|
(1.69
|
)%
|
|
|
0.08
|
%
|
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)
|
|
|
09 vs. 08
|
|
|
08 vs. 07
|
|
|
|
Fiscal Year
|
|
|
Increase/
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
Segregated cash
|
|
$
|
6.6
|
|
|
$
|
0.3
|
|
|
$
|
31.2
|
|
|
$
|
6.3
|
|
|
$
|
(30.9
|
)
|
Client margin balances
|
|
|
234.2
|
|
|
|
527.1
|
|
|
|
615.3
|
|
|
|
(292.9
|
)
|
|
|
(88.2
|
)
|
Securities borrowing (excluding conduit business)
|
|
|
105.4
|
|
|
|
56.0
|
|
|
|
52.9
|
|
|
|
49.4
|
|
|
|
3.1
|
|
Other cash and interest-earning investments, net
|
|
|
3.5
|
|
|
|
35.0
|
|
|
|
24.6
|
|
|
|
(31.5
|
)
|
|
|
10.4
|
|
Client credit balances
|
|
|
(4.1
|
)
|
|
|
(24.9
|
)
|
|
|
(53.9
|
)
|
|
|
20.8
|
|
|
|
29.0
|
|
Securities lending (excluding conduit business)
|
|
|
(2.9
|
)
|
|
|
(55.4
|
)
|
|
|
(121.3
|
)
|
|
|
52.5
|
|
|
|
65.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest revenue (excluding conduit business)
|
|
|
342.7
|
|
|
|
538.1
|
|
|
|
548.8
|
|
|
|
(195.4
|
)
|
|
|
(10.7
|
)
|
Securities borrowing conduit business
|
|
|
10.9
|
|
|
|
173.3
|
|
|
|
287.5
|
|
|
|
(162.4
|
)
|
|
|
(114.2
|
)
|
Securities lending conduit business
|
|
|
(6.7
|
)
|
|
|
(161.8
|
)
|
|
|
(278.2
|
)
|
|
|
155.1
|
|
|
|
116.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest revenue
|
|
$
|
346.9
|
|
|
$
|
549.6
|
|
|
$
|
558.1
|
|
|
$
|
(202.7
|
)
|
|
$
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance
|
|
|
09 vs. 08
|
|
|
08 vs. 07
|
|
|
|
Fiscal Year
|
|
|
%
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
Segregated cash
|
|
$
|
3,916
|
|
|
$
|
12
|
|
|
$
|
597
|
|
|
|
N/A
|
|
|
|
(98
|
)%
|
Client margin balances
|
|
|
4,491
|
|
|
|
8,138
|
|
|
|
7,501
|
|
|
|
(45
|
)%
|
|
|
8
|
%
|
Securities borrowing (excluding conduit business)
|
|
|
450
|
|
|
|
416
|
|
|
|
655
|
|
|
|
8
|
%
|
|
|
(36
|
)%
|
Other cash and interest-earning investments
|
|
|
1,060
|
|
|
|
1,269
|
|
|
|
472
|
|
|
|
(16
|
)%
|
|
|
169
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets (excluding conduit business)
|
|
|
9,917
|
|
|
|
9,835
|
|
|
|
9,225
|
|
|
|
1
|
%
|
|
|
7
|
%
|
Securities borrowing conduit business
|
|
|
1,242
|
|
|
|
5,446
|
|
|
|
5,344
|
|
|
|
(77
|
)%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
$
|
11,159
|
|
|
$
|
15,281
|
|
|
$
|
14,569
|
|
|
|
(27
|
)%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client credit balances
|
|
$
|
6,219
|
|
|
$
|
4,261
|
|
|
$
|
3,456
|
|
|
|
46
|
%
|
|
|
23
|
%
|
Securities lending (excluding conduit business)
|
|
|
1,231
|
|
|
|
3,200
|
|
|
|
3,097
|
|
|
|
(62
|
)%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities (excluding conduit business)
|
|
|
7,450
|
|
|
|
7,461
|
|
|
|
6,553
|
|
|
|
(0
|
)%
|
|
|
14
|
%
|
Securities lending conduit business
|
|
|
1,242
|
|
|
|
5,446
|
|
|
|
5,344
|
|
|
|
(77
|
)%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
$
|
8,692
|
|
|
$
|
12,907
|
|
|
$
|
11,897
|
|
|
|
(33
|
)%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09 vs. 08
|
|
|
08 vs. 07
|
|
|
|
Average Yield (Cost)
|
|
|
Net Yield
|
|
|
Net Yield
|
|
|
|
Fiscal Year
|
|
|
Increase/
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
Segregated cash
|
|
|
0.17
|
%
|
|
|
2.47
|
%
|
|
|
5.14
|
%
|
|
|
(2.30
|
)%
|
|
|
(2.67
|
)%
|
Client margin balances
|
|
|
5.14
|
%
|
|
|
6.37
|
%
|
|
|
8.07
|
%
|
|
|
(1.23
|
)%
|
|
|
(1.70
|
)%
|
Other cash and interest-earning investments, net
|
|
|
0.33
|
%
|
|
|
2.71
|
%
|
|
|
5.15
|
%
|
|
|
(2.38
|
)%
|
|
|
(2.44
|
)%
|
Client credit balances
|
|
|
(0.07
|
)%
|
|
|
(0.58
|
)%
|
|
|
(1.53
|
)%
|
|
|
0.51
|
%
|
|
|
0.95
|
%
|
Net interest revenue (excluding conduit business)
|
|
|
3.41
|
%
|
|
|
5.38
|
%
|
|
|
5.85
|
%
|
|
|
(1.97
|
)%
|
|
|
(0.47
|
)%
|
Securities borrowing conduit business
|
|
|
0.86
|
%
|
|
|
3.13
|
%
|
|
|
5.29
|
%
|
|
|
(2.27
|
)%
|
|
|
(2.16
|
)%
|
Securities lending conduit business
|
|
|
(0.53
|
)%
|
|
|
(2.92
|
)%
|
|
|
(5.12
|
)%
|
|
|
2.39
|
%
|
|
|
2.20
|
%
|
Net interest revenue
|
|
|
3.07
|
%
|
|
|
3.54
|
%
|
|
|
3.77
|
%
|
|
|
(0.47
|
)%
|
|
|
(0.23
|
)%
|
The following tables set forth key metrics that we use in
analyzing investment product fee revenues (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09 vs. 08
|
|
|
08 vs. 07
|
|
|
|
Fiscal Year
|
|
|
Increase/
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
Fee revenue
|
|
$
|
184.3
|
|
|
$
|
309.4
|
|
|
$
|
232.2
|
|
|
$
|
(125.1
|
)
|
|
$
|
77.2
|
|
Average balance
|
|
$
|
59,425
|
|
|
$
|
70,782
|
|
|
$
|
49,665
|
|
|
$
|
(11,357
|
)
|
|
$
|
21,117
|
|
Average yield
|
|
|
0.31
|
%
|
|
|
0.43
|
%
|
|
|
0.46
|
%
|
|
|
(0.12
|
)%
|
|
|
(0.03
|
)%
|
31
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09 vs. 08
|
|
|
08 vs. 07
|
|
|
|
Fiscal Year
|
|
|
%
|
|
|
%
|
|
|
|
2009
|
|
|
2008(1)
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
Total trades (in millions)
|
|
|
93.27
|
|
|
|
75.72
|
|
|
|
63.11
|
|
|
|
23
|
%
|
|
|
20
|
%
|
Average commissions and transaction fees per trade(2)
|
|
$
|
13.35
|
|
|
$
|
13.44
|
|
|
$
|
12.90
|
|
|
|
(1
|
)%
|
|
|
4
|
%
|
Average client trades per day
|
|
|
371,579
|
|
|
|
301,061
|
|
|
|
253,440
|
|
|
|
23
|
%
|
|
|
19
|
%
|
Average client trades per account (annualized)
|
|
|
12.9
|
|
|
|
11.4
|
|
|
|
10.0
|
|
|
|
13
|
%
|
|
|
14
|
%
|
Activity rate total accounts
|
|
|
5.1
|
%
|
|
|
4.5
|
%
|
|
|
4.0
|
%
|
|
|
13
|
%
|
|
|
13
|
%
|
Activity rate funded accounts
|
|
|
7.3
|
%
|
|
|
6.3
|
%
|
|
|
5.7
|
%
|
|
|
16
|
%
|
|
|
11
|
%
|
Trading days
|
|
|
251.0
|
|
|
|
251.5
|
|
|
|
249.0
|
|
|
|
(0
|
)%
|
|
|
1
|
%
|
|
|
|
(1) |
|
Effective in October 2007, trading activity metrics have been
revised to exclude non-revenue generating mutual fund trades. |
|
(2) |
|
Average commissions and transaction fees per trade excludes
thinkorswim active trader business. |
Client
Account and Client Asset Metrics
The following table sets forth certain metrics regarding client
accounts and client assets, which we use to analyze growth and
trends in our client base:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total accounts (beginning of year)
|
|
|
6,895,000
|
|
|
|
6,380,000
|
|
|
|
6,191,000
|
|
New accounts opened
|
|
|
737,000
|
|
|
|
648,000
|
|
|
|
554,000
|
|
Accounts purchased
|
|
|
197,000
|
|
|
|
102,000
|
|
|
|
|
|
Accounts closed
|
|
|
(266,000
|
)
|
|
|
(235,000
|
)
|
|
|
(365,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts (end of year)
|
|
|
7,563,000
|
|
|
|
6,895,000
|
|
|
|
6,380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change during year
|
|
|
10
|
%
|
|
|
8
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded accounts (beginning of year)
|
|
|
4,918,000
|
|
|
|
4,597,000
|
|
|
|
4,363,000
|
|
Funded accounts (end of year)
|
|
|
5,279,000
|
|
|
|
4,918,000
|
|
|
|
4,597,000
|
|
Percentage change during year
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client assets (beginning of year, in billions)
|
|
$
|
278.0
|
|
|
$
|
302.7
|
|
|
$
|
261.7
|
|
Client assets (end of year, in billions)
|
|
$
|
302.0
|
|
|
$
|
278.0
|
|
|
$
|
302.7
|
|
Percentage change during year
|
|
|
9
|
%
|
|
|
(8
|
)%
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net new assets (in billions)
|
|
$
|
26.6
|
|
|
$
|
22.8
|
|
|
$
|
12.4
|
|
In connection with our purchase of thinkorswim on June 11,
2009, we acquired approximately 197,000 total accounts,
approximately 113,000 funded accounts and approximately
$4 billion in client assets. In connection with our
purchase of Fiserv Trust Company on February 4, 2008,
we acquired approximately 102,000 total accounts, approximately
81,000 funded accounts and approximately $25 billion in
client assets.
32
Consolidated
Statements of Income Data
The following table summarizes certain data from our
Consolidated Statements of Income for analysis purposes (in
millions, except percentages and interest days):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
09 vs. 08
|
|
|
08 vs. 07
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
% Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction-based revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions and transaction fees
|
|
$
|
1,253.2
|
|
|
$
|
1,017.5
|
|
|
$
|
813.8
|
|
|
|
23
|
%
|
|
|
25
|
%
|
Asset-based revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue
|
|
|
362.1
|
|
|
|
799.2
|
|
|
|
1,013.6
|
|
|
|
(55
|
)%
|
|
|
(21
|
)%
|
Brokerage interest expense
|
|
|
(15.2
|
)
|
|
|
(249.6
|
)
|
|
|
(455.5
|
)
|
|
|
(94
|
)%
|
|
|
(45
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest revenue
|
|
|
346.9
|
|
|
|
549.6
|
|
|
|
558.1
|
|
|
|
(37
|
)%
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured deposit account fees
|
|
|
568.1
|
|
|
|
628.7
|
|
|
|
535.4
|
|
|
|
(10
|
)%
|
|
|
17
|
%
|
Investment product fees
|
|
|
184.3
|
|
|
|
309.4
|
|
|
|
232.2
|
|
|
|
(40
|
)%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-based revenues
|
|
|
1,099.3
|
|
|
|
1,487.7
|
|
|
|
1,325.7
|
|
|
|
(26
|
)%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
55.4
|
|
|
|
32.2
|
|
|
|
37.5
|
|
|
|
72
|
%
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
2,407.9
|
|
|
|
2,537.4
|
|
|
|
2,176.9
|
|
|
|
(5
|
)%
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
511.2
|
|
|
|
503.3
|
|
|
|
429.8
|
|
|
|
2
|
%
|
|
|
17
|
%
|
Fair value adjustments of compensation-related derivative
instruments
|
|
|
|
|
|
|
0.8
|
|
|
|
(3.2
|
)
|
|
|
(100
|
)%
|
|
|
N/A
|
|
Clearing and execution costs
|
|
|
70.9
|
|
|
|
44.6
|
|
|
|
79.7
|
|
|
|
59
|
%
|
|
|
(44
|
)%
|
Communications
|
|
|
83.1
|
|
|
|
69.6
|
|
|
|
82.2
|
|
|
|
19
|
%
|
|
|
(15
|
)%
|
Occupancy and equipment costs
|
|
|
124.3
|
|
|
|
101.8
|
|
|
|
84.3
|
|
|
|
22
|
%
|
|
|
21
|
%
|
Depreciation and amortization
|
|
|
45.9
|
|
|
|
36.9
|
|
|
|
26.2
|
|
|
|
24
|
%
|
|
|
41
|
%
|
Amortization of acquired intangible assets
|
|
|
73.9
|
|
|
|
59.3
|
|
|
|
54.5
|
|
|
|
25
|
%
|
|
|
9
|
%
|
Professional services
|
|
|
127.6
|
|
|
|
108.3
|
|
|
|
84.0
|
|
|
|
18
|
%
|
|
|
29
|
%
|
Interest on borrowings
|
|
|
40.1
|
|
|
|
78.4
|
|
|
|
118.2
|
|
|
|
(49
|
)%
|
|
|
(34
|
)%
|
Other
|
|
|
58.7
|
|
|
|
62.9
|
|
|
|
46.8
|
|
|
|
(7
|
)%
|
|
|
34
|
%
|
Advertising
|
|
|
197.1
|
|
|
|
173.3
|
|
|
|
145.7
|
|
|
|
14
|
%
|
|
|
19
|
%
|
Losses on money market funds and client guarantees
|
|
|
13.8
|
|
|
|
35.6
|
|
|
|
|
|
|
|
(61
|
)%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,346.5
|
|
|
|
1,274.8
|
|
|
|
1,148.1
|
|
|
|
6
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other income (expense) and income taxes
|
|
|
1,061.4
|
|
|
|
1,262.6
|
|
|
|
1,028.8
|
|
|
|
(16
|
)%
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of investments
|
|
|
(2.0
|
)
|
|
|
0.9
|
|
|
|
5.9
|
|
|
|
N/A
|
|
|
|
(84
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax income
|
|
|
1,059.4
|
|
|
|
1,263.5
|
|
|
|
1,034.7
|
|
|
|
(16
|
)%
|
|
|
22
|
%
|
Provision for income taxes
|
|
|
415.7
|
|
|
|
459.6
|
|
|
|
388.8
|
|
|
|
(10
|
)%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
643.7
|
|
|
$
|
803.9
|
|
|
$
|
645.9
|
|
|
|
(20
|
)%
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of interest days in period
|
|
|
365
|
|
|
|
366
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
39.2
|
%
|
|
|
36.4
|
%
|
|
|
37.6
|
%
|
|
|
|
|
|
|
|
|
Note: Details may not sum to totals and subtotals due to
rounding differences. Change percentages are based on
non-rounded Consolidated Statements of Income amounts.
Fiscal
Year Ended September 30, 2009 Compared to Fiscal Year Ended
September 30, 2008
Net
Revenues
Commissions and transaction fees increased 23% to
$1.25 billion, primarily due to higher average client
trades per day, partially offset by slightly lower commissions
and transaction fees per trade. Average client trades per day
increased 23% to 371,579 for fiscal 2009 from 301,061 for fiscal
2008. Average client trades per account (annualized) increased
to 12.9 for fiscal 2009 compared to 11.4 for fiscal 2008.
Average commissions and
33
transaction fees per trade decreased 1% to $13.35 per trade for
fiscal 2009 from $13.44 for fiscal 2008, primarily due to the
June 2009 acquisition of thinkorswim, which earns somewhat lower
average commissions and transaction fees per trade, and an
increase in promotional trades related to our new account growth
during fiscal 2009, partially offset by higher payment for order
flow revenue during fiscal 2009. We expect average commissions
and transaction fees per trade to decrease to between $12.60 and
$12.95 per trade during fiscal 2010, reflecting the full year
effect of the thinkorswim business and somewhat lower expected
payment for order flow revenue. We expect revenues from
commissions and transaction fees to range from
$1.26 billion to $1.55 billion for fiscal 2010,
depending on the volume of client trading activity, average
commissions and transaction fees per trade and other factors.
Asset-based revenues, which consist of net interest revenue,
insured deposit account fees and investment product fees,
decreased 26% to $1.10 billion, as described below. We
expect asset-based revenues to range between $1.17 billion
and $1.31 billion for fiscal 2010, depending largely on the
interest rate environment and the rate of growth in spread-based
balances. The low end of this estimated range assumes no change
in the federal funds rate, while the high end of the range
assumes an increase to an average federal funds rate of 0.55%
for fiscal 2010. We expect increased average spread-based asset
balances to be partially offset by a decrease in the expected
average yield earned on those assets due to the expected
continued low short-term interest rate environment.
Net interest revenue decreased 37% to $346.9 million, due
primarily to a 45% decrease in average client margin balances, a
decrease of 123 basis points in the average yield earned on
client margin balances and a decrease of 238 basis points
in the average yield earned on other cash and interest-earning
investments in fiscal 2009 compared to fiscal 2008. These
decreases were partially offset by a $94.6 million increase
in net interest revenue from our securities borrowing/lending
program and a decrease of 51 basis points in the average
interest rate paid on client credit balances in fiscal 2009
compared to fiscal 2008.
Insured deposit account fees decreased 10% to
$568.1 million, due primarily to a 140 basis point
decrease in the average yield earned on the insured deposit
account assets during fiscal 2009, of which 6 basis points
($13.3 million) resulted from a FDIC special regulatory
assessment. This decrease was partially offset by a 41% increase
in average insured deposit account balances during fiscal 2009
compared to fiscal 2008.
Investment product fees decreased 40% to $184.3 million,
primarily due to a decrease of 12 basis points in the
average yield earned and a 16% decrease in average fee-based
investment balances in fiscal 2009 compared to fiscal 2008. The
decrease in the average yield earned in fiscal 2009 was
primarily due to our decision to voluntarily begin waiving fees
on certain money market mutual funds during the first quarter of
fiscal 2009 in order to prevent our clients yields on such
funds from becoming negative.
In April 2009, we announced a strategy to migrate approximately
$10 to $14 billion of client cash held in client credit
balances or swept to money market mutual funds into the insured
deposit account offering. From March 31, 2009 to
September 30, 2009, insured deposit account balances
increased by approximately $10.6 billion, while money
market mutual fund balances decreased by a similar amount, due
in part to the completion of part of the migration. The portion
of the migration completed in fiscal 2009 resulted in an
increase in insured deposit account fee revenues and a decrease
in investment product fee revenues, but did not have a material
impact on overall net revenues during fiscal 2009. We plan to
move an additional $4.6 billion of client credit balances
into the insured deposit account offering by January 2010. We
expect this migration to position the Company to earn higher net
revenues, as we generally earn a larger yield on insured deposit
account balances than on money market mutual fund or client
credit balances.
Other revenues increased 72% to $55.4 million, primarily
due to an increase in education revenues as a result of the
thinkorswim acquisition in June 2009. We expect other revenues
to increase to between $115 million and $135 million
for fiscal 2010, reflecting a full year of thinkorswim education
revenues.
Expenses
Total expenses increased by 6% to $1.35 billion during
fiscal 2009, as described below. We expect total expenses to
increase to between $1.47 billion and $1.63 billion
for fiscal 2010, reflecting a full year of thinkorswim expenses.
34
Employee compensation and benefits expense increased 2% to
$511.2 million, due primarily to an increase in average
headcount resulting from our fiscal 2008 growth initiatives and
the thinkorswim acquisition in June 2009, and an increase of
approximately $2.0 million in severance costs related to
staff reductions during fiscal 2009 compared to fiscal 2008.
These increases were partially offset by lower incentive-based
compensation related to actual Company and individual
performance compared to fiscal 2008. The average number of
full-time equivalent employees was 4,788 for fiscal 2009
compared to 4,381 for fiscal 2008. Our total full-time
equivalent employees was 5,196 at September 30, 2009.
Clearing and execution costs increased 59% to
$70.9 million, due primarily to higher client trading
volumes, increased clearing expenses associated with additional
accounts and transaction processing volumes resulting from the
acquisition of thinkorswim in fiscal 2009 and higher transaction
costs from clearing organizations in fiscal 2009 compared to
fiscal 2008.
Communications expense increased 19% to $83.1 million, due
primarily to increased costs for quotes and market information
related to higher client trading volume during fiscal 2009
compared to fiscal 2008 and communication costs associated with
the additional accounts and transaction processing volumes
resulting from the thinkorswim acquisition.
Occupancy and equipment costs increased 22% to
$124.3 million, due primarily to higher costs for
technology infrastructure and facilities resulting from our
fiscal 2008 growth initiatives.
Depreciation and amortization increased 24% to
$45.9 million, due primarily to increased depreciation on
technology infrastructure upgrades and leasehold improvements
resulting from our fiscal 2008 growth initiatives.
Amortization of acquired intangible assets increased 25% to
$73.9 million, primarily due to amortization of the
intangible assets recorded in the acquisitions of Fiserv
Trust Company in the second quarter of fiscal 2008 and
thinkorswim in the third quarter of fiscal 2009.
Professional services increased 18% to $127.6 million,
primarily due to a $13 million acquisition earn-out
payment, a $5 million write-off of software development
costs, higher usage of consulting and contract services in
connection with new product development and technology
infrastructure upgrades related to our growth initiatives and
due to the addition of thinkorswim professional services costs
during fiscal 2009. These increases were partially offset by
fees incurred during fiscal 2008 under the transition services
agreements related to the acquisition of Fiserv
Trust Company, which were not present during fiscal 2009.
Interest on borrowings decreased 49% to $40.1 million, due
primarily to lower average interest rates incurred on our debt
during fiscal 2009 compared to fiscal 2008. The average interest
rate incurred on our debt was 2.44% for fiscal 2009, compared to
4.99% for fiscal 2008.
Other expenses decreased 7% to $58.7 million, primarily due
to lower bad debt and other client-related trading losses in
fiscal 2009 compared to fiscal 2008. The decrease was partially
offset by additional business resulting from the thinkorswim
acquisition in fiscal 2009 and the effect of favorable
litigation settlements during fiscal 2008.
Advertising expense increased 14% to $197.1 million,
primarily due to marketing support for the thinkorswim business,
and to a lesser extent increased spending for the TD AMERITRADE
business during fiscal 2009 in response to competitive market
share opportunities. 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.
Losses on money market funds and client guarantees during fiscal
2009 consists of losses associated with our client commitments
related to auction rate securities settlement agreements. Losses
on money market funds and client guarantees during fiscal 2008
consists of $27.0 million and $8.6 million of
estimated client and corporate investment losses, respectively,
resulting from the net asset value of two money market mutual
funds managed by The Reserve, an independent mutual fund
company, declining below $1.00 per share in September 2008. The
client losses result from our announced commitment of up to
$55 million to mitigate client losses in these funds in the
event clients receive less than $1.00 per share upon the orderly
liquidation of the funds. These commitments are discussed
further under Item 8, Financial Statements and
Supplementary Data Notes to Consolidated Financial
Statements: Auction Rate Securities Matters and
Guarantees under Note 17
Commitments and Contingencies.
35
Our effective income tax rate increased to 39.2% for fiscal 2009
compared to 36.4% for fiscal 2008, due primarily to unfavorable
income tax adjustments of $8.9 million resulting from
recent state income tax law changes and capital loss limitations
on our Reserve Primary Fund holdings during fiscal 2009. These
items unfavorably impacted our earnings for the fiscal year 2009
by approximately $0.02 per share. The effective income tax rate
for fiscal 2008 was unusually low due primarily to
$7.2 million of favorable resolutions of state income tax
matters and $11.1 million of adjustments to current and
deferred income taxes resulting from a revision to estimated
state income tax expense. The revision was based on our actual
state income tax returns filed for calendar year 2006 and
similar adjustments applied to estimated state income tax rates
for calendar 2007 and future years. These items favorably
impacted our earnings for fiscal 2008 by approximately $0.03 per
diluted share. We expect our effective income tax rate to be
approximately 39% for fiscal 2010. 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 it occurs.
Fiscal
Year Ended September 30, 2008 Compared to Fiscal Year Ended
September 30, 2007
Net
Revenues
Commissions and transaction fees increased 25% to
$1.0 billion, primarily due to increased client trading
activity. Total trades increased 20%, as average client trades
per day increased 19% to 301,061 for fiscal 2008 from 253,440
for fiscal 2007, and there were 2.5 more trading days during
fiscal 2008 compared to fiscal 2007. Average client trades per
account (annualized) increased to 11.4 for fiscal 2008 compared
to 10.0 for fiscal 2007. Average commissions and transaction
fees per trade increased to $13.44 per trade for fiscal 2008
from $12.90 for fiscal 2007, primarily due to higher percentages
of option and fixed income trades and higher payment for order
flow revenue during fiscal 2008. This was partially offset by
the closing of our three Investment Centers during December
2006. The Investment Centers sold products such as load mutual
funds and fixed income products that generated higher average
commissions and transaction fees per trade than our core
business.
Net interest revenue decreased 2% to $549.6 million, due
primarily to a decrease of 170 basis points in the average
yield earned on client margin balances and a $585 million
decrease in average segregated cash balances for fiscal 2008
compared to fiscal 2007. These decreases were mostly offset by a
$71.2 million increase in net interest revenue from our
securities borrowing/lending program, a decrease of
95 basis points in the average interest rate paid on client
credit balances in fiscal 2008 compared to fiscal 2007 and
approximately $11.5 million of net interest revenue on
balances resulting from the Fiserv Trust Company
acquisition.
Insured deposit account fees increased 17% to
$628.7 million, due primarily to a 5% increase in average
insured deposit account balances and an increase of
42 basis points in the average yield earned on the client
insured deposit account assets during fiscal 2008 compared to
fiscal 2007.
Investment product fees increased 33% to $309.4 million,
primarily due to a 43% increase in average fee-based investment
balances in fiscal 2008 compared to fiscal 2007. The increase
was partially offset by a slightly lower average yield earned on
fee-based investment balances during fiscal 2008 compared to
fiscal 2007.
Other revenues decreased 14% to $32.2 million, due
primarily to lower fees from corporate reorganizations of
issuers during fiscal 2008 and the effect of $2.3 million
of net gains on investments held at our broker-dealer
subsidiaries during fiscal 2007.
Expenses
Employee compensation and benefits expense increased 17% to
$503.3 million, due primarily to the increased headcount
associated with our growth initiatives and higher
incentive-based compensation related to actual Company and
individual performance compared to fiscal 2007. Full-time
equivalent employees increased to 4,660 at September 30,
2008 from 3,882 at September 30, 2007. However, the number
of temporary employees decreased to 81 at September 30,
2008 from 354 at September 30, 2007.
36
Clearing and execution costs decreased 44% to
$44.6 million, due primarily to cost reductions associated
with the completion of the conversion of legacy TD Waterhouse
clients to the legacy Ameritrade clearing platform during the
third quarter of fiscal 2007.
Communications expense decreased 15% to $69.6 million, due
primarily to the elimination of duplicate telephone, quotes and
market information costs resulting from the completion of the TD
Waterhouse integration during fiscal 2007.
Occupancy and equipment costs increased 21% to
$101.8 million as we continue to invest in our technology
infrastructure, and due to the effect of a favorable legacy TD
Waterhouse litigation settlement of $4.6 million during the
second quarter of fiscal 2007.
Depreciation and amortization increased 41% to
$36.9 million, due primarily to increased depreciation on
leasehold improvements and technology infrastructure related to
our growth initiatives and increased software amortization
related to recently acquired functionality.
Amortization of acquired intangible assets increased 9% to
$59.3 million due to increased amortization on client
relationships related to the acquisition of Fiserv
Trust Company during the second quarter of fiscal 2008.
Professional services increased 29% to $108.3 million,
primarily due to higher usage of consulting and contract
services during fiscal 2008 in connection with new product
development and technology infrastructure upgrades related to
our growth initiatives and due to fees incurred under the
transition services agreements related to the acquisition of
Fiserv Trust Company during the second quarter of fiscal
2008. This was partially offset by consulting and contract
services incurred during fiscal 2007 in connection with the TD
Waterhouse integration, which was completed during the third
quarter of fiscal 2007.
Interest on borrowings decreased 34% to $78.4 million, due
primarily to lower average interest rates incurred on our debt
and lower average debt outstanding during fiscal 2008 compared
to fiscal 2007. The average interest rate incurred on our debt
was 4.99% for fiscal 2008, compared to 6.92% for fiscal 2007.
Our average debt outstanding was approximately $1.5 billion
for fiscal 2008, compared to $1.6 billion for fiscal 2007.
Other expenses increased 34% to $62.9 million, primarily
due to higher bad debt and other client-related trading losses,
losses on disposal of equipment and the effect of unfavorable
litigation settlements during fiscal 2008. These increases were
partially offset by a decrease in client identity fraud losses
during fiscal 2008.
Advertising expense increased 19% to $173.3 million,
primarily due to increased spending during fiscal 2008 in
response to competitive market share opportunities.
Losses on money market funds and client guarantees during fiscal
2008 consists of $27.0 million and $8.6 million of
estimated client and corporate investment losses, respectively,
resulting from the net asset value of two money market mutual
funds managed by The Reserve, an independent mutual fund
company, declining below $1.00 per share in September 2008. The
client losses result from our announced commitment of up to
$55 million to mitigate client losses in these funds in the
event clients receive less than $1.00 per share upon the orderly
liquidation of the funds. This commitment is discussed further
under Item 8, Financial Statements and Supplementary
Data Notes to Consolidated Financial Statements:
Guarantees under Note 17
Commitments and Contingencies.
Our effective income tax rate decreased to 36.4% for fiscal 2008
compared to 37.6% for fiscal 2007, due primarily to fiscal 2008
reflecting $7.2 million of favorable resolutions of state
income tax matters and $11.1 million of adjustments to
current and deferred income taxes resulting from a revision to
estimated state income tax expense. The revision was based on
our actual state income tax returns filed for calendar year 2006
and similar adjustments applied to estimated state income tax
rates for calendar 2007 and future years. These items favorably
impacted our earnings for fiscal 2008 by approximately $0.03 per
diluted share.
Liquidity
and Capital Resources
We have historically financed our liquidity and capital needs
primarily through the use of funds generated from operations and
from borrowings under our credit agreements. We have also issued
common stock and long-term debt to finance mergers and
acquisitions and for other corporate purposes. Our liquidity
needs during fiscal 2009
37
were financed primarily from our earnings and cash on hand. We
plan to finance our operational capital and liquidity needs in
fiscal 2010 primarily from our earnings, cash and short-term
investments on hand and, if necessary, borrowings on our parent
company and broker-dealer credit facilities.
On July 20, 2009, our broker-dealer subsidiary, TD
AMERITRADE, Inc. (TDA Inc.), entered into settlement
agreements with the SEC and other regulatory authorities, in
which we agreed to extend an offer to purchase eligible auction
rate securities (ARS) from certain current and
former account holders. The offer commenced on August 10,
2009. Through October 26, 2009, we had received tenders of
eligible ARS with an aggregate par value of approximately
$271 million, which we expect to purchase by
November 13, 2009. We estimate that, as of October 27,
2009, ARS up to a total par value of approximately
$121 million may remain outstanding and eligible for the
offer. The ultimate amounts of tendered ARS purchased and
remaining ARS eligible for the tender offer may decrease due to
issuer redemptions. We plan to complete all repurchases no later
than June 30, 2010. ARS are long-term variable rate
securities tied to short-term interest rates that are reset
through a Dutch auction process. In February 2008,
the Dutch auction process failed and holders were no longer able
to liquidate their holdings through the auction process. Funds
from ARS are not expected to be accessible until one of the
following occurs: a successful auction occurs, the issuer
redeems the issue, a buyer is found outside of the auction
process or the underlying securities mature. Substantial delays
in the sale or redemption of our ARS holdings could adversely
affect our liquidity and require us to borrow on our lines of
credit or seek alternative financing.
Dividends from our subsidiaries are a source of liquidity for
the parent company. Some of our subsidiaries are subject to
requirements of the SEC, the Financial Industry Regulatory
Authority (FINRA), 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.
Under the SECs Uniform Net Capital Rule
(Rule 15c3-1
under the Securities Exchange Act of 1934), our broker-dealer
subsidiaries are required to maintain, at all times, at least
the minimum level of net capital required under
Rule 15c3-1.
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-dealers
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 our broker-dealer subsidiaries, if
necessary, to meet minimum net capital requirements.
Liquid
Assets
We consider liquid assets an important measure of our liquidity
and of our ability to fund corporate investing and financing
activities. Liquid assets is a non-GAAP financial measure. We
define liquid assets as the sum of (a) corporate cash and
cash equivalents, (b) corporate short-term investments,
(c) regulatory net capital of (i) our clearing
broker-dealer subsidiary in excess of 5% of aggregate debit
items and (ii) our introducing broker-dealer subsidiaries
in excess of 120% of the minimum dollar net capital requirement
or in excess of
81/3%
of aggregate indebtedness and (d) Tier 1 capital of
our trust company in excess of the minimum dollar requirement.
We include the excess capital of our broker-dealer and trust
company subsidiaries in liquid assets, rather than simply
including broker-dealer and trust cash and cash equivalents,
because capital requirements may limit the amount of cash
available for dividend from the broker-dealer and trust
subsidiaries to the parent company. Excess capital, as defined
under clauses (c) and (d) above, is generally
available for dividend from the broker-dealer and trust
subsidiaries to the parent company. Liquid assets should be
considered as a supplemental measure of liquidity,
38
rather than as a substitute for cash and cash equivalents. The
following table sets forth a reconciliation of cash and cash
equivalents, which is the most directly comparable GAAP measure,
to liquid assets (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Cash and cash equivalents
|
|
$
|
791,211
|
|
|
$
|
674,135
|
|
|
$
|
117,076
|
|
Less: Broker-dealer cash and cash equivalents
|
|
|
(473,996
|
)
|
|
|
(418,626
|
)
|
|
|
(55,370
|
)
|
Trust company cash and cash equivalents
|
|
|
(25,143
|
)
|
|
|
(61,430
|
)
|
|
|
36,287
|
|
Investment advisory cash and cash equivalents
|
|
|
(18,935
|
)
|
|
|
(9,447
|
)
|
|
|
(9,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate cash and cash equivalents
|
|
|
273,137
|
|
|
|
184,632
|
|
|
|
88,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Corporate short-term investments
|
|
|
49,496
|
|
|
|
14,491
|
|
|
|
35,005
|
|
Excess trust Tier 1 capital
|
|
|
4,658
|
|
|
|
102,427
|
|
|
|
(97,769
|
)
|
Excess broker-dealer regulatory net capital
|
|
|
814,836
|
|
|
|
486,625
|
|
|
|
328,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquid assets
|
|
$
|
1,142,127
|
|
|
$
|
788,175
|
|
|
$
|
353,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in liquid assets is summarized as follows (dollars
in thousands):
|
|
|
|
|
Liquid assets as of September 30, 2008
|
|
$
|
788,175
|
|
|
|
|
|
|
Plus: Pre-tax income
|
|
|
1,059,405
|
|
Cash provided by stock option exercises
|
|
|
37,229
|
|
Corporate cash and cash equivalents acquired
in business combinations
|
|
|
15,389
|
|
Proceeds from the sale of other investments
available-for-sale
|
|
|
11,688
|
|
Reduction of net capital requirements due to
decrease in aggregate debits
|
|
|
48,787
|
|
Excess broker-dealer net capital acquired in
business combinations
|
|
|
42,675
|
|
Other changes in working capital and
regulatory net capital
|
|
|
434,502
|
|
|
|
|
|
|
Less: Income taxes paid
|
|
|
(359,666
|
)
|
Purchase of property and equipment
|
|
|
(86,698
|
)
|
Purchase of treasury stock
|
|
|
(466,144
|
)
|
Principal payments on long-term debt and
capital lease obligations
|
|
|
(116,502
|
)
|
Cash paid in business combinations
|
|
|
(266,713
|
)
|
|
|
|
|
|
Liquid assets as of September 30, 2009
|
|
$
|
1,142,127
|
|
|
|
|
|
|
Loan
Facilities
We entered into a credit agreement on January 23, 2006 for
$2.2 billion in senior credit facilities with a syndicate
of lenders under an unregistered private placement. The senior
credit facilities include: (a) a senior secured term loan
facility in the aggregate principal amount of $250 million
(the Term A Facility), (b) a senior secured
term loan facility in the aggregate principal amount of
$1.65 billion (the Term B Facility) and
(c) a senior secured revolving credit facility in the
aggregate principal amount of $300 million (the
Revolving Facility) (together, the
Financings). The maturity date of the Term A
Facility is December 31, 2011. The maturity date of the
Term B Facility is December 31, 2012. The maturity date of
the Revolving Facility is December 31, 2010. The Financings
are subject to certain mandatory prepayments, which include
prepayments based on leverage ratios and amounts of excess cash
flow and from the net cash proceeds of asset sales and debt
issuances, subject to certain exceptions. Under the terms of the
Financings, the Company may prepay these borrowings without
penalty.
The applicable interest rate under the Revolving Facility and
the Term A Facility is calculated as a per annum rate equal to,
at our option, (a) LIBOR plus an interest rate margin
(LIBOR loans) or (b) (i) the greater of
(x) the prime rate or (y) the federal funds effective
rate plus 0.50% plus (ii) an interest rate margin
(Base Rate loans). With respect to the Revolving
Facility and the Term A Facility, the interest rate margin for
LIBOR loans is 1.50% if the consolidated leverage ratio (as
defined in the Financings) of the Company is 1.75 to 1.00 or
higher, 1.25% if the
39
consolidated leverage ratio of the Company is less than 1.75 to
1.00 but greater than or equal to 1.00 to 1.00, and 1.00% if the
consolidated leverage ratio of the Company is less than 1.00 to
1.00. The interest rate margin for Base Rate loans under the
Revolving Facility and the Term A Facility is 1.00% less than
the interest rate margin for LIBOR loans. The applicable
interest rate under the Term B Facility is calculated as a per
annum rate equal to (a) LIBOR plus 1.50% or (b)
(i) the greater of (x) the prime rate or (y) the
federal funds effective rate plus 0.50% plus (ii) 0.50%. On
September 30, 2009, the applicable interest rates on the
Term A Facility and the Term B Facility were 1.49% and 1.74%,
respectively, based on
30-day
LIBOR. We had outstanding indebtedness of approximately
$0.1 billion and $0.2 billion under the Term A
Facility as of September 30, 2009 and 2008, respectively,
and outstanding indebtedness of approximately $1.3 billion
under the Term B Facility as of September 30, 2009 and
2008. There were no borrowings outstanding under the Revolving
Facility as of September 30, 2009 and 2008. The Financings
also provide that we are obligated to pay letter of credit fees
equal to the applicable margin in respect of LIBOR advances on
each outstanding letter of credit under the Revolving Credit
Facility. In addition, the Financings provide that we pay fees
to the issuing bank in respect of the Letters of Credit in an
amount agreed to by us and the issuing bank. A commitment fee at
the rate of 0.375% per annum accrues on any unused amount of the
Revolving Facility.
On November 5, 2009, we entered into an amendment to the
January 23, 2006 credit agreement to extend the term of the
Revolving Facility to December 31, 2012. Under the amended
agreement, the applicable interest rate for Base Rate loans on
the Revolving Facility will be calculated as a per annum rate
equal to (i) the highest of (x) the prime rate,
(y) the federal funds effective rate plus 0.50% and
(z) one-month LIBOR plus 1.00%, plus (ii) an interest
rate margin. The interest rate margin will range from 2.00% to
4.00% for LIBOR loans and from 1.00% to 3.00% for Base Rate
loans, determined by reference to our public debt ratings. The
commitment fee will range from 0.225% to 0.75%, determined by
reference to our public debt ratings. As of November 5,
2009, the interest rate margin would be 2.5% for LIBOR loans and
1.5% for Base Rate loans, and the commitment fee would be 0.375%
per annum, each determined by reference to our current
Standard & Poors public debt rating of BBB+.
The obligations under the Financings are guaranteed by certain
of our subsidiaries, other than broker-dealer subsidiaries, with
certain exceptions, and are secured by a lien on substantially
all of the assets of each guarantor, including a pledge of the
ownership interests in each first-tier broker-dealer subsidiary
held by a guarantor and 65% of the ownership interests in each
first-tier foreign subsidiary held by a guarantor, with certain
exceptions.
The Financings contain covenants that may limit or restrict the
incurrence of liens, investments (including acquisitions), sales
of assets, indebtedness and mergers and consolidations, subject
to certain exceptions. The Financings also may restrict the
payment of dividends on our outstanding capital stock and
repurchases or redemptions of our outstanding capital stock. We
are also required to maintain compliance with a maximum
consolidated leverage ratio covenant and a minimum consolidated
interest coverage ratio covenant, and our broker-dealer
subsidiaries are required to maintain compliance with a minimum
regulatory net capital covenant. We were in compliance with all
covenants under the Financings as of September 30, 2009.
During fiscal 2007, we entered into two amendments to the
January 23, 2006 credit agreement to allow us to repurchase
additional shares of our outstanding common stock and to change
our fiscal year end to September 30. We paid approximately
$1.2 million of additional debt issuance costs to effect
the amendments.
Our wholly-owned broker-dealer subsidiaries had access to
secured uncommitted credit facilities with financial
institutions of up to $630 million as of September 30,
2009 and 2008. The broker-dealer subsidiaries also had access to
unsecured uncommitted credit facilities of up to
$150 million as of September 30, 2009 and 2008. The
financial institutions may make loans under line of credit
arrangements or, in some cases, issue letters of credit under
these facilities. The secured credit facilities require us to
pledge qualified client securities to secure outstanding
obligations under these facilities. Borrowings under the secured
and unsecured credit facilities bear interest at a variable rate
based on the federal funds rate. There were no borrowings
outstanding or letters of credit issued under the secured or
unsecured credit facilities as of September 30, 2009 and
2008. As of September 30, 2009 and 2008, approximately
$780 million was available to our broker-dealer
subsidiaries pursuant to uncommitted credit facilities for
either loans or, in some cases, letters of credit.
40
Stock
Repurchase Program
On August 2, 2006, our board of directors authorized a
program to repurchase up to 12 million shares of our common
stock in the open market and in block trades. On
November 15, 2006, the board of directors added
20 million shares to the original authorization, increasing
the total authorization to 32 million shares.
On January 8, 2009, we entered into a definitive agreement
to acquire thinkorswim for approximately 28 million shares
of Company common stock and approximately $225 million in
cash. In connection with the acquisition and in addition to the
existing program, our board of directors authorized the Company
to repurchase up to 28.3 million shares of its common
stock, which was intended to be approximately equal to the
number of shares to be issued in the acquisition.
On February 17, 2009, we entered into a stock purchase
agreement with Marlene M. Ricketts and the Joe and Marlene
Ricketts Grandchildrens Trust to purchase approximately
34 million shares of common stock of the Company for
approximately $403 million in cash ($11.85 per share). The
purchase of the stock occurred on February 20, 2009. The
number of shares of common stock under the stock purchase
agreement consisted of approximately 4.4 million shares
remaining under the 2006 stock repurchase program,
28.3 million shares that were authorized to be repurchased
in connection with the thinkorswim acquisition and approximately
1.3 million of incremental shares authorized by our board
of directors at the time of the stock purchase agreement.
From the inception of the 2006 stock repurchase program through
the completion of our stock repurchase programs in February
2009, we repurchased a total of approximately 61.6 million
shares at a weighted-average purchase price of $13.94 per share
under the stock repurchase programs and stock purchase agreement
described above.
On August 11, 2009, our board of directors authorized the
repurchase of up to 15 million additional shares of common
stock in the event management determines to initiate further
repurchases. No repurchase program has been initiated and no
shares have been repurchased under the new authorization.
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 to manage our asset-based
revenues. For information on these arrangements, see the
following sections under Item 8, Financial Statements and
Supplementary Data Notes to Consolidated Financial
Statements: Auction Rate Securities Matters and
Guarantees under Note 17
Commitments and Contingencies and Money Market Deposit
Account Agreement under Note 20 Related
Party Transactions. The MMDA agreement accounts for a
significant percentage of our net revenues (24% of our net
revenues for the fiscal year ended September 30,
2009) and enables our clients to invest in an FDIC-insured
deposit product without the need for the Company to maintain a
bank charter.
41
Contractual
Obligations
The following table summarizes our contractual obligations as of
September 30, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period (Fiscal Years):
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
Contractual Obligations
|
|
Total
|
|
|
2010
|
|
|
2011-12
|
|
|
2013-14
|
|
|
After 2014
|
|
|
Long-term debt obligations(1)
|
|
$
|
1,495,669
|
|
|
$
|
86,894
|
|
|
$
|
136,980
|
|
|
$
|
1,271,795
|
|
|
$
|
|
|
Capital lease obligations
|
|
|
30,664
|
|
|
|
11,028
|
|
|
|
13,056
|
|
|
|
6,580
|
|
|
|
|
|
Operating lease obligations
|
|
|
311,542
|
|
|
|
50,152
|
|
|
|
80,666
|
|
|
|
68,562
|
|
|
|
112,162
|
|
Purchase obligations
|
|
|
154,576
|
|
|
|
92,651
|
|
|
|
34,160
|
|
|
|
9,927
|
|
|
|
17,838
|
|
Deferred compensation(2)
|
|
|
17,991
|
|
|
|
17,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance and involuntary termination costs(3)
|
|
|
8,478
|
|
|
|
7,128
|
|
|
|
1,200
|
|
|
|
150
|
|
|
|
|
|
Income taxes payable(4)
|
|
|
358,555
|
|
|
|
358,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation under ARS settlement agreements(5)
|
|
|
392,560
|
|
|
|
392,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation for client losses on money market funds(6)
|
|
|
26,994
|
|
|
|
26,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,797,029
|
|
|
$
|
1,043,953
|
|
|
$
|
266,062
|
|
|
$
|
1,357,014
|
|
|
$
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents scheduled principal payments, estimated interest
payments and commitment fees pursuant to the Financings and
other long-term debt obligations. The Financings are also
subject to certain mandatory prepayments, which include
prepayments based on amounts of excess cash flow and from the
net cash proceeds of asset sales and debt issuances, subject to
certain exceptions. Pursuant to the Financings, we may prepay
borrowings without penalty. Because mandatory prepayments are
based on future operating results and events, we cannot predict
the amount or timing of such prepayments. Actual amounts of
interest may vary depending on principal prepayments and changes
in variable interest rates. |
|
(2) |
|
Our obligation to Joseph H. Moglia, our Chairman and former CEO,
for deferred compensation will become payable not sooner than
the day after Mr. Moglias employment with the Company
terminates. The obligation is presented in the fiscal 2010
column as the entire amount of the compensation has already been
earned by Mr. Moglia. |
|
(3) |
|
Represents exit and involuntary termination costs incurred in
connection with the planned consolidation of certain functions
following the thinkorswim and TD Waterhouse acquisitions. |
|
(4) |
|
A significant portion of our income taxes payable as of
September 30, 2009 consists of liabilities for uncertain
tax positions and related interest and penalties. The timing of
payments, if any, on liabilities for uncertain tax positions
cannot be predicted with reasonable accuracy. |
|
(5) |
|
Represents our estimated maximum obligation under settlement
agreements with the SEC and other regulatory authorities
regarding TDA Inc.s offer and sale of auction rate
securities. Under the settlement agreements, we agreed to extend
an offer to purchase eligible ARS from certain current and
former account holders. In addition, we will make whole any
losses sustained by eligible clients who purchased ARS through
TDA Inc. on or before February 13, 2008 and sold such
securities at a loss prior to July 20, 2009. We will
reimburse clients whose borrowing costs exceeded the amount they
earned in interest or dividends from their eligible ARS at the
time they borrowed money from TDA Inc. to satisfy liquidity
needs. |
|
(6) |
|
During September 2008, the net asset value of two money market
mutual funds held by some of our clients, the Primary Fund and
the International Liquidity Fund, declined below $1.00 per
share. These funds are managed by The Reserve, an independent
mutual fund company. The Reserve subsequently announced that it
was suspending redemptions of these funds to effect an orderly
liquidation. We announced a commitment of up to $55 million
to protect our clients positions in these funds. In the
event our clients receive less than $1.00 per share for these
funds upon an orderly liquidation, we have committed up to
$50 million (or $0.03 per share of the fund) for clients in
the Primary Fund and up to $5 million for clients in the
International Liquidity Fund to mitigate client losses. Based on
information from The Reserve and other public information, we
have accrued an estimated fair value of $27.0 million for
this obligation as of September 30, 2009. |
42
Recently
Adopted Accounting Pronouncements
Financial Accounting Standards Board (FASB)
Accounting Standards Codification
(ASCorCodification) On
September 30, 2009, we adopted FASB Statement No. 168,
The FASB Accounting Standards
Codificationtm
and The Hierarchy of Generally Accepted Accounting
Principles. The Codification became the source of
authoritative generally accepted accounting principles
(GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. The Codification
supersedes all existing non-SEC accounting and reporting
standards. All other nongrandfathered non-SEC accounting
literature not included in the Codification is nonauthoritative.
GAAP is not intended to be changed as a result of this
statement, but will change the way the guidance is organized and
presented. We implemented the Codification in the consolidated
financial statements by providing references to the ASC topics.
ASC
820-10
On October 1, 2008, we adopted ASC
820-10,
Fair Value Measurements and Disclosures, for financial
assets and liabilities and nonfinancial assets and liabilities
that are recognized or disclosed at fair value in the financial
statements on a recurring basis. We will not adopt ASC
820-10 until
October 1, 2009 for nonfinancial assets and liabilities
that are not recognized or disclosed at fair value in the
financial statements on a recurring basis. ASC
820-10
clarifies the definition of fair value and the methods used to
measure fair value and expands disclosures about fair value
measurements. The adoption of ASC
820-10 did
not have a material impact on our consolidated financial
statements.
ASC
855-10
Effective April 1, 2009, we adopted ASC
855-10,
Subsequent Events. ASC
855-10
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
The adoption of ASC
855-10 did
not have a material impact on our consolidated financial
statements.
Recently
Issued Accounting Pronouncements
ASC 805 In December 2007, the FASB issued ASC
805, Business Combinations. ASC 805 generally requires an
acquirer to recognize the identifiable assets acquired,
liabilities assumed, contingent purchase consideration and any
noncontrolling interest in the acquiree at fair value on the
date of acquisition. It also requires an acquirer to recognize
as expense most transaction and restructuring costs as incurred,
rather than include such items in the cost of the acquired
entity. For the Company, ASC 805 will apply prospectively to
business combinations for which the acquisition date is on or
after October 1, 2009. We will evaluate the impact of ASC
805 on any potential future business combinations that may occur
on or after the effective date.
|
|
Item 7A.
|
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.
Credit
Risk
Two primary sources of credit risk inherent in our business are
client margin lending and securities lending and borrowing. We
manage risk on client margin lending by requiring clients to
maintain margin collateral in compliance with regulatory and
internal guidelines. We monitor required margin levels daily
and, pursuant to such guidelines, require our clients to deposit
additional collateral, or to reduce positions, when necessary.
We continuously monitor client accounts to detect excessive
concentration, large orders or positions, patterns of day
trading and other activities that indicate increased risk to us.
We manage risks associated with our securities lending and
borrowing activities by requiring credit approvals for
counterparties, by monitoring the market value of securities
loaned and collateral values for securities borrowed on a daily
basis and requiring additional cash as collateral for securities
loaned or return of collateral for securities borrowed when
necessary and by participating in a risk-sharing program offered
through the Options Clearing Corporation.
43
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 sweep arrangement with TD Bank USA and on money
market mutual funds, which are subject to interest rate risk.
Changes in interest rates could affect the interest earned on
assets differently than interest paid on liabilities. A rising
interest rate environment generally results in our earning a
larger net interest spread. Conversely, a falling interest rate
environment generally results in our earning a smaller net
interest spread.
Our most prevalent form of interest rate risk is referred to as
gap risk. This risk occurs when the interest rates
we earn on our assets change at a different frequency or amount
than the interest rates we pay on our liabilities. We have an
Asset/Liability Committee as the governance body with the
responsibility of managing interest rate risk, including gap
risk.
We use net interest simulation modeling techniques to evaluate
the effect that changes in interest rates might have on pre-tax
income. Our model includes all interest-sensitive assets and
liabilities of the Company and interest-sensitive assets and
liabilities associated with the insured deposit account sweep
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.
During fiscal 2009, the Federal Open Market Committee lowered
the federal funds rate to between 0% and 0.25%. Due to the
near-zero short-term interest rate environment, we have
performed a simulation of a hypothetical increase in interest
rates. This simulation assumes that the asset and liability
structure of the Consolidated Balance Sheet and the insured
deposit account sweep arrangement would not be changed as a
result of a simulated change in interest rates. The result of
the simulation based on our financial position as of
September 30, 2009 indicates that a gradual 1%
(100 basis points) increase in interest rates over a
12-month
period would result in approximately $127 million higher
pre-tax income.
Market
Risk on Auction Rate Securities Guarantee
On July 20, 2009, we entered into settlement agreements
with the SEC and other regulatory authorities, in which we
agreed to extend an offer to purchase eligible ARS from certain
current and former account holders. The offer commenced on
August 10, 2009, and we expect to complete all repurchases
no later than June 30, 2010. The Company is accounting for
the ARS settlement as a financial guarantee. As of
September 30, 2009, we estimate that a hypothetical 10%
decrease in the fair value of the ARS subject to the offer would
reduce our pre-tax income by approximately $30 million.
Other
Market Risks
Our revenues and financial instruments are denominated in
U.S. dollars. We generally do not invest in derivative
instruments, except for economic hedging purposes.
44
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
TD AMERITRADE Holding Corporation
We have audited the accompanying consolidated balance sheets of
TD AMERITRADE Holding Corporation (the Company) as
of September 30, 2009 and 2008, and the related
consolidated statements of income, stockholders equity,
and cash flows for each of the three years in the period ended
September 30, 2009. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of TD AMERITRADE Holding Corporation at
September 30, 2009 and 2008, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended September 30, 2009, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), TD
AMERITRADE Holding Corporations internal control over
financial reporting as of September 30, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated November 13,
2009 expressed an unqualified opinion thereon.
Minneapolis, Minnesota
November 13, 2009
45
TD
AMERITRADE HOLDING CORPORATION
As of
September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
791,211
|
|
|
$
|
674,135
|
|
Short-term investments
|
|
|
52,071
|
|
|
|
369,133
|
|
Cash and investments segregated in compliance with federal
regulations
|
|
|
5,813,862
|
|
|
|
260,000
|
|
Receivable from brokers, dealers and clearing organizations
|
|
|
1,777,741
|
|
|
|
4,177,149
|
|
Receivable from clients, net of allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
2009 $12.9 million; 2008
$20.3 million
|
|
|
5,712,261
|
|
|
|
6,933,926
|
|
Receivable from affiliates
|
|
|
92,974
|
|
|
|
179,633
|
|
Other receivables, net of allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
2009 $0.6 million; 2008
$2.2 million
|
|
|
73,921
|
|
|
|
89,486
|
|
Securities owned, at fair value
|
|
|
23,405
|
|
|
|
60,645
|
|
Property and equipment, net of accumulated depreciation and
amortization:
|
|
|
|
|
|
|
|
|
2009 $91.3 million; 2008
$75.4 million
|
|
|
238,256
|
|
|
|
153,208
|
|
Goodwill
|
|
|
2,472,098
|
|
|
|
1,947,102
|
|
Acquired intangible assets, net of accumulated amortization:
|
|
|
|
|
|
|
|
|
2009 $267.9 million; 2008
$194.0 million
|
|
|
1,224,722
|
|
|
|
1,013,679
|
|
Deferred income taxes
|
|
|
17,161
|
|
|
|
17,158
|
|
Other investments
|
|
|
820
|
|
|
|
12,768
|
|
Other assets
|
|
|
81,307
|
|
|
|
63,500
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,371,810
|
|
|
$
|
15,951,522
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
Payable to brokers, dealers and clearing organizations
|
|
$
|
2,491,617
|
|
|
$
|
5,769,676
|
|
Payable to clients
|
|
|
9,914,823
|
|
|
|
5,070,671
|
|
Accounts payable and accrued liabilities
|
|
|
700,786
|
|
|
|
569,788
|
|
Payable to affiliates
|
|
|
3,724
|
|
|
|
3,637
|
|
Deferred revenue
|
|
|
72,134
|
|
|
|
1,637
|
|
Long-term debt
|
|
|
1,414,900
|
|
|
|
1,444,000
|
|
Capitalized lease obligations
|
|
|
28,565
|
|
|
|
544
|
|
Deferred income taxes
|
|
|
193,978
|
|
|
|
166,531
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
14,820,527
|
|
|
|
13,026,484
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 100 million shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, one billion shares
authorized;
|
|
|
|
|
|
|
|
|
631,381,860 shares issued; 2009 587,109,497
outstanding;
|
|
|
|
|
|
|
|
|
2008 593,130,521 outstanding
|
|
|
6,314
|
|
|
|
6,314
|
|
Additional paid-in capital
|
|
|
1,574,638
|
|
|
|
1,613,700
|
|
Retained earnings
|
|
|
2,530,117
|
|
|
|
1,886,412
|
|
Treasury stock, common, at cost: 2009
44,272,363 shares;
|
|
|
|
|
|
|
|
|
2008 38,251,339 shares
|
|
|
(559,883
|
)
|
|
|
(580,664
|
)
|
Deferred compensation
|
|
|
171
|
|
|
|
146
|
|
Accumulated other comprehensive loss
|
|
|
(74
|
)
|
|
|
(870
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,551,283
|
|
|
|
2,925,038
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
18,371,810
|
|
|
$
|
15,951,522
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
46
TD
AMERITRADE HOLDING CORPORATION
For the
Years Ended September 30, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction-based revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions and transaction fees
|
|
$
|
1,253,154
|
|
|
$
|
1,017,456
|
|
|
$
|
813,786
|
|
Asset-based revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue
|
|
|
362,076
|
|
|
|
799,189
|
|
|
|
1,013,600
|
|
Brokerage interest expense
|
|
|
(15,165
|
)
|
|
|
(249,616
|
)
|
|
|
(455,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest revenue
|
|
|
346,911
|
|
|
|
549,573
|
|
|
|
558,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured deposit account fees
|
|
|
568,084
|
|
|
|
628,716
|
|
|
|
535,381
|
|
Investment product fees
|
|
|
184,341
|
|
|
|
309,420
|
|
|
|
232,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-based revenues
|
|
|
1,099,336
|
|
|
|
1,487,709
|
|
|
|
1,325,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
55,436
|
|
|
|
32,191
|
|
|
|
37,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
2,407,926
|
|
|
|
2,537,356
|
|
|
|
2,176,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
511,170
|
|
|
|
503,297
|
|
|
|
429,820
|
|
Fair value adjustments of compensation-related derivative
instruments
|
|
|
|
|
|
|
764
|
|
|
|
(3,193
|
)
|
Clearing and execution costs
|
|
|
70,877
|
|
|
|
44,620
|
|
|
|
79,681
|
|
Communications
|
|
|
83,121
|
|
|
|
69,564
|
|
|
|
82,173
|
|
Occupancy and equipment costs
|
|
|
124,296
|
|
|
|
101,787
|
|
|
|
84,294
|
|
Depreciation and amortization
|
|
|
45,891
|
|
|
|
36,899
|
|
|
|
26,237
|
|
Amortization of acquired intangible assets
|
|
|
73,870
|
|
|
|
59,275
|
|
|
|
54,469
|
|
Professional services
|
|
|
127,572
|
|
|
|
108,271
|
|
|
|
83,995
|
|
Interest on borrowings
|
|
|
40,070
|
|
|
|
78,447
|
|
|
|
118,173
|
|
Other
|
|
|
58,701
|
|
|
|
62,934
|
|
|
|
46,809
|
|
Advertising
|
|
|
197,121
|
|
|
|
173,296
|
|
|
|
145,666
|
|
Losses on money market funds and client guarantees
|
|
|
13,829
|
|
|
|
35,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,346,518
|
|
|
|
1,274,782
|
|
|
|
1,148,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other income (expense) and income taxes
|
|
|
1,061,408
|
|
|
|
1,262,574
|
|
|
|
1,028,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of investments
|
|
|
(2,003
|
)
|
|
|
928
|
|
|
|
5,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax income
|
|
|
1,059,405
|
|
|
|
1,263,502
|
|
|
|
1,034,703
|
|
Provision for income taxes
|
|
|
415,700
|
|
|
|
459,585
|
|
|
|
388,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
643,705
|
|
|
$
|
803,917
|
|
|
$
|
645,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
$
|
1.11
|
|
|
$
|
1.35
|
|
|
$
|
1.08
|
|
Earnings per share diluted
|
|
$
|
1.10
|
|
|
$
|
1.33
|
|
|
$
|
1.06
|
|
Weighted average shares outstanding basic
|
|
|
578,972
|
|
|
|
593,746
|
|
|
|
598,503
|
|
Weighted average shares outstanding diluted
|
|
|
587,252
|
|
|
|
603,133
|
|
|
|
608,263
|
|
See notes to consolidated financial statements.
47
TD
AMERITRADE HOLDING CORPORATION
For the
Years Ended September 30, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Common
|
|
|
Total
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Shares
|
|
|
Stockholders
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
|
Outstanding
|
|
|
Equity
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
|
(In thousands)
|
|
|
Balance, September 29, 2006
|
|
|
607,626
|
|
|
$
|
1,730,234
|
|
|
$
|
6,314
|
|
|
$
|
1,591,610
|
|
|
$
|
440,762
|
|
|
$
|
(312,410
|
)
|
|
$
|
662
|
|
|
$
|
3,296
|
|
Net income
|
|
|
|
|
|
|
645,900
|
|
|
|
|
|
|
|
|
|
|
|
645,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gain, net of $10,000 tax
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Reclassification adjustment for realized gain on investment
securities included in net income, net of $1.8 million tax
|
|
|
|
|
|
|
(2,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,939
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
643,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(15,254
|
)
|
|
|
(258,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258,637
|
)
|
|
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
10
|
|
|
|
149
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
Options exercised, including tax benefit
|
|
|
2,204
|
|
|
|
20,881
|
|
|
|
|
|
|
|
(11,754
|
)
|
|
|
|
|
|
|
32,635
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
102
|
|
|
|
898
|
|
|
|
|
|
|
|
412
|
|
|
|
|
|
|
|
724
|
|
|
|
(238
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
18,182
|
|
|
|
|
|
|
|
18,175
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007
|
|
|
594,688
|
|
|
|
2,154,921
|
|
|
|
6,314
|
|
|
|
1,598,451
|
|
|
|
1,086,662
|
|
|
|
(537,547
|
)
|
|
|
431
|
|
|
|
610
|
|
Net income
|
|
|
|
|
|
|
803,917
|
|
|
|
|
|
|
|
|
|
|
|
803,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment loss, net of $0.6 million tax
|
|
|
|
|
|
|
(1,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,028
|
)
|
Reclassification adjustment for realized gain on investment
securities included in net income, net of $0.2 million tax
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
802,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adopting Financial Accounting Standards
Board Interpretation No. 48 (ASC
740-10)
|
|
|
|
|
|
|
(4,167
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(4,123
|
)
|
|
|
(74,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74,568
|
)
|
|
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
3
|
|
|
|
52
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
Options exercised, including tax benefit
|
|
|
2,523
|
|
|
|
22,506
|
|
|
|
|
|
|
|
(8,594
|
)
|
|
|
|
|
|
|
31,100
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
40
|
|
|
|
187
|
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
312
|
|
|
|
(292
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
23,670
|
|
|
|
|
|
|
|
23,663
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008
|
|
|
593,131
|
|
|
|
2,925,038
|
|
|
|
6,314
|
|
|
|
1,613,700
|
|
|
|
1,886,412
|
|
|
|
(580,664
|
)
|
|
|
146
|
|
|
|
(870
|
)
|
Net income
|
|
|
|
|
|
|
643,705
|
|
|
|
|
|
|
|
|
|
|
|
643,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment loss, net of $0.2 million tax
|
|
|
|
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(302
|
)
|
Reclassification adjustment for realized loss on investment
securities included in net income, net of $0.8 million tax
|
|
|
|
|
|
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,330
|
|
Foreign currency translation
|
|
|
|
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
644,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of thinkorswim Group Inc.
|
|
|
27,083
|
|
|
|
385,639
|
|
|
|
|
|
|
|
(24,209
|
)
|
|
|
|
|
|
|
409,848
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(39,030
|
)
|
|
|
(466,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(466,144
|
)
|
|
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
1,557
|
|
|
|
|
|
|
|
|
|
|
|
(18,412
|
)
|
|
|
|
|
|
|
18,412
|
|
|
|
|
|
|
|
|
|
Options exercised, including tax benefit
|
|
|
4,366
|
|
|
|
37,227
|
|
|
|
|
|
|
|
(21,411
|
)
|
|
|
|
|
|
|
58,638
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
27
|
|
|
|
24
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
25,020
|
|
|
|
|
|
|
|
25,019
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
587,109
|
|
|
$
|
3,551,283
|
|
|
$
|
6,314
|
|
|
$
|
1,574,638
|
|
|
$
|
2,530,117
|
|
|
$
|
(559,883
|
)
|
|
$
|
171
|
|
|
$
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
48
TD
AMERITRADE HOLDING CORPORATION
For the Years Ended September 30, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
643,705
|
|
|
$
|
803,917
|
|
|
$
|
645,900
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
45,891
|
|
|
|
36,899
|
|
|
|
26,237
|
|
Amortization of acquired intangible assets
|
|
|
73,870
|
|
|
|
59,275
|
|
|
|
54,469
|
|
Deferred income taxes
|
|
|
(70,674
|
)
|
|
|
(96,238
|
)
|
|
|
20,564
|
|
(Gain) loss on sale of investments
|
|
|
2,003
|
|
|
|
(928
|
)
|
|
|
(5,881
|
)
|
Gain on sale of businesses
|
|
|
|
|
|
|
|
|
|
|
(2,677
|
)
|
Loss on disposal of property
|
|
|
6,285
|
|
|
|
5,145
|
|
|
|
657
|
|
Losses on money market funds and client guarantees
|
|
|
13,829
|
|
|
|
35,628
|
|
|
|
|
|
Fair value adjustments of derivative instruments
|
|
|
|
|
|
|
764
|
|
|
|
(3,193
|
)
|
Stock-based compensation
|
|
|
25,020
|
|
|
|
23,670
|
|
|
|
18,182
|
|
Excess tax benefits on stock-based compensation
|
|
|
(8,743
|
)
|
|
|
(13,448
|
)
|
|
|
(10,337
|
)
|
Other, net
|
|
|
874
|
|
|
|
(4
|
)
|
|
|
(2,346
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and investments segregated in compliance with federal
regulations
|
|
|
(5,553,862
|
)
|
|
|
(260,000
|
)
|
|
|
1,561,910
|
|
Receivable from brokers, dealers and clearing organizations
|
|
|
2,415,389
|
|
|
|
2,574,088
|
|
|
|
(2,184,712
|
)
|
Receivable from clients, net
|
|
|
1,222,255
|
|
|
|
794,043
|
|
|
|
(757,135
|
)
|
Receivable from/payable to affiliates, net
|
|
|
98,065
|
|
|
|
(99,732
|
)
|
|
|
(57,041
|
)
|
Other receivables, net
|
|
|
32,852
|
|
|
|
10,920
|
|
|
|
(3,004
|
)
|
Securities owned
|
|
|
36,717
|
|
|
|
(43,287
|
)
|
|
|
(10,939
|
)
|
Proceeds from sale of broker-dealer investments in equity
securities
|
|
|
|
|
|
|
|
|
|
|
1,726
|
|
Other assets
|
|
|
(4,077
|
)
|
|
|
(7,524
|
)
|
|
|
(126
|
)
|
Payable to brokers, dealers and clearing organizations
|
|
|
(3,278,059
|
)
|
|
|
(2,621,996
|
)
|
|
|
1,369,063
|
|
Payable to clients
|
|
|
4,844,153
|
|
|
|
(242,905
|
)
|
|
|
(99,405
|
)
|
Accounts payable and accrued liabilities
|
|
|
45,425
|
|
|
|
46,284
|
|
|
|
11,558
|
|
Deferred revenue
|
|
|
9,738
|
|
|
|
(9,155
|
)
|
|
|
5,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
600,656
|
|
|
|
995,416
|
|
|
|
578,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(86,698
|
)
|
|
|
(98,836
|
)
|
|
|
(59,957
|
)
|
Cash and cash equivalents acquired in business combinations
|
|
|
86,423
|
|
|
|
623,837
|
|
|
|
|
|
Cash paid in business combinations
|
|
|
(266,713
|
)
|
|
|
(274,470
|
)
|
|
|
(3,307
|
)
|
Cash received in sale of businesses, net
|
|
|
599
|
|
|
|
|
|
|
|
2,677
|
|
Purchase of short-term investments
|
|
|
(1,100
|
)
|
|
|
(329,759
|
)
|
|
|
(507,050
|
)
|
Proceeds from sale and maturity of short-term investments
|
|
|
1,100
|
|
|
|
894,277
|
|
|
|
495,525
|
|
Reclassification of money market funds to short-term investments
|
|
|
|
|
|
|
(368,066
|
)
|
|
|
|
|
Proceeds from redemption of money market funds
|
|
|
317,015
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of other investments
available-for-sale
|
|
|
11,688
|
|
|
|
5,226
|
|
|
|
10,402
|
|
Other
|
|
|
(146
|
)
|
|
|
10
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
62,168
|
|
|
|
452,219
|
|
|
|
(61,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(1,245
|
)
|
Principal payments on long-term debt
|
|
|
(111,500
|
)
|
|
|
(34,375
|
)
|
|
|
(225,000
|
)
|
Decrease in trust account deposits
|
|
|
|
|
|
|
(1,097,808
|
)
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(5,002
|
)
|
|
|
(3,029
|
)
|
|
|
(3,764
|
)
|
Proceeds from exercise of stock options
|
|
|
28,486
|
|
|
|
9,220
|
|
|
|
10,887
|
|
Purchase of treasury stock
|
|
|
(466,144
|
)
|
|
|
(74,568
|
)
|
|
|
(258,637
|
)
|
Excess tax benefits on stock-based compensation
|
|
|
8,743
|
|
|
|
13,448
|
|
|
|
10,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(545,417
|
)
|
|
|
(1,187,112
|
)
|
|
|
(467,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(331
|
)
|
|
|
(175
|
)
|
|
|
529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
117,076
|
|
|
|
260,348
|
|
|
|
50,137
|
|
Cash and cash equivalents at beginning of year
|
|
|
674,135
|
|
|
|
413,787
|
|
|
|
363,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
791,211
|
|
|
$
|
674,135
|
|
|
$
|
413,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
60,680
|
|
|
$
|
346,657
|
|
|
$
|
575,925
|
|
Income taxes paid
|
|
$
|
359,666
|
|
|
$
|
463,379
|
|
|
$
|
308,734
|
|
Tax benefit on exercises and distributions of stock-based
compensation
|
|
$
|
9,711
|
|
|
$
|
13,517
|
|
|
$
|
10,463
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital lease obligations
|
|
$
|
32,780
|
|
|
$
|
|
|
|
$
|
|
|
Issuance of long-term debt in exchange for equipment
|
|
$
|
8,400
|
|
|
$
|
|
|
|
$
|
|
|
Issuance of common stock in business combinations
|
|
$
|
362,967
|
|
|
$
|
|
|
|
$
|
|
|
See notes to consolidated financial statements.
49
TD
AMERITRADE HOLDING CORPORATION
For
the Years Ended September 30, 2009, 2008 and 2007
|
|
1.
|
Nature of
Operations and Summary of Significant Accounting
Policies
|
Basis of Presentation The consolidated
financial statements include the accounts of TD AMERITRADE
Holding Corporation, a Delaware corporation, and its
wholly-owned subsidiaries (collectively, the
Company). Intercompany balances and transactions
have been eliminated. The Company evaluated subsequent events
through November 13, 2009, the date on which this annual
report on
Form 10-K
was filed with the Securities and Exchange Commission
(SEC).
Nature of Operations The Company provides
securities brokerage services, including trade execution,
clearing services and margin lending, through its broker-dealer
subsidiaries. The Company provides trustee, custodial and other
trust-related services to retirement plans and other custodial
accounts through its state-chartered trust company subsidiary.
The Companys education subsidiary provides a comprehensive
suite of investor education products and services. The Company
also provides cash sweep products through third-party banking
relationships.
The Companys broker-dealer subsidiaries are subject to
regulation by the SEC, the Financial Industry Regulatory
Authority (FINRA), the Commodity Futures Trading
Commission (CFTC), the National Futures Association
(NFA) and the various exchanges in which they
maintain membership. Dividends from the Companys
broker-dealer and trust subsidiaries are a source of liquidity
for the holding company. Requirements of the SEC, FINRA and CFTC
relating to liquidity, net capital standards and the use of
client funds and securities may limit funds available for the
payment of dividends from the broker-dealer subsidiaries to the
holding company. State regulatory requirements may limit funds
available for the payment of dividends from the trust subsidiary
to the holding company.
Financial Accounting Standards Board (FASB)
Accounting Standards Codification
(ASCorCodification) On
September 30, 2009, the Company adopted FASB Statement
No. 168, The FASB Accounting Standards
Codificationtm
and The Hierarchy of Generally Accepted Accounting
Principles. The Codification became the source of
authoritative generally accepted accounting principles
(GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. The Codification
supersedes all existing non-SEC accounting and reporting
standards. All other nongrandfathered non-SEC accounting
literature not included in the Codification is nonauthoritative.
GAAP is not intended to be changed as a result of this
statement, but will change the way the guidance is organized and
presented. The Company has implemented the Codification in the
consolidated financial statements by providing references to the
ASC topics.
Use of Estimates The preparation of
consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents The Company
considers temporary, highly-liquid investments with an original
maturity of three months or less to be cash equivalents, except
for amounts required to be segregated in compliance with federal
regulations. The carrying amounts of cash and cash equivalents
on the Consolidated Balance Sheets approximate fair value.
Cash and Investments Segregated in Compliance with Federal
Regulations Cash and investments segregated in
compliance with federal regulations consist primarily of
qualified deposits in special reserve bank accounts for the
exclusive benefit of clients under
Rule 15c3-3
of the Securities Exchange Act of 1934 (the Exchange
Act) and other regulations. Funds can be held in cash,
reverse repurchase agreements, fixed rate U.S. Treasury
securities and other qualified securities. Reverse repurchase
agreements (securities purchased under agreements to resell) are
treated as collateralized financing transactions and are carried
at amounts at which the securities will subsequently
50
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
be resold, plus accrued interest. The Companys reverse
repurchase agreements are collateralized by U.S. Treasury
securities.
Securities Borrowed and Securities Loaned
Securities borrowed and securities loaned transactions are
recorded at the amount of cash collateral advanced or received.
Securities borrowed transactions require the Company to provide
the counterparty with collateral in the form of cash. The
Company receives collateral in the form of cash for securities
loaned transactions. For these transactions, the fees earned or
incurred by the Company are recorded as interest revenue and
brokerage interest expense, respectively, on the Consolidated
Statements of Income. The related interest receivable from and
the brokerage interest payable to broker-dealers are included in
other receivables and in accounts payable and accrued
liabilities, respectively, on the Consolidated Balance Sheets.
Receivable from/Payable to Clients Receivable
from clients primarily consists of margin loans to brokerage
clients and is carried at the amount receivable, net of an
allowance for doubtful accounts. Payable to clients primarily
consists of client cash held in brokerage accounts and is
carried at the amount of client cash on deposit. The Company
earns interest revenue and pays interest expense on its
receivable from client and payable to client balances,
respectively. The interest revenue and expense are included in
net interest revenue on the Consolidated Statements of Income.
Investments The Companys investments in
marketable securities are carried at fair value and are
designated as
available-for-sale,
except for securities owned by the Companys broker-dealer
subsidiaries, which are accounted for as trading investments.
Unrealized gains and losses on
available-for-sale
investments, net of deferred income taxes, are reflected as
accumulated other comprehensive income (loss). Realized gains
and losses on
available-for-sale
investments are determined on the specific identification method
and are reflected on the Consolidated Statements of Income.
Unrealized gains and losses on securities accounted for as
trading investments are reflected currently on the Consolidated
Statements of Income. Investments in equity securities are
accounted for under the equity method when the Company has the
ability to exercise significant influence over the
investees operating and financial policies. The cost
method is used for non-marketable investments that do not meet
equity method criteria. Declines in fair value of investments
that are considered other than temporary are accounted for as
realized losses.
Depreciation and Amortization Depreciation is
provided on a straight-line basis using estimated useful service
lives of three to seven years. Leasehold improvements are
amortized over the lesser of the economic useful life of the
improvement or the term of the lease.
Software Development From the date
technological feasibility has been established until beta
testing is complete, software development costs are capitalized
and included in property and equipment. Once the product is
fully functional, such costs are amortized in accordance with
the Companys normal accounting policies. Software
development costs that do not meet capitalization criteria are
expensed as incurred.
Goodwill The Company has recorded goodwill
for purchase business combinations to the extent the purchase
price of each completed acquisition exceeded the fair value of
the net identifiable assets of the acquired company. The Company
tests goodwill for impairment on at least an annual basis. In
performing the impairment tests, the Company utilizes quoted
market prices of the Companys common stock to estimate the
fair value of the Company as a whole. The estimated fair value
is then allocated to the Companys reporting units, if
applicable, based on operating revenues, and is compared with
the carrying value of the reporting units. No impairment charges
have resulted from the annual impairment tests.
Amortization of Acquired Intangible Assets
Acquired intangible assets are amortized on a straight-line
basis over their estimated useful lives, ranging from one to
23 years. The acquired intangible asset associated with a
trademark license agreement is not subject to amortization
because the term of the agreement is considered to be indefinite.
51
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-Lived Assets and Acquired Intangible
Assets The Company reviews its long-lived assets
and acquired intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. The Company evaluates
recoverability by comparing the undiscounted cash flows
associated with the asset to the assets carrying amount.
Long-lived assets classified as held for sale, if
any, are reported at the lesser of carrying amount or fair value
less cost to sell.
Income Taxes The Company files a consolidated
U.S. income tax return with its subsidiaries on a calendar
year basis, combined returns for state tax purposes where
required and certain of its subsidiaries file separate state
income tax returns where required. Deferred tax assets and
liabilities are determined based on the differences between the
financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates expected to apply to taxable
income in the periods in which the deferred tax asset or
liability is expected to be settled or realized. Uncertain tax
positions are recognized if they are more likely than not to be
sustained upon examination, based on the technical merits of the
position. The amount of tax benefit recognized is the largest
amount of benefit that is greater than 50% likely of being
realized upon settlement.
Capital Stock The authorized capital stock of
the Company consists of a single class of common stock and one
or more series of preferred stock as may be authorized for
issuance by the Companys board of directors. Voting,
dividend, conversion and liquidation rights of the preferred
stock would be established by the board of directors upon
issuance of such preferred stock.
Stock-Based Compensation The Company measures
and recognizes compensation expense based on estimated grant
date fair values for all stock-based payment
arrangements. Stock-based compensation expense is
based on awards expected to vest and therefore is reduced for
estimated forfeitures. Forfeitures are estimated at the time of
grant based on the Companys historical forfeiture
experience and revised in subsequent periods if actual
forfeitures differ from those estimates.
Deferred Compensation Company common stock
held in a rabbi trust pursuant to a Company deferred
compensation plan is recorded at the fair value of the stock at
the time it is transferred to the rabbi trust and is classified
as treasury stock. The corresponding deferred compensation
liability is recorded as a component of stockholders
equity.
Foreign Currency Translation Assets and
liabilities of the Companys foreign subsidiaries that are
denominated in a foreign currency are translated into
U.S. dollars using the exchange rate in effect at each
period end. Results of operations are translated at the average
exchange rate during the period. The effects of foreign currency
translation adjustments arising from differences in exchange
rates from period to period are included in accumulated other
comprehensive income (loss) on the Consolidated Balance Sheets.
Comprehensive Income (Loss) Comprehensive
income (loss) consists of net income; unrealized gains (losses)
on securities
available-for-sale,
net of related income taxes; and foreign currency translation
adjustments. These results are incorporated into the
Consolidated Statements of Stockholders Equity.
Securities Transactions Client securities
transactions are recorded on a settlement-date basis with such
transactions generally settling three business days after the
trade date. Revenues and expenses related to securities
transactions, including revenues from execution agents (also
referred to as payment for order flow), are recorded on a
trade-date basis. Revenues related to securities transactions
are recorded net of promotional allowances. Securities owned by
clients, including those that collateralize margin or similar
transactions, are not reflected in the accompanying consolidated
financial statements.
Insured Deposit Account Fees Insured deposit
account fees consist of revenues resulting from the Money Market
Deposit Account (MMDA) agreement with TD Bank USA,
N.A. (TD Bank USA) and are recognized in the period
earned. Under the MMDA agreement, TD Bank USA makes available to
clients of the Companys broker-dealer subsidiaries
FDIC-insured deposit accounts as designated sweep vehicles. With
respect to the insured deposit accounts, the Companys
broker-dealer subsidiaries provide marketing and support
services and act as
52
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
record-keeper for TD Bank USA and as agent for clients. In
exchange for these services, TD Bank USA pays the Companys
broker-dealer subsidiaries a fee based on the yield earned on
the client insured deposit account assets, less the actual
interest cost paid to clients, actual interest cost incurred on
borrowings, a flat fee to TD Bank USA of 25 basis points
and the cost of FDIC insurance premiums. The MMDA agreement is
described further in Note 20.
Investment Product Fees Investment product
fee revenue is recognized in the period earned and consists of
revenues earned on client assets invested in money market mutual
funds, other mutual funds and certain Company-sponsored
investment programs.
Education Revenue Recognition The Company
recognizes education revenue in accordance with ASC 605,
Revenue Recognition. Revenue is not recognized until it
is realized or realizable and earned. The criteria to meet this
guideline are: (a) persuasive evidence of an arrangement
exists; (b) delivery has occurred or services have been
rendered; (c) the price to the buyer is fixed or
determinable; and (d) collectibility is reasonably assured.
Education revenue is included in other revenues on the
Consolidated Statements of Income.
The Company sells investor education products separately and in
various bundles that contain multiple deliverables including
on-demand coaching services, website subscriptions, educational
workshops, online courses and other products and services. In
accordance with ASC
605-25,
Multiple-Element Arrangements, sales arrangements with
multiple deliverables are divided into separate units of
accounting if the deliverables in the arrangement meet the
following criteria: (a) the product has value to the client
on a standalone basis; (b) there is objective and reliable
evidence of the fair value of undelivered items; and
(c) delivery or performance of any undelivered item is
probable and substantially in the Companys control. The
fair value of each separate element is generally determined by
prices charged when sold separately. In certain arrangements,
the Company offers these products bundled together at a
discount. The discount is allocated pro rata to each element
based on the relative fair value of each element when fair value
support exists for each element in the arrangement. Deferred
revenue arises because the payments are received before the
services have been rendered. Deferred revenue is generally
recognized into revenue for each element over the period that
the services are performed or the time that the contract period
expires.
The Company provides some limited rights of return in connection
with investor education products and services. The Company
estimates its returns based on historical experience and
maintains an allowance for estimated returns, which is included
in deferred revenue on the Consolidated Balance Sheets.
Advertising The Company expenses advertising
costs the first time the advertising takes place.
Derivatives and Hedging Activities The
Company occasionally utilizes derivative instruments to manage
risks, which may include market price, interest rate and foreign
currency risks. The Company does not use derivative instruments
for speculative or trading purposes. Derivatives are recorded on
the Consolidated Balance Sheets as assets or liabilities at fair
value. Derivative instruments properly designated to hedge
exposure to changes in the fair value of assets or liabilities
are accounted for as fair value hedges. Derivative instruments
properly designated to hedge exposure to the variability of
expected future cash flows or other forecasted transactions are
accounted for as cash flow hedges. The Company formally
documents the risk management objective and strategy for each
hedge transaction. Derivative instruments that do not qualify
for hedge accounting are carried at fair value on the
Consolidated Balance Sheets with unrealized gains and losses
recorded currently on the Consolidated Statements of Income. The
Company had no derivative instruments as of September 30,
2009.
Earnings Per Share Basic earnings per share
(EPS) is computed by dividing net income by the
weighted average common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock, except when such
assumed exercise or conversion would have an antidilutive effect
on EPS.
Reclassifications Approximately
$0.2 million has been reclassified from receivable from
affiliates to receivable from brokers, dealers and clearing
organizations as of September 30, 2008 on the Consolidated
Balance Sheets. Approximately $15.0 million has been
reclassified from payable to affiliates to payable to brokers,
dealers
53
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and clearing organizations as of September 30, 2008 on the
Consolidated Balance Sheets. Approximately $1.6 million has
been reclassified from accounts payable and accrued liabilities
to deferred revenue as of September 30, 2008 on the
Consolidated Balance Sheets. Each of these reclassifications was
made in order to conform to the current financial statement
presentation.
Recently
Adopted Accounting Pronouncements
ASC
820-10
On October 1, 2008, the Company adopted ASC
820-10,
Fair Value Measurements and Disclosures, for financial
assets and liabilities and nonfinancial assets and liabilities
that are recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company will not adopt ASC
820-10 until
October 1, 2009 for nonfinancial assets and liabilities
that are not recognized or disclosed at fair value in the
financial statements on a recurring basis. ASC
820-10
clarifies the definition of fair value and the methods used to
measure fair value and expands disclosures about fair value
measurements. The adoption of ASC
820-10 did
not have a material impact on the Companys consolidated
financial statements.
ASC
855-10
Effective April 1, 2009, the Company adopted ASC
855-10,
Subsequent Events. ASC
855-10
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
The adoption of ASC
855-10 did
not have a material impact on the Companys consolidated
financial statements.
Recently
Issued Accounting Pronouncements
ASC 805 In December 2007, the FASB issued ASC
805, Business Combinations. ASC 805 generally requires an
acquirer to recognize the identifiable assets acquired,
liabilities assumed, contingent purchase consideration and any
noncontrolling interest in the acquiree at fair value on the
date of acquisition. It also requires an acquirer to recognize
as expense most transaction and restructuring costs as incurred,
rather than include such items in the cost of the acquired
entity. For the Company, ASC 805 will apply prospectively to
business combinations for which the acquisition date is on or
after October 1, 2009. The Company will evaluate the impact
of ASC 805 on any potential future business combinations that
may occur on or after the effective date.
On June 11, 2009, the Company completed the acquisition of
thinkorswim Group Inc. (thinkorswim) for
approximately 27.1 million shares of Company common stock
and approximately $225.4 million in cash. thinkorswim
offers online brokerage, investor education and related
financial products and services for self-directed investors and
active traders. The Companys consolidated financial
statements include the results of operations for thinkorswim
beginning June 12, 2009.
The preliminary purchase price for thinkorswim was comprised of
the following (dollars in thousands):
|
|
|
|
|
Common stock issued
|
|
$
|
362,967
|
|
Cash paid at closing
|
|
|
225,447
|
|
Cash and cash equivalents acquired
|
|
|
(86,423
|
)
|
Long-term debt assumed(1)
|
|
|
74,000
|
|
Fair value of assumed stock-based compensation awards
|
|
|
22,672
|
|
Acquisition costs
|
|
|
9,050
|
|
Exit and involuntary termination costs
|
|
|
6,917
|
|
|
|
|
|
|
Total preliminary purchase price
|
|
$
|
614,630
|
|
|
|
|
|
|
|
|
|
(1) |
|
Immediately following the closing of the acquisition, the
Company repaid the entire $74.0 million of long-term debt. |
54
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The preliminary purchase price allocation for thinkorswim is
summarized as follows (dollars in thousands):
|
|
|
|
|
Receivable from brokers, dealers and clearing organizations
|
|
$
|
16,707
|
|
Receivable from clients
|
|
|
721
|
|
Other receivables, net
|
|
|
25,521
|
|
Securities owned, at fair value
|
|
|
298
|
|
Property and equipment
|
|
|
17,768
|
|
Goodwill
|
|
|
485,999
|
|
Acquired intangible assets
|
|
|
295,574
|
|
Other assets
|
|
|
5,339
|
|
|
|
|
|
|
Total assets acquired
|
|
|
847,927
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(75,290
|
)
|
Deferred revenue
|
|
|
(60,759
|
)
|
Capitalized lease obligations
|
|
|
(243
|
)
|
Deferred income taxes
|
|
|
(97,005
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(233,297
|
)
|
|
|
|
|
|
Total preliminary purchase price allocated
|
|
$
|
614,630
|
|
|
|
|
|
|
Based on results of an independent valuation, the Company
allocated approximately $295.6 million of the purchase
price to acquired intangible assets. The following table
summarizes the major classes of thinkorswim acquired intangible
assets and the respective weighted-average amortization periods
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Amortization
|
|
|
|
Amount
|
|
|
Period (Years)
|
|
|
Client relationships
|
|
$
|
179,084
|
|
|
|
10.8
|
|
Technology and content
|
|
|
100,904
|
|
|
|
6.9
|
|
Trade names
|
|
|
10,100
|
|
|
|
1.9
|
|
Non-competition agreement
|
|
|
5,486
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
295,574
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
On February 4, 2008, the Company completed the acquisition
of Fiserv Trust Company, an investment support services
business and wholly-owned subsidiary of Fiserv, Inc.
(Fiserv). The Company paid $274.5 million in
cash during fiscal 2008 for this acquisition. Pursuant to the
stock purchase agreement, an additional earn-out payment of up
to $100 million in cash was payable following the first
anniversary of the acquisition based on the achievement of
revenue targets. In May 2009, based on revenues through the
February 4, 2009 anniversary date, the Company paid
approximately $41.3 million for the earn-out obligation.
The Companys consolidated financial statements include the
results of operations for Fiserv Trust Company beginning
February 5, 2008.
|
|
3.
|
Goodwill
and Acquired Intangible Assets
|
The Company has recorded goodwill for purchase business
combinations to the extent the purchase price of each completed
acquisition exceeded the fair value of the net identifiable
tangible and intangible assets of each
55
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
acquired company. The following table summarizes changes in the
carrying amount of goodwill (dollars in thousands):
|
|
|
|
|
Balance as of September 30, 2007
|
|
$
|
1,768,867
|
|
Goodwill recorded in acquisition of Fiserv Trust Company
|
|
|
175,295
|
|
Purchase accounting adjustments, net of income taxes(1)
|
|
|
3,009
|
|
Tax benefit of option exercises(2)
|
|
|
(69
|
)
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
|
1,947,102
|
|
Goodwill recorded in acquisition of thinkorswim Group Inc. (see
Note 2)
|
|
|
485,999
|
|
Fiserv Trust Company earn-out payment
|
|
|
41,266
|
|
Purchase accounting adjustments, net of income taxes(3)
|
|
|
(1,300
|
)
|
Tax benefit of option exercises(2)
|
|
|
(969
|
)
|
|
|
|
|
|
Balance as of September 30, 2009
|
|
$
|
2,472,098
|
|
|
|
|
|
|
|
|
|
(1) |
|
Purchase accounting adjustments for fiscal 2008 primarily
consist of $6.2 million of net adjustments to accruals for
uncertain tax positions relating to the TD Waterhouse Group,
Inc. (TD Waterhouse) acquisition in fiscal 2006 and
the Datek Online Holdings Corp. (Datek) merger in
fiscal 2002, partially offset by adjustments of
$2.8 million (net of income taxes) decreasing exit
liabilities related to the acquisition of TD Waterhouse. |
|
(2) |
|
Represents the tax benefit realized on replacement stock awards
that were issued in connection with the Datek merger and the
thinkorswim acquisition. The tax benefit realized on a stock
award is recorded as a reduction of goodwill to the extent the
Company recorded fair value of the replacement award in the
purchase accounting. To the extent any gain realized on a stock
award exceeds the fair value of the replacement award recorded
in the purchase accounting, the tax benefit on the excess is
recorded as additional paid-in capital. |
|
(3) |
|
Purchase accounting adjustments for fiscal 2009 primarily
consist of $0.8 million (net of income taxes) of
adjustments decreasing exit liabilities related to the TD
Waterhouse acquisition, $0.3 million (net of income taxes)
of adjustments to liabilities related to the Fiserv
Trust Company acquisition and $0.2 million of net
adjustments to accruals for uncertain tax positions relating to
the TD Waterhouse acquisition and the Datek merger. |
Acquired intangible assets consist of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Client relationships
|
|
$
|
1,230,469
|
|
|
$
|
(261,183
|
)
|
|
$
|
969,286
|
|
|
$
|
1,062,046
|
|
|
$
|
(194,041
|
)
|
|
$
|
868,005
|
|
Technology and content
|
|
|
100,904
|
|
|
|
(4,509
|
)
|
|
|
96,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
10,100
|
|
|
|
(1,658
|
)
|
|
|
8,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-competition agreement
|
|
|
5,486
|
|
|
|
(561
|
)
|
|
|
4,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark license
|
|
|
145,674
|
|
|
|
|
|
|
|
145,674
|
|
|
|
145,674
|
|
|
|
|
|
|
|
145,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,492,633
|
|
|
$
|
(267,911
|
)
|
|
$
|
1,224,722
|
|
|
$
|
1,207,720
|
|
|
$
|
(194,041
|
)
|
|
$
|
1,013,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense on acquired intangible assets was
$73.9 million, $59.3 million and $54.5 million
for fiscal years 2009, 2008 and 2007, respectively. Estimated
future amortization expense for acquired intangible assets
outstanding as of September 30, 2009 is as follows (dollars
in thousands):
|
|
|
|
|
|
|
Estimated
|
|
|
|
Amortization
|
|
Fiscal Year
|
|
Expense
|
|
|
2010
|
|
$
|
100,463
|
|
2011
|
|
|
96,714
|
|
2012
|
|
|
92,897
|
|
2013
|
|
|
91,630
|
|
2014
|
|
|
91,170
|
|
Thereafter (to 2025)
|
|
|
606,174
|
|
|
|
|
|
|
Total
|
|
$
|
1,079,048
|
|
|
|
|
|
|
|
|
4.
|
Cash and
Cash Equivalents
|
The Companys cash and cash equivalents is summarized in
the following table (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Corporate
|
|
$
|
273,137
|
|
|
$
|
184,632
|
|
Broker-dealer subsidiaries
|
|
|
473,996
|
|
|
|
418,626
|
|
Trust company subsidiaries
|
|
|
25,143
|
|
|
|
61,430
|
|
Investment advisory subsidiaries
|
|
|
18,935
|
|
|
|
9,447
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
791,211
|
|
|
$
|
674,135
|
|
|
|
|
|
|
|
|
|
|
Capital requirements may limit the amount of cash available for
dividend from the broker-dealer and trust company subsidiaries
to the parent company. Cash and cash equivalents of the
investment advisory subsidiaries is generally not available for
corporate purposes.
|
|
5.
|
Short-term
Investments
|
Short-term investments consist of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Money market mutual funds
|
|
$
|
50,971
|
|
|
$
|
368,066
|
|
Federal National Mortgage Association discount notes
|
|
|
1,100
|
|
|
|
1,067
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
52,071
|
|
|
$
|
369,133
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008, the Company had holdings with a
fair value of approximately $585.5 million in the Primary
Fund, a money market mutual fund managed by The Reserve, an
independent mutual fund company. In September 2008, the net
asset value of the Primary Fund declined below $1.00 per share
and the fund announced it was liquidating under the supervision
of the SEC. In order to facilitate an orderly liquidation, the
SEC allowed the fund to suspend redemptions until the fund could
liquidate portfolio securities without further impairing the net
asset value. As of September 30, 2008, the Company
classified approximately $217.4 million of its Primary Fund
holdings as cash and cash equivalents, based on its estimated
share of the partial redemption. The remaining
$368.1 million of the Companys Primary Fund holdings
was reclassified to short-term investments, due to
57
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
uncertainty as to whether these holdings could be converted to
cash within three months. During fiscal 2009, the Company
received $534.5 million of cash as The Reserve redeemed
approximately 90% of the shares of the fund. The Company
recorded an impairment loss of $8.6 million during fiscal
2008 on its investment in the Primary Fund, which is included in
losses on money market funds and client guarantees on the
Consolidated Statements of Income. The Company cannot predict
when The Reserve will redeem the remaining shares of the fund.
|
|
6.
|
Receivable
from and Payable to Brokers, Dealers and Clearing
Organizations
|
Amounts receivable from and payable to brokers, dealers and
clearing organizations consist of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Receivable:
|
|
|
|
|
|
|
|
|
Deposits paid for securities borrowed
|
|
$
|
1,591,706
|
|
|
$
|
3,703,471
|
|
Broker-dealers
|
|
|
11,777
|
|
|
|
33,610
|
|
Clearing organizations
|
|
|
163,982
|
|
|
|
413,158
|
|
Securities failed to deliver
|
|
|
10,276
|
|
|
|
26,910
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,777,741
|
|
|
$
|
4,177,149
|
|
|
|
|
|
|
|
|
|
|
Payable:
|
|
|
|
|
|
|
|
|
Deposits received for securities loaned
|
|
$
|
2,455,833
|
|
|
$
|
5,699,927
|
|
Broker-dealers
|
|
|
8,974
|
|
|
|
8,228
|
|
Clearing organizations
|
|
|
5,875
|
|
|
|
22,418
|
|
Securities failed to receive
|
|
|
20,935
|
|
|
|
39,103
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,491,617
|
|
|
$
|
5,769,676
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Allowance
for Doubtful Accounts on Receivables
|
The following table summarizes activity in the Companys
allowance for doubtful accounts on client and other receivables
for the fiscal years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
22,482
|
|
|
$
|
19,120
|
|
|
$
|
20,290
|
|
Provision for doubtful accounts
|
|
|
1,171
|
|
|
|
9,780
|
|
|
|
5,273
|
|
Acquired in business combinations
|
|
|
272
|
|
|
|
401
|
|
|
|
|
|
Write-off of doubtful accounts
|
|
|
(10,389
|
)
|
|
|
(6,819
|
)
|
|
|
(6,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,536
|
|
|
$
|
22,482
|
|
|
$
|
19,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Property
and Equipment
|
Property and equipment consists of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Leasehold improvements
|
|
$
|
84,230
|
|
|
$
|
58,495
|
|
Software
|
|
|
69,020
|
|
|
|
46,016
|
|
Computer equipment
|
|
|
128,284
|
|
|
|
88,031
|
|
Other property and equipment
|
|
|
48,065
|
|
|
|
36,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329,599
|
|
|
|
228,601
|
|
Less: Accumulated depreciation and amortization
|
|
|
(91,343
|
)
|
|
|
(75,393
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
238,256
|
|
|
$
|
153,208
|
|
|
|
|
|
|
|
|
|
|
The Companys other investments are summarized in the
following table (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Available-for-sale
investments, at fair value:
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
$
|
|
|
|
$
|
2,094
|
|
Auction rate securities
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
investments
|
|
|
|
|
|
|
12,094
|
|
|
|
|
|
|
|
|
|
|
Other investments, at cost
|
|
|
820
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
Total other investments
|
|
$
|
820
|
|
|
$
|
12,768
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
investments in marketable equity securities included gross
unrealized losses of $1.6 million as of September 30,
2008, which are included in accumulated other comprehensive loss
on the Consolidated Balance Sheets.
Auction rate securities (ARS) are long-term variable
rate bonds tied to short-term interest rates that are reset
through a Dutch auction process, which occurs every
seven to 35 days. Holders of ARS may liquidate their
holdings to prospective buyers by participating in the auctions.
ARS do not qualify as cash equivalents because they have
long-term maturity dates and there is no guarantee that holders
will be able to liquidate their holdings through the auction
process. During fiscal 2008, the Dutch auction process failed
and holders were no longer able to liquidate their holdings
through the auction process. As of September 30, 2008, the
Company had $10 million invested in ARS, which was
reclassified to other investments in the Consolidated Balance
Sheets due to the failure of the auctions. During fiscal 2009,
the Companys $10 million investment in ARS was
redeemed by the issuer and no gain or loss was recognized.
59
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Acquisition
Exit Liabilities
|
The Company has recorded exit liabilities associated with
acquisitions, which are included in accounts payable and accrued
liabilities on the Consolidated Balance Sheets. These exit
liabilities consist principally of severance pay and other
termination benefits and contract termination costs. The
following is a summary of the activity in the Companys
acquisition exit liabilities (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
Clearing and
|
|
|
|
|
|
Occupancy
|
|
|
Professional
|
|
|
|
|
|
|
Compensation
|
|
|
Execution
|
|
|
Communications
|
|
|
and Equipment
|
|
|
Services
|
|
|
Total
|
|
|
Balance, Sept. 29, 2006
|
|
$
|
26,676
|
|
|
$
|
10,073
|
|
|
$
|
|
|
|
$
|
23,168
|
|
|
$
|
1,334
|
|
|
$
|
61,251
|
|
Fiscal 2007 activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit costs recorded
|
|
|
20,569
|
|
|
|
579
|
|
|
|
57
|
|
|
|
3,393
|
|
|
|
9,674
|
|
|
|
34,272
|
|
Utilized
|
|
|
(38,408
|
)
|
|
|
(3,851
|
)
|
|
|
(57
|
)
|
|
|
(4,121
|
)
|
|
|
(8,103
|
)
|
|
|
(54,540
|
)
|
Adjustments
|
|
|
(1,447
|
)
|
|
|
(1,801
|
)
|
|
|
|
|
|
|
(1,401
|
)
|
|
|
(2,674
|
)
|
|
|
(7,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Sept. 30, 2007
|
|
|
7,390
|
|
|
|
5,000
|
|
|
|
|
|
|
|
21,039
|
|
|
|
231
|
|
|
|
33,660
|
|
Fiscal 2008 activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit costs recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
649
|
|
|
|
649
|
|
Utilized
|
|
|
(4,815
|
)
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(3,912
|
)
|
|
|
(880
|
)
|
|
|
(14,607
|
)
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,385
|
)
|
|
|
|
|
|
|
(4,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Sept. 30, 2008
|
|
|
2,575
|
|
|
|
|
|
|
|
|
|
|
|
12,742
|
|
|
|
|
|
|
|
15,317
|
|
Fiscal 2009 activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit costs recorded
|
|
|
6,847
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
6,917
|
|
Utilized
|
|
|
(868
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,619
|
)
|
|
|
|
|
|
|
(3,487
|
)
|
Adjustments
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,266
|
)
|
|
|
|
|
|
|
(1,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Sept. 30, 2009
|
|
$
|
8,478
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,927
|
|
|
$
|
|
|
|
$
|
17,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The exit costs recorded during fiscal 2007 relate to purchase
accounting adjustments for the acquisition of
TD Waterhouse. The exit costs recorded during fiscal 2008
and 2009 relate to the acquisitions of Fiserv Trust Company
and thinkorswim, respectively (described in Note 2).
Adjustments to purchase accounting estimates arising prior to
the one-year anniversaries of the respective acquisitions are
reflected in the exit costs recorded rows as
adjustments to the cost of the acquisitions, and therefore
adjusted the amount of goodwill recorded. Adjustments arising on
or after the one-year anniversaries of the respective
acquisitions are reflected in the adjustments rows.
Employee compensation exit liabilities are expected to be paid
over contractual periods ending in fiscal 2012. Remaining
occupancy and equipment exit liabilities are expected to be
utilized over the related lease periods through fiscal 2016.
The Company entered into a credit agreement on January 23,
2006 for $2.2 billion in senior credit facilities with a
syndicate of lenders under an unregistered private placement.
The senior credit facilities include: (a) a senior secured
term loan facility in the aggregate principal amount of
$250 million (the Term A Facility), (b) a
senior secured term loan facility in the aggregate principal
amount of $1.65 billion (the Term B Facility)
and (c) a senior secured revolving credit facility in the
aggregate principal amount of $300 million (the
Revolving Facility) (together, the
Financings). The maturity date of the Term A
Facility is December 31, 2011. The maturity date of the
Term B Facility is December 31, 2012. The maturity date of
the Revolving Facility is December 31, 2010. The Financings
are subject to certain mandatory prepayments, which include
prepayments based on leverage ratios and
60
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amounts of excess cash flow and from the net cash proceeds of
asset sales and debt issuances, subject to certain exceptions.
Under the terms of the Financings, the Company may prepay
borrowings without penalty.
The applicable interest rate under the Revolving Facility and
the Term A Facility is calculated as a per annum rate equal to,
at the Companys option, (a) LIBOR plus an interest
rate margin (LIBOR loans) or (b) (i) the
greater of (x) the prime rate or (y) the federal funds
effective rate plus 0.50% plus (ii) an interest rate margin
(Base Rate loans). With respect to the Revolving
Facility and the Term A Facility the interest rate margin for
LIBOR loans is 1.50% if the consolidated leverage ratio (as
defined in the Financings) of the Company is 1.75 to 1.00 or
higher, 1.25% if the consolidated leverage ratio of the Company
is less than 1.75 to 1.00 but greater than or equal to 1.00 to
1.00, and 1.00% if the consolidated leverage ratio of the
Company is less than 1.00 to 1.00. The interest rate margin for
Base Rate loans under the Revolving Facility and the Term A
Facility is 1.00% less than the interest rate margin for LIBOR
loans. The applicable interest rate under the Term B Facility is
calculated as a per annum rate equal to (a) LIBOR plus
1.50% or (b) (i) the greater of (x) the prime rate or
(y) the federal funds effective rate plus 0.50% plus
(ii) 0.50%. On September 30, 2009, the applicable
interest rates on the Term A Facility and the Term B Facility
were 1.49% and 1.74%, respectively, based on
30-day
LIBOR. The Company had outstanding indebtedness of approximately
$0.1 billion and $0.2 billion under the Term A
Facility as of September 30, 2009 and 2008, respectively,
and outstanding indebtedness of approximately $1.3 billion
under the Term B Facility as of September 30, 2009 and
2008. There were no borrowings outstanding under the Revolving
Facility as of September 30, 2009 and 2008. The Financings
also provide that the Company is obligated to pay from time to
time letter of credit fees equal to the applicable margin in
respect of LIBOR advances on each outstanding letter of credit
under the Revolving Credit Facility. In addition, the Financings
provide that the Company pays fees to the issuing bank in
respect of the Letters of Credit in an amount agreed to by the
Company and the issuing bank. A commitment fee at the rate of
0.375% per annum accrues on any unused amount of the Revolving
Facility.
On November 5, 2009, the Company entered into an amendment
to the January 23, 2006 credit agreement to extend the term
of the Revolving Facility to December 31, 2012. Under the
amended agreement, , the applicable interest rate for Base Rate
loans on the Revolving Facility will be calculated as a per
annum rate equal to (i) the highest of (x) the prime
rate, (y) the federal funds effective rate plus 0.50% and
(z) one-month LIBOR plus 1.00%, plus (ii) an interest
rate margin. The interest rate margin will range from 2.00% to
4.00% for LIBOR loans and from 1.00% to 3.00% for Base Rate
loans, determined by reference to the Companys public debt
ratings. The commitment fee will range from 0.225% to 0.75%,
determined by reference to the Companys public debt
ratings. As of November 5, 2009, the interest rate margin
would be 2.5% for LIBOR loans and 1.5% for Base Rate loans, and
the commitment fee would be 0.375% per annum, each determined by
reference to the Companys current Standard &
Poors public debt rating of BBB+.
The obligations under the Financings are guaranteed by certain
of the Companys subsidiaries, other than broker-dealer
subsidiaries, with certain exceptions, and are secured by a lien
on substantially all of the assets of each guarantor, including
a pledge of the ownership interests in each first-tier
broker-dealer subsidiary held by a guarantor and 65% of the
ownership interests in each first-tier foreign subsidiary held
by a guarantor, with certain exceptions.
The Financings contain covenants that may limit or restrict the
incurrence of liens, investments (including acquisitions), sales
of assets, indebtedness and mergers and consolidations, subject
to certain exceptions. The Financings also may restrict the
payment of dividends on the Companys outstanding capital
stock and repurchases or redemptions of the Companys
outstanding capital stock. The Company is also required to
maintain compliance with a maximum consolidated leverage ratio
covenant and a minimum consolidated interest coverage ratio
covenant, and the Companys broker-dealer subsidiaries are
required to maintain compliance with a minimum regulatory net
capital covenant. The Company was in compliance with all
covenants under the Financings as of September 30, 2009.
During fiscal 2007, the Company entered into two amendments to
its January 23, 2006 credit agreement to allow the Company
to repurchase additional shares of its outstanding common stock
and to change its fiscal year
61
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
end to September 30. The Company paid approximately
$1.2 million of additional debt issuance costs to effect
the amendments.
Fiscal year maturities on long-term debt outstanding at
September 30, 2009 are as follows (dollars in thousands):
|
|
|
|
|
2010
|
|
$
|
60,388
|
|
2011
|
|
|
66,762
|
|
2012
|
|
|
21,875
|
|
2013
|
|
|
1,265,875
|
|
|
|
|
|
|
Total
|
|
$
|
1,414,900
|
|
|
|
|
|
|
The Company, through its wholly-owned broker-dealer
subsidiaries, had access to secured uncommitted credit
facilities with financial institutions of up to
$630 million as of September 30, 2009 and 2008. The
broker-dealer subsidiaries also had access to unsecured
uncommitted credit facilities of up to $150 million as of
September 30, 2009 and 2008. The financial institutions may
make loans under line of credit arrangements or, in some cases,
issue letters of credit under these facilities. The secured
credit facilities require the Company to pledge qualified client
securities to secure outstanding obligations under these
facilities. Borrowings under the secured and unsecured credit
facilities bear interest at a variable rate based on the federal
funds rate. There were no borrowings outstanding or letters of
credit issued under the secured or unsecured credit facilities
as of September 30, 2009 and 2008. As of September 30,
2009 and 2008, approximately $780 million was available to
the Companys broker-dealer subsidiaries pursuant to
uncommitted credit facilities for either loans or, in some
cases, letters of credit.
Provision for income taxes is comprised of the following for
fiscal years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
438,911
|
|
|
$
|
505,270
|
|
|
$
|
324,315
|
|
State
|
|
|
47,113
|
|
|
|
50,196
|
|
|
|
43,630
|
|
Foreign
|
|
|
350
|
|
|
|
357
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
486,374
|
|
|
|
555,823
|
|
|
|
368,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(70,656
|
)
|
|
|
(76,843
|
)
|
|
|
15,296
|
|
State
|
|
|
(18
|
)
|
|
|
(19,395
|
)
|
|
|
5,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,674
|
)
|
|
|
(96,238
|
)
|
|
|
20,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
415,700
|
|
|
$
|
459,585
|
|
|
$
|
388,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
TD
AMERITRADE HOLDING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the federal statutory tax rate to the
effective tax rate applicable to pre-tax income follows for the
fiscal years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal tax effect
|
|
|
2.4
|
|
|
|
2.6
|
|
|
|
3.2
|
|
Adjustments to estimated state income taxes
|
|
|
0.5
|
|
|
|
(0.9
|
)
|
|
|
|
|
Interest accrued on unrecognized tax benefits, net
|
|
|
0.9
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
Reversal of accruals for unrecognized tax benefits
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Capital loss limitation
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.2
|
%
|
|
|
36.4
|
%
|
|
|
37.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective income tax rate for fiscal year
2009 was 39.2%, compared to 36.4% and 37.6% for fiscal years
2008 and 2007, respectively. The provision for income taxes for
fiscal year 2009 was higher than normal due to unfavorable
income tax adjustments of $8.9 million resulting from
recent state income tax law changes and capital loss limitations
on the Companys Reserve Primary Fund holdings. These items
unfavorably impacted the Companys earnings for fiscal year
2009 by approximately $0.02 per share. The provision for income
taxes for fiscal year 2008 was unusually low due to
$7.2 million (net of the federal benefit) of favorable
resolutions of state income tax matters and $11.1 million
(net of the federal benefit) of adjustments to current and
deferred income taxes resulting from a revision to estimated
state income tax expense. The revision was based on the
Companys actual state income tax returns filed for
calendar year 2006 and similar adjustments applied to estimated
state income tax rates for calendar year 2007 and future years.
These items favorably impacted the Companys earnings for
fiscal year 2008 by approximately $0.03 per share.
Deferred tax assets (liabilities) are comprised of the following
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
104,744
|
|
|
$
|
86,369
|
|
Intangible assets, state tax benefit
|
|
|
23,490
|
|
|
|
28,866
|
|
Stock-based compensation
|
|
|
15,575
|
|
|
|
15,350
|
|
Allowance for doubtful accounts
|
|
|
4,936
|
|
|
|
7,327
|
|
Unrealized tax gain on MMDA agreement
|
|
|
164,165
|
|
|
|
90,497
|
|
Operating loss carryforwards
|
|
|
25,958
|
|
|
|
17,048
|
|
Other deferred tax assets
|
|
|
3,138
|
|
|
|
575
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
342,006
|
|
|
|
246,032
|
|
Less: Valuation allowance
|
|
|
(21,587
|
)
|
|
|
|