UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2011

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

Commission file number: 0-49992

 

TD Ameritrade Holding Corporation

(Exact name of registrant as specified in its charter)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes 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. Yes þ No 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.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

As of July 29, 2011, there were 565,393,641 outstanding shares of the registrant’s common stock.

 

 

TD AMERITRADE HOLDING CORPORATION

INDEX

		Page No.
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Registered Public Accounting Firm			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Income			5
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			42
Part II — OTHER INFORMATION
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities			44
Item 6. Exhibits			45
Signatures			46
EX-15.1
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Part I — FINANCIAL INFORMATION

Item 1. — Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
TD Ameritrade Holding Corporation

We have reviewed the condensed consolidated balance sheet of TD Ameritrade Holding Corporation (the Company) as of June 30, 2011, and the related condensed consolidated statements of income for the three-month and nine-month periods ended June 30, 2011 and 2010, and the condensed consolidated statements of cash flows for the nine-month periods ended June 30, 2011 and 2010. These financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of TD Ameritrade Holding Corporation as of September 30, 2010, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein) and in our report dated November 19, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2010, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ ERNST & YOUNG LLP

Minneapolis, Minnesota
August 8, 2011

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

		June 30,				September 30,
		2011				2010
		(Unaudited)
ASSETS
Cash and cash equivalents		$	1,323,646			$	741,492
Short-term investments			3,540				3,592
Cash and investments segregated in compliance with federal regulations			377,260				994,026
Receivable from brokers, dealers and clearing organizations			1,033,020				1,207,723
Receivable from clients — net of allowance for doubtful accounts			8,714,661				7,393,855
Receivable from affiliates			101,479				90,523
Other receivables — net of allowance for doubtful accounts			94,789				68,928
Securities owned, at fair value			65,334				217,234
Property and equipment — net of accumulated depreciation and amortization			315,008				272,211
Goodwill			2,466,979				2,467,013
Acquired intangible assets — net of accumulated amortization			1,048,731				1,124,259
Deferred income taxes			4,659				9,915
Other assets			141,498				136,147
Total assets		$	15,690,604			$	14,726,918
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations		$	2,083,014			$	1,934,315
Payable to clients			7,269,012				6,810,391
Accounts payable and accrued liabilities			463,651				476,306
Payable to affiliates			3,564				3,244
Deferred revenue			46,288				63,512
Long-term debt			1,290,467				1,302,269
Capitalized lease obligations			12,699				20,799
Deferred income taxes			346,837				344,203
Total liabilities			11,515,532				10,955,039
Stockholders’ equity:
Preferred stock, $0.01 par value; 100 million shares authorized, none issued			—				—
Common stock, $0.01 par value; one billion shares authorized; 631,381,860 shares issued; June 30, 2011 — 567,455,934 outstanding; September 30, 2010 — 576,134,924 outstanding			6,314				6,314
Additional paid-in capital			1,574,641				1,390,283
Retained earnings			3,510,471				3,122,305
Treasury stock, common, at cost — June 30, 2011 — 63,925,926 shares; September 30, 2010 — 55,246,936 shares			(916,838	)			(747,271	)
Deferred compensation			272				196
Accumulated other comprehensive income			212				52
Total stockholders’ equity			4,175,072				3,771,879
Total liabilities and stockholders’ equity		$	15,690,604			$	14,726,918

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

		Three Months Ended June 30,								Nine Months Ended June 30,
		2011				2010				2011				2010
Revenues:
Transaction-based revenues:
Commissions and transaction fees		$	281,591			$	333,081			$	912,607			$	943,740
Asset-based revenues:
Interest revenue			132,334				112,804				371,959				315,457
Brokerage interest expense			(1,052	)			(1,422	)			(3,581	)			(4,694	)
Net interest revenue			131,282				111,382				368,378				310,763
Insured deposit account fees			196,817				180,075				562,759				505,370
Investment product fees			43,938				33,194				125,075				92,964
Total asset-based revenues			372,037				324,651				1,056,212				909,097
Other revenues			31,154				34,072				90,382				99,019
Net revenues			684,782				691,804				2,059,201				1,951,856
Operating expenses:
Employee compensation and benefits			168,564				156,251				500,632				467,767
Clearing and execution costs			22,648				22,387				71,566				68,422
Communications			27,057				27,030				81,782				76,329
Occupancy and equipment costs			36,318				35,452				104,663				104,184
Depreciation and amortization			16,914				14,499				49,629				41,573
Amortization of acquired intangible assets			24,083				25,119				72,747				75,722
Professional services			42,882				31,998				123,257				97,170
Advertising			48,109				51,596				204,092				188,359
Gains on money market funds and client guarantees			—				(9,209	)			—				(11,145	)
Other			35,668				36,420				71,291				75,347
Total operating expenses			422,243				391,543				1,279,659				1,183,728
Operating income			262,539				300,261				779,542				768,128
Other expense:
Interest on borrowings			6,916				11,197				25,227				33,764
Loss on debt refinancing			1,435				—				1,435				8,392
Total other expense			8,351				11,197				26,662				42,156
Pre-tax income			254,188				289,064				752,880				725,972
Provision for income taxes			96,793				109,625				278,778				247,743
Net income		$	157,395			$	179,439			$	474,102			$	478,229
Earnings per share — basic		$	0.28			$	0.31			$	0.83			$	0.81
Earnings per share — diluted		$	0.27			$	0.30			$	0.82			$	0.80
Weighted average shares outstanding — basic			570,287				587,086				573,034				588,176
Weighted average shares outstanding — diluted			576,784				593,647				579,168				595,221
Dividends declared per share		$	0.05			$	—			$	0.15			$	—

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands, except share amounts)

		Nine Months Ended June 30,
		2011				2010
Cash flows from operating activities:
Net income		$	474,102			$	478,229
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			49,629				41,573
Amortization of acquired intangible assets			72,747				75,722
Deferred income taxes			7,394				159,856
Loss on disposal of property			16,720				2,533
Gains on money market funds and client guarantees			—				(11,145	)
Loss on debt refinancing			1,435				8,392
Stock-based compensation			25,995				25,090
Excess tax benefits on stock-based compensation			(9,370	)			(13,095	)
Other, net			185				154
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with federal regulations			616,766				5,323,932
Receivable from brokers, dealers and clearing organizations			174,703				995,686
Receivable from clients, net			(1,323,229	)			(1,819,054	)
Receivable from/payable to affiliates, net			(7,879	)			14,825
Other receivables, net			(23,685	)			9,857
Securities owned			151,900				(225,361	)
Other assets			(7,945	)			(11,982	)
Payable to brokers, dealers and clearing organizations			148,699				(517,795	)
Payable to clients			458,621				(4,018,506	)
Accounts payable and accrued liabilities			(2,125	)			(175,866	)
Deferred revenue			(17,224	)			(304	)
Net cash provided by operating activities			807,439				342,741
Cash flows from investing activities:
Purchase of property and equipment			(109,904	)			(61,180	)
Cash received in sale of business			5,228				—
Cash transferred in disposal of subsidiary			(3,453	)			—
Purchase of short-term investments			(1,045	)			(3,296	)
Proceeds from sale and maturity of short-term investments			1,100				3,300
Proceeds from redemption of money market funds			—				51,478
Purchase of investments			(5,006	)			—
Other, net			550				(2	)
Net cash used in investing activities			(112,530	)			(9,700	)

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

(Unaudited)

(In thousands, except share amounts)

		Nine Months Ended June 30,
		2011				2010
Cash flows from financing activities:
Proceeds from issuance of long-term debt		$	—			$	1,248,557
Payment of debt issuance costs			(1,783	)			(10,595	)
Principal payments on long-term debt			(4,262	)			(1,410,638	)
Principal payments on capital lease obligations			(8,100	)			(11,853	)
Proceeds from exercise of stock options; Nine months ended June 30, 2011 — 628,293 shares; 2010 — 3,362,788 shares			3,204				11,842
Purchase of treasury stock; Nine months ended June 30, 2011 — 7,068,892 shares; 2010 — 14,228,369 shares			(144,245	)			(248,188	)
Return of prepayment on structured stock repurchase			118,834				—
Payment of cash dividends			(85,936	)			—
Excess tax benefits on stock-based compensation			9,370				13,095
Net cash used in financing activities			(112,918	)			(407,780	)
Effect of exchange rate changes on cash and cash equivalents			163				(9	)
Net increase (decrease) in cash and cash equivalents			582,154				(74,748	)
Cash and cash equivalents at beginning of period			741,492				791,211
Cash and cash equivalents at end of period		$	1,323,646			$	716,463
Supplemental cash flow information:
Interest paid		$	35,687			$	33,847
Income taxes paid		$	233,713			$	233,009
Tax benefit on exercises and distributions of stock-based compensation		$	9,404			$	17,396
Noncash financing activities:
Issuance of capital lease obligations		$	—			$	6,003
Settlement of structured stock repurchase; 3,159,360 shares		$	50,366			$	—

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three-Month and Nine-Month Periods Ended June 30, 2011 and 2010
(Unaudited)

 

1. BASIS OF PRESENTATION

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

These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments, which are all of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report filed on Form 10-K for the fiscal year ended September 30, 2010.

Recently Issued Accounting Pronouncements

ASU 2011-04 — In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in ASU 2011-04 change the wording used to describe many of the requirements in U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) for measuring fair value and for disclosing information about fair value measurements. Some of the amendments clarify FASB’s intent about the application of existing fair value measurement and disclosure requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. ASU 2011-04 is effective during interim and annual periods beginning after December 15, 2011. Therefore, ASU 2011-04 will be effective for the Company’s fiscal quarter beginning January 1, 2012 (the Company’s second quarter of fiscal 2012). Adoption of ASU 2011-04 is not expected to have a material impact on the Company’s financial statements.

ASU 2011-05 — In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and allows two options for presenting the components of net income and other comprehensive income: (1) in a single continuous statement of comprehensive income or (2) in two separate but consecutive statements, consisting of a statement of net income followed by a separate statement of other comprehensive income. ASU 2011-05 requires retrospective application and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Therefore, ASU 2011-05 will be effective for the Company’s fiscal year beginning October 1, 2012. The adoption of ASU 2011-05 will change the manner in which the components of other comprehensive income are presented in the financial statements, but is not expected to have any other material impact on the Company’s financial statements.

2. ACQUIRED INTANGIBLE ASSETS

The Company’s acquired intangible assets consist of the following as of June 30, 2011 (dollars in thousands):

		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
Client relationships		$	1,229,431			$	(397,315	)		$	832,116
Technology and content			99,161				(29,949	)			69,212
Trade names			10,100				(10,100	)			—
Non-competition agreement			5,486				(3,757	)			1,729
Trademark license			145,674				—				145,674
		$	1,489,852			$	(441,121	)		$	1,048,731

Estimated future amortization expense for acquired intangible assets outstanding as of June 30, 2011 is as follows (dollars in thousands):

		Estimated
		Amortization
Fiscal Year		Expense
2011 Remaining		$	23,424
2012			92,370
2013			91,102
2014			90,641
2015			89,839
Thereafter (to 2025)			515,681
Total		$	903,057

3. CASH AND CASH EQUIVALENTS

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

		June 30,				September 30,
		2011				2010
Corporate		$	260,807			$	234,993
Broker-dealer subsidiaries			982,768				426,618
Trust company subsidiary			38,887				50,937
Investment advisory subsidiaries			41,184				28,944
Total		$	1,323,646			$	741,492

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.

4. INCOME TAXES

The Company’s effective income tax rate for the nine months ended June 30, 2011 was 37.0%, compared to 34.1% for the nine months ended June 30, 2010. The provision for income taxes for the nine months ended June 30, 2011 was lower than normal due to $5.5 million of favorable resolutions of state income tax matters and $1.2 million of favorable deferred income tax adjustments resulting from recent state income tax law changes. These items favorably impacted the Company’s earnings for the nine months ended June 30, 2011 by approximately $0.01 per share. The provision for income taxes for the nine months ended June 30, 2010 was unusually low due to $28.8 million of favorable resolutions of certain federal and state income tax matters. These items favorably impacted the Company’s earnings for the nine months ended June 30, 2010 by approximately $0.05 per share.

5. LONG-TERM DEBT

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

		Face				Unamortized				Fair Value				Net Carrying
June 30, 2011		Value				Discount				Adjustment (1)				Value
Senior Notes:
2.950% Senior Notes due 2012		$	250,000			$	(121	)		$	5,547			$	255,426
4.150% Senior Notes due 2014			500,000				(338	)			27,385				527,047
5.600% Senior Notes due 2019			500,000				(580	)			8,574				507,994
Total long-term debt		$	1,250,000			$	(1,039	)		$	41,506			$	1,290,467

		Face				Unamortized				Fair Value				Net Carrying
September 30, 2010		Value				Discount				Adjustment (1)				Value
Senior Notes:
2.950% Senior Notes due 2012		$	250,000			$	(185	)		$	9,299			$	259,114
4.150% Senior Notes due 2014			500,000				(411	)			39,936				539,525
5.600% Senior Notes due 2019			500,000				(632	)			N/A				499,368
Total Senior Notes			1,250,000				(1,228	)			49,235				1,298,007
Other			4,262				N/A				N/A				4,262
Total long-term debt		$	1,254,262			$	(1,228	)		$	49,235			$	1,302,269

Interest Rate Swaps — The Company is exposed to changes in the fair value of its fixed-rate Senior Notes resulting from interest rate fluctuations. To hedge this exposure, on December 30, 2009, the Company entered into fixed-for-variable interest rate swaps on the 2.950% Senior Notes due December 1, 2012 (the “2012 Notes”) and the 4.150% Senior Notes due December 1, 2014 (the “2014 Notes”) for notional amounts of $250 million and $500 million, respectively, with maturity dates matching the respective maturity dates of the 2012 Notes and 2014 Notes. In addition, on January 7, 2011, the Company entered into a fixed-for-variable interest rate swap on the 5.600% Senior Notes due December 1, 2019 (the “2019 Notes”) for a notional amount of $500 million, with a maturity date matching the maturity date of the 2019 Notes. The interest rate swaps effectively change the fixed-rate interest on the Senior Notes to variable-rate interest. Under the terms of the interest rate swap agreements, the Company receives semi-annual fixed-rate interest payments based on the same rates applicable to the Senior Notes, and makes quarterly variable-rate interest payments based on three-month LIBOR plus (a) 0.9693% for the swap on the 2012 Notes, (b) 1.245% for the swap on the 2014 Notes and (c) 2.3745% for the swap on the 2019 Notes. As of June 30, 2011, the weighted-average effective interest rate on the Senior Notes was 1.90%.

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

		Three Months Ended June 30,								Nine Months Ended June 30,
		2011				2010				2011				2010
Gain (loss) on fair value of interest rate swaps		$	11,294			$	13,107			$	(7,729	)		$	27,963
Gain (loss) on fair value of hedged fixed-rate debt			(11,294	)			(13,107	)			7,729				(27,963	)
Net gain (loss) recorded in interest on borrowings		$	—			$	—			$	—			$	—

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

		June 30,				September 30,
		2011				2010
Derivatives recorded under the caption Other assets:
Interest rate swap assets		$	41,506			$	49,235

The interest rate swaps are subject to counterparty credit risk. Credit risk is managed by limiting activity to approved counterparties that meet a minimum credit rating threshold and by entering into credit support agreements. The bilateral credit support agreements related to the interest rate swaps require daily collateral coverage, in the form of cash or U.S. Treasury securities, for the aggregate fair value of the interest rate swaps. As of June 30, 2011 and September 30, 2010, the interest rate swap counterparty for the 2012 Notes and 2014 Notes had pledged $36.4 million and $52.9 million of collateral, respectively, to the Company in the form of U.S. Treasury securities. As of June 30, 2011, the interest rate swap counterparty for the 2019 Notes had pledged $10.2 million of collateral to the Company in the form of cash.

TD Ameritrade Holding Corporation Credit Agreement — On June 28, 2011, TD Ameritrade Holding Corporation (the “Parent”) entered into a credit agreement consisting of a senior unsecured revolving credit facility in the aggregate principal amount of $300 million (the “Parent Revolving Facility”). The Parent Revolving Facility replaced the Parent’s prior $300 million unsecured revolving credit facility, which was scheduled to expire on December 31, 2012. The maturity date of the Parent Revolving Facility is June 28, 2014.

The applicable interest rate under the Parent Revolving Facility is calculated as a per annum rate equal to, at the option of the Parent, (a) LIBOR plus an interest rate margin (“Parent LIBOR loans”) or (b) (i) the highest of (x) the prime rate, (y) the federal funds effective rate plus 0.50% or (z) one-month LIBOR plus 1.00%, plus (ii) an interest rate margin (“Base Rate loans”). The interest rate margin ranges from 1.25% to 2.25% for Parent LIBOR loans and from 0.25% to 1.25% for Base Rate loans, determined by reference to the Company’s public debt ratings. The Parent is obligated to pay a commitment fee ranging from 0.15% to 0.375% on any unused amount of the Parent Revolving Facility, determined by reference to the Parent’s public debt ratings. As of June 30, 2011, the interest rate margin would have been 1.50% for Parent LIBOR loans and 0.50% for Base Rate loans, and the commitment fee was 0.20%, each determined by reference to the Parent’s Standard & Poor’s public debt rating of A-. There were no borrowings outstanding under the Parent Revolving Facility as of June 30, 2011.

The obligations under the Parent Revolving Facility are guaranteed by TD Ameritrade Online Holdings Corp. (“TDAOH”), a wholly-owned subsidiary of the Parent, and each “significant subsidiary” (as defined in SEC Rule 1-02(w) of Regulation S-X) of the Parent, other than broker-dealer subsidiaries, futures commission merchant subsidiaries and controlled foreign corporations. Currently, the only subsidiary guarantor of the obligations under the Parent Revolving Facility is TDAOH.

The Parent Revolving Facility contains negative covenants that limit or restrict, subject to certain exceptions, the incurrence of liens, indebtedness of subsidiaries, mergers, consolidations, transactions with affiliates, change in nature of business and the sale of all or substantially all of the assets of the Company. The Parent is also required to maintain compliance with a maximum consolidated leverage ratio covenant and a minimum consolidated interest coverage ratio covenant, and the Parent’s 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 Parent Revolving Facility as of June 30, 2011.

TD Ameritrade Clearing, Inc. Credit Agreement — On June 28, 2011, TD Ameritrade Clearing, Inc. (“TDAC”), the Company’s clearing broker-dealer subsidiary, entered into a credit agreement consisting of a senior unsecured revolving credit facility in the aggregate principal amount of $300 million (the “TDAC Revolving Facility”). The maturity date of the TDAC Revolving Facility is June 28, 2014.

The applicable interest rate under the TDAC Revolving Facility is calculated as a per annum rate equal to, at the option of TDAC, (a) LIBOR plus an interest rate margin (“TDAC LIBOR loans”) or (b) the federal funds effective rate plus an interest rate margin (“Fed Funds Rate loans”). The interest rate margin ranges from 1.00% to 2.00% for both TDAC LIBOR loans and Fed Funds Rate loans, determined by reference to the Company’s public debt rating. TDAC is obligated to pay a commitment fee ranging from 0.125% to 0.30% on any unused amount of the TDAC Revolving Facility, determined by reference to the Company’s public debt rating. As of June 30, 2011, the interest rate margin would have been 1.25% for both TDAC LIBOR loans and Fed Funds Rate loans, and the commitment fee was 0.15%, each determined by reference to the Parent’s public debt rating. There were no borrowings outstanding under the TDAC Revolving Facility as of June 30, 2011.

The TDAC Revolving Facility contains negative covenants that limit or restrict, subject to certain exceptions, the incurrence of liens, indebtedness of TDAC, mergers, consolidations, change in nature of business and the sale of all or substantially all of the assets of TDAC. TDAC is also required to maintain minimum tangible net worth and is required to maintain compliance with minimum regulatory net capital requirements. TDAC was in compliance with all covenants under the TDAC Revolving Facility as of June 30, 2011.

6. CAPITAL REQUIREMENTS

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

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

		June 30, 2011												September 30, 2010
						Minimum												Minimum
						Net Capital				Excess								Net Capital				Excess
		Net Capital				Required				Net Capital				Net Capital				Required				Net Capital
TD Ameritrade Clearing, Inc.		$	1,281,958			$	196,797			$	1,085,161			$	1,092,692			$	177,644			$	915,048
TD Ameritrade, Inc.			292,747				1,000				291,747				142,859				1,000				141,859
Bellevue Chicago, LLC			N/A				N/A				N/A				39,039				250				38,789
Totals		$	1,574,705			$	197,797			$	1,376,908			$	1,274,590			$	178,894			$	1,095,696

TDAC is a clearing broker-dealer and TD Ameritrade, Inc. is an introducing broker-dealer. Prior to October 12, 2010, Bellevue Chicago, LLC (formerly thinkorswim, Inc.) was registered as an introducing broker-dealer. On May 25, 2010, Bellevue Chicago, LLC transferred its introducing broker-dealer business to TD Ameritrade, Inc. On October 12, 2010, the Company withdrew Bellevue Chicago, LLC’s registration as a broker-dealer.

The Company’s non-depository trust company subsidiary, TD Ameritrade Trust Company (“TDATC”), is subject to capital requirements established by the State of Maine, which requires TDATC to maintain minimum Tier 1 capital, as defined. TDATC’s Tier 1 capital was $18.4 million and $22.3 million as of June 30, 2011 and September 30, 2010, respectively, which exceeded the required Tier 1 capital by $8.4 million and $12.3 million, respectively.

7. COMMITMENTS AND CONTINGENCIES

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 TD Ameritrade, 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 cases were consolidated under the caption In re TD Ameritrade Accountholders Litigation and a consolidated complaint was filed. 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. On December 20, 2010, TD Ameritrade, Inc. received preliminary Court approval of a proposed class settlement agreement between TD Ameritrade, Inc. and plaintiffs Richard Holober and Brad Zigler. Under the proposed settlement, the Company will pay no less than $2.5 million in settlement benefits. Total compensation to be paid to all eligible members of the settlement class will not exceed $6.5 million, inclusive of any award of attorneys’ fees and costs. In addition, the settlement agreement provides that the Company will retain an independent information technology security consultant to assess whether the Company has met certain information technology security standards. The proposed settlement is subject to final approval by the Court. A hearing on final approval of the proposed settlement was held on April 19, 2011. The Court has not yet ruled on the matter.

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

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

The Pennsylvania Securities Commission has filed an administrative order against TD Ameritrade, Inc. involving the sale of Yield Plus Fund securities to 21 Pennsylvania clients. An administrative hearing will be held to determine whether there have been violations of certain provisions of the Pennsylvania Securities Act of 1972 and rules thereunder and to determine what, if any, administrative sanctions should be imposed. TD Ameritrade, Inc. is defending the action.

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

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

The Company is unable to predict the outcome or the timing of the ultimate resolution of the Pennsylvania action and the Ross lawsuit, or the potential loss, if any, that may result from these unresolved matters. However, management believes the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

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

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

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

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

Client securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit to the client, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the client’s account. In connection with these activities, the Company also executes and clears client transactions involving the sale of securities not yet purchased (“short sales”). Such margin-related transactions may expose the Company to credit risk in the event a client’s assets are not sufficient to fully cover losses that the client may incur. In the event the client fails to satisfy its obligations, the Company has the authority to purchase or sell financial instruments in the client’s account at prevailing market prices in order to fulfill the client’s obligations. The Company seeks to mitigate the risks associated with its client securities activities by requiring clients to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels throughout each trading day and, pursuant to such guidelines, requires clients to deposit additional collateral, or to reduce positions, when necessary.

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

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

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

As of June 30, 2011, client excess margin securities of approximately $12.1 billion and stock borrowings of approximately $0.8 billion were available to the Company to utilize as collateral on various borrowings or for other purposes. The Company had loaned approximately $2.0 billion and repledged approximately $1.2 billion of that collateral as of June 30, 2011.

Guarantees — The Company is a member of and provides guarantees to securities clearinghouses and exchanges. Under related agreements, the Company is generally required to guarantee the performance of other members. Under these agreements, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and could exceed the cash and securities

it has posted to the clearinghouse as collateral. However, the potential for the Company to be required to make payments under these agreements is considered remote. Accordingly, no contingent liability is carried on the Condensed Consolidated Balance Sheets for these guarantees.

See “Insured Deposit Account Agreement” in Note 12 for a description of a guarantee included in that agreement.

Employment Agreements — The Company has entered into employment agreements with several of its key executive officers. These employment agreements generally provide for annual base salary and incentive compensation, stock award acceleration and severance payments in the event of termination of employment under certain defined circumstances or changes in control of the Company. Incentive compensation amounts are based on the Company’s financial performance and other factors.

8. FAIR VALUE DISCLOSURES

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

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

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

	•		Level 1— Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. This category includes active exchange-traded funds, mutual funds and equity securities.
	•		Level 2— Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. This category includes most debt securities and other interest-sensitive financial instruments.
	•		Level 3 — Unobservable inputs for the asset or liability, where there is little, if any, observable market activity or data for the asset or liability. This category includes assets and liabilities related to money market and other mutual funds managed by The Reserve for which the net asset value has declined below $1.00 per share and the funds are being liquidated. This category also includes auction rate securities for which the periodic auctions have failed.

The following tables present the Company’s fair value hierarchy for assets and liabilities measured on a recurring basis as of June 30, 2011 and September 30, 2010 (dollars in thousands):

		As of June 30, 2011
		Level 1				Level 2				Level 3				Fair Value
Assets:
Short-term investments:
U.S. government securities		$	—			$	2,500			$	—			$	2,500
U.S. government agency debt securities			—				1,040				—				1,040
Subtotal — Short-term investments			—				3,540				—				3,540
Securities owned:
Auction rate securities			—				—				61,951				61,951
Money market and other mutual funds			—				—				1,067				1,067
Equity securities			678				437				—				1,115
U.S. government debt securities			—				24				—				24
Municipal debt securities			—				462				—				462
Corporate debt securities			—				459				—				459
Other debt securities			—				256				—				256
Subtotal — Securities owned			678				1,638				63,018				65,334
Other assets:
Interest rate swaps(1)			—				41,506				—				41,506
Total assets at fair value		$	678			$	46,684			$	63,018			$	110,380
Liabilities:
Accounts payable and accrued liabilities:
Securities sold, not yet purchased:
Equity securities		$	6,927			$	1			$	—			$	6,928
U.S. government debt securities			—				16				—				16
Municipal debt securities			—				172				—				172
Corporate debt securities			—				9				—				9
Total liabilities at fair value		$	6,927			$	198			$	—			$	7,125

		As of September 30, 2010
		Level 1				Level 2				Level 3				Fair Value
Assets:
Short-term investments:
U.S. government securities		$	—			$	2,494			$	—			$	2,494
U.S. government agency debt securities			—				1,098				—				1,098
Subtotal — Short-term investments			—				3,592				—				3,592
Securities owned:
Auction rate securities			—				—				209,288				209,288
Money market and other mutual funds			—				—				5,404				5,404
Equity securities			453				10				—				463
Municipal debt securities			—				1,487				—				1,487
Corporate debt securities			—				487				—				487
Other debt securities			—				105				—				105
Subtotal — Securities owned			453				2,089				214,692				217,234
Other assets:
Interest rate swaps (1)			—				49,235				—				49,235
Total assets at fair value		$	453			$	54,916			$	214,692			$	270,061
Liabilities:
Accounts payable and accrued liabilities:
Securities sold, not yet purchased:
Equity securities		$	2,213			$	14			$	—			$	2,227
Municipal debt securities			—				375				—				375
Corporate debt securities			—				378				—				378
Other debt securities			—				161				—				161
Total liabilities at fair value		$	2,213			$	928			$	—			$	3,141

There were no transfers between any levels of the fair value hierarchy during the periods presented in the tables below. The following tables present the changes in Level 3 assets and liabilities measured on a recurring basis for the three months and nine months ended June 30, 2011 and 2010 (dollars in thousands):

		Three Months Ended June 30, 2011
										Purchases,
						Net Gains				Sales,
		March 31,				Included in				Issuances and				June 30,
		2011				Earnings (1)				Settlements, Net				2011
Assets:
Securities owned:
Auction rate securities		$	109,385			$	714			$	(48,148	)		$	61,951
Money market and other mutual funds			1,026				—				41				1,067
Total — Securities owned		$	110,411			$	714			$	(48,107	)		$	63,018

		Nine Months Ended June 30, 2011
										Purchases,
						Net Gains				Sales,
		September 30,				Included in				Issuances and				June 30,
		2010				Earnings (1)				Settlements, Net				2011
Assets:
Securities owned:
Auction rate securities		$	209,288			$	3,685			$	(151,022	)		$	61,951
Money market and other mutual funds			5,404				—				(4,337	)			1,067
Total — Securities owned		$	214,692			$	3,685			$	(155,359	)		$	63,018

		Three Months Ended June 30, 2010
										Purchases,
						Net Gains				Sales,
		March 31,				Included in				Issuances and				June 30,
		2010				Earnings				Settlements, Net				2010
Assets:
Short-term investments:
Money market mutual funds		$	—			$	757	(1)		$	—			$	757
Securities owned:
Auction rate securities			288,489				1,843	(2)			(47,045	)			243,287
Money market and other mutual funds			3,873				8,452	(1)			(468	)			11,857
Subtotal — Securities owned			292,362				10,295				(47,513	)			255,144
Total assets at fair value		$	292,362			$	11,052			$	(47,513	)		$	255,901

		Nine Months Ended June 30, 2010
										Purchases,
						Net Gains				Sales,
		September 30,				Included in				Issuances and				June 30,
		2009				Earnings				Settlements, Net				2010
Assets:
Short-term investments:
Money market mutual funds		$	50,971			$	1,264	(1)		$	(51,478	)		$	757
Securities owned:
Auction rate securities			14,579				2,752	(2)			225,956				243,287
Money market and other mutual funds			5,049				8,452	(1)			(1,644	)			11,857
Subtotal — Securities owned			19,628				11,204				224,312				255,144
Total assets at fair value		$	70,599			$	12,468			$	172,834			$	255,901

There were no nonfinancial assets or liabilities measured at fair value during the three months and nine months ended June 30, 2011 and 2010.

Valuation Techniques

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

Level 2 Measurements:

Debt Securities — The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Interest Rate Swaps — These derivatives are valued using a model that incorporates interest rate yield curves, which are observable for substantially the full term of the contract. The valuation model is widely accepted in the financial services industry and does not involve significant judgment because most of the inputs are observable in the marketplace.

Level 3 Measurements:

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

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

Fair Value of Senior Notes

As of June 30, 2011, the Company’s Senior Notes had an aggregate estimated fair value, based on quoted market prices, of approximately $1.32 billion, compared to the aggregate carrying value of the Senior Notes on the Condensed Consolidated Balance Sheet of $1.29 billion. As of September 30, 2010, the Company’s Senior Notes had an aggregate estimated fair value, based on quoted market prices, of approximately $1.34 billion, compared to the aggregate carrying value of the Senior Notes on the Condensed Consolidated Balance Sheet of $1.30 billion.

9. EARNINGS PER SHARE

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

		Three Months Ended June 30,								Nine Months Ended June 30,
		2011				2010				2011				2010
Net income		$	157,395			$	179,439			$	474,102			$	478,229
Weighted average shares outstanding — basic			570,287				587,086				573,034				588,176
Effect of dilutive securities:
Common stock equivalent shares related to stock-based compensation			6,497				6,561				6,134				7,045
Weighted average shares outstanding — diluted			576,784				593,647				579,168				595,221
Earnings per share — basic		$	0.28			$	0.31			$	0.83			$	0.81
Earnings per share — diluted		$	0.27			$	0.30			$	0.82			$	0.80

10. COMPREHENSIVE INCOME

Comprehensive income is as follows (dollars in thousands):

		Three Months Ended June 30,								Nine Months Ended June 30,
		2011				2010				2011				2010
Net income		$	157,395			$	179,439			$	474,102			$	478,229
Other comprehensive income (loss):
Net unrealized gains (losses) on investment securities available-for-sale			(2	)			5				(1	)			—
Foreign currency translation adjustment			21				(42	)			161				(6	)
Total other comprehensive income (loss)			19				(37	)			160				(6	)
Comprehensive income		$	157,414			$	179,402			$	474,262			$	478,223

11. STRUCTURED STOCK REPURCHASE

On August 20, 2010, the Company entered into an agreement with an investment bank counterparty to effect a structured repurchase of up to 12 million shares of its common stock. The Company entered into this structured stock repurchase agreement in order to lower the average cost of acquiring shares of its common stock. Under the terms of the agreement, the Company prepaid $169.2 million to the counterparty, which was recorded as a reduction of additional paid-in capital on the Condensed Consolidated Balance Sheet. Settlement of the transaction occurred on December 1, 2010 and the Company purchased approximately 3.2 million shares for approximately $50.4 million ($15.94 per share). The number of shares the Company purchased from the counterparty and the purchase price were based on the average of the daily volume-weighted average share price of the Company’s common stock over the measurement period for the transaction, less a pre-determined discount. Upon settlement of the transaction, the excess prepayment amount of $118.8 million was returned to the Company in cash and was recorded as additional paid-in capital.

12. RELATED PARTY TRANSACTIONS

Transactions with TD and Affiliates

As a result of the acquisition of TD Waterhouse during fiscal 2006, TD became an affiliate of the Company. TD owned approximately 43.6% of the Company’s common stock as of June 30, 2011. Pursuant to the Stockholders Agreement among TD, the Company and certain other stockholders, TD has the right to designate five of twelve members of the Company’s

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

Insured Deposit Account Agreement

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

The IDA agreement has a term of five years beginning July 1, 2008, and is automatically renewable for successive five-year terms, provided that it may be terminated by any party upon two years’ prior written notice. The agreement provides that the fee earned on the IDA agreement is calculated based on three primary components: (a) the actual yield earned on investments in place as of July 1, 2008, which were primarily fixed-income securities backed by Canadian government guarantees, (b) the yield on other fixed-rate investments, based on prevailing fixed rates for identical balances and maturities in the interest rate swap market (generally LIBOR-based) at the time such investments were added to the IDA portfolio and (c) floating-rate investments, based on the monthly average rate for 30-day LIBOR. The agreement provides that, from time to time, the Company may request amounts and maturity dates for the other fixed-rate investments (component (b) above) in the IDA portfolio, subject to the approval of the Depository Institutions. As of June 30, 2011, the IDA portfolio was comprised of approximately 2% component (a) investments, 91% component (b) investments and 7% component (c) investments.

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

Mutual Fund Agreements

The Company and an affiliate of TD are parties to a sweep fund agreement, transfer agency agreement, shareholder services agreement and a dealer agreement pursuant to which certain mutual funds are made available as money market sweep or direct purchase options to Company clients. The Company performs certain distribution and marketing support services with respect to those funds. In consideration for offering the funds and performing the distribution and marketing support services, an affiliate of TD compensates the Company in accordance with the provisions of the sweep fund agreement. The Company also performs certain services for the applicable fund and earns fees for those services. The agreement may be terminated by any party upon one year’s prior written notice and may be terminated by the Company upon 30 days’ prior written notice under certain circumstances.

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

						Revenues from TD and Affiliates
						Three months ended								Nine months ended
		Statement of Income				June 30,								June 30,
Description		Classification				2011				2010				2011				2010
Insured Deposit Account Agreement		Insured deposit account fees				$	196,817			$	180,075			$	562,759			$	505,370
Mutual Fund Agreements		Investment product fees					1,418				2,290				7,290				6,252
Referral and Strategic Alliance Agreement		Various					1,223				593				2,909				780
Securities borrowing and lending, net		Net interest revenue					895				403				3,167				1,143
TD Waterhouse Canada Order Routing Agreement		Other revenues					574				—				1,989				—
TD Waterhouse UK Servicing Agreement		Commissions and transaction fees					116				—				365				—
Payment for order flow		Commissions and transaction fees					—				—				—				527
Total revenues						$	201,043			$	183,361			$	578,479			$	514,072

						Expenses to TD and Affiliates
						Three months ended								Nine months ended
		Statement of Income				June 30,								June 30,
Description		Classification				2011				2010				2011				2010
Canadian Call Center Services Agreement		Professional services				$	4,525			$	4,415			$	13,521			$	13,134
Certificates of Deposit Brokerage Agreement		Advertising					—				—				1,845				2,276
Cash Management Services Agreement		Clearing and execution costs					216				194				644				600
Referral and Strategic Alliance Agreement		Various					449				311				1,508				532
Total expenses						$	5,190			$	4,920			$	17,518			$	16,542