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 March 31, 2009

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

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 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)

(Former name, former address and former fiscal year, if changed since last report)

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 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o     No o

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

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 April 30, 2009, there were 557,015,800 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			19
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			31
Item 4.		Controls and Procedures			31
		Part II — OTHER INFORMATION
Item 1.		Legal Proceedings			32
Item 1A.		Risk Factors			33
Item 2.		Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities			33
Item 4.		Submission of Matters to a Vote of Security Holders			34
Item 6.		Exhibits			35
		Signatures			36
EX-10.2
EX-10.3
EX-15.1
EX-31.1
EX-31.2
EX-32.1

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 March 31, 2009, and the related condensed consolidated statements of income for the three-month and six-month periods ended March 31, 2009 and 2008, and condensed consolidated statements of cash flows for the six-month periods ended March 31, 2009 and 2008. 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, 2008, 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 25, 2008, 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, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Minneapolis, Minnesota
May 8, 2009

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

		March 31,				September 30,
		2009				2008
		(Unaudited)
ASSETS
Cash and cash equivalents		$	1,072,642			$	674,135
Short-term investments			78,738				369,133
Cash and investments segregated in compliance with federal regulations			2,978,441				260,000
Receivable from brokers, dealers and clearing organizations			2,078,897				4,177,149
Receivable from clients — net of allowance for doubtful accounts			3,469,408				6,933,926
Receivable from affiliates			93,759				179,633
Other receivables — net of allowance for doubtful accounts			65,996				89,486
Securities owned, at fair value			28,901				60,645
Property and equipment — net of accumulated depreciation and amortization			159,074				153,208
Goodwill			1,988,449				1,947,102
Acquired intangible assets — net of accumulated amortization			982,941				1,013,679
Deferred income taxes			24,189				17,158
Other investments			10,597				12,768
Other assets			82,208				63,500
Total assets		$	13,114,240			$	15,951,522
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations		$	2,390,172			$	5,769,676
Payable to clients			5,705,720				5,070,671
Accounts payable and accrued liabilities			740,195				571,425
Payable to affiliates			3,633				3,637
Long-term debt			1,433,650				1,444,000
Capitalized lease obligations			2,818				544
Deferred income taxes			54,508				166,531
Total liabilities			10,330,696				13,026,484
Stockholders’ equity:
Preferred stock, $0.01 par value; 100 million shares authorized, none issued			—				—
Common stock, $0.01 par value; one billion shares authorized; 631,381,860 shares issued; March 31, 2009 — 555,775,612 shares outstanding; September 30, 2008 — 593,130,521 shares outstanding			6,314				6,314
Additional paid-in capital			1,603,744				1,613,700
Retained earnings			2,202,840				1,886,412
Treasury stock, common, at cost — March 31, 2009 — 75,606,248 shares; September 30, 2008 — 38,251,339 shares			(1,027,486	)			(580,664	)
Deferred compensation			171				146
Accumulated other comprehensive loss			(2,039	)			(870	)
Total stockholders’ equity			2,783,544				2,925,038
Total liabilities and stockholders’ equity		$	13,114,240			$	15,951,522

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 March 31,								Six Months Ended March 31,
		2009				2008				2009				2008
Revenues:
Transaction-based revenues:
Commissions and transaction fees		$	265,442			$	244,887			$	552,555			$	505,156
Asset-based revenues:
Interest revenue			70,242				210,833				162,756				461,043
Brokerage interest expense			(2,837	)			(72,956	)			(10,512	)			(174,075	)
Net interest revenue			67,405				137,877				152,244				286,968
Money market deposit account fees			136,537				156,085				299,767				311,925
Investment product fees			48,096				77,685				117,262				145,690
Total asset-based revenues			252,038				371,647				569,273				744,583
Other revenues			8,019				6,353				14,400				14,764
Net revenues			525,499				622,887				1,136,228				1,264,503
Expenses:
Employee compensation and benefits			120,808				132,113				238,197				238,128
Fair value adjustments of compensation-related derivative instruments			—				—				—				764
Clearing and execution costs			15,077				9,372				30,705				21,438
Communications			17,853				17,429				36,598				34,953
Occupancy and equipment costs			29,536				25,220				59,663				50,228
Depreciation and amortization			10,635				8,887				22,138				16,582
Amortization of acquired intangible assets			15,200				14,749				30,738				28,472
Professional services			22,069				28,580				49,408				47,862
Interest on borrowings			8,244				20,604				23,881				46,330
Other			8,720				18,669				20,284				31,039
Advertising			53,097				47,310				99,794				92,766
Total expenses			301,239				322,933				611,406				608,562
Income before other income and income taxes			224,260				299,954				524,822				655,941
Other income:
Gain on sale of investments			—				—				—				644
Pre-tax income			224,260				299,954				524,822				656,585
Provision for income taxes			92,230				113,238				208,394				229,030
Net income		$	132,030			$	186,716			$	316,428			$	427,555
Earnings per share — basic		$	0.23			$	0.31			$	0.54			$	0.72
Earnings per share — diluted		$	0.23			$	0.31			$	0.54			$	0.71
Weighted average shares outstanding — basic			573,519				594,339				582,734				594,629
Weighted average shares outstanding — diluted			581,284				603,470				591,048				603,932

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

		Six Months Ended March 31,
		2009				2008
Cash flows from operating activities:
Net income		$	316,428			$	427,555
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			22,138				16,582
Amortization of acquired intangible assets			30,738				28,472
Deferred income taxes			(118,645	)			(76,815	)
Gain on sale of investments			—				(644	)
Loss on disposal of property			1,698				788
Fair value adjustments of derivative instruments			—				764
Stock-based compensation			12,041				12,754
Other, net			64				—
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with federal regulations			(2,718,441	)			—
Receivable from brokers, dealers and clearing organizations			2,098,252				1,717,354
Receivable from clients, net			3,464,408				198,657
Receivable from/payable to affiliates, net			86,340				(19,374	)
Other receivables, net			23,516				16,885
Securities owned			31,744				9,111
Other assets			(10,308	)			(14,649	)
Payable to brokers, dealers and clearing organizations			(3,379,504	)			(1,737,740	)
Payable to clients			635,050				(254,255	)
Accounts payable and accrued liabilities			122,583				48,664
Net cash provided by operating activities			618,102				374,109
Cash flows from investing activities:
Purchase of property and equipment			(25,259	)			(58,857	)
Cash equivalents acquired in Fiserv Trust Company acquisition			—				623,837
Cash paid for business combinations			—				(272,590	)
Purchase of short-term investments			—				(328,690	)
Proceeds from sale of short-term investments			—				894,277
Proceeds from redemption of money market funds			290,347				—
Proceeds from sale of other investments available-for-sale			1,180				4,336
Other			(146	)			13
Net cash provided by investing activities			266,122				862,326

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

(Unaudited)

(In thousands)

		Six Months Ended March 31,
		2009				2008
Cash flows from financing activities:
Increase in trust account deposits		$	—			$	174,598
Principal payments on long-term debt			(18,750	)			(15,625	)
Principal payments on capital lease obligations			(2,169	)			(1,588	)
Proceeds from exercise of stock options; Six months ended March 31, 2009 — 169,013 shares; 2008 — 1,396,541 shares			816				3,279
Purchase of treasury stock; Six months ended March 31, 2009 — 38,988,200 shares; 2008 — 2,717,947 shares			(465,403	)			(49,104	)
Excess tax benefits on stock-based compensation			503				7,710
Net cash (used in) provided by financing activities			(485,003	)			119,270
Effect of exchange rate changes on cash and cash equivalents			(714	)			(109	)
Net increase in cash and cash equivalents			398,507				1,355,596
Cash and cash equivalents at beginning of period			674,135				413,787
Cash and cash equivalents at end of period		$	1,072,642			$	1,769,383
Supplemental cash flow information:
Interest paid		$	41,391			$	233,971
Income taxes paid		$	112,328			$	187,494
Tax benefit on exercises and distributions of stock-based compensation		$	516			$	7,765
Noncash investing and financing activities:
Issuance of capital lease obligations		$	4,443			$	—
Issuance of long-term debt in exchange for assets acquired		$	8,400			$	—

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three-Month and Six-Month Periods Ended March 31, 2009 and 2008
(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, 2008.

Reclassifications:

Approximately $0.2 million has been reclassified from receivable from affiliates to receivable from brokers, dealers and clearing organizations as of September 30, 2008 on the Condensed Consolidated Balance Sheets. Approximately $15.0 million has been reclassified from payable to affiliates to payable to brokers, dealers and clearing organizations as of September 30, 2008 on the Condensed Consolidated Balance Sheets. Each of these reclassifications was made in order to conform to the current financial statement presentation.

Recently Adopted Accounting Pronouncements:

SFAS No. 157 — On October 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, for financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company will not adopt this statement until
October 1, 2009 for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 clarifies the definition of fair value and the methods used to measure fair value and expands disclosures about fair value measurements. The adoption of SFAS No. 157 did not have a material impact on the Company’s financial position, results of operations or cash flows. See Note 10 — FAIR VALUE DISCLOSURES for additional information.

Recently Issued Accounting Pronouncements:

SFAS No. 141R — In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised 2007), Business Combinations. SFAS No. 141R 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, SFAS No. 141R will apply prospectively to business combinations for which the acquisition date is on or after October 1, 2009. The Company will evaluate the impact of SFAS No. 141R on any potential future business combinations that may occur on or after the effective date.

2. BUSINESS COMBINATIONS

On January 8, 2009, the Company entered into a definitive agreement to acquire thinkorswim Group Inc. (“thinkorswim”) for approximately 28 million shares of Company common stock and approximately $225 million in cash. thinkorswim offers online brokerage, investor education and related financial products and services for self-directed investors and active traders. Upon the closing of the acquisition, each share of thinkorswim common stock will be exchanged for $3.34 in cash and 0.3980 shares of the Company’s common stock. The closing of the acquisition is subject to customary conditions, including regulatory and thinkorswim stockholder approvals, and is expected to occur during fiscal 2009.

On February 4, 2008, the Company completed the acquisition of Fiserv Trust Company, an investment support services business and wholly-owned subsidiary of Fiserv, Inc. (“Fiserv”). The Company paid $274.5 million in cash during fiscal 2008

for this acquisition. Pursuant to the stock purchase agreement, an additional earn-out payment of up to $100 million in cash could be payable following the first anniversary of the acquisition based on the achievement of revenue targets. Based on revenues through the February 4, 2009 anniversary date, the Company has accrued approximately $41.3 million for the earn-out payment obligation as of March 31, 2009, which is included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets. The calculation of the earn-out payment is subject to Fiserv’s review and is subject to offset by any amounts owed by Fiserv before it can be finalized and paid. The Company’s condensed consolidated financial statements include the results of operations for Fiserv Trust Company beginning February 5, 2008.

3. GOODWILL AND ACQUIRED INTANGIBLE ASSETS

The Company has recorded goodwill for purchase business combinations to the extent the purchase price of each completed acquisition exceeded the fair value of the net identifiable tangible and intangible assets of each acquired company. The following table summarizes changes in the carrying amount of goodwill for the six months ended March 31, 2009 (dollars in thousands):

Balance as of September 30, 2008		$	1,947,102
Accrual of Fiserv Trust Company earn-out payment obligation			41,266
Purchase accounting adjustments, net of income taxes (1)			94
Tax benefit of option exercises (2)			(13	)
Balance as of March 31, 2009		$	1,988,449

The Company’s acquired intangible assets consist of the following as of March 31, 2009 (dollars in thousands):

		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
Client relationships		$	1,062,046			$	(224,779	)		$	837,267
Trademark license			145,674				—				145,674
		$	1,207,720			$	(224,779	)		$	982,941

The Company estimates that amortization expense on acquired intangible assets outstanding as of March 31, 2009 will be approximately $30.8 million for the remainder of fiscal 2009 and approximately $61.6 million for each of the five succeeding fiscal years.

4. CASH AND CASH EQUIVALENTS

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

		March 31,				September 30,
		2009				2008
Corporate		$	454,673			$	184,632
Broker-dealer subsidiaries			565,493				418,626
Trust company subsidiaries			38,203				61,430
Investment advisory subsidiaries			14,273				9,447
Total		$	1,072,642			$	674,135

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

5. SHORT-TERM INVESTMENTS

Short-term investments consist of the following (dollars in thousands):

		March 31,				September 30,
		2009				2008
Money market mutual funds		$	77,639			$	368,066
Federal National Mortgage Association discount notes			1,099				1,067
Total short-term investments		$	78,738			$	369,133

As of September 30, 2008, the Company had holdings with a fair value of approximately $585.5 million in the Primary Fund, a money market mutual fund managed by The Reserve, an independent mutual fund company. In September 2008, the net asset value of the Primary Fund declined below $1.00 per share and the fund announced it was liquidating under the supervision of the SEC. In order to facilitate an orderly liquidation, the SEC allowed the fund to suspend redemptions until the fund could liquidate portfolio securities without further impairing the net asset value. As of September 30, 2008, the Company classified approximately $217.4 million of its Primary Fund holdings as cash and cash equivalents, based on its estimated share of the partial redemption. The remaining $368.1 million of the Company’s Primary Fund holdings was reclassified to short-term investments due to uncertainty as to whether these holdings could be converted to cash within three months. From October 31, 2008 through April 17, 2009, the Company has received $534.5 million of cash (including $26.7 million received subsequent to March 31, 2009) as The Reserve has redeemed approximately 90% of the shares of the fund. The Company cannot predict when The Reserve will redeem the remaining shares of the fund.

6. ACQUISITION EXIT LIABILITIES

The following tables summarize activity in the Company’s acquisition exit liabilities for the three-month and six-month periods ended March 31, 2009, which are included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets (dollars in thousands):

		Three Months Ended March 31, 2009
		Balance at												Balance at
		Dec. 31, 2008				Utilized				Adjustments				Mar. 31, 2009
Employee compensation and benefits		$	2,326			$	(223	)		$	—			$	2,103
Occupancy and equipment costs			12,232				(901	)			1,475				12,806
Total acquisition exit liabilities		$	14,558			$	(1,124	)		$	1,475			$	14,909

		Six Months Ended March 31, 2009
		Balance at												Balance at
		Sept. 30, 2008				Utilized				Adjustments				Mar. 31, 2009
Employee compensation and benefits		$	2,575			$	(472	)		$	—			$	2,103
Occupancy and equipment costs			12,742				(1,411	)			1,475				12,806
Total acquisition exit liabilities		$	15,317			$	(1,883	)		$	1,475			$	14,909

The exit liabilities primarily relate to the acquisition of TD Waterhouse Group, Inc. (“TD Waterhouse”) during fiscal 2006. The adjustments to occupancy and equipment exit liabilities were included in the determination of net income for the three-month and six-month periods ended March 31, 2009. Employee compensation exit liabilities are expected to be paid over contractual periods ending in fiscal 2013. Remaining occupancy and equipment exit liabilities are expected to be utilized over the related lease periods through fiscal 2016.

7. INCOME TAXES

The Company’s effective income tax rate for the six months ended March 31, 2009 was 39.7%, compared to 34.9% for the six months ended March 31, 2008. The provision for income taxes for the six months ended March 31, 2009 was higher than normal due to unfavorable deferred income tax adjustments of $5.9 million resulting from recent state income tax law changes and capital loss limitations on the Company’s Reserve Primary Fund holdings. These items unfavorably impacted the Company’s earnings for the six months ended March 31, 2009 by approximately $0.01 per share. The provision for income taxes for the six months ended March 31, 2008 was unusually low due to $7.2 million of favorable resolutions of state income tax matters and $11.1 million of adjustments to current and deferred income taxes resulting from a revision to estimated state income tax expense. The revision was based on the Company’s actual state income tax returns filed for calendar year 2006 and similar adjustments applied to estimated state income tax rates for 2007 and future years. These items favorably impacted the Company’s earnings for the six months ended March 31, 2008 by approximately $0.03 per share.

8. 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 (the “Exchange Act”)), 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):

		March 31, 2009												September 30, 2008
						Minimum												Minimum
						Net Capital				Excess								Net Capital				Excess
		Net Capital				Required				Net Capital				Net Capital				Required				Net Capital
TD AMERITRADE Clearing, Inc.		$	712,292			$	84,716			$	627,576			$	836,531			$	157,458			$	679,073
TD AMERITRADE, Inc.			113,742				500				113,242				44,039				250				43,789
Totals		$	826,034			$	85,216			$	740,818			$	880,570			$	157,708			$	722,862

TD AMERITRADE Clearing, Inc. (“TDA Clearing”) is a clearing broker-dealer and TD AMERITRADE, Inc. (“TDA Inc.”) is an introducing 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 $17.6 million and $112.4 million as of March 31, 2009 and September 30, 2008, respectively, which exceeded the required Tier 1 capital by $7.6 million and $102.4 million, respectively.

9. 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 has conducted four investigations since August 2007 and reported that it found no evidence of identity theft. The parties entered into an agreement to settle the lawsuits on a class basis subject to court approval. On May 1, 2009, the Court granted preliminary approval of the proposed settlement, which had been revised, and set a hearing on final approval for September 10, 2009. The settlement is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows.

Auction Rate Securities Matters — Beginning in March 2008, lawsuits were filed against various financial services firms by customers related to their investments in auction rate securities (“ARS”). The plaintiffs in these lawsuits allege that the defendants made material misrepresentations and omissions in statements to customers about investments in ARS and the manner in which the ARS market functioned in violation of provisions of the federal securities laws. Two purported class action complaints have been filed alleging such conduct with respect to TDA Inc. and TD AMERITRADE Holding Corporation. The cases, which are pending in the U.S. District Court for the Southern District of New York, have been consolidated under the caption In re Humphrys v. TD Ameritrade Holding Corp. An amended complaint was filed in February 2009. The amended complaint seeks an unspecified amount of damages, equitable relief, interest and attorneys’ fees. In April 2009 the Company filed a motion to dismiss the amended complaint.

The SEC and other regulatory authorities are conducting investigations regarding the sale of ARS. TDA Inc. has received subpoenas and other requests for documents and information from the regulatory authorities. The Company is cooperating with the investigations and requests. The Company and regulatory authorities are in discussions regarding the possible resolution of the investigations with respect to TDA Inc., which could include the Company offering to purchase certain client ARS over time. As of May 1, 2009, the Company’s clients held ARS with an aggregate par value of approximately $691 million in TDA Inc. accounts, including $190 million custodied for clients of independent registered investment advisors.

Reserve Fund Matters — During September 2008, The Reserve, an independent mutual fund company, announced that the net asset value of two of its money market mutual funds (the Primary Fund and the International Liquidity Fund) declined below $1.00 per share. In addition, The Reserve announced that the net asset value of the Reserve Yield Plus Fund, which is not a money market mutual fund but sought to maintain a stable net asset value of $1.00 per share, declined below $1.00 per share. TDA Inc.’s clients hold shares in these funds, which The Reserve announced are being liquidated. From October 31, 2008 through May 1, 2009, Primary Fund, International Liquidity Fund and Yield Plus Fund shareholders have received distributions totaling approximately $0.90 per share, $0.65 per share and $0.85 per share, respectively. The SEC and other regulatory authorities are conducting investigations regarding TDA Inc.’s offering of The Reserve funds to clients. TDA Inc. has received subpoenas and other requests for documents and information from the regulatory authorities. TDA Inc. is cooperating with the investigations and requests.

In November and December 2008 two purported class action lawsuits were filed with respect to the Yield Plus Fund. The lawsuits are captioned Ross v. Reserve Management Company, Inc. et al. in the U.S. District Court for the Southern District of New York and Hamilton v. TD Ameritrade, Inc. et al. in the U.S. District Court for the Northern District of Georgia. The plaintiff in the Hamilton case dismissed his complaint without prejudice on March 2, 2009. The Ross lawsuit is on behalf of persons who purchased shares of Reserve Yield Plus Fund. The complaint names as defendants a number of entities and individuals related to The Reserve. The Company is also named as a defendant. The complaint alleges claims of violations of the federal securities laws and other claims based on allegations that false and misleading statements and omissions were made in the Reserve Yield Plus Fund prospectus and in other statements regarding the fund. The complaint seeks an unspecified amount of compensatory damages, interest and attorneys’ fees.

Other Legal and Regulatory Matters — The Company is subject to lawsuits, arbitrations, claims and other legal proceedings in connection with its business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. Management believes the Company

has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent and the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, the Company is unable to predict the outcome of 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 or other sanctions. Management believes the outcome of any resulting actions will not be material to the Company’s financial condition, results of operations or cash flows. However, the Company is unable to predict the outcome of these matters.

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 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 may extend credit to the client, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the client’s account. In connection with these activities, the Company also executes and clears client transactions involving the sale of securities not yet purchased (“short sales”). Such margin-related transactions may expose the Company to credit risk in the event 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.

As of March 31, 2009, client excess margin securities of approximately $4.8 billion and stock borrowings of approximately $1.9 billion were available to the Company to utilize as collateral on various borrowings or for other purposes. The Company had loaned approximately $2.4 billion and repledged approximately $0.8 billion of that collateral as of March 31, 2009.

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 “Money Market Deposit Account Agreement” in Note 13 for a description of a guarantee included in that agreement.

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 receive less than $1.00 per share for these funds upon an orderly liquidation, the Company will commit 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 has accrued an estimated fair value of $27.0 million for this obligation as of March 31, 2009 and September 30, 2008, which is included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets.

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.

10. FAIR VALUE DISCLOSURES

Effective October 1, 2008, the Company adopted SFAS No. 157 for financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 clarifies the definition of fair value and the methods used to measure fair value and expands disclosures about fair value measurements.

Fair Value Measurement — Definition and Hierarchy

SFAS No. 157 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. SFAS No. 157 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 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 investment securities.
	•		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 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 table presents the Company’s fair value hierarchy for assets and liabilities measured on a recurring basis as of March 31, 2009 (dollars in thousands):

		Level 1				Level 2				Level 3				Fair Value
Assets:
Short-term investments		$	—			$	1,099			$	77,639			$	78,738
Securities owned			289				4,839				23,773				28,901
Other investments			957				—				8,820				9,777
Total assets at fair value		$	1,246			$	5,938			$	110,232			$	117,416
Liabilities:
Securities sold, not yet purchased (1)		$	2,519			$	640			$	—			$	3,159
Client Reserve Fund commitment (1)			—				—				26,994				26,994
Total liabilities at fair value		$	2,519			$	640			$	26,994			$	30,153

The following table presents the changes in Level 3 assets and liabilities measured on a recurring basis for the six months ended March 31, 2009 (dollars in thousands):

										Purchases,
						Realized Losses				Sales,
		October 1,				Included in				Issuances and				March 31,
		2008				Earnings				Settlements, Net				2009
Assets:
Cash and cash equivalents (1)		$	217,471			$	—			$	(217,471	)		$	—
Short-term investments			368,066				(80	)			(290,347	)			77,639
Securities owned			53,587				—				(29,814	)			23,773
Other investments			10,000				—				(1,180	)			8,820
Total assets at fair value		$	649,124			$	(80	)		$	(538,812	)		$	110,232
Liabilities:
Securities sold, not yet purchased		$	4,636			$	—			$	(4,636	)		$	—
Client Reserve Fund commitment			26,994				—				—				26,994
Total liabilities at fair value		$	31,630			$	—			$	(4,636	)		$	26,994

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 investments. 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 investments.

The fair value of money market mutual fund positions in the Primary Fund is estimated based on portfolio holdings data published by The Reserve and is categorized in Level 3 of the fair value hierarchy. At March 31, 2009, $77.6 million and $4.7 million of Primary Fund positions are included in the table above within the short-term investments and securities owned categories, respectively. The fair value of the client Reserve Fund commitment, which is described under “Guarantees” in Note 9, is estimated based on portfolio holdings data published by The Reserve for the Primary Fund and International Liquidity Fund.

11. 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 March 31,								Six Months Ended March 31,
		2009				2008				2009				2008
Net income		$	132,030			$	186,716			$	316,428			$	427,555
Weighted average shares outstanding — basic			573,519				594,339				582,734				594,629
Effect of dilutive securities:
Stock options			6,165				7,544				6,199				7,880
Restricted stock units			1,496				1,517				2,024				1,363
Deferred compensation shares			104				70				91				60
Weighted average shares outstanding — diluted			581,284				603,470				591,048				603,932
Earnings per share — basic		$	0.23			$	0.31			$	0.54			$	0.72
Earnings per share — diluted		$	0.23			$	0.31			$	0.54			$	0.71

12. COMPREHENSIVE INCOME

Comprehensive income is as follows (dollars in thousands):

		Three Months Ended March 31,								Six Months Ended March 31,
		2009				2008				2009				2008
Net income		$	132,030			$	186,716			$	316,428			$	427,555
Other comprehensive loss:
Net unrealized losses on investment securities available-for-sale			(511	)			—				(1,121	)			—
Adjustment for deferred income taxes on net unrealized losses			182				—				409				—
Reclassification adjustment for realized gains on investment securities included in net income			—				—				—				(540	)
Reclassification adjustment for deferred income taxes on realized investment gains			—				—				—				200
Foreign currency translation adjustment			(53	)			(96	)			(457	)			(73	)
Total other comprehensive loss, net of tax			(382	)			(96	)			(1,169	)			(413	)
Comprehensive income		$	131,648			$	186,620			$	315,259			$	427,142

13. RELATED PARTY TRANSACTIONS

Stock Repurchase

On February 17, 2009, the Company entered into a stock purchase agreement with Marlene M. Ricketts and the Joe and Marlene Ricketts Grandchildren’s Trust to purchase approximately 34 million shares of common stock of the Company for approximately $403 million in cash ($11.85 per share). J. Joe Ricketts serves on the Company’s board of directors. The purchase and sale of the stock occurred on February 20, 2009.

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 47.6% of the Company’s common stock as of March 31, 2009, of which 45% is permitted to be voted under the terms of the Stockholder’s 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.

Money Market Deposit Account Agreement

The Company is party to a money market deposit account (“MMDA”) agreement with TD Bank USA, N.A. and TD, which was originally entered into on January 24, 2006 in connection with the TD Waterhouse acquisition. Under the MMDA agreement, TD Bank USA makes available to clients of the Company money market deposit accounts as designated sweep vehicles. The Company provides marketing, recordkeeping and support services for TD Bank USA with respect to the money market deposit accounts. In exchange for providing these services, TD Bank USA pays the Company a fee based on the yield earned by TD Bank USA on the client MMDA assets (including any gains or losses from sales of investments), less the actual interest paid to clients, actual interest cost incurred on borrowings, a flat fee to TD Bank USA of 25 basis points and the cost of FDIC insurance premiums.

Effective July 1, 2008, the Company entered into an amendment to the MMDA agreement with TD Bank USA and TD. The amended 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 amended agreement provides that the marketing fee earned on the MMDA 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 MMDA portfolio and (c) floating-rate investments, based on the monthly average rate for 30-day LIBOR. The amendment provides that, from time to time, the Company may recommend amounts and maturity dates for the other fixed-rate investments (component (b) above) in the MMDA portfolio, subject to the approval of TD Bank USA. For the month of March 2009, the MMDA portfolio was comprised of approximately 36% component (a) investments, 45% component (b) investments and 19% component (c) investments.

In the event the fee computation results in a negative amount, the Company must pay TD Bank USA the negative amount. This effectively results in the Company guaranteeing TD Bank USA revenue of 25 basis points on the MMDA agreement, plus the reimbursement of FDIC insurance premiums. The fee computation under the MMDA agreement is affected by many variables, including the type, duration, credit quality, principal balance and yield of the investment portfolio at TD Bank USA, the prevailing interest rate environment, the amount of client deposits and the yield paid on client deposits. Because a negative MMDA 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 MMDA agreement.

The Company earned fee income associated with the money market deposit account agreement of $136.5 million and $299.8 million for the three months and six months ended March 31, 2009, respectively, and $156.1 million and $311.9 million for the three months and six months ended March 31, 2008, respectively, which is reported as money market deposit account fees on the Condensed Consolidated Statements of Income.

Mutual Fund Agreements

The Company and an affiliate of TD are parties to a services 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 marketing support services with respect to those funds. In consideration for offering the funds and performing the marketing support services, an affiliate of TD compensates the Company in accordance with the provisions of the services agreement. The Company also performs certain services for the applicable fund and earns fees for those services. In the event compensation under the transfer agency agreement, shareholder services agreement and dealer agreement is less than the minimum compensation called for by the services agreement, the deficit is earned by the Company under the services agreement. The services agreement had an initial term of two years and was automatically renewed for an additional two-year term on January 24, 2008. The agreement is automatically renewable for successive two-year terms (so long as certain related agreements are in effect). It may be terminated by any party upon one year’s prior written notice. The Company earned fee income associated with these agreements of $31.5 million and $83.0 million for the three months and six months ended March 31, 2009, respectively, and $52.9 million and $96.4 million for the three months and six months ended March 31, 2008, 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 $0.7 million and $0.2 million of receivables from TDSI as of March 31, 2009 and September 30, 2008, respectively. Payable to brokers, dealers and clearing organizations includes $121.3 million and $15.0 million of payables to TDSI as of March 31, 2009 and September 30, 2008, respectively. The Company incurred net interest expense associated with securities borrowing and lending with TDSI of $0.1 million and $0.5 million for the three months and six months ended March 31, 2009, respectively. The net interest associated with securities borrowing and lending with TDSI for the three months and six months ended March 31, 2008 was not significant.

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 and $0.4 million for the three months and six months ended March 31, 2009, respectively, and $0.3 million and $0.7 million for the three months and six months ended March 31, 2008, respectively, 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 MMDA 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 49,855 and 50,940 SARs outstanding as of March 31, 2009 and September 30, 2008, respectively, with an approximate value of $0.3 million and $1.7 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.

Restricted Share Units and Related Swap Agreements

The Company assumed TD Waterhouse restricted share unit plan liabilities following the completion of the acquisition of TD Waterhouse. Restricted share units are phantom share units with a value equivalent to the Toronto Stock Exchange closing price of TD common shares on the day before the award issuance. These awards vest and mature on the third or fourth anniversary of the award date at the average of the high and low prices for the 20 trading days preceding the redemption date. The redemption value, after tax withholdings, is paid in cash. Under these plans, participants were granted phantom share units equivalent to TD’s common stock that vest on a specified date after three or four years. On the acquisition date of TD Waterhouse, the Company entered into equity swap agreements with an affiliate of TD to offset changes in TD’s common stock price. During December 2007, most of the restricted share units vested and were settled and all the equity swap agreements expired. In May 2008, the remaining restricted share units vested and were settled. The Company recorded a loss on fair value adjustments to the equity swap agreements of $0.8 million for the six months ended March 31, 2008, which is reported as fair value adjustments of compensation-related derivative instruments on the Condensed Consolidated Statements of Income. Because the swap agreements were not designated for hedge accounting, the fair value adjustments were not recorded in the same category of the Condensed Consolidated Statements of Income as the corresponding compensation expense, which was recorded in the employee compensation and benefits category.

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 $3.9 million and $7.8 million for the three months and six months ended March 31, 2009, respectively, and $4.5 million and $8.7 million for the three months and six months ended March 31, 2008, respectively, which is included in professional services expense on the Condensed Consolidated Statements of Income.

Certificates of Deposit Brokerage Agreements

Effective as of September 24, 2008, TDA Inc. entered into 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. During the second quarter of fiscal 2009, TDA Inc. promoted a limited time offer 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 this promotion, 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 $3.3 million for the three-months and six-months ended March 31, 2009, respectively, which is included in advertising expense on the Condensed Consolidated Statements of Income.

Under a previous certificates of deposit brokerage agreement entered into on December 12, 2007 between TDA Inc. and TD Bank USA, TDA Inc. acted as an agent for its clients in purchasing certificates of deposit from TD Bank USA. Fees were calculated under the agreement in a manner consistent with the methodology of the MMDA agreement described above. This agreement was superseded by the September 24, 2008 certificates of deposit brokerage agreement. The Company incurred net fee expense associated with the agreement of $1.6 million for the three months and six months ended March 31, 2008, respectively, which is included in net interest revenue on the Condensed Consolidated Statements of Income.

Other Related Party Transactions

TD Options LLC, a subsidiary of TD, pays the Company the amount of exchange-sponsored payment for order flow that it receives for routing TDA Inc. client orders to the exchanges. The Company earned $0.9 million and $1.6 million of payment for order flow revenues from TD Options LLC for the three months and six months ended March 31, 2009, respectively, and $1.1 million and $1.7 million for the three months and six months ended March 31, 2008, respectively, which is included in commissions and transaction fees on the Condensed Consolidated Statements of Income.

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.

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

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2008, and the Condensed Consolidated Financial Statements and Notes thereto contained in this quarterly report on Form 10-Q.

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

The Company’s actual results could differ materially from those anticipated in such forward-looking statements. Important factors that may cause such differences include, but are not limited to: general economic and political conditions; interest rates; stock market fluctuations and changes in client trading activity; increased competition; systems failures and capacity constraints; network security risks; ability to service debt obligations; ability to obtain regulatory and thinkorswim Group Inc. (“thinkorswim”) stockholder approval for the proposed acquisition of thinkorswim; regulatory and legal matters and uncertainties and the other risks and uncertainties set forth under Item 1A. — Risk Factors of the Company’s annual report on Form 10-K, as amended, for the fiscal year ended September 30, 2008. The forward-looking statements contained in this report speak only as of the date on which the statements were made. We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise.

The preparation of our financial statements requires us to make judgments and estimates that may have a significant impact upon our financial results. Note 1 of our Notes to Consolidated Financial Statements for the fiscal year ended September 30, 2008, contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions. We believe that the following areas are particularly subject to management’s judgments and estimates and could materially affect our results of operations and financial position: valuation of goodwill and acquired intangible assets; valuation of stock-based compensation; estimates of effective income tax rates, deferred income taxes and valuation allowances; and valuation of guarantees. These areas are discussed in further detail under the heading “Critical Accounting Policies and Estimates” in Item 7 of our annual report on Form 10-K for the fiscal year ended September 30, 2008.

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

GLOSSARY OF TERMS

In discussing and analyzing our business, we utilize several metrics and other terms that are defined in a Glossary of Terms that is available on our website at www.amtd.com (in the “Investors” section under the heading “Financial Reports”) and is included in Item 7 of our annual report on Form 10-K for the fiscal year ended September 30, 2008. Since the issuance of the Form 10-K, the definitions of “Activity rate” and “Total trades” have been updated. These updated definitions are as follows (italics indicate other defined terms that appear elsewhere in the glossary):

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

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

Total trades — Revenue-generating client securities trades, which are executed by the Company’s broker-dealer subsidiaries on an agency basis. Total trades are a significant source of the Company’s revenues. Such trades include, but are not limited to, trades in equities, options, mutual funds and debt instruments. Trades generate revenue from commissions, transaction fees and/or revenue-sharing arrangements with market destinations (also known as “payment for order flow”).

RESULTS OF OPERATIONS

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

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

Financial Performance Metrics

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

We consider EBITDA an important measure of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA is used as the denominator in the consolidated leverage ratio calculation for our senior credit facilities. The consolidated leverage ratio determines the interest rate margin charged on the senior credit facilities. EBITDA eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization. EBITDA should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities.

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

		Three months ended March 31,																Six months ended March 31,
		2009								2008								2009								2008
						% of Net								% of Net								% of Net								% of Net
EBITDA		$				Revenue				$				Revenue				$				Revenue				$				Revenue
EBITDA		$	258,339				49.2	%		$	344,194				55.3	%		$	601,579				52.9	%		$	747,969				59.2	%
Less:
Depreciation and amortization			(10,635	)			(2.0	%)			(8,887	)			(1.4	%)			(22,138	)			(1.9	%)			(16,582	)			(1.3	%)
Amortization of acquired intangible assets			(15,200	)			(2.9	%)			(14,749	)			(2.4	%)			(30,738	)			(2.7	%)			(28,472	)			(2.3	%)
Interest on borrowings			(8,244	)			(1.6	%)			(20,604	)			(3.3	%)			(23,881	)			(2.1	%)			(46,330	)			(3.7	%)
Pre-tax income		$	224,260				42.7	%		$	299,954				48.2	%		$	524,822				46.2	%		$	656,585				51.9	%

Our pre-tax income and EBITDA decreased for the first half of fiscal 2009, compared to the first half of fiscal 2008, primarily due to a 10% decrease in net revenues. The decrease in net revenues was driven primarily by lower asset-based revenues resulting from lower net interest margin earned on spread-based balances, partially offset by increased transaction-based revenues resulting from higher client trading volumes. More detailed analysis of net revenues and expenses is presented later in this discussion.

Operating Metrics

Our largest sources of revenues are asset-based revenues and transaction-based revenues. For the six months ended March 31, 2009, asset-based revenues and transaction-based revenues accounted for 50% and 49% of our net revenues, respectively. Asset-based revenues consist of (1) net interest revenue, (2) MMDA fees and (3) investment product fees. The primary factors driving our asset-based revenues are average balances and average rates. Average balances consist primarily of average client margin balances, average segregated cash balances, average client credit balances, average client MMDA balances, average fee-based investment balances and average securities borrowing and lending balances. Average rates consist of the average interest rates and fees earned and paid on such balances. The primary factors driving our transaction-based revenues are total client trades and average commissions and transaction fees per trade. We also consider client account and client asset metrics, although we believe they are generally of less significance to our results of operations for any particular period than our metrics for asset-based and transaction-based revenues.

Asset-Based Revenue Metrics

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

		Three months ended												Six months ended
		March 31,								Increase/				March 31,								Increase/
		2009				2008				(Decrease)				2009				2008				(Decrease)
Avg. interest-earning assets (excluding conduit business)		$	7,358			$	9,880			$	(2,522	)		$	7,444			$	9,719			$	(2,275	)
Avg. MMDA balances			19,272				15,510				3,762				18,577				15,381				3,196
Avg. spread-based balances		$	26,630			$	25,390			$	1,240			$	26,021			$	25,100			$	921
Net interest revenue (excluding conduit business)		$	66.7			$	134.9			$	(68.2	)		$	148.8			$	280.9			$	(132.1	)
MMDA fee revenue			136.5				156.1				(19.6	)			299.8				311.9				(12.1	)
Spread-based revenue		$	203.2			$	291.0			$	(87.8	)		$	448.6			$	592.8			$	(144.2	)
Avg. annualized yield — interest-earning assets (excluding conduit business)			3.63	%			5.40	%			(1.77	%)			3.96	%			5.68	%			(1.72	%)
Avg. annualized yield — MMDA fees			2.83	%			3.98	%			(1.15	%)			3.19	%			3.99	%			(0.80	%)
Net interest margin (NIM)			3.05	%			4.53	%			(1.48	%)			3.41	%			4.65	%			(1.24	%)

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

		Interest Revenue (Expense)												Interest Revenue (Expense)
		Three months ended												Six months ended
		March 31,								Increase/				March 31,								Increase/
		2009				2008				(Decrease)				2009				2008				(Decrease)
Segregated cash		$	0.7			$	0.2			$	0.5			$	2.3			$	0.2			$	2.1
Client margin balances			49.7				135.8				(86.1	)			114.5				297.9				(183.4	)
Securities borrowing (excluding conduit business)			16.1				12.0				4.1				33.4				21.4				12.0
Other cash and interest-earning investments, net			1.1				10.4				(9.3	)			2.9				17.2				(14.3	)
Client credit balances			(0.6	)			(7.5	)			6.9				(2.3	)			(17.1	)			14.8
Securities lending (excluding conduit business)			(0.3	)			(16.0	)			15.7				(2.0	)			(38.7	)			36.7
Net interest revenue (excluding conduit business)			66.7				134.9				(68.2	)			148.8				280.9				(132.1	)
Securities borrowing — conduit business			2.2				47.9				(45.7	)			8.6				119.3				(110.7	)
Securities lending — conduit business			(1.5	)			(44.9	)			43.4				(5.2	)			(113.2	)			108.0
Net interest revenue		$	67.4			$	137.9			$	(70.5	)		$	152.2			$	287.0			$	(134.8	)

		Average Balance												Average Balance
		Three months ended												Six months ended
		March 31,								%				March 31,								%
		2009				2008				Change				2009				2008				Change
Segregated cash		$	1,964			$	18				N/A			$	1,819			$	10				N/A
Client margin balances			3,878				8,127				(52	%)			4,190				8,332				(50	%)
Securities borrowing (excluding conduit business)			324				395				(18	%)			281				416				(32	%)
Other cash and interest-earning investments			1,192				1,340				(11	%)			1,154				961				20	%
Interest-earning assets (excluding conduit business)			7,358				9,880				(26	%)			7,444				9,719				(23	%)
Securities borrowing — conduit business			1,418				5,760				(75	%)			1,518				5,942				(74	%)
Interest-earning assets		$	8,776			$	15,640				(44	%)		$	8,962			$	15,661				(43	%)
Client credit balances		$	4,217			$	4,383				(4	%)		$	4,192			$	3,990				5	%
Securities lending (excluding conduit business)			915				3,302				(72	%)			1,117				3,396				(67	%)
Interest-bearing liabilities (excluding conduit business)			5,132				7,685				(33	%)			5,309				7,386				(28	%)
Securities lending — conduit business			1,418				5,760				(75	%)			1,518				5,942				(74	%)
Interest-bearing liabilities		$	6,550			$	13,445				(51	%)		$	6,827			$	13,328				(49	%)

		Avg. Annualized Yield (Cost)												Avg. Annualized Yield (Cost)
		Three months ended								Net Yield				Six months ended								Net Yield
		March 31,								Increase/				March 31,								Increase/
		2009				2008				(Decrease)				2009				2008				(Decrease)
Segregated cash			0.14	%			3.73	%			(3.59	%)			0.25	%			3.76	%			(3.51	%)
Client margin balances			5.13	%			6.61	%			(1.48	%)			5.40	%			7.03	%			(1.63	%)
Other cash and interest-earning investments, net			0.36	%			3.07	%			(2.71	%)			0.49	%			3.53	%			(3.04	%)
Client credit balances			(0.06	%)			(0.68	%)			0.62	%			(0.11	%)			(0.85	%)			0.74	%
Net interest revenue (excluding conduit business)			3.63	%			5.40	%			(1.77	%)			3.96	%			5.68	%			(1.72	%)
Securities borrowing — conduit business			0.62	%			3.29	%			(2.67	%)			1.12	%			3.95	%			(2.83	%)
Securities lending — conduit business			(0.42	%)			(3.08	%)			2.66	%			(0.68	%)			(3.75	%)			3.07	%
Net interest revenue			3.07	%			3.49	%			(0.42	%)			3.36	%			3.60	%			(0.24	%)

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

		Three months ended												Six months ended
		March 31,								Increase/				March 31,								Increase/
		2009				2008				(Decrease)				2009				2008				(Decrease)
Fee revenue		$	48.1			$	77.7			$	(29.6	)		$	117.3			$	145.7			$	(28.4	)
Average balance		$	58,933			$	70,846				(17	%)		$	60,871			$	64,677				(6	%)
Average annualized yield			0.33	%			0.43	%			(0.10	%)			0.38	%			0.44	%			(0.06	%)

Transaction-Based Revenue Metrics

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

		Three months ended												Six months ended
		March 31,								%				March 31,								%
		2009				2008*				Change				2009				2008*				Change
Total trades (in millions)			19.82				18.36				8	%			42.32				37.98				11	%
Average commissions and transaction fees per trade		$	13.40			$	13.34				0	%		$	13.06			$	13.30				(2	%)
Average client trades per day			324,837				300,986				8	%			341,327				306,294				11	%
Average client trades per account (annualized)			11.5				11.5				0	%			12.2				11.8				3	%
Activity rate — total accounts			4.6	%			4.6	%			0	%			4.8	%			4.7	%			2	%
Activity rate — funded accounts			6.4	%			6.4	%			0	%			6.8	%			6.6	%			3	%
Trading days			61.0				61.0				0	%			124.0				124.0				0	%