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, 2007

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)

(Registrant’s former name)

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 ninety days. Yes þ No o

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

Large accelerated filer þ                    Accelerated filer o                    Non-accelerated filer 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 April 30, 2007, there were 596,924,226 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		14
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		25
Item 4.		Controls and Procedures		26
		Part II — OTHER INFORMATION
Item 1.		Legal Proceedings		26
Item 1A.		Risk Factors		27
Item 2.		Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities		27
Item 4.		Submission of Matters to a Vote of Security Holders		27
Item 6.		Exhibits		28
		Signatures		29
Separation and Release of Claims Agreement
Awareness Letter of Independent Registered Public Accounting Firm
Certification of Principal Executive Officer Pursuant to Section 302
Certification of Principal Financial Officer Pursuant to Section 302
Certification Pursuant to Section 906

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 as of March 31, 2007, and the related condensed consolidated statements of income for the three-month and six-month periods ended March 31, 2007 and 2006 and condensed consolidated statements of cash flows for the six-month periods ended March 31, 2007 and 2006. 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 29, 2006, 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 15, 2006, 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 29, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/S/ ERNST & YOUNG LLP

Chicago, Illinois
May 8, 2007

TD AMERITRADE HOLDING CORPORATION

(In thousands, except share amounts)

		March 31,				September 29,
		2007				2006
		(Unaudited)
ASSETS
Cash and cash equivalents		$	547,770			$	363,650
Short-term investments			37,600				65,275
Cash and investments segregated in compliance with federal regulations			315,075				1,561,910
Receivable from brokers, dealers and clearing organizations			7,007,722				4,566,525
Receivable from clients — net of allowance for doubtful accounts			7,564,009				6,970,834
Receivable from affiliates			12,882				19,191
Other receivables			102,789				89,038
Property and equipment — net of accumulated depreciation and amortization			73,323				57,346
Goodwill			1,763,688				1,731,718
Acquired intangible assets — net of accumulated amortization			1,029,629				1,056,899
Investments in equity securities			7,682				16,536
Other assets			69,747				59,547
Total assets		$	18,531,916			$	16,558,469
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations		$	9,285,268			$	7,022,601
Payable to clients			4,879,897				5,412,981
Accounts payable and accrued liabilities			507,398				371,024
Payable to affiliates			6,233				1,596
Long-term debt			1,690,875				1,703,375
Capital lease obligations			5,341				7,337
Deferred income taxes, net			308,533				309,321
Total liabilities			16,683,545				14,828,235
Stockholders’ equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, none issued			—				—
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 631,381,860 shares issued; Mar. 31, 2007 — 597,417,500 shares outstanding; Sept. 29, 2006 — 607,626,040 shares outstanding			6,314				6,314
Additional paid-in capital			1,599,194				1,591,610
Retained earnings			727,533				440,762
Treasury stock, common, at cost — March 31, 2007 — 33,964,360 shares; September 29, 2006 — 23,755,820 shares			(485,169	)			(312,410	)
Deferred compensation			428				662
Accumulated other comprehensive income			71				3,296
Total stockholders’ equity			1,848,371				1,730,234
Total liabilities and stockholders’ equity		$	18,531,916			$	16,558,469

See notes to condensed consolidated financial statements.

TD AMERITRADE HOLDING CORPORATION

(In thousands, except per share amounts)

		Three Months Ended								Six Months Ended
		March 31,				March 31,				March 31,				March 31,
		2007				2006				2007				2006
Revenues:
Transaction-based revenues:
Commissions and transaction fees		$	193,268			$	221,394			$	385,129			$	351,193
Asset-based revenues:
Interest revenue			250,783				254,048				493,632				431,402
Brokerage interest expense			(113,720	)			(80,648	)			(218,006	)			(130,402	)
Net interest revenue			137,063				173,400				275,626				301,000
Money market deposit account fees			129,774				45,306				265,055				45,306
Money market and other mutual fund fees			54,517				32,503				106,992				40,164
Total asset-based revenues			321,354				251,209				647,673				386,470
Other revenues			10,140				24,623				27,136				36,824
Net revenues			524,762				497,226				1,059,938				774,487
Expenses:
Employee compensation and benefits			108,615				111,722				206,745				156,614
Fair value adjustments of compensation-related derivative instruments			136				(986	)			(478	)			(986	)
Clearing and execution costs			22,058				18,984				42,894				24,951
Communications			24,686				17,164				46,755				25,918
Occupancy and equipment costs			17,521				18,148				42,372				33,195
Depreciation and amortization			6,132				5,181				13,163				8,664
Amortization of acquired intangible assets			13,446				11,281				27,270				14,790
Professional services			21,642				30,491				46,734				40,084
Interest on borrowings			30,033				25,796				61,150				26,444
Other			13,065				8,599				27,873				15,400
Advertising			42,800				47,477				82,076				74,041
Fair value adjustments of investment-related derivative instruments			—				—				—				11,703
Total expenses			300,134				293,857				596,554				430,818
Income before other income and income taxes			224,628				203,369				463,384				343,669
Other income:
Gain on sale of investments			5,102				78,840				5,716				78,840
Pre-tax income			229,730				282,209				469,100				422,509
Provision for income taxes			88,591				109,374				182,329				163,677
Net income		$	141,139			$	172,835			$	286,771			$	258,832
Earnings per share — basic		$	0.24			$	0.31			$	0.48			$	0.54
Earnings per share — diluted		$	0.23			$	0.30			$	0.47			$	0.53
Weighted average shares outstanding — basic			598,828				553,813				600,963				479,377
Weighted average shares outstanding — diluted			608,743				566,710				610,950				491,065
Dividends declared per share		$	0.00			$	6.00			$	0.00			$	6.00

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, 2007				March 31, 2006
Cash flows from operating activities:
Net income		$	286,771			$	258,832
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			13,163				8,664
Amortization of acquired intangible assets			27,270				14,790
Deferred income taxes			20,215				26,325
Gain on sale of investments in equity securities			(5,716	)			(78,840	)
Loss (gain) on disposal of property			515				(426	)
Fair value adjustments of derivative instruments			(478	)			10,717
Stock-based compensation			9,526				4,197
Other			(2,315	)			(2,913	)
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with federal regulations			1,246,835				200,105
Brokerage receivables			(3,034,372	)			(657,712	)
Receivable from/payable to affiliate, net			10,946				6,214
Other receivables			(13,447	)			(34,048	)
Proceeds from sale of broker-dealer investments in equity securities			1,625				—
Other assets			(8,505	)			13,786
Brokerage payables			1,729,583				491,121
Accounts payable and accrued liabilities			86,317				17,320
Net cash provided by operating activities			367,933				278,132
Cash flows from investing activities:
Purchase of property and equipment			(27,187	)			(3,081	)
Cash (paid) received in business combinations			(3,307	)			580,056
Purchase of short-term investments			(168,750	)			(745,875	)
Proceeds from sale of short-term investments			196,425				935,694
Proceeds from sale of investments in equity securities available-for-sale			10,237				7,492
Other			(10	)			11
Net cash provided by investing activities			7,408				774,297

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, 2007				March 31, 2006
Cash flows from financing activities:
Proceeds from issuance of long-term debt		$	—			$	1,900,000
Payment of debt issuance costs			(1,095	)			(20,992	)
Principal payments on long-term debt and notes payable			(12,500	)			(200,000	)
Principal payments on capital lease obligations			(1,996	)			(2,039	)
Proceeds from exercise of stock options; Six months ended March 31, 2007 — 436,593 shares; 2006 — 2,027,048 shares			2,339				12,975
Payment of cash dividend			—				(2,442,234	)
Purchase of treasury stock			(180,068	)			(467	)
Excess tax benefits on stock-based compensation			2,134				12,520
Net cash used in financing activities			(191,186	)			(740,237	)
Effect of exchange rate changes on cash and cash equivalents			(35	)			154
Net increase in cash and cash equivalents			184,120				312,346
Cash and cash equivalents at beginning of period			363,650				171,064
Cash and cash equivalents at end of period		$	547,770			$	483,410
Supplemental cash flow information:
Interest paid		$	278,927			$	142,064
Income taxes paid		$	64,896			$	76,185
Tax benefit on exercises and distributions of stock-based compensation		$	2,165			$	12,558
Noncash investing and financing activities:
Issuance of capital lease obligations		$	—			$	3,384
Settlement of prepaid variable forward contract liabilities in exchange for investment		$	—			$	72,077
Issuance of common stock in acquisition		$	—			$	2,123,181

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, 2007 and 2006
(Unaudited)
(Columnar amounts in thousands, except per share amounts)

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. On February 27, 2007, the Company’s board of directors approved changing the Company’s fiscal year-end to September 30. Previously, the Company reported on a fifty-two/fifty-three week fiscal year ending on the last Friday of September. This change is effective for the Company’s fiscal year ending September 30, 2007. Because the transition period is less than one month, no transition report will be filed.

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 29, 2006.

Reclassification – Professional services expense of approximately $6.6 million for the three-month and six-month periods ended March 31, 2006 has been reclassified to clearing and execution costs in the Condensed Consolidated Statements of Income. This reclassification was made in order to conform to the current financial statement presentation.

Recently Issued Accounting Pronouncements:

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 establishes a two-step process for evaluation of tax positions. The first step is recognition, under which the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The enterprise is required to presume the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is measurement, under which a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Therefore, FIN No. 48 will be effective for the Company’s fiscal year beginning October 1, 2007. The cumulative effect of adopting FIN No. 48 is required to be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity) for that fiscal year, presented separately. The Company is analyzing the impact of adopting FIN No. 48.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 clarifies the definition of fair value and the methods used to measure fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Therefore, SFAS No. 157 will be effective for the Company’s fiscal year beginning October 1, 2008. Adoption of SFAS No. 157 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits entities to elect to measure many financial instruments and certain other items at fair value at specified election dates, with changes in fair value recognized in earnings at each subsequent reporting period. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Therefore, SFAS No. 159 will be effective for the Company’s fiscal year beginning October 1, 2008. Adoption of SFAS No. 159 is not expected to have a material impact on the Company’s 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 acquisition exceeded the fair value of the net identifiable tangible and intangible assets of the acquired company. The following table summarizes changes in the carrying amount of goodwill for the six months ended March 31, 2007:

Balance as of September 29, 2006		$	1,731,718
Purchase accounting adjustments, net of income taxes (1)			32,001
Tax benefit of option exercises (2)			(31	)
Balance as of March 31, 2007		$	1,763,688

The Company’s acquired intangible assets consist of the following as of March 31, 2007:

		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
Client relationships		$	991,522			$	(107,567	)		$	883,955
Trademark license — TD			145,674				—				145,674
		$	1,137,196			$	(107,567	)		$	1,029,629

The Company estimates amortization expense on acquired intangible assets outstanding as of March 31, 2007 will be approximately $27.3 million for the remainder of fiscal 2007 and approximately $54.6 million for each of the five succeeding fiscal years.

3.

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, 2007, which are included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets:

		Three Months Ended March 31, 2007
		Balance at				Exit Costs												Balance at
		Dec. 31, 2006				Recorded				Utilized				Adjustments				Mar. 31, 2007
Employee compensation and benefits		$	30,537			$	5,840			$	(9,334	)		$	(3,035	)		$	24,008
Clearing and execution costs			12,264				(1,612	)			—				—				10,652
Communications			28				7,500				(5,841	)			—				1,687
Occupancy and equipment costs			25,248				1,824				(1,720	)			(332	)			25,020
Professional services			2,504				554				(605	)			—				2,453
Total acquisition exit liabilities		$	70,581			$	14,106			$	(17,500	)		$	(3,367	)		$	63,820

		Six Months Ended March 31, 2007
		Balance at				Exit Costs												Balance at
		Sept. 29, 2006				Recorded				Utilized				Adjustments				Mar. 31, 2007
Employee compensation and benefits		$	26,676			$	20,569			$	(20,202	)		$	(3,035	)		$	24,008
Clearing and execution costs			10,073				579				—				—				10,652
Communications			—				7,557				(5,870	)			—				1,687
Occupancy and equipment costs			23,168				5,316				(3,132	)			(332	)			25,020
Professional services			1,334				2,174				(1,055	)			—				2,453
Total acquisition exit liabilities		$	61,251			$	36,195			$	(30,259	)		$	(3,367	)		$	63,820

The exit costs recorded during the three- and six-month period ended March 31, 2007 relate to purchase accounting adjustments for the acquisition of TD Waterhouse. Adjustments to purchase accounting estimates arising prior to January 24, 2007 (the one-year anniversary of the TD Waterhouse acquisition) are reflected in the “exit costs recorded” column as adjustments to the cost of acquiring TD Waterhouse and therefore adjusted the amount of goodwill recorded. Adjustments arising on or after January 24, 2007 are reflected in the “adjustments” column and were included in the determination of net income for the period.

Acquisition employee compensation liabilities are expected to be paid over contractual periods ending in fiscal 2013. Clearing and execution, communications and professional services contract termination costs are expected to be paid over the course of the TD Waterhouse integration during fiscal 2007. Remaining acquisition occupancy and equipment exit liabilities are expected to be utilized over the related lease periods through fiscal 2016.

4.

CREDIT FACILITIES

Effective December 13, 2006, the Company entered into an amendment to its January 23, 2006 credit agreement to allow the Company to repurchase additional shares of its outstanding common stock. The Company paid approximately $1.1 million of additional debt issuance costs to effect the amendment.

5.

NET CAPITAL

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. 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 as of the dates indicated:

		March 31, 2007												September 29, 2006
						Minimum												Minimum
						Net Capital				Excess								Net Capital				Excess
		Net Capital				Required				Net Capital				Net Capital				Required				Net Capital
TD AMERITRADE Clearing, Inc.		$	493,687			$	94,496			$	399,191			$	397,034			$	88,891			$	308,143
National Investor Services Corp			337,762				79,090				258,672				333,134				77,548				255,586
TD AMERITRADE, Inc.			76,175				8,576				67,599				48,932				26,146				22,786
TD Waterhouse Capital Markets, Inc.			1,473				250				1,223				4,397				1,000				3,397
Totals		$	909,097			$	182,412			$	726,685			$	783,497			$	193,585			$	589,912

TD AMERITRADE Clearing, Inc. (formerly known as Ameritrade, Inc.) and National Investor Services Corp. are clearing broker-dealers. TD AMERITRADE, Inc. is an introducing broker-dealer. TD Waterhouse Capital Markets, Inc. was registered as a market-maker in over-the-counter equity securities until January 2007, at which time it registered as an introducing broker-dealer.

6.

EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share:

		Three Months Ended								Six Months Ended
		March 31,				March 31,				March 31,				March 31,
		2007				2006				2007				2006
Net income		$	141,139			$	172,835			$	286,771			$	258,832
Weighted average shares outstanding — basic			598,828				553,813				600,963				479,377
Effect of dilutive securities:
Stock options			9,733				12,863				9,803				11,658
Restricted stock units			142				8				141				4
Deferred compensation shares			40				26				43				26
Weighted average shares outstanding — diluted			608,743				566,710				610,950				491,065
Earnings per share — basic		$	0.24			$	0.31			$	0.48			$	0.54
Earnings per share — diluted		$	0.23			$	0.30			$	0.47			$	0.53

7.

COMMITMENTS AND CONTINGENCIES

Legal — The nature of the Company’s business subjects it to lawsuits, arbitrations, claims and other legal proceedings. Management cannot predict with certainty the outcome of pending legal proceedings. A substantial adverse judgment or other resolution could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. However, in the opinion of management, after consultation with legal counsel, 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.

Other Regulatory Matters — The Company is in discussions with its regulators about matters 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. TD has agreed to indemnify the Company for tax obligations, if any, pertaining to activities of TD Waterhouse prior to the acquisition.

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 control the risks associated with its client 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 controls 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 a securities clearinghouse.

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 controls 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 a securities clearinghouse.

As of March 31, 2007, client excess margin securities of approximately $10.4 billion and stock borrowings of approximately $6.8 billion were available to the Company to utilize as collateral on various borrowings or for other purposes. The Company had loaned or repledged approximately $10.1 billion of that collateral as of March 31, 2007.

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 the 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 transactions.

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. COMPREHENSIVE INCOME

Comprehensive income is as follows:

		Three Months Ended								Six Months Ended
		March 31, 2007				March 31, 2006				March 31, 2007				March 31, 2006
Net income		$	141,139			$	172,835			$	286,771			$	258,832
Other comprehensive income (loss):
Net unrealized gains (losses) on investment securities available-for-sale			(362	)			1,596				(373	)			14,555
Adjustment for deferred income taxes on net unrealized (gains)/losses			136				(614	)			140				(5,603	)
Reclassification adjustment for realized gains on investment securities included in net income			(4,338	)			(77,475	)			(4,702	)			(77,475	)
Reclassification adjustment for deferred income taxes on realized investment gains			1,627				29,828				1,763				29,828
Amount transferred from cumulative foreign currency translation adjustments due to disposal of Ameritrade Canada, Inc.			—				(513	)			—				(513	)
Foreign currency translation adjustment			17				153				(53	)			249
Total other comprehensive loss, net of tax			(2,920	)			(47,025	)			(3,225	)			(38,959	)
Comprehensive income		$	138,219			$	125,810			$	283,546			$	219,873

9. RELATED PARTY TRANSACTIONS

As a result of the acquisition of TD Waterhouse, TD became an affiliate of the Company, owning approximately 40 percent of the Company’s voting common stock as of March 31, 2007. Pursuant to the Stockholders Agreement among TD, the

Company and certain other stockholders, 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 (“MMDA”) Agreement

Three broker-dealer subsidiaries of the Company, TD AMERITRADE, Inc. (“TDA Inc.”), TD AMERITRADE Clearing, Inc. (“TDA Clearing”) (formerly known as Ameritrade, Inc.) and National Investor Services Corp. (“NISC”), are party to a money market deposit account agreement with TD Bank USA, N.A. (“TD Bank USA”) and TD, pursuant to which TD Bank USA makes available to clients of TDA Inc. money market deposit accounts as designated sweep vehicles. TDA Inc. provides marketing and support services with respect to the money market deposit accounts and TDA Clearing and NISC act as agents for clients of TDA Inc. and as recordkeepers for TD Bank USA, in each case with respect to the money market deposit accounts. In exchange for providing these services, TD Bank USA pays TDA Inc., TDA Clearing and NISC collectively a fee based on the yield earned by TD Bank USA on the client MMDA assets, 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. The MMDA agreement has an initial term of two years from January 24, 2006 and is automatically renewable for successive two year terms, provided that following the first anniversary of the agreement, the agreement may be terminated by any party thereto upon one year’s prior written notice. The Company earned fee income associated with the money market deposit account agreement of $129.8 million and $265.1 million for the three months and six months ended March 31, 2007, respectively, and $45.3 million for the three months and six months ended March 31, 2006, which is reflected as money market deposit account fees in the Condensed Consolidated Statements of Income.

Mutual Fund Agreements

The Company or certain of its subsidiaries and an affiliate of TD are party 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, and the Company performs marketing support services with respect to those funds. In consideration for offering the funds and performing the marketing support services, the 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 receives fees for those services. In the event payments under the transfer agency agreement, shareholder services agreement and dealer agreement are less than the minimum compensation called for by the services agreement, the deficit is paid under the services agreement. The services agreement has an initial term of two years from January 24, 2006 and is automatically renewable for successive two year terms (so long as certain related agreements are in effect), provided that following the first anniversary of the agreement, the agreement may be terminated by any party thereto upon one year’s prior written notice. The Company may terminate the services agreement upon 120 days notice if it does not earn monthly fees greater than a specified level. The Company earned fee income associated with these agreements of $27.6 million and $53.6 million for the three months and six months ended March 31, 2007, respectively, and $15.4 million for the three months and six months ended March 31, 2006, which is included in money market and other mutual fund fees in the Condensed Consolidated Statements of Income.

Interim Cash Management Services Agreement

Pursuant to an Interim Cash Management Services Agreement, TD Bank USA provides cash management services to clients of TDA Inc. until the earlier of TDA Inc. successfully converting the cash management services to another service provider or TD Bank USA and TDA Inc. entering into a formal cash management services agreement. 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 interim cash management services agreement of $0.9 million and $1.7 million for the three months and six months ended March 31, 2007, respectively, and $0.7 million for the three months and six months ended March 31, 2006, which is included in clearing and execution costs in the Condensed Consolidated Statements of Income.

Bridge Loan and Subordinated Notes

During fiscal 2006, the Company had borrowings under a bridge loan and subordinated notes outstanding with TD and an affiliate of TD, respectively. The Company incurred interest expense associated with these notes for the three months and six months ended March 31, 2006 of $1.8 million and $0.3 million for the bridge loan and subordinated notes, respectively.

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 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. At the maturity date, 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 direct 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 97,280 and 244,100 SARs outstanding as of March 31, 2007 and September 29, 2006, respectively, with an approximate value of $3.1 million and $7.8 million as of March 31, 2007 and September 29, 2006, 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 withholdings, is paid in cash. Under these plans, participants are granted phantom share units equivalent to TD’s common stock that are cliff vested over 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. The Company incurred interest expense to the TD affiliate to finance the swap agreements of $0.1 million for the three months and six months ended March 31, 2007 and $0.2 million for the three months ended March 31, 2006. There were 187,983 and 335,980 restricted share units outstanding as of March 31, 2007 and September 29, 2006, respectively, with an approximate value of $11.4 million and $19.9 million as of March 31, 2007 and September 29, 2006, respectively. The Company recorded a loss on fair value adjustments to the equity swap agreements of $0.1 million and a gain of $0.5 million for the three months and six months ended March 31, 2007, respectively, and a gain of $1.0 million for the three months and six months ended March 31, 2006, which are included in fair value adjustments of compensation-related derivative instruments in the Consolidated Statements of Income. Because the swap agreements were not designated for hedge accounting, the fair value adjustments are not recorded in the same category of the Condensed Consolidated Statements of Income as the corresponding compensation expense, which is recorded in the employee compensation and benefits category.

Canadian Call Center Services Agreement

Pursuant to the Canadian Call Center Services Agreement, as amended, TD will continue to receive and service client calls at its London, Ontario site for clients of TDA Inc., until November 30, 2008, unless the agreement is terminated earlier in accordance with its terms. 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 $3.8 million and $7.4 million for the three months and six months ended March 31, 2007, respectively, and $2.1 million for the three months and six months ended March 31, 2006, which is included in professional services expense in the Condensed Consolidated Statements of Income.

Receivables from and Payables to TD

Receivables from and payables to TD and affiliates of TD resulting from the related party transactions described above are included in receivable from affiliate and payable to affiliate, respectively, in the Condensed Consolidated Balance Sheets. Such balances 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 29, 2006, and the Condensed Consolidated Financial

Statements and Notes thereto contained in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results to 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, integration associated with the TD Waterhouse acquisition, realization of synergies from the TD Waterhouse acquisition, regulatory and legal matters and uncertainties and the other risks and uncertainties set forth under the heading “Risk Factors” in Item 1A of the Company’s annual report on Form 10-K for the fiscal year ended September 29, 2006. 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.

In particular, forward-looking statements contained in this discussion include our expectations regarding: the amount of annualized pre-tax synergies to be realized from the acquisition of TD Waterhouse; the conversion of legacy TD Waterhouse clearing operations to the legacy Ameritrade clearing platform; incremental operating expenses for growth initiatives; the effect of client trading activity on our results of operations; the effect of changes in interest rates on our net interest spread; the effect of changes in the number of qualified accounts on our results of operations; average commissions and transaction fees per trade; amounts of commissions and transaction fees, net interest revenue, money market deposit account fees and money market and other mutual fund fees; amounts of total expenses; our capital and liquidity needs and our plans to finance such needs; and the impact of recently issued accounting pronouncements.

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 29, 2006, 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 intangible assets; valuation and accounting for derivative financial instruments; valuation of stock-based compensation; and estimates of effective income tax rates, deferred income taxes and valuation allowances. 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 29, 2006.

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 in the “Investors” section of our website at www.amtd.com and is included in Item 7 of our annual report on Form 10-K for the fiscal year ended September 29, 2006.

BUSINESS COMBINATION

On January 24, 2006, we completed the acquisition of TD Waterhouse Group, Inc. (“TD Waterhouse”), a Delaware corporation, pursuant to an Agreement of Sale and Purchase, dated June 22, 2005, as amended (the “Purchase Agreement”), with the Toronto-Dominion Bank (“TD”). We purchased from TD (the “Share Purchase”) all of the capital stock of TD Waterhouse in exchange for 196,300,000 shares of Company common stock, and $20,000 in cash. The shares of common stock issued to TD in the Share Purchase represented approximately 32.5 percent of the outstanding shares of the Company after giving effect to the transaction. Our condensed consolidated financial statements include the results of operations for TD Waterhouse beginning January 25, 2006. In addition, on January 24, 2006, we completed the sale of Ameritrade Canada, Inc. to TD for $60 million in cash. The purchase price for the acquisition of TD Waterhouse and the sale price for the sale of Ameritrade Canada were subject to cash adjustments based on the closing date balance sheets of the Company, TD Waterhouse and Ameritrade Canada. On May 5, 2006, we received approximately $45.9 million from TD for the settlement of cash adjustments related to the purchase of TD Waterhouse and the sale of Ameritrade Canada.

Pursuant to the Purchase Agreement, prior to the consummation of the Share Purchase, TD Waterhouse conducted a reorganization in which it transferred its Canadian retail securities brokerage business and TD Bank USA, N.A. (formerly TD Waterhouse Bank, N.A.) to TD such that, at the time of consummation of the Share Purchase, TD Waterhouse retained only its United States retail securities brokerage business. TD Waterhouse also distributed to TD excess capital of TD Waterhouse above certain thresholds prior to the consummation of the Share Purchase. As contemplated in the Purchase Agreement, on January 24, 2006, we commenced payment of a special cash dividend of $6.00 per share in respect of the shares of our common stock outstanding prior to the consummation of the Share Purchase. The total amount of the dividend was approximately $2.4 billion.

At the time of the closing of the TD Waterhouse acquisition, we expected to realize approximately $678 million of annualized pre-tax synergies from the acquisition of TD Waterhouse within 18 months of the closing, consisting of $300 million in revenue opportunities primarily related to our new banking relationship with TD and $378 million in cost savings related to the elimination of duplicate expenditures. We realized the revenue opportunities during fiscal 2006 and we expect to realize the operating cost synergies by the end of fiscal 2007.

The major remaining component of the TD Waterhouse integration is the conversion of the legacy TD Waterhouse clearing operations to the legacy Ameritrade clearing platform, which is scheduled to be completed during the third quarter of fiscal 2007. We expect to realize part of the operating cost synergies resulting from the clearing conversion during the third quarter of fiscal 2007 and the remaining synergies during the fourth quarter of fiscal 2007.

GROWTH INITIATIVES

Our Board of Directors recently approved expending up to $100 million in annualized incremental operating expenses for growth initiatives. Our Chief Executive Officer is authorized to approve initiatives to strengthen our sales, develop new products or enhance the functionality of existing products. The growth initiatives are beginning during the third quarter of fiscal 2007 and are expected to continue through fiscal 2008.

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 were to decline, we expect that it would have a negative impact on our results of operations.

Changes in average balances, especially client margin balances, client credit balances and client MMDA balances, may also significantly impact our results of operations. Changes in interest rates impact our results of operations to a lesser extent because 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, operating margin, EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA excluding investment gains are key metrics we use in evaluating our financial performance. Operating margin, EBITDA and EBITDA excluding investment gains are considered non-GAAP financial measures as defined by SEC Regulation G.

We define operating margin as pre-tax income, adjusted to remove advertising expense, non-brokerage investment-related gains and losses and any unusual gains or charges. We consider operating margin an important measure of the financial performance of our ongoing business. Advertising spending is excluded because it is largely at the discretion of the Company, can vary significantly from period to period based on market conditions and generally relates to the acquisition of future revenues through new accounts rather than current revenues from existing accounts. Non-brokerage investment-related gains and losses and unusual gains and charges are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. Operating margin should be considered in addition to, rather than as a substitute for, pre-tax income, net income and earnings per share.

We consider EBITDA and EBITDA excluding investment gains important measures of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA is used as the denominator in the consolidated leverage ratio calculation for our senior credit facilities. EBITDA eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization. EBITDA excluding investment gains also eliminates the effect of non-brokerage investment-related gains and losses that are not likely to be indicative of the ongoing operations of our business. EBITDA and EBITDA excluding investment gains 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 tables set forth operating margin, EBITDA and EBITDA excluding investment gains in dollars and as a percentage of net revenues for the periods indicated, and provide reconciliations to pre-tax income, which is the most directly comparable GAAP measure (dollars in thousands):

		Three months ended																Six months ended
		March 31, 2007								March 31, 2006								March 31, 2007								March 31, 2006
		$				% of Rev.				$				% of Rev.				$				% of Rev.				$				% of Rev.
Operating Margin
Operating margin		$	267,428				51.0	%		$	250,846				50.4	%		$	545,460				51.5	%		$	429,413				55.4	%
Less:
Advertising			(42,800	)			(8.2	%)			(47,477	)			(9.5	%)			(82,076	)			(7.7	%)			(74,041	)			(9.6	%)
Fair value adjustments of investment- related derivative instruments			—				—				—				—				—				—				(11,703	)			(1.5	%)
Income before other income and income taxes			224,628				42.8	%			203,369				40.9	%			463,384				43.7	%			343,669				44.4	%
Gain on sale of investments			5,102				1.0	%			78,840				15.9	%			5,716				0.5	%			78,840				10.2	%
Pre-tax income		$	229,730				43.8	%		$	282,209				56.8	%		$	469,100				44.3	%		$	422,509				54.6	%
EBITDA and EBITDA Excluding Investment Gains
EBITDA excluding investment gains		$	274,239				52.3	%		$	245,627				49.4	%		$	564,967				53.3	%		$	393,567				50.8	%
Plus: Gain on sale of investment			5,102				1.0	%			78,840				15.9	%			5,716				0.5	%			78,840				10.2	%
EBITDA			279,341				53.2	%			324,467				65.3	%			570,683				53.8	%			472,407				61.0	%
Less:
Depreciation and amortization			(6,132	)			(1.2	%)			(5,181	)			(1.0	%)			(13,163	)			(1.2	%)			(8,664	)			(1.1	%)
Amortization of acquired intangible assets			(13,446	)			(2.6	%)			(11,281	)			(2.3	%)			(27,270	)			(2.6	%)			(14,790	)			(1.9	%)
Interest on borrowings			(30,033	)			(5.7	%)			(25,796	)			(5.2	%)			(61,150	)			(5.8	%)			(26,444	)			(3.4	%)
Pre-tax income		$	229,730				43.8	%		$	282,209				56.8	%		$	469,100				44.3	%		$	422,509				54.6	%

The dollar amounts of our pre-tax income, operating margin and EBITDA excluding investment gains increased for the first half of fiscal 2007, compared to the first half of fiscal 2006, primarily due to increased business resulting from the TD Waterhouse acquisition. However, operating margin decreased as a percentage of net revenues for the first half of fiscal 2007 primarily due to the TD Waterhouse acquisition. Total expenses were higher as a percentage of net revenues for the first half of fiscal 2007 due to the effect of operating two back-office clearing platforms following the TD Waterhouse acquisition, higher interest on borrowings due to the debt issued to fund the special cash dividend and higher amortization of intangible assets due to the value assigned to the TD Waterhouse client relationships. Pre-tax income decreased as a percentage of net revenues for the first half of fiscal 2007 primarily due to the effect of a $78.8 million gain on the sale of our investment in Knight Capital Group, Inc. during the first half of fiscal 2006. More detailed analysis of net revenues and expenses is presented later in this discussion.

Operating Metrics

Our largest sources of revenues are (1) asset-based revenues and (2) transaction-based revenues. For the three months ended March 31, 2007, asset-based revenues and transaction-based revenues accounted for 61 percent and 37 percent of our net revenues, respectively. Asset-based revenues consist of (1) net interest revenue, (2) money market deposit account (“MMDA”) fees and (3) money market and other mutual fund 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 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 asset-based revenue metrics and trading activity metrics.

Asset-Based Revenue Metrics

We calculate the return on our interest-earning 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 and MMDA fees by average investable assets. Investable assets consist of client and brokerage-related asset balances, including client margin balances, segregated cash, MMDA balances, deposits paid on securities borrowing and other free cash and short-term investment balances. The following table sets forth net interest margin and average investable assets (dollar amounts in millions):

		Three months ended												Six months ended
		Mar. 31, 2007				Mar. 31, 2006				Inc. (Dec.)				Mar. 31, 2007				Mar. 31, 2006				Inc. (Dec.)
Average interest-earning assets		$	14,428			$	18,202			$	(3,774	)		$	14,023			$	16,359			$	(2,336	)
Average money market deposit account balances			14,758				6,548				8,210				14,571				3,130				11,441
Average investable assets		$	29,186			$	24,750			$	4,436			$	28,594			$	19,489			$	9,105
Net interest revenue		$	137.1			$	173.4			$	(36.3	)		$	275.6			$	301.0			$	(25.4	)
Money market deposit account fee revenue			129.8				45.3				84.5				265.1				45.3				219.8
Net revenue earned on investable assets		$	266.9			$	218.7			$	48.2			$	540.7			$	346.3			$	194.4
Net interest margin (NIM)			3.66	%			3.53	%			0.13	%			3.72	%			3.51	%			0.21	%

The following tables set forth key metrics that we use in analyzing net interest revenue, which is a component of net interest margin (dollar amounts in millions):

		Interest Revenue (Expense)												Interest Revenue (Expense)
		Three months ended												Six months ended
		Mar. 31, 2007				Mar. 31, 2006				Inc. (Dec.)				Mar. 31, 2007				Mar. 31, 2006				Inc. (Dec.)
Segregated cash		$	5.7			$	79.6			$	(73.9	)		$	18.1			$	150.3			$	(132.2	)
Client margin balances			152.4				126.2				26.2				303.4				196.3				107.1
Securities borrowing			85.5				41.4				44.1				159.3				73.9				85.4
Other free cash and short-term investments			6.8				6.3				0.5				12.0				10.1				1.9
Client credit balances			(12.7	)			(25.3	)			12.6				(26.6	)			(44.0	)			17.4
Securities lending			(100.6	)			(54.8	)			(45.8	)			(190.6	)			(85.6	)			(105.0	)
Net interest revenue		$	137.1			$	173.4			$	(36.3	)		$	275.6			$	301.0			$	(25.4	)

		Average Balance												Average Balance
		Three months ended								%				Six months ended								%
		Mar. 31, 2007				Mar. 31, 2006				Change				Mar. 31, 2007				Mar. 31, 2006				Change
Segregated cash		$	439			$	7,612				(94	%)		$	687			$	7,463				(91	%)
Client margin balances			7,551				6,845				10	%			7,398				5,269				40	%
Securities borrowing			5,886				3,254				81	%			5,477				3,171				73	%
Other free cash and short-term investments			552				491				12	%			461				456				1	%
Interest-earning assets		$	14,428			$	18,202				(21	%)		$	14,023			$	16,359				(14	%)
Client credit balances		$	3,348			$	10,247				(67	%)		$	3,394			$	9,689				(65	%)
Securities lending			8,356				5,811				44	%			7,855				4,849				62	%
Interest-bearing liabilities		$	11,704			$	16,058				(27	%)		$	11,249			$	14,538				(23	%)

		Average Yield (Cost)												Average Yield (Cost)
		Three months ended								Net Yield				Six months ended								Net Yield
		Mar. 31, 2007				Mar. 31, 2006				Inc. (Dec.)				Mar. 31, 2007				Mar. 31, 2006				Inc. (Dec.)
Segregated cash			5.21	%			4.18	%			1.03	%			5.18	%			3.98	%			1.20	%
Client margin balances			8.08	%			7.37	%			0.71	%			8.07	%			7.37	%			0.70	%
Securities borrowing			5.81	%			5.08	%			0.73	%			5.72	%			4.61	%			1.11	%
Other free cash and short-term investments			4.88	%			5.20	%			(0.32	%)			5.13	%			4.40	%			0.73	%
Client credit balances			(1.52	%)			(0.99	%)			(0.53	%)			(1.54	%)			(0.90	%)			(0.64	%)
Securities lending			(4.82	%)			(3.77	%)			(1.05	%)			(4.77	%)			(3.49	%)			(1.28	%)
Net interest revenue			3.80	%			3.81	%			(0.01	%)			3.87	%			3.64	%			0.23	%

The following tables set forth key metrics that we use in analyzing other asset-based revenues (dollar amounts in millions):

		Fee Revenue												Fee Revenue
		Three months ended												Six months ended
		Mar. 31, 2007				Mar. 31, 2006				Inc./(Dec.)				Mar. 31, 2007				Mar. 31, 2006				Inc./(Dec.)
Money market deposit account		$	129.8			$	45.3			$	84.5			$	265.1			$	45.3			$	219.8
Money market mutual fund		$	38.8			$	23.1			$	15.7			$	76.1			$	29.6			$	46.5
Other mutual fund		$	15.7			$	9.4			$	6.3			$	30.9			$	10.6			$	20.3

		Average Balance												Average Balance
		Three months ended								%				Six months ended								%
		Mar. 31, 2007				Mar. 31, 2006				Change				Mar. 31, 2007				Mar. 31, 2006				Change
Money market deposit account		$	14,758			$	6,548				125	%		$	14,571			$	3,130				366	%
Money market mutual fund		$	20,249			$	12,554				61	%		$	19,493			$	7,953				145	%
Other mutual fund		$	26,105			$	18,988				37	%		$	25,463			$	10,834				135	%

		Average Yield												Average Yield
		Three months ended												Six months ended
		Mar. 31, 2007				Mar. 31, 2006				Inc./(Dec.)				Mar. 31, 2007				Mar. 31, 2006				Inc./(Dec.)
Money market deposit account			3.52	%			2.85	%			0.67	%			3.58	%			2.85	%			0.73	%
Money market mutual fund			0.77	%			0.74	%			0.03	%			0.77	%			0.74	%			0.03	%
Other mutual fund			0.24	%			0.20	%			0.04	%			0.24	%			0.19	%			0.05	%

Trading Activity 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, 2007				March 31, 2006				Change				March 31, 2007				March 31, 2006				Change
Total trades (in millions)			15.47				15.77				(2	%)			30.32				25.54				19	%
Average commissions and transaction fees per trade		$	12.49			$	14.04				(11	%)		$	12.70			$	13.75				(8	%)
Average client trades per day			253,631				254,382				(0	%)			245,481				205,116				20	%
Average client trades per account (annualized)			10.1				11.7				(14	%)			9.8				10.9				(10	%)
Activity rate			4.0	%			4.7	%			(15	%)			3.9	%			4.3	%			(9	%)
Trading days			61.0				62.0				(2	%)			123.5				124.5				(1	%)

Client Account and Client Asset Metrics

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

		Three months ended								%				Six months ended								%
		March 31, 2007				March 31, 2006				Change				March 31, 2007				March 31, 2006				Change
Qualified accounts (beginning of period)			3,255,000				1,722,000				89	%			3,242,000				1,735,000				87	%
Qualified accounts (end of period)			3,262,000				3,293,000				(1	%)			3,262,000				3,293,000				(1	%)
Percentage increase (decrease) during period			0	%			91	%							1	%			90	%
Total accounts (beginning of period)			6,260,000				3,739,000				67	%			6,191,000				3,717,000				67	%
Total accounts (end of period)			6,230,000				6,070,000				3	%			6,230,000				6,070,000				3	%
Percentage increase (decrease) during period			(0	%)			62	%							1	%			63	%
Client assets (beginning of period, in billions)		$	278.2			$	85.5				225	%		$	261.7			$	83.3				214	%
Client assets (end of period, in billions)		$	282.2			$	262.9				7	%		$	282.2			$	262.9				7	%
Percentage increase (decrease) during period			1	%			207	%							8	%			216	%