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, 2010

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

4211 South 102^nd Street, Omaha, Nebraska, 68127
(Address of principal executive offices) (Zip Code)

(402) 331-7856
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past 90 days. 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 twelve 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 (Do not check if a smaller reporting company)		Smaller reporting company o

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

As of July 31, 2010, there were 576,070,620 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			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			44
Part II — OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities			46
Item 6. Exhibits			47
Signatures			48
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

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, 2010, and the related condensed consolidated statements of income for the three-month and nine-month periods ended June 30, 2010 and 2009, and condensed consolidated statements of cash flows for the nine-month periods ended June 30, 2010 and 2009. 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, 2009, 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 13, 2009, 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, 2009, 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 9, 2010

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

		June 30,				September 30,
		2010				2009
		(Unaudited)
ASSETS
Cash and cash equivalents		$	716,463			$	791,211
Short-term investments			1,853				52,071
Cash and investments segregated in compliance with federal regulations			489,930				5,813,862
Receivable from brokers, dealers and clearing organizations			782,055				1,777,741
Receivable from clients — net of allowance for doubtful accounts			7,531,315				5,712,261
Receivable from affiliates			77,488				92,974
Other receivables — net of allowance for doubtful accounts			63,985				73,921
Securities owned, at fair value			257,218				23,405
Property and equipment — net of accumulated depreciation and amortization			260,973				238,256
Goodwill			2,467,223				2,472,098
Acquired intangible assets — net of accumulated amortization			1,148,999				1,224,722
Deferred income taxes			10,699				17,161
Other assets			124,037				82,127
Total assets		$	13,932,238			$	18,371,810
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations		$	1,973,822			$	2,491,617
Payable to clients			5,896,317				9,914,823
Accounts payable and accrued liabilities			500,701				700,786
Payable to affiliates			3,696				3,724
Deferred revenue			71,830				72,134
Long-term debt			1,280,933				1,414,900
Capitalized lease obligations			22,715				28,565
Deferred income taxes			350,335				193,978
Total liabilities			10,100,349				14,820,527
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, 2010 - 576,778,430 outstanding; September 30, 2009 - 587,109,497 outstanding			6,314				6,314
Additional paid-in capital			1,555,811				1,574,638
Retained earnings			3,008,346				2,530,117
Treasury stock, common, at cost — June 30, 2010 - 54,603,430 shares; September 30, 2009 - 44,272,363 shares			(738,698	)			(559,883	)
Deferred compensation			196				171
Accumulated other comprehensive loss			(80	)			(74	)
Total stockholders’ equity			3,831,889				3,551,283
Total liabilities and stockholders’ equity		$	13,932,238			$	18,371,810

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,
		2010				2009				2010				2009
Revenues:
Transaction-based revenues:
Commissions and transaction fees		$	333,081			$	338,450			$	943,740			$	891,005
Asset-based revenues:
Interest revenue			112,804				101,204				315,457				263,960
Brokerage interest expense			(1,422	)			(2,564	)			(4,694	)			(13,076	)
Net interest revenue			111,382				98,640				310,763				250,884
Insured deposit account fees			180,075				125,118				505,370				424,886
Investment product fees			33,194				39,085				92,964				156,346
Total asset-based revenues			324,651				262,843				909,097				832,116
Other revenues			34,072				12,475				99,019				26,875
Net revenues			691,804				613,768				1,951,856				1,749,996
Operating expenses:
Employee compensation and benefits			156,251				128,216				467,767				366,413
Clearing and execution costs			22,387				16,141				68,422				46,846
Communications			27,030				20,795				76,329				57,392
Occupancy and equipment costs			35,452				29,951				104,184				89,614
Depreciation and amortization			14,499				11,162				41,573				33,299
Amortization of acquired intangible assets			25,119				17,551				75,722				48,289
Professional services			31,998				43,949				97,170				93,358
Advertising			51,596				41,376				188,359				141,170
Gains on money market funds and client guarantees			(9,209	)			—				(11,145	)			—
Other			36,420				14,513				75,347				34,798
Total operating expenses			391,543				323,654				1,183,728				911,179
Operating income			300,261				290,114				768,128				838,817
Other expense:
Interest on borrowings			11,197				8,365				33,764				32,246
Loss on debt refinancing			—				—				8,392				—
Loss on sale of investments			—				2,003				—				2,003
Total other expense			11,197				10,368				42,156				34,249
Pre-tax income			289,064				279,746				725,972				804,568
Provision for income taxes			109,625				109,209				247,743				317,603
Net income		$	179,439			$	170,537			$	478,229			$	486,965
Earnings per share — basic		$	0.31			$	0.30			$	0.81			$	0.84
Earnings per share — diluted		$	0.30			$	0.30			$	0.80			$	0.83
Weighted average shares outstanding — basic			587,086				563,792				588,176				576,420
Weighted average shares outstanding — diluted			593,647				571,772				595,221				584,623

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,
		2010				2009
Cash flows from operating activities:
Net income		$	478,229			$	486,965
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			41,573				33,299
Amortization of acquired intangible assets			75,722				48,289
Deferred income taxes			159,856				(76,890	)
Loss on sale of investments			—				2,003
Loss on disposal of property			2,533				3,005
Gains on money market funds and client guarantees			(11,145	)			—
Loss on debt refinancing			8,392				—
Stock-based compensation			25,090				17,530
Excess tax benefits on stock-based compensation			(13,095	)			(4,841	)
Other, net			154				57
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with federal regulations			5,323,932				(4,991,563	)
Receivable from brokers, dealers and clearing organizations			995,686				2,652,965
Receivable from clients, net			(1,819,054	)			1,921,697
Receivable from/payable to affiliates, net			14,825				110,442
Other receivables, net			9,857				13,349
Securities owned			(225,361	)			30,371
Other assets			(11,982	)			(11,604	)
Payable to brokers, dealers and clearing organizations			(517,795	)			(3,500,931	)
Payable to clients			(4,018,506	)			4,117,513
Accounts payable and accrued liabilities			(175,866	)			39,453
Deferred revenue			(304	)			3,748
Net cash provided by operating activities			342,741				894,857
Cash flows from investing activities:
Purchase of property and equipment			(61,180	)			(45,799	)
Cash and cash equivalents acquired in business combinations			—				86,423
Cash paid in business combinations			—				(266,713	)
Cash received in sale of business, net			—				326
Purchase of short-term investments			(3,296	)			—
Proceeds from sale and maturity of short-term investments			3,300				—
Proceeds from redemption of money market funds			51,478				317,015
Proceeds from sale of other investments available-for-sale			—				2,868
Other			(2	)			(146	)
Net cash provided by (used in) investing activities			(9,700	)			93,974

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,
		2010				2009
Cash flows from financing activities:
Proceeds from issuance of long-term debt		$	1,248,557			$	—
Payment of debt issuance costs			(10,595	)			—
Principal payments on long-term debt			(1,410,638	)			(102,125	)
Principal payments on capital lease obligations			(11,853	)			(2,263	)
Proceeds from exercise of stock options; Nine months ended June 30, 2010 - 3,362,788 shares; 2009 - 3,397,849 shares			11,842				22,233
Purchase of treasury stock; Nine months ended June 30, 2010 - 14,228,369 shares; 2009 - 38,991,221 shares			(248,188	)			(465,452	)
Excess tax benefits on stock-based compensation			13,095				4,841
Net cash used in financing activities			(407,780	)			(542,766	)
Effect of exchange rate changes on cash and cash equivalents			(9	)			(376	)
Net increase (decrease) in cash and cash equivalents			(74,748	)			445,689
Cash and cash equivalents at beginning of period			791,211				674,135
Cash and cash equivalents at end of period		$	716,463			$	1,119,824
Supplemental cash flow information:
Interest paid		$	33,847			$	51,893
Income taxes paid		$	233,009			$	262,863
Tax benefit on exercises and distributions of stock-based compensation		$	17,396			$	5,207
Noncash investing and financing activities:
Issuance of capital lease obligations		$	6,003			$	12,441
Issuance of long-term debt in exchange for assets acquired		$	—			$	8,400
Issuance of common stock in business combinations		$	—			$	362,967

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, 2009.

Reclassifications:

Approximately $2.0 million has been reclassified from professional services to advertising expense for the three and nine months ended June 30, 2009 on the Condensed Consolidated Statements of Income. This reclassification was made in order to conform to the current financial statement presentation.

Recently Adopted Accounting Pronouncements:

ASC 805 — On October 1, 2009, the Company adopted Accounting Standards Codification (“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 applies prospectively to business combinations for which the acquisition date is on or after October 1, 2009. The adoption of ASC 805 did not have a material impact on the Company’s condensed consolidated financial statements.

ASC 820-10 and ASU 2010-06 — On October 1, 2009, the Company adopted ASC 820-10, Fair Value Measurements and Disclosures, for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. In January 2010, the Company adopted Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires new disclosures and clarifies existing disclosure requirements about fair value measurements as set forth in ASC 820-10. The adoption of ASC 820-10 and ASU 2010-06 did not have a material impact on the Company’s condensed consolidated financial statements.

2. GOODWILL AND ACQUIRED INTANGIBLE ASSETS

The Company has recorded goodwill for purchase business combinations to the extent the purchase price of each completed acquisition exceeded the fair value of the net identifiable tangible and intangible assets of each acquired company. The following table summarizes changes in the carrying amount of goodwill for the nine months ended June 30, 2010 (dollars in thousands):

Balance as of September 30, 2009		$	2,472,098
Purchase accounting adjustments, net of income taxes (1)			(574	)
Tax benefit on stock-based compensation awards (2)			(4,301	)
Balance as of June 30, 2010		$	2,467,223

The Company’s acquired intangible assets consist of the following as of June 30, 2010 (dollars in thousands):

		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
Client relationships		$	1,230,469			$	(320,547	)		$	909,922
Technology and content			100,904				(15,499	)			85,405
Trade names			10,100				(5,659	)			4,441
Non-competition agreement			5,486				(1,929	)			3,557
Trademark license			145,674				—				145,674
		$	1,492,633			$	(343,634	)		$	1,148,999

Estimated future amortization expense for acquired intangible assets outstanding as of June 30, 2010 is as follows (dollars in thousands):

		Estimated
		Amortization
Fiscal Year		Expense
2010 Remaining		$	24,539
2011			96,725
2012			92,901
2013			91,630
2014			91,173
2015			90,290
Thereafter (to 2025)			516,067
Total		$	1,003,325

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,
		2010				2009
Corporate		$	127,436			$	273,137
Broker-dealer subsidiaries			510,593				473,996
Trust company subsidiary			51,488				25,143
Investment advisory subsidiaries			26,946				18,935
Total		$	716,463			$	791,211

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, 2010 was 34.1%, compared to 39.5% for the nine months ended June 30, 2009. 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. The provision for income

taxes for the nine months ended June 30, 2009 was slightly higher than normal due to unfavorable deferred income tax adjustments of $8.9 million resulting from state income tax law changes and capital loss limitations on certain money market mutual fund holdings. These items unfavorably impacted the Company’s earnings for the nine months ended June 30, 2009 by approximately $0.02 per share.

5. LONG-TERM DEBT

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

		June 30,				September 30,
		2010				2009
$250 million 2.950% Senior Notes due 2012 (1)		$	255,080			$	—
$500 million 4.150% Senior Notes due 2014 (2)			522,240				—
$500 million 5.600% Senior Notes due 2019 (3)			499,351				—
Term A Facility			—				140,625
Term B Facility			—				1,265,875
Other			4,262				8,400
Total long-term debt		$	1,280,933			$	1,414,900

Fiscal year maturities on long-term debt outstanding at June 30, 2010 are as follows (dollars in thousands):

2010 Remaining		$	—
2011			4,262
2012			—
2013			250,000
2014			—
2015			500,000
Thereafter			500,000
Total		$	1,254,262

Senior Notes — On November 25, 2009 the Company sold, through a public offering, $1.25 billion aggregate principal amount of unsecured senior notes, consisting of $250 million aggregate principal amount of 2.950% Senior Notes due December 1, 2012 (the “2012 Notes”), $500 million aggregate principal amount of 4.150% Senior Notes due December 1, 2014 (the “2014 Notes”) and $500 million aggregate principal amount of 5.600% Senior Notes due December 1, 2019 (the “2019 Notes” and, collectively with the 2012 Notes and the 2014 Notes, the “Senior Notes”). The Senior Notes were issued at an aggregate discount of $1.4 million, which is being amortized to interest expense over the terms of the respective Senior Notes. Interest on the Senior Notes is payable semi-annually in arrears on June 1 and December 1 of each year.

On November 25, 2009, the Company used the net proceeds from the issuance of the Senior Notes, together with approximately $158 million of cash on hand, to repay in full the outstanding principal under the Company’s January 23, 2006 credit agreement. Upon repayment, the January 23, 2006 credit agreement (including the Term A Facility, the Term B Facility and the Revolving Facility as amended on November 5, 2009) was automatically amended and restated in its entirety pursuant to the Amended and Restated Credit Agreement (the “Restated Credit Agreement”), dated as of November 25, 2009, as described below.

The Senior Notes are jointly and severally and fully and unconditionally guaranteed by each of the Company’s current and future subsidiaries that is or becomes a borrower or a guarantor under the Restated Credit Agreement. Currently, the only subsidiary guarantor of the obligations under the Senior Notes is TD AMERITRADE Online Holdings Corp. (“TDAOH”). The Senior Notes and the guarantee by TDAOH are the general senior unsecured obligations of the Company and TDAOH.

The Company may redeem each series of the Senior Notes, in whole at any time or in part from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of the notes being redeemed, and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, discounted to the date of

redemption on a semi-annual basis at the comparable U.S. Treasury rate, plus: 25 basis points in the case of the 2012 Notes, 30 basis points in the case of the 2014 Notes and 35 basis points in the case of the 2019 Notes, plus, in each case, accrued and unpaid interest to the date of redemption.

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 2012 Notes and 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. The interest rate swaps effectively change the fixed-rate interest on the 2012 Notes and 2014 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 2012 Notes and 2014 Notes, and makes quarterly variable-rate interest payments based on three-month LIBOR plus (a) 0.9693% for the swap on the 2012 Notes and (b) 1.245% for the swap on the 2014 Notes.

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. For the nine months ended June 30, 2010, the Company recorded a $28.0 million gain for the change in fair value of the interest rate swaps and an offsetting $28.0 million fair value loss on the hedged fixed-rate debt. The offsetting fair value gains and losses were recorded in interest on borrowings on the Condensed Consolidated Statements of Income.

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,
		2010				2009
Derivatives recorded under the caption Other assets:
Interest rate swap assets		$	27,963			$	—

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 agreement related to the interest rate swaps requires 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, 2010, the interest rate swap counterparty had pledged $30.4 million of collateral to the Company, in the form of U.S. Treasury securities.

Restated Revolving Facility — The Restated Credit Agreement consists of a senior unsecured revolving credit facility in the aggregate principal amount of $300 million (the “Restated Revolving Facility”). The maturity date of the Restated Revolving Facility is December 31, 2012. The applicable interest rate under the Restated Revolving Facility is calculated as a per annum rate equal to, at the option of the Company, (a) LIBOR plus an interest rate margin (“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 2.00% to 4.00% for LIBOR loans and from 1.00% to 3.00% for Base Rate loans, determined by reference to the Company’s public debt ratings. The Company is obligated to pay a commitment fee ranging from 0.225% to 0.750% on any unused amount of the Restated Revolving Facility, determined by reference to the Company’s public debt ratings. As of June 30, 2010, the interest rate margin would be 2.50% for LIBOR loans and 1.50% for Base Rate loans, and the commitment fee is 0.375% per annum, each determined by reference to the Company’s current Standard & Poor’s public debt rating of BBB+. There were no borrowings outstanding under the Restated Revolving Facility as of June 30, 2010.

The obligations under the Restated Credit Agreement are guaranteed by each “significant subsidiary” (as defined in SEC Rule 1-02(w) of Regulation S-X) of the Company, other than broker-dealer subsidiaries, futures commission merchant subsidiaries and controlled foreign corporations. Currently, the only subsidiary guarantor of the obligations under the Restated Credit Agreement is TDAOH.

The Restated Credit Agreement contains negative covenants that limit or restrict 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 and its subsidiaries, subject to certain exceptions. 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 Company’s broker-dealer subsidiaries are required to maintain compliance with a minimum regulatory net capital covenant. The Company is restricted under the Restated Credit Agreement from incurring additional indebtedness

in an aggregate principal amount in excess of $100 million that includes any covenants that are more restrictive (taken as a whole) as to the Company than those contained in the Restated Credit Agreement, unless the Restated Credit Agreement is amended to include such more restrictive covenants prior to the incurrence of such additional indebtedness. The Company was in compliance with all covenants under the Restated Credit Agreement as of June 30, 2010.

Broker-Dealer Credit Facilities — 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 June 30, 2010 and September 30, 2009. The broker-dealer subsidiaries also had access to unsecured uncommitted credit facilities of up to $150 million as of June 30, 2010 and September 30, 2009. The financial institutions may make loans under line of credit arrangements or, in some cases, issue letters of credit under these facilities. The secured credit facilities require the Company to pledge qualified client securities to secure outstanding obligations under these facilities. Borrowings under the secured and unsecured credit facilities bear interest at a variable rate based on the federal funds rate. There were no borrowings outstanding or letters of credit issued under the secured or unsecured credit facilities as of June 30, 2010 and September 30, 2009. As of June 30, 2010 and September 30, 2009, approximately $780 million was available to the Company’s broker-dealer subsidiaries pursuant to uncommitted credit facilities for either loans or, in some cases, letters of credit.

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, 2010												September 30, 2009
						Minimum												Minimum
						Net Capital				Excess								Net Capital				Excess
		Net Capital				Required				Net Capital				Net Capital				Required				Net Capital
TD AMERITRADE Clearing, Inc.		$	1,086,600			$	170,353			$	916,247			$	855,630			$	137,943			$	717,687
TD AMERITRADE, Inc.			269,976				1,000				268,976				263,957				500				263,457
Bellevue Chicago, LLC			87,786				590				87,196				43,677				2,376				41,301
Totals		$	1,444,362			$	171,943			$	1,272,419			$	1,163,264			$	140,819			$	1,022,445

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

The Company’s non-depository trust company subsidiary, TD AMERITRADE Trust Company (“TDATC”), is subject to capital requirements established by the State of Maine, which requires TDATC to maintain minimum Tier 1 capital, as defined. TDATC’s Tier 1 capital was $22.6 million and $14.7 million as of June 30, 2010 and September 30, 2009, respectively, which exceeded the required Tier 1 capital by $12.6 million and $4.7 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 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 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. 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 parties participated in a mediation on April 7, 2010 and discussed possible terms of a new settlement. The settlement discussions are continuing. The Company is unable to predict the outcome or the timing of the ultimate resolution of this matter, or the eventual loss that may result from this matter.

Auction Rate Securities Matters — The SEC and other regulatory authorities conducted investigations regarding the sale of auction rate securities (“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, at par, 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 did not extend to clients who purchased ARS through independent registered investment advisors or through another firm and transferred such securities to TDA Inc. 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. agreed to 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. The final phase of the offer expired on March 23, 2010 and TDA Inc. completed the repurchases on March 30, 2010. Through March 30, 2010, TDA Inc. purchased eligible ARS with an aggregate par value of approximately $305 million. The Company accounted 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. As of September 30, 2009, a liability of $13.8 million for this guarantee was included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets. There is no liability recorded on the Condensed Consolidated Balance Sheet as of June 30, 2010, due to the completion of the offer. On March 30, 2010, the Company recorded a gain of $0.5 million based on the final fulfillment of the guarantee. The gain is included in gains on money market funds and client guarantees for the nine months ended June 30, 2010, on the Condensed Consolidated Statements of Income. As of June 30, 2010, TDA Inc. held ARS with a fair value of approximately $243 million.

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 is not a money market mutual fund, but its stated objective was to maintain a net asset value of $1.00 per share. TDA Inc.’s clients hold shares in the Yield Plus Fund, which is being liquidated by The Reserve.

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 TDA Inc. clients’ current positions held in the Reserve Yield Plus Fund amount to approximately 82% of the fund, which, if valued based on a $1.00 per share net asset value, would total approximately $49.1 million.

The SEC and other regulatory authorities are conducting investigations regarding TDA Inc.’s offering of The Reserve Yield Plus Fund 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. On June 17, 2010, the Pennsylvania Securities Commission filed an administrative order against the Company’s subsidiaries, TDA Inc. and Amerivest Investment Management, LLC (“Amerivest”), 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. TDA Inc. and Amerivest are 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 Company is unable to predict the outcome or the timing of the ultimate resolution of these matters, or the potential loss, if any, that may result from these matters.

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.

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, 2010, client excess margin securities of approximately $10.5 billion and stock borrowings of approximately $0.6 billion were available to the Company to utilize as collateral on various borrowings or for other purposes. The Company had loaned approximately $1.9 billion and repledged approximately $1.2 billion of that collateral as of June 30, 2010.

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 11 for a description of a guarantee included in that agreement.

See “Auction Rate Securities Matters” above in this Note 7 for a description of a guarantee that was related to the ARS settlement.

During September 2008, the net asset value of two money market mutual funds held by some of the Company’s clients, the Primary Fund and the International Liquidity Fund, declined below $1.00 per share. These funds are managed by The Reserve, an independent mutual fund company. The Reserve subsequently announced it was suspending redemptions of these funds to effect an orderly liquidation. The Company announced a commitment of up to $55 million to protect its clients’ positions in these funds. In the event the Company’s clients were to receive less than $1.00 per share for these funds upon an orderly liquidation, the Company 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 publicly available information, the Company accrued an estimated fair value of $27.0 million for this obligation as of September 30, 2009, which is included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets. From October 31, 2008 through January 29, 2010, the Primary Fund and the International Liquidity Fund shareholders had received distributions totaling approximately $0.99 per share and $0.86 per share, respectively. In February 2010, the Company fulfilled the guarantee obligation to its clients by paying them for the difference between par value and the distributions to date from these two funds, in exchange for the clients’ shares in the funds. The Company recorded a gain of $0.9 million based on the final fulfillment of the guarantee. The gain is included in gains on money market funds and client guarantees for the nine months ended June 30, 2010, on the Condensed Consolidated Statements of Income.

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

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, 2010 and September 30, 2009 (dollars in thousands):

		As of June 30, 2010
		Level 1				Level 2				Level 3				Fair Value
Assets:
Short-term investments:
Money market mutual funds		$	—			$	—			$	757			$	757
U.S. government agency debt securities			—				1,096				—				1,096
Subtotal — Short-term investments			—				1,096				757				1,853
Securities owned:
Auction rate securities			—				—				243,287				243,287
Money market and other mutual funds			—				—				11,857				11,857
Equity securities			351				7				—				358
Municipal debt securities			—				1,125				—				1,125
Corporate debt securities			—				534				—				534
Other debt securities			—				57				—				57
Subtotal — Securities owned			351				1,723				255,144				257,218
Other assets:
Interest rate swaps(1)			—				27,963				—				27,963
Total assets at fair value		$	351			$	30,782			$	255,901			$	287,034
Liabilities:
Securities sold, not yet purchased:
Equity securities		$	4,557			$	—			$	—			$	4,557
Municipal debt securities			—				65				—				65
Other debt securities			—				161				—				161
Total — Securities sold, not yet purchased (2)		$	4,557			$	226			$	—			$	4,783

		As of September 30, 2009
		Level 1				Level 2				Level 3				Fair Value
Assets:
Short-term investments:
Money market mutual funds		$	—			$	—			$	50,971			$	50,971
U.S. government agency debt securities			—				1,100				—				1,100
Subtotal — Short-term investments			—				1,100				50,971				52,071
Securities owned:
Auction rate securities			—				—				14,579				14,579
Money market and other mutual funds			—				—				5,049				5,049
Equity securities			471				23				—				494
Municipal debt securities			—				2,049				—				2,049
Corporate debt securities			—				702				—				702
Other debt securities			—				532				—				532
Subtotal — Securities owned			471				3,306				19,628				23,405
Total assets at fair value		$	471			$	4,406			$	70,599			$	75,476
Liabilities:
Securities sold, not yet purchased:
Equity securities		$	3,102			$	2			$	—			$	3,104
Money market mutual funds			—				—				1				1
Municipal debt securities			—				118				—				118
Corporate debt securities			—				23				—				23
Total — Securities sold, not yet purchased (1)		$	3,102			$	143			$	1			$	3,246

There were no transfers between 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, 2010 and 2009 (dollars in thousands):

		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

		Three Months Ended June 30, 2009
						Purchases,
						Sales,
		March 31,				Issuances and				June 30,
		2009				Settlements, Net				2009
Assets:
Short-term investments:
Money market mutual funds		$	77,639			$	(26,668	)		$	50,971
Securities owned:
Auction rate securities			17,925				2,600				20,525
Money market and other mutual funds			5,848				(954	)			4,894
Subtotal — Securities owned			23,773				1,646				25,419
Other investments:
Auction rate securities			8,820				—				8,820
Total assets at fair value		$	110,232			$	(25,022	)		$	85,210
Liabilities:
Securities sold, not yet purchased:
Money market and other mutual funds		$	—			$	2			$	2

		Nine Months Ended June 30, 2009
										Purchases,
						Losses				Sales,
		October 1,				Included in				Issuances and				June 30,
		2008				Earnings				Settlements, Net				2009
Assets:
Cash and cash equivalents (1)		$	217,471			$	—			$	(217,471	)		$	—
Short-term investments:
Money market mutual funds			368,066				(80	)			(317,015	)			50,971
Securities owned:
Auction rate securities			6,925				—				13,600				20,525
Money market and other mutual funds			46,662				—				(41,768	)			4,894
Subtotal — Securities owned			53,587				—				(28,168	)			25,419
Other investments:
Auction rate securities			10,000				—				(1,180	)			8,820
Total assets at fair value		$	649,124			$	(80	)		$	(563,834	)		$	85,210
Liabilities:
Securities sold, not yet purchased:
Money market and other mutual funds		$	4,636			$	—			$	(4,634	)		$	2

Effective October 1, 2009, the Company adopted ASC 820-10 for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. There were no nonfinancial assets or liabilities measured at fair value during the nine months ended June 30, 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 relies on interest rate yield curves, which are observable for substantially the full term of the contract. The valuation technique underlying the model is widely accepted in the financial services industry and does not involve significant judgment.

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 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 the 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 Long-Term Debt

As of June 30, 2010, the Company’s Senior Notes had an aggregate estimated fair value, based on quoted market prices, of approximately $1.30 billion, compared to the aggregate carrying value of the Senior Notes on the Condensed Consolidated Balance Sheet of $1.28 billion. As of September 30, 2009, the Company’s Term A and Term B credit facilities had an aggregate estimated fair value, based on quoted market prices, of $1.39 billion, compared to the Condensed Consolidated Balance Sheet carrying value of $1.41 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,
		2010				2009				2010				2009
Net income		$	179,439			$	170,537			$	478,229			$	486,965
Weighted average shares outstanding — basic			587,086				563,792				588,176				576,420
Effect of dilutive securities:
Stock options			3,875				5,986				4,633				6,128
Restricted stock units			2,593				1,887				2,313				1,978
Deferred compensation shares			93				107				99				97
Weighted average shares outstanding — diluted			593,647				571,772				595,221				584,623
Earnings per share — basic		$	0.31			$	0.30			$	0.81			$	0.84
Earnings per share — diluted		$	0.30			$	0.30			$	0.80			$	0.83

10. COMPREHENSIVE INCOME

Comprehensive income is as follows (dollars in thousands):

		Three Months Ended June 30,								Nine Months Ended June 30,
		2010				2009				2010				2009
Net income		$	179,439			$	170,537			$	478,229			$	486,965
Other comprehensive income (loss):
Net unrealized gains (losses) on investment securities available-for-sale			5				640				—				(481	)
Adjustment for deferred income taxes on net unrealized losses (gains)			—				(227	)			—				182
Reclassification adjustment for realized losses on investment securities included in net income			—				2,088				—				2,088
Reclassification adjustment for deferred income taxes on realized investment losses			—				(758	)			—				(758	)
Foreign currency translation adjustment			(42	)			200				(6	)			(257	)
Total other comprehensive income (loss), net of tax			(37	)			1,943				(6	)			774
Comprehensive income		$	179,402			$	172,480			$	478,223			$	487,739

11. RELATED PARTY TRANSACTIONS

Transactions with TD and Affiliates

As a result of the acquisition of TD Waterhouse during fiscal 2006, TD became an affiliate of the Company. TD owned approximately 45.9% of the Company’s common stock as of June 30, 2010, of which 45% is permitted to be voted under the terms of the Stockholders Agreement among TD, the Company and certain other stockholders. Pursuant to the Stockholders Agreement, TD has the right to designate five of twelve members to the Company’s board of directors. The Company transacts business and has extensive relationships with TD and certain of its affiliates. A description of significant transactions with TD and its affiliates is set forth below.

Insured Deposit Account Agreement

The Company is party to an insured deposit account (“IDA”) agreement (formerly known as the money market deposit account or “MMDA” agreement) with TD Bank USA, N.A. (“TD Bank USA”), TD Bank, N.A., (“TD Bank”, and together with TD Bank USA, the “Depository Institutions”) and TD. Under the IDA agreement, 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 TD Bank USA 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. For the month of June 2010, the IDA portfolio was comprised of approximately 10% component (a) investments, 82% component (b) investments and 8% 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.

The Company earned fee income associated with the insured deposit account agreement of $180.1 million and $505.4 million for the three months and nine months ended June 30, 2010, respectively, and $125.1 million and $424.9 million for the three months and nine months ended June 30, 2009, respectively, which is reported as insured deposit account fees on the Condensed Consolidated Statements of Income.

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. The Company earned fee income associated with these agreements of $2.3 million and $6.3 million for the three months and nine months ended June 30, 2010, respectively, and $19.0 million and $102.0 million for the three months and nine months ended June 30, 2009, respectively, which is included in investment product fees on the Condensed Consolidated Statements of Income.

Securities Borrowing and Lending

In connection with its brokerage business, the Company engages in securities borrowing and lending with TD Securities, Inc. (“TDSI”), an affiliate of TD. Receivable from brokers, dealers and clearing organizations includes $0.4 million and $0.6 million of receivables from TDSI as of June 30, 2010 and September 30, 2009, respectively. Payable to brokers, dealers and clearing organizations includes $19.9 million and $34.0 million of payables to TDSI as of June 30, 2010 and September 30, 2009, respectively. The Company earned net interest revenue of $0.4 million and $1.1 million for the three months and nine months ended June 30, 2010, respectively, and earned net interest revenue of $0.2 million and incurred net interest expense of $0.2 million for the three months and nine months ended June 30, 2009, respectively, associated with securities borrowing and lending with TDSI. The transactions with TDSI are subject to similar collateral requirements as transactions with other counterparties.

Referral and Strategic Alliance Agreement

TDA Inc. is a party to a referral and strategic alliance agreement with TD Bank and TD Wealth Management Services, Inc. (“TDWMS”). Under the agreement, TD Bank will promote TDA Inc.’s brokerage services to its clients using a variety of marketing and referral programs and TDWMS referred its existing brokerage account clients to TDA Inc. while TDWMS discontinued its brokerage operations. TD Bank clients that open brokerage accounts at TDA Inc. and TDWMS clients that elected to transfer their accounts to TDA Inc. are considered program clients. TDA Inc. retains a fee for providing brokerage services to the program clients, and the program’s net margin is shared equally between TDA Inc. and TD Bank. The Company earned pre-tax income associated with the referral and strategic alliance agreement of $0.3 million and $0.2 million for the three months and nine months ended June 30, 2010, respectively.

Cash Management Services Agreement

Pursuant to a cash management services agreement, TD Bank USA provides cash management services to clients of TDA Inc. In exchange for such services, the Company pays TD Bank USA service-based fees agreed upon by the parties. The Company incurred expense associated with the cash management services agreement of $0.2 million for the three months ended June 30, 2010 and 2009 and $0.6 million for the nine months ended June 30, 2010 and 2009, which is included in clearing and execution costs on the Condensed Consolidated Statements of Income. The cash management services agreement will continue in effect for as long as the IDA agreement remains in effect, provided that it may be terminated by TDA Inc. without cause upon 60 days’ prior written notice to TD Bank USA.

Indemnification Agreement for Phantom Stock Plan Liabilities

Pursuant to an indemnification agreement, the Company agreed to assume TD Waterhouse liabilities related to the payout of awards under The Toronto-Dominion Bank 2002 Phantom Stock Incentive Plan following the completion of the TD Waterhouse acquisition. Under this plan, participants were granted units of stock appreciation rights (“SARs”) based on TD’s common stock that generally vest over four years. Upon exercise, the participant receives cash representing the appreciated value of the units between the grant date and the redemption date. In connection with the payout of awards under the 2002 Phantom Stock Incentive Plan, TD Discount Brokerage Holdings LLC (“TDDBH”), a wholly-owned subsidiary of TD, agreed to indemnify the Company for any liabilities incurred by the Company in excess of the provision for such liability included on the closing date balance sheet of TD Waterhouse. In addition, in the event that the liability incurred by the Company in connection with the 2002 Phantom Stock Incentive Plan is less than the provision for such liability included on the closing date balance sheet of TD Waterhouse, the Company agreed to pay the difference to TDDBH. There were 25,815 and 43,590 SARs outstanding as of June 30, 2010 and September 30, 2009, respectively, with an approximate value of $1.0 million and $1.6 million, respectively. The indemnification agreement effectively protects the Company against fluctuations in TD’s common stock price with respect to the SARs, so there will be no net effect on the Company’s results of operations resulting from such fluctuations.

Canadian Call Center Services Agreement

Pursuant to the Canadian call center services agreement, TD receives and services client calls at its London, Ontario site for clients of TDA Inc. After May 1, 2013, either party may terminate this agreement without cause and without penalty by providing 24 months’ prior written notice. In consideration of the performance by TD of the call center services, the Company pays TD, on a monthly basis, an amount approximately equal to TD’s monthly cost. The Company incurred expenses associated with the Canadian call center services agreement of $4.4 million and $13.1 million for the three months and nine months ended June 30, 2010, respectively, and $4.0 million and $11.8 million for the three months and nine months ended June 30, 2009, respectively, which is included in professional services expense on the Condensed Consolidated Statements of Income.

Certificates of Deposit Brokerage Agreement

TDA, Inc. is party to a certificates of deposit brokerage agreement with TD Bank USA, under which TDA Inc. acts as agent for its clients in purchasing certificates of deposit from TD Bank USA. Under the agreement, TD Bank USA pays TDA Inc. a placement fee for each certificate of deposit issued in an amount agreed to by both parties. TDA Inc. has periodically promoted limited time offers to purchase a three-month TD Bank USA certificate of deposit with a premium yield to clients that made a deposit or transferred $25,000 into their TDA Inc. brokerage account during a specified time period. Under these promotions, TDA Inc. reimburses TD Bank USA for the subsidized portion of the premium yield paid to its clients. The Company incurred net costs to TD Bank USA associated with this promotional offer of $0 and $2.3 million for the three months and nine months ended June 30, 2010, respectively, and $0 and $3.3 million for the three months and nine months ended June 30, 2009, which is included in advertising expense on the Condensed Consolidated Statements of Income.

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

On June 11, 2009, immediately following the closing of the thinkorswim acquisition, the Company completed the sale of thinkorswim Canada, Inc. (“thinkorswim Canada”) to TD Waterhouse Canada Inc. (“TDW Canada”), a wholly-owned subsidiary of TD, for cash equal to the total tangible equity of thinkorswim Canada immediately prior to the closing of the transaction. The Company received gross proceeds from the sale of approximately $1.7 million. The Company did not recognize a gain or loss on the sale of thinkorswim Canada.

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

be recorded as fee revenue. As of June 30, 2010 and September 30, 2009, $9.9 million and $10.4 million, respectively, of contingent consideration is included in receivable from affiliates on the Condensed Consolidated Balance Sheets.

Other Related Party Transactions

TD Options LLC, a subsidiary of TD, paid the Company the amount of exchange-sponsored payment for order flow that it received for routing TDA Inc. client orders to the exchanges. The Company earned $0 and $0.5 million of payment for order flow revenues from TD Options LLC for the three months and nine months ended June 30, 2010, respectively, and $1.7 million and $3.3 million for the three months and nine months ended June 30, 2009, respectively, which is included in commissions and transaction fees on the Condensed Consolidated Statements of Income.

TD Securities (USA) LLC, an indirect wholly-owned subsidiary of TD, was the joint lead manager and participated as an underwriter in the Company’s offering of $1.25 billion of Senior Notes in November 2009. In this capacity, TD Securities (USA) LLC earned a discount and commission of $0.5 million. This amount is being accounted for as part of the debt issuance costs included in other assets on the Condensed Consolidated Balance Sheets and is being amortized to interest expense over the terms of the respective Senior Notes.

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

12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Senior Notes are jointly and severally and fully and unconditionally guaranteed by TDAOH. Presented below is condensed consolidating financial information for the Company, its guarantor subsidiary and its non-guarantor subsidiaries for the periods indicated.

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2010
(Unaudited)
(In thousands)

						Guarantor				Non-Guarantor
		Parent				Subsidiary				Subsidiaries				Eliminations				Total
ASSETS
Cash and cash equivalents		$	13,753			$	23,402			$	679,308			$	—			$	716,463
Cash and investments segregated in compliance with federal regulations			—				—				489,930				—				489,930
Receivable from brokers, dealers and clearing organizations			—				—				782,055				—				782,055
Receivable from clients, net of allowance for doubtful accounts			—				—				7,531,315				—				7,531,315
Investments in subsidiaries			5,294,922				4,846,608				548,738				(10,690,268	)			—
Receivable from affiliates			1,000				218,839				77,198				(219,549	)			77,488
Goodwill			—				—				2,467,223				—				2,467,223
Acquired intangible assets			—				145,674				1,003,325				—				1,148,999
Other			71,123				1,449				671,251				(25,058	)			718,765
Total assets		$	5,380,798			$	5,235,972			$	14,250,343			$	(10,934,875	)		$	13,932,238
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations		$	—			$	—			$	1,973,822			$	—			$	1,973,822
Payable to clients			—				—				5,896,317				—				5,896,317
Accounts payable and accrued liabilities			133,040				15,671				351,990				—				500,701
Payable to affiliates			139,197				2,867				81,181				(219,549	)			3,696
Long-term debt			1,276,672				—				4,261				—				1,280,933
Other			—				41,742				428,196				(25,058	)			444,880
Total liabilities			1,548,909				60,280				8,735,767				(244,607	)			10,100,349
Stockholders’ equity			3,831,889				5,175,692				5,514,576				(10,690,268	)			3,831,889
Total liabilities and stockholders’ equity		$	5,380,798			$	5,235,972			$	14,250,343			$	(10,934,875	)		$	13,932,238