2018 Annual Report
There’s
a lot to
feel good
about.
Contents
Letter to shareholders
Accomplishments
Financials
Scottrade
Innovation
Corporate social responsibility
10-K
Corporate leadership
i
iv
v
vi
vii
vi i i
1
i x
Tim Hockey
President & CEO
Joe Moglia
Chairman
Letter to shareholders
Our employees outdid
themselves. Again.
For two days back in late February, more people than usual
were working the weekend shift at TD Ameritrade. Ahead
of those teams, in Omaha, Jersey City, St. Louis, Chicago, and
elsewhere, was no small task.
Rewind to 17 months earlier, and we had just
announced the deal to acquire Scottrade. Our belief
then was that the combination of our two highly
complementary organizations would positively alter
the landscape of investing, extend our leadership
position, and transform the lives of millions of
investors for the better.
Lofty expectations to be sure. Absolutely achievable,
too. But there were no delusions about the challenge
facing us. There is no switch that magically and
flawlessly integrates two companies. The real magic
is months of preparation, making sacrifices, and a
shared belief that this was one of those rare kinds of
events that, done well, can mean a difference for a
company like ours.
So it was on that weekend in February that we
successfully moved more than 4 million Scottrade
accounts to TD Ameritrade, converting their
assets to the penny.
There’s a reason we share that story. More so than
any year, the abiding excellence of our employees
was revealed in 2018. So too was their determination
under challenging circumstances. We asked a lot
of them this year, and it was on their backs that our
results sang, financial and otherwise. So much so
that, as a show of appreciation, we made them
all shareholders, awarding 40 shares each to every
full-time employee, deposited (of course) into their
TD Ameritrade accounts.
Let’s just say it’s our humble belief that your investment
in TD Ameritrade is backed by one of the best
workforces around. And, like you, they now have a
stake in what’s ahead.
About those results
TD Ameritrade delivered net revenues of $5.5 billion
in 2018, up 48 percent from last year. We ended
the year with net income of $1.47 billion, resulting in
GAAP diluted EPS of $2.59 (up 58 percent) and
non-GAAP diluted EPS of $3.34 (up 82 percent).(1) By
any measure, those results are pretty stellar.
Trading was strong throughout the year, averaging
a record 811,000 trades per day, more than our
two closest competitors combined. For those counting,
we had 16 days at a million trades or more,
certainly a barometer for our growth, as well as the
historic engagement we saw in the markets. (Before
2018, TD Ameritrade had exactly one day where
trades exceeded 1 million.)
(1) See reconciliation of non-GAAP financial measures on page 113.
i
Letter to shareholders (continued)
This uptick in trading overall amounted to about
a $300 million benefit to income above and beyond
what we had projected to start the year. We also
gathered a record $92 billion in net new client assets
in the midst of a major integration, driven by record
asset gathering from our Institutional channel and
efficient and effective marketing efforts on both sides
of the business. Client assets now total $1.3 trillion,
up 16 percent from last year.
Let’s talk about the corporate tax cut. The benefit
for TD Ameritrade was just under $300 million,
which was significant. Combine that with roughly an
additional $175 million thanks to three Federal Reserve
interest rate hikes, plus significant revenue tailwinds
from trading and balance growth, and we’ve been
given some level of flexibility to reinvest back in our
business. Let’s talk about where we’re doing that.
Not in the status quo
The thing about tailwinds is that they can disappear
just as quickly as they appear. Even the strongest
business models can fall victim to complacency. That’s
why we consider now to be the most urgent time
for TD Ameritrade.
So we’re investing in a client experience to make
it better than the rest
To start, we’ve tweaked our strategic focus. Think
of it as an investment in exceptionalism, which, by our
definition, amounts to delivering a best-in-class client
experience. If the Scottrade integration was THE
top priority in 2018, winning on the client experience
ii
is what matters most in 2019 … and, frankly, well
beyond that. If it sounds a little idealistic, rest assured
that within our walls it’s something our employees can
see and measure with concrete plans to improve,
structure, and milestones that keep us all accountable.
In our business
We’ve also been reflecting on a Retail business model
that’s been successful, but held back to some extent
recently as we’ve tried to be all things to all types of
investors. That’s why you’ll start to see a renewed
emphasis on investors who are positive, confident, and
enjoy managing their own finances. Think of them
as the 2020 version of the 1975 self-directed investor …
someone we won over then and, in no uncertain
terms, will CONTINUE to seek to win over today with
a relationship that’s high-tech, right touch.
Our Institutional business continues to zip right along.
We’ve seen growth from all advisor segments,
including new, existing, and breakaway brokers, which
continues to contribute to strong asset gathering.
We will continue to optimize the existing business,
expand capabilities, revamp advice based on
client segmentation, and continue to extend our
technology advantage with a focus on automation. And,
of course, deliver world-class, white-glove service.
We have an abundant supply
of energy and smarts, and a
passion for innovation.
In past letters, we’ve been hesitant to talk too much
about our international expansion effort because
of its limited size, but it’s a promising start as part
of our five-year growth story. Today we’re in
Singapore and Hong Kong, taking our time to learn
what Asian clients need and want when it comes
to trading, research, and education. Judging from their
initial interest and high engagement levels in the
U.S. markets, the potential opportunity is significant.
do business today. We were the first to launch
chatbots on Facebook Messenger and Twitter using
artificial intelligence, the first to introduce 24/5
trading, and, more recently, we were the first
to offer voice-activated trading via Amazon’s Alexa.
And that’s just this year.
We also realized that it’s one thing to have ideas
and another thing entirely to have a place to incubate
them. So we’ve created a startup studio of sorts to
do precisely that.
A greater responsibility
If we exist to transform lives and investing for the
better, with that comes a responsibility to invest
in a better tomorrow for people and their
communities. Through our people, technology, and
expertise, we’re committed to contributing to the
greater good. That means providing greater access to
the markets, inspiring our employees to take action,
fostering inclusion, and doing our part to protect
the environment.
And we’re also returning capital to you
We increased our quarterly cash dividend by $0.09
per share for 2019 to $0.30, a 43 percent increase.
And we paid a total of $477 million in cash dividends
in fiscal 2018, along with $255 million in cash to
repurchase 4.6 million shares.
This is the part of the letter where impartiality gets
thrown out the window, and we tell you just how
special it is to be part of TD Ameritrade. But if you
saw what we saw this year … 10,000 people intensely
focused on creating a better experience for
investors, who respond to the unexpected in the
best possible ways with the best possible attitude,
you might share our excitement.
Count on us to continue delivering for you.
Tim Hockey
President & CEO
Joe Moglia
Chairman
iii
To run the place better
We’re proud of our scale at TD Ameritrade, but with
it comes more than a few challenges that too often
go unaddressed at big companies. Like the difficulty
to respond quickly to competitive pressure,
poor communication, fear of failure, even a siloed
workforce … all things that put winning in jeopardy.
So we’re addressing each of these, with leadership at
the very top of the house focused on removing
the barriers that might keep us from operating like
the nimble company you expect us to be.
So we can disrupt
There are some who would say that innovation can’t
really happen when you’ve reached our level of
maturity ... that somehow it’s for companies “early
in their lifecycle.”
We don’t see it that way.
Two things to know about our workforce at
TD Ameritrade: They have an abundant supply of
energy and smarts, and a passion for innovation …
pretty incalculable competitive advantages if you
ask us. The hard part for a mature company like ours
is eliminating the barriers that get between them
and really transforming investing.
So we’ve empowered groups to drive innovation. This
year alone that decision saw us launch relationships
with recognized technology powerhouses: Apple,
Amazon Alexa, Facebook Messenger, Twitter, and
WeChat (Asia). We’re delivering our products,
solutions, and services in channels where our clients
Accomplishments
The 2018
highlight reel.
Converted 4 million Scottrade client
accounts while continuing to drive strong
organic growth.
Expanded Environmental, Social, and
Governance-focused investing for both
Institutional and self-directed clients.
Named the #1 broker in Kiplinger’s
Personal Finance ranking of best
online brokers.
Reintroduced our award-winning Model
Market Center, one of the industry’s
first open-architecture model portfolio
marketplaces for RIAs.
Became the first U.S. retail broker dealer
to offer trading of select securities 24 hours
a day, five days a week.
Worked with Amazon, Apple, Twitter,
Facebook, and WeChat to provide account
information, financial resources, and
education on the third-party apps and
platforms our clients are already using
every day.
Launched an enhanced ETF Market Center,
tripling the number of commission-free
exchange-traded funds (ETFs) available
to clients.
Converted more than 80 percent of our
development teams to Agile methods,
up from 18 percent at the end of fiscal
year 2016.
Launched the TD Ameritrade Network,
providing eight free hours of live
market insights and investor education
every weekday.
Introduced Personalized Portfolios, filling
a gap in our advice continuum to address
the needs of self-directed investors looking
for an investing experience tailored to their
unique goals.
Became one of the first firms to
offer approved clients access to bitcoin
futures contracts.
Continued our expansion in Asia by
opening a branch in Hong Kong.
iv
Financials
Financials
to
high-five
about.
The story of 2018 was a good
one to say the least.
In our first full year with the addition of Scottrade
results, we surpassed many of our financial expectations
and have plans in place to keep the momentum going.
Favorable market conditions and sustained client
engagement drove strong trading activity, with average
trades per day up nearly 60 percent from 2017. We saw
strong growth coming from all advisor sources in our
Institutional channel, and it was a strong year for new Retail
business, as we topped 1 million new accounts for the first
time in history. As a result, net new client assets were
a record $92 billion, up 15 percent from the prior year.
A combination of business, environmental, and industry
factors contributed to a record 48 percent increase in
net revenues, including solid organic growth and investor
engagement, rising interest rates, corporate tax cuts,
and, of course, our successful Scottrade client conversion.
Our competitive position is strong, and we have good
momentum heading into the new year. We’re already
working toward ambitious, yet realistic goals, focused on
organic growth and building a best-in-class client
experience that we expect will drive our results in the
coming year.
Our financial highlights include:
811,000
Average Client Trades
Per Day
(up 59% YOY)
$1.3 trillion
Total Client Assets
(up 16% YOY)
$2.59
GAAP Diluted EPS
(up 58% YOY)
$3.34
Non-GAAP
Diluted EPS (1)
(up 82% YOY)
$92 billion
Net New Client
Assets
(up 15% YOY )
35%
Pre-Tax Margin
$477 million
Paid in Cash
Dividends
$255 million
Share
Repurchases
(1) See reconciliation of non-GAAP financial measures on page 113.
v
Scottrade
Growing
the
brokerage
by four
million.
We’re proud to add the Scottrade
conversion to the top of our list of
2018 accomplishments.
While converting 4 million accounts to our systems
was a HUGE deal, what’s even more energizing is the
attention our employees showed to getting it done
right, with a laser-like focus on the client experience.
Engagement and overall satisfaction among converted
Scottrade clients continues to improve as they
increase adoption of our platforms, education, tools,
products, and other solutions. We also introduced
millions of TD Ameritrade clients to a more accessible
branch network—with hundreds of new locations
to choose from across the country—and we’re seeing
promising trends as TD Ameritrade clients embrace
legacy Scottrade locations and vice versa.
The Scottrade integration taught us a lot about who
we are and the value we bring to investors. It also
reminded us that the client experience remains
paramount to all that we do, and with the conversion
now behind us, we are making sure it stays top of
mind by making it our No. 1 priority across the firm.
The client experience
remains paramount to all
that we do.
Emily G.
Assistant Team Manager,
Client Account Services
Omaha, NE
vi
Innovation
Reinventing how
we invest.
While Scottrade was clearly Job One, it couldn’t be our only job.
The world wasn’t going to stop changing … consumer
expectations and behaviors are shifting rapidly as
technology makes its way into basic components of
everyday life. Personal finance is no exception.
At TD Ameritrade, we are embracing that change
to drive more automation, efficiency, and best-in-class
experiences for our clients—experiences that meet
and exceed our clients’ diverse needs and expectations.
These experiences will be high-tech, and they
will deliver the right touch, seamlessly blending the
efficiencies of online with the personalization of
in-person care through an omni-channel service model.
We’ve developed and expanded relationships this
past year with innovative, influential companies like
Facebook, Apple, Twitter, Amazon, and WeChat to
make doing business with TD Ameritrade more easily
integrated into everyday life. These relationships are
not only improving the client experience, but position
us for future growth opportunities as technology
continues to transform the way we do business.
In January, we became the first U.S. retail brokerage
firm to offer trading of select securities 24 hours a
day, five days a week. Knowing that nearly 70 percent
of the clients who use our research and education
resources do so outside of regular trading hours, this
offering allows us to bridge the gap for clients, making
their experiences more convenient and effortless.
We’re expanding our pipeline for ideas, and bringing
them to life more quickly—and efficiently—than ever
before. This year we achieved our goal of transitioning
80 percent of our development teams to Agile. We’re
also investing in an enhanced digital workplace—or
the channels our employees use to seek, share, and
contribute information—to further break down silos
across the firm and improve workflow.
We’ve accomplished a lot, and yet we’ve only scratched
the surface. Technology is at the heart of all that we
do, and we have clear intentions to stay ahead of the
curve as we work to continue transforming lives and
investing for the better.
vii
Corporate social responsibility
Giving back yields
the best return.
Our purpose to transform lives and investing for the better isn’t
limited to the lives of our clients, or our employees, or even today.
charitable organizations that reflect our people’s
personal passions.
To do our part in protecting the environment, we’re
committed to seeking LEED® certification for our
facilities whenever possible to help lower operating
costs, conserve resources, and provide a healthier, safer
work environment for employees. We currently have
29 LEED®-certified locations and six more buildings
pending certification.
By leveraging our scale and the passion and expertise
of our people, we’re making strides in creating
change and have plans in place to make even more
of a difference in people’s lives in the coming years.
Jim G.
Relationship Manager
Regional Advisor Relations
Southlake, TX
It’s a broader belief that given the collective power
of our unique talents and skills, we have an
opportunity to bring meaningful change to people
and communities alike—for generations to come. It
starts with a best-in-class client experience but
extends much further than that. Since our founding in
1975, TD Ameritrade has been dedicated to simplifying
investing, making it more accessible for everyone, and
enriching the communities where we live and work.
We work within our walls and with industry peers,
regulators, and others with the goal of breaking down
barriers to investing. We advocate for greater
transparency, objectivity, and choice within the
financial services industry. We’ve built an award-winning
educational offering that is helping clients gain
confidence and knowledge at any time, on any device,
at no cost to them.
Our TD Ameritrade family of nearly 10,000 employees
across the U.S. is also involved in community service.
Employees receive eight hours of paid time off each
year to volunteer for the charity or organization of their
choice, and are able to donate dollars through our
Matching Gifts program, which has a multiplier effect in
impacting change.
In 2018 alone, we collectively volunteered nearly
18,000 hours through more than 220 community
events across the country. We also matched more than
$438,000 in employee donations to 648 unique
viii
Corporate leadership
Leading our charge
with confidence.
Management Team
Tim Hockey
President & Chief Executive Officer
Prashant Bhatia
Managing Director, Corporate Strategy
& Business Development
Board of Directors
Joseph H. Moglia
Chairman
Tim Hockey
President & Chief Executive Officer
Lorenzo A. Bettino
Stephen Boyle
Executive Vice President, Chief Financial Officer
V. Ann Hailey
Brian M. Levitt
Karen E. Maidment
Bharat B. Masrani
Irene R. Miller
Mark L. Mitchell
Wilbur J. Prezzano
Todd M. Ricketts
Allan R. Tessler
Peter deSilva
President, Retail
Karen Ganzlin
Executive Vice President, Chief Human
Resources Officer
Denise Karkos
Chief Marketing Officer
David Kimm
Executive Vice President, Chief Risk Officer
Ellen Koplow
Executive Vice President, General Counsel
& Secretary
Thomas Nally
President, TD Ameritrade Institutional
Steven Quirk
Executive Vice President, Trading & Education
Vijay Sankaran
Managing Director, Chief Information Officer
ix
Corporate Headquarters
200 South 108th Avenue
Omaha, NE 68154
Mailing Address
P.O. Box 3288
Omaha, NE 68103-0288
Corporate Information
www.amtd.com
Investor Relations
www.amtd.com/investor-relations
Common Stock
The common stock of TD Ameritrade Holding
Corporation is listed on the Nasdaq Global Select
Market under the symbol AMTD.
Independent Registered Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, NY 10036
Send Certificates for Transfer and Address Changes to:
TD Ameritrade Holding Corporation
C/O Computershare
250 Royall Street
Canton, MA 02021
1-877-889-1984
www.computershare.com/investor
E-mail for Transfer Agent
https://www-us.computershare.com/investor/contact/
enquiry
Transforming lives and
investing for the better.
TD Ameritrade is separate from and not affiliated with Amazon, Facebook, Twitter, and Tencent and is not responsible for their services or policies.
Before investing, carefully consider the underlying funds’ objectives, risks, charges, and expenses. For a prospectus containing this and other important information
about each fund, contact us at 888-310-7921. Please read the prospectus carefully before investing.
TD Ameritrade Network is a product of TD Ameritrade Media Productions Company, a wholly owned subsidiary of TD Ameritrade Holding Corporation and
affiliate of the broker-dealers, investment advisors, and other regulated financial businesses of the company.
All investments involve risk, including loss of principal. Past performance does not guarantee future results. There is no assurance that the investment process will
consistently lead to successful investing. Asset allocation and diversification do not eliminate the risk of experiencing investment losses.
ETFs can entail risks similar to direct stock ownership, including market, sector, or industry risks. Some ETFs may involve international risk, currency risk,
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Brokerage services provided by TD Ameritrade, Inc. TD Ameritrade Investment Management provides discretionary advisory services for a fee. Risks applicable to
any portfolio are those associated with its underlying securities. For more information, please see the Disclosure Brochure (Form ADV Part 2A)
(http://www.tdameritrade.com/forms/TDA4855.pdf).
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jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2018
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-35509
TD Ameritrade Holding Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
82-0543156
(I.R.S. Employer
Identification No.)
200 South 108th Avenue,
Omaha, Nebraska 68154
(Address of principal executive offices) (Zip Code)
(800) 669-3900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock — $0.01 par value
The Nasdaq Stock Market LLC
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
None
No
No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
Accelerated filer
No
No
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $33.3 billion computed
by reference to the closing sale price of the stock on the Nasdaq Global Select Market on March 29, 2018, the last trading day of
the registrant's most recently completed second fiscal quarter.
The number of shares of common stock outstanding as of November 1, 2018 was 562,369,568 shares.
No
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement relating to the registrant's 2019 Annual Meeting of Stockholders to be filed hereafter (incorporated into
Part III hereof).
TD AMERITRADE HOLDING CORPORATION
INDEX
PART I
Page No.
Item 1.
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of Scottrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Report of Ernst & Young LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . .
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15. Exhibits, Financial Statement Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
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Unless otherwise indicated, references to "we," "us," "our," "Company," or "TD Ameritrade" mean TD Ameritrade
Holding Corporation and its subsidiaries, and references to "fiscal" mean the Company's fiscal year ended
September 30. References to the "parent company" mean TD Ameritrade Holding Corporation.
Item 1. Business
Form of Organization
PART I
The Company was established as a local investment banking firm in 1971 and began operations as a retail discount
securities brokerage firm in 1975. The parent company is a Delaware corporation.
Operations
We are a leading provider of securities brokerage services and related technology-based financial services to retail
clients and independent registered investment advisors ("RIAs"). We provide our services to individual retail
investors and traders, and RIAs predominantly through the Internet, a national branch network and relationships
with RIAs. We use our platform to offer brokerage services to retail investors and traders under a simple, low-cost
commission structure and brokerage custodial services to RIAs.
We have been an innovator in electronic brokerage services since entering the retail securities brokerage business
in 1975. We believe that we were the first brokerage firm to offer the following products and services to retail
clients: touch-tone trading; trading over the Internet; mobile trading; unlimited, streaming, free real-time quotes;
extended trading hours; direct access to market destinations; commitment on the speed of order execution and
trading via chatbot and voice commands. Over the years the number of brokerage accounts, RIA relationships,
average daily trading volume and total assets in client accounts have substantially increased. We have also built,
and continue to invest in, a proprietary trade processing platform that is both cost-efficient and highly scalable,
significantly lowering our operating costs per trade. In addition, we have made significant investments in building
the TD Ameritrade brand.
Strategy
We intend to capitalize on the growth and consolidation of the retail brokerage industry in the United States and
leverage our low-cost infrastructure to grow our market share and profitability. Our long-term growth strategy is
to increase our market share of total assets in client accounts, while maintaining a leadership position in client
trading, by providing superior offerings to retail investors and traders, and RIAs. We strive to enhance the client
experience by providing asset management products and services, enhanced trading tools and capabilities and a
superior, proprietary, single-platform system to support RIAs. The key elements of our strategy are as follows:
• Focus on brokerage services. We continue to focus on attracting retail investors and traders, and RIAs to
our brokerage services. This focused strategy is designed to enable us to maintain our low operating cost
structure while offering our clients outstanding products and services. We primarily route orders for execution
of client trades on an agency, rather than a principal, basis. We maintain an inventory of fixed income
securities to meet client demand.
• Provide a comprehensive investor solution. We continue to expand our suite of diversified investment
products and services to best serve investors' needs. We help clients make investment decisions by providing
investment tools, guidance, education and objective third-party research at levels that meet the needs of our
clients.
• Continue to be a leader in the RIA industry. We provide RIAs with comprehensive brokerage and custody
services supported by our robust integrated technology platform, customized personal service and practice
management solutions.
•
Leverage our infrastructure to add incremental revenue. Through our proprietary technology, we are able
to provide a robust online experience for retail investors and traders. Our low-cost, scalable systems provide
speed, reliability and quality trade execution services for clients. The scalable capacity of our trading system
3
allows us to process a significant number of additional transactions while incurring minimal additional fixed
costs.
• Continue to be a low-cost provider of quality services. We achieve low operating costs per trade by creating
economies of scale, utilizing our proprietary transaction-processing systems, continuing to automate
processes and locating much of our operations in low-cost geographical areas. This low fixed-cost
infrastructure provides us with significant financial flexibility. In addition, our bank deposit account
arrangements with The Toronto-Dominion Bank ("TD") and other third-party financial institutions enable
our clients to invest in an FDIC-insured deposit product without the need for the Company to establish the
significant levels of capital that would be required to maintain our own bank charter.
• Continue to differentiate our offerings through innovative technologies and service enhancements. We
have been an innovator in our industry for over 40 years. We continually strive to provide our clients with
the ability to customize their investing and trading experience. We provide our clients greater choice by
offering features and functionality to meet their specific needs.
•
Leverage the TD Ameritrade brand. We believe that we have a superior brand identity and that our
advertising has established TD Ameritrade as a leading brand in the retail brokerage market.
• Continue to evaluate opportunities for growth through acquisitions. When evaluating potential
acquisitions, we look for transactions that will give us operational leverage, technological leverage, increased
market share or other strategic opportunities.
On September 18, 2017, we completed our acquisition of the brokerage business of Scottrade Financial Services,
Inc. ("Scottrade"), a Delaware corporation. The transaction combined highly complementary franchises and added
significant scale to our retail business with the addition of approximately 3.5 million funded client accounts, extended
our leadership in trading, and expanded the size of our branch network. For additional information regarding this
acquisition, see Note 2 - Business Acquisition under Item 8. Financial Statements and Supplementary Data - Notes
to Consolidated Financial Statements.
Client Offerings
We deliver products and services aimed at providing a comprehensive, personalized experience for retail investors
and traders, and independent RIAs. Our client offerings are described below:
Trading and Investing Platforms
•
•
•
tdameritrade.com Web Platform is our core offering for self-directed retail investors and traders. We offer
a broad array of tools and services, including alerts, screeners, conditional orders and free fundamental third-
party research. Modules such as streaming news, stock events, and account balances allow clients to stay
well informed. Free planning tools are also provided, such as Portfolio Planner to efficiently create a bundle
of securities to trade, invest and rebalance and Retirement Planner to assess retirement needs. Social Signals
is a trading resource that pulls insights from Twitter and compiles them in one place. A variety of third-
party research supports clients in evaluating potential investments. Dividend Income Estimator allows
clients to calculate and visualize estimated dividend income for their current holdings, watch list positions
and specific securities.
thinkorswim® is a downloadable desktop platform designed for advanced traders, featuring easy-to-use
interfaces, elite-level trading and analytical tools for complex trading strategies. Clients who use
thinkorswim trade a broad range of products including stock and stock options, index options, futures and
futures options, foreign exchange and exchange-traded funds ("ETFs").
TD Ameritrade Mobile allows on-the-go investors and traders to trade and monitor accounts from web-
enabled mobile devices with features such as alerts, research, streaming market commentary and the ability
to deposit a check directly from a smartphone or tablet. Through our mobile apps, clients can interact with
our agents through chat messaging capabilities to service their accounts. Access is available through the
TD Ameritrade Mobile App, the more advanced TD Ameritrade Mobile Trader App or via a mobile browser
at the TD Ameritrade Mobile Site.
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•
TD Ameritrade Institutional is a leading provider of comprehensive brokerage and custody services to more
than 6,000 independent RIAs and their clients. Our advanced technology platform, coupled with personal
support from our dedicated service teams, allows RIAs to grow and manage their practices more effectively
and efficiently while optimizing time with clients. Additionally, TD Ameritrade Institutional provides a
robust offering of products, programs and services. These services are all designed to help advisors build
their businesses and help their clients meet their financial goals.
Other Offerings
•
•
TD Ameritrade Education offers a suite of investor education for stocks, options, income investing and
portfolio management. TD Ameritrade Education offers free education to our clients primarily built around
an investing method that is designed to teach investors, regardless of experience, how to approach the
selection process for investment securities and actively manage their investment portfolios. Course offerings
are accompanied by all-day webcasts on a variety of investing topics and live events for beginner, intermediate
and advanced investors.
TD Ameritrade's Goal Planning sessions are a complimentary service where clients meet with a financial
consultant and develop an investment plan, based on a variety of factors including personal goals, time to
achieve goal, risk tolerance, assets and net worth. Clients learn how likely they are to achieve their goals
and how hypothetical changes to their decisions could influence their plan.
• Essential Portfolios is an automated, low-cost investing solution that uses advanced technology to help long-
term investors pursue their financial goals, with access to five non-proprietary goal-oriented ETF portfolios.
Our subsidiary, TD Ameritrade Investment Management, LLC ("TDAIM"), recommends an investment
portfolio based on an investor's objective, time horizon and risk tolerance.
•
Selective Portfolios (formerly known as Amerivest®) is an advisory service that develops portfolios of ETFs
or mutual funds, along with cash and cash alternatives, to help long-term investors pursue their financial
goals. Our subsidiary, TDAIM, recommends an investment portfolio based on an investor's objective, time
horizon and risk tolerance.
• Personalized Portfolios is a more sophisticated advisory service designed to create a customized portfolio
of ETFs or mutual funds that aims to satisfy each client's unique goals - balancing digital elements and
human touch from credentialed portfolio and investment professionals. Also powered by TDAIM, the
portfolios are based on each investor's objectives, risk tolerance and time horizon.
• AdvisorDirect® is a national referral service for investors who wish to engage the services of an independent
RIA. AdvisorDirect refers interested investors to one or more independent RIAs that are unaffiliated with
TD Ameritrade and that offer investment management and/or financial planning services to investors served
by TD Ameritrade's branch offices. We strive to have all independent RIAs participating in AdvisorDirect
meet or exceed TD Ameritrade's professional eligibility requirements.
•
•
•
TD Ameritrade Network is our broadcast network, offering real-time market news, insights and investor
education. The network's programming features experienced journalists and financial professionals.
TD Ameritrade Corporate Services provides self-directed brokerage services to employees of corporations,
either directly in partnership with the employer or through joint marketing relationships with third-party
administrators, such as 401(k) providers and employee benefit consultants. Trust and custody services are
also offered to a wide range of plan types through our subsidiary, TD Ameritrade Trust Company.
TD Ameritrade Singapore Pte. Ltd. and TD Ameritrade Hong Kong Ltd. enable retail investors in Singapore
and Hong Kong to trade the U.S. markets by providing access to trading technology, low commission rates,
free education and customer service. Clients can trade stocks, ETFs, options, futures, and options on futures
using the thinkorswim trading platform and thinkorswim Mobile. TD Ameritrade Singapore Pte. Ltd. is
licensed by the Monetary Authority of Singapore and TD Ameritrade Hong Kong Ltd. is licensed by the
Securities and Futures Commission.
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Products and Services
We strive to provide the best value of retail brokerage services to our clients. The products and services available
to our clients include:
• Common and preferred stock. Clients can purchase common and preferred stocks, American Depository
Receipts and closed-end funds traded on any United States exchange or quotation system.
• Exchange-Traded Funds. ETFs are baskets of securities (stocks or bonds) that typically track recognized
indices. They are similar to mutual funds, except that they trade on an exchange like stocks. Our ETF
Market Center offers our clients approximately 300 commission-free ETFs from leading providers with
Morningstar Associates, LLC research and ratings and diverse investment strategies. Trades in these ETFs
are commission-free, provided the funds are held for 30 days or longer. Our website includes an ETF
screener, along with independent research and commentary, to assist investors in their decision-making.
• Options. We offer a full range of option trades, including complex and multi-leg option strategies.
• Futures. We offer futures trades, as well as options on futures, in a wide variety of commodities, stock
indices and currencies.
• Foreign exchange. We offer access to trading in over 75 different currency pairs.
• Mutual funds. Clients can compare and select from a portfolio of over 13,000 mutual funds from leading
fund families, including a broad range of no-transaction-fee ("NTF") funds. Clients can also easily exchange
funds within the same mutual fund family.
• Fixed income. We offer our clients access to a variety of Treasury, corporate, government agency and
municipal bonds, as well as certificates of deposit.
• New and secondary issue securities. We offer primary and secondary offerings of fixed income securities,
closed-end funds, common stock and preferred stock.
• Margin lending. We extend credit to clients who maintain margin accounts. Portfolio margin, which bases
margin requirements on the net exposure of all positions in an account rather than just on individual positions,
is also available for accounts with net liquidating values of at least $125,000.
• Cash management services. Through third-party banking relationships, we offer FDIC-insured deposit
accounts and money market mutual funds to our clients as cash sweep alternatives. Through these
relationships, we also offer free standard checking, free online bill pay and ATM services with unlimited
ATM fee reimbursements at any machine nationwide.
• Annuities. We offer access to a full range of competitively priced fixed and variable annuities provided
by highly-rated insurance carriers.
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We earn commissions and transaction fees on client trades in common and preferred stock, ETFs, exchange-traded
notes, closed-end funds, options, futures, foreign exchange, mutual funds, fixed income securities and annuities.
Order routing revenue generated from payments or rebates received from market centers is a component of
commissions and transaction fees. Margin lending, securities borrowed and loaned transactions and client cash
generate net interest revenue. Cash management services generate bank deposit account fees. Fees earned from
mutual funds, investment program fees and referrals generate investment product fee revenues. Other revenues
include proxy income, solicit and tender fees and other fees charged for ancillary services provided to clients. The
following table presents the percentage of net revenues contributed by each class of similar services during the last
three fiscal years:
Class of Service
Commissions and transaction fees . . . . . . . . . . . . . . . . . . . . . .
Bank deposit account fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment product fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of Net Revenues
Fiscal Year Ended September 30,
2018
2017
2016
36.1%
28.3%
23.3%
10.2%
2.1%
37.6%
30.1%
18.8%
11.5%
2.0%
41.2%
27.8%
17.9%
11.3%
1.8%
100.0%
100.0%
100.0%
We provide our clients with an array of channels to access our products and services. These include the Internet,
our network of retail branches, mobile trading applications, interactive voice response and registered representatives
via telephone.
Client Service and Support
We strive to provide the best client service in the industry as measured by: (1) speed of response time to telephone
calls, (2) turnaround time responding to client inquiries and (3) client satisfaction with the account relationship.
We endeavor to optimize our client service by:
• Ensuring prompt response to client service calls through adequate staffing with properly trained and
motivated personnel in our client service departments, a majority of whom hold the Series 7 license;
• Tailoring client service to the particular expectations of clients; and
• Expanding our use of technology to provide automated responses to the most typical inquiries generated in
the course of clients' trading, investing and related activities.
We provide client service and support through the following means:
• Websites. Our websites provide information on how to use our services, a variety of self-service capabilities
and an in-depth education center that includes a selection of online investing courses. Clients also have
access to a virtual agent that enables them to ask questions about our products, tools and services, as well
as access to live agents through chat capabilities.
• Branches. We offer a nationwide network of retail branch offices, with more than 360 retail branches
located in 48 states and the District of Columbia.
• Email. Clients are encouraged to use email to contact our client service representatives. Our operating
standards require a response within 24 hours of receipt of the email; however, we strive to respond within
four hours after receiving the original message.
•
Telephone. For clients who choose to call or whose inquiries necessitate calling one of our client service
representatives, we provide a toll-free number that connects to advanced call handling systems. These
systems provide automated answering and directing of calls to the proper department. Our systems also
allow linkage between caller identification and the client database to give the client service representative
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immediate access to the client's account data when the call is received. Client service representatives are
available 24 hours a day, seven days a week.
•
TTY services for the hearing impaired. To ensure effective communication in connection with the provision
of financial services, we provide sign language and oral interpreters and/or other auxiliary aids and services
free of charge for the hearing impaired.
• Mobile app. Support on our TD Ameritrade Mobile Trader App allows clients to text with a trading
specialist for immediate answers to their questions or share their screen for help with navigating the app.
Technology and Information Systems
Our technological capabilities and systems are central to our business and are critical to our goal of providing the
best execution at the best value to our clients. Our operations require reliable, scalable systems that can handle
complex financial transactions for our clients with speed and accuracy. We maintain sophisticated and proprietary
technology that automates traditionally labor-intensive securities transactions. Our ability to effectively leverage
and adopt new technology to improve our services is a key component of our success.
We continue to make investments in technology and information systems. We have spent a significant amount of
resources to increase capacity and improve speed, reliability and security. To provide for system continuity during
potential power outages, we have equipped our data centers with uninterruptible power supply units and back-up
generators.
Advertising and Marketing
We intend to continue to grow and increase our market share by advertising online, on television, in print, on our
own websites, and utilizing various forms of social media. We invest heavily in advertising programs designed to
bring greater brand recognition to our services, and we intend to continue to aggressively advertise. From time to
time, we may choose to increase our advertising to target specific groups of investors or to increase or decrease
advertising in response to market conditions.
Advertising for retail clients is generally conducted through digital, search and social media, financial news networks
and other television and cable networks. We also place print advertisements in a broad range of business publications.
Advertising for institutional clients is significantly less than for retail clients and is generally conducted through
highly-targeted media.
To monitor the success of our various marketing efforts, we utilize a media mix model that uses robust data sets to
analyze the return on investment of our marketing channels. This model also supports decisions on spending levels
and helps us determine the point at which we begin to experience diminishing returns. Additionally, our advanced
data and analytics capabilities enable a more targeted, personalized experience for prospective and existing clients.
How we share client information is disclosed in our privacy statement.
All of our securities brokerage-related communications with the public are regulated by the Financial Industry
Regulatory Authority ("FINRA"). All of our futures and foreign exchange brokerage-related communications with
the public are regulated by the National Futures Association ("NFA").
Clearing Operations
Our subsidiary, TD Ameritrade Clearing, Inc. ("TDAC"), provides clearing and execution services for our securities
brokerage business. Clearing services include the confirmation, receipt, settlement, delivery and record-keeping
functions involved in processing securities transactions. TDAC provides the following back office functions:
• Maintaining client accounts;
• Extending credit in a margin account to the client;
• Engaging in securities lending and borrowing transactions;
•
Settling securities transactions with clearinghouses such as The Depository Trust & Clearing Corporation
and The Options Clearing Corporation;
•
Settling commissions and transaction fees;
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•
•
•
•
Preparing client trade confirmations and statements;
Performing designated cashiering functions, including the delivery and receipt of funds and securities to or
from the client;
Possession, control and safeguarding of funds and securities in client accounts;
Processing cash sweep transactions to and from bank deposit accounts and money market mutual funds;
• Transmitting tax accounting information to the client and to the applicable tax authority; and
•
Forwarding prospectuses, proxy materials and other shareholder information to clients.
We contract with external providers for futures clearing. We also contract with an external provider to facilitate
foreign exchange trading for our clients.
Competition
We believe that the principal determinants of success in the retail brokerage market are brand recognition, size of
client base and client assets, ability to attract new clients and client assets, client trading activity, efficiency of
operations, technology infrastructure and advancements and access to financial resources. We also believe that the
principal factors considered by clients in choosing a brokerage firm are reputation, client service quality, price,
convenience, product offerings, quality of trade execution, platform capabilities, innovation and overall value. Based
on our experience, focus group research and the success we have enjoyed to date, we believe that we presently
compete successfully in each of these categories.
The market for brokerage services, particularly electronic brokerage services, continues to evolve and is highly
competitive. We experience significant competition and expect this competitive environment to continue. We
encounter direct competition from numerous other brokerage firms, many of which provide online brokerage
services. These competitors include E*TRADE Financial Corporation, The Charles Schwab Corporation and
Fidelity Investments. We also encounter competition from the broker-dealer affiliates of established full-commission
brokerage firms, such as Merrill Lynch and Morgan Stanley, as well as from banks, mutual fund sponsors, online
wealth management services (including so-called "robo-advisors") and other financial institutions and organizations,
some of which provide online brokerage services.
Regulation
The securities, futures and foreign exchange industries are subject to extensive regulation under federal and state
law. Our broker-dealers, TD Ameritrade, Inc. and TDAC, are required to register with the U.S. Securities and
Exchange Commission ("SEC") and to be members of FINRA and the Municipal Securities Rulemaking Board
("MSRB"). Our futures commission merchant ("FCM") and forex dealer member ("FDM") subsidiary,
TD Ameritrade Futures & Forex LLC ("TDAFF"), is registered with the Commodity Futures Trading Commission
("CFTC") and is a member of, and the corresponding services functions are regulated by, the NFA. Our broker-
dealer subsidiaries are subject to the requirements of the Securities Exchange Act of 1934 (the "Exchange Act")
relating to broker-dealers, including, among other things, minimum net capital requirements under the SEC Uniform
Net Capital Rule (Rule 15c3-1), best execution requirements for client trades under SEC guidelines and FINRA
rules and segregation of client funds under the SEC Customer Protection Rule (Rule 15c3-3), administered by the
SEC and FINRA. TDAFF is subject to regulations under the Commodity Exchange Act, administered by the CFTC
and NFA, including CFTC Regulations 1.17 and 5.7, which require the maintenance of minimum adjusted net
capital, and CFTC Regulation 1.20, which requires segregation of client funds.
Net capital rules are designed to protect clients, counterparties and creditors by requiring a broker-dealer, an FCM
or an FDM to have sufficient liquid resources available to satisfy its financial obligations. Net capital is a measure
of a broker-dealer's, an FCM's or an FDM's readily available liquid assets, reduced by its total liabilities other than
approved subordinated debt. Under the Uniform Net Capital Rule, a broker-dealer may not repay any subordinated
borrowings, pay cash dividends or make any unsecured advances or loans to its parent company or employees if
such payment would result in a net capital amount below required levels. Broker-dealers are required to provide
notice to the SEC and FINRA if their net capital is below certain required levels. Likewise, a FCM and FDM, such
as TDAFF, must provide notice to the CFTC if its adjusted net capital amounts are below required levels.
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Certain of our subsidiaries are also registered as investment advisors under the Investment Advisers Act of 1940.
We are also subject to regulation in all 50 states, the District of Columbia and Puerto Rico, including registration
requirements. TD Ameritrade Trust Company is chartered in the state of Maine as a state-regulated non-depository
trust company.
In its capacity as a securities clearing firm, TDAC is a member of The Depository Trust & Clearing Corporation
("DTCC") and The Options Clearing Corporation ("OCC"), each of which is registered as a clearing agency with
the SEC. As a member of these clearing agencies, TDAC is required to comply with the rules of such clearing
agencies, including rules relating to possession or control of client funds and securities, margin lending and execution
and settlement of transactions.
Margin lending activities are subject to limitations imposed by regulations of the Federal Reserve System and
FINRA. In general, these regulations provide that, in the event of a significant decline in the value of securities
collateralizing a margin account, we are required to obtain additional collateral from the borrower or liquidate
security positions.
We are subject to a number of state, federal and foreign laws applicable to companies conducting business on the
Internet that address client privacy, system security and safeguarding practices and the use of client information.
For additional, important information relating to government regulation, please review the information set forth
under the heading "Risk Factors Relating to the Regulatory and Legislative Environment" in Item 1A — Risk
Factors.
Risk Management
Our business activities expose us to various risks. Identifying and measuring our risks is critical to our ability to
manage risk within acceptable tolerance levels in order to minimize the effect on our business, results of operations
and financial condition.
Our management team is responsible for managing risk, and it is overseen by our board of directors, primarily
through the board's Risk Committee. We use risk management processes and have policies and procedures for
identifying, measuring and managing risks, including establishing threshold levels for our most significant risks.
Our risk management, compliance, internal audit, and legal departments assist management in identifying and
managing risks. Our management team's Enterprise Risk Committee ("ERC") is responsible for reviewing risk
exposures and risk mitigation. Subcommittees of the ERC have been established to assist in identifying and managing
specific areas of risk.
Our business exposes us to the following broad categories of risk:
Operational Risk — Operational risk is the risk of loss resulting from inadequate or failed internal processes or
controls, human error or misconduct, systems and technology problems or from external events. It also involves
compliance with regulatory and legal requirements. Operational risk is the most prevalent form of risk in our risk
profile. We manage operational risk by establishing policies and procedures to accomplish timely and efficient
processing, obtaining periodic internal control attestations from management and conducting internal audit reviews
to evaluate the effectiveness of internal controls.
Cyber Security Risk — Cyber security risk is the risk of a malicious technological attack intended to impact the
confidentiality, availability, or integrity of our systems and data, including sensitive client data. Our technology
and security teams rely on a layered system of preventive and detective technologies, practices, and policies to
detect, mitigate, and neutralize cyber security threats. Cyber-attacks can also result in financial and reputational
risk.
Market Risk — Market risk is the risk of loss resulting from adverse movements in market factors, such as asset
prices, foreign exchange rates and interest rates. Our market risk related to asset prices is mitigated by our routing
for execution of client trades primarily on an agency, rather than a principal, basis and our maintenance of fixed-
income securities to meet client requirements. Interest rate risk is our most prevalent form of market risk. For more
information about our interest rate risk and how we manage it, see Item 7A — Quantitative and Qualitative
Disclosures About Market Risk.
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Credit Risk — Credit risk is the risk of loss resulting from failure of obligors to honor their payments. Our exposure
to credit risk mainly arises from client margin lending and leverage activities, securities lending activities and other
counterparty credit risks. For more information about our credit risk and how we manage it, see Item 7A –
Quantitative and Qualitative Disclosures About Market Risk.
Liquidity Risk — Liquidity risk is the risk of loss resulting from the inability to meet current and future cash flow
needs. We actively monitor our liquidity position at the holding company and at the broker-dealer and FCM/FDM
subsidiary levels. For more information, see Item 7 — Management's Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources.
Strategic Risk — Strategic risk is the risk of loss arising from ineffective business strategies, improper
implementation of business strategies, or lack of responsiveness to changes in the business and competitive
environment. Our executive management is responsible for establishing an appropriate corporate strategy intended
to create value for stockholders, clients and employees, with oversight by our board of directors. Our management
is responsible for defining the priorities, initiatives and resources necessary to execute the strategic plan, the success
of which is regularly evaluated by the board of directors.
Reputational Risk — Reputational risk is the risk arising from possible negative perceptions, whether true or not,
of the Company among our clients, counterparties, stockholders, suppliers, employees and regulators. The potential
for either enhancing or damaging our reputation is inherent in almost all aspects of business activity. We manage
this risk through our commitment to a set of core values that emphasize and reward high standards of ethical behavior,
maintaining a culture of compliance and by being responsive to client and regulatory requirements.
Risk is inherent in our business, and therefore, despite our efforts to manage risk, there can be no assurance that we
will not sustain unexpected losses. For a discussion of the factors that could materially affect our business, financial
condition or future results of operations, see Item 1A — Risk Factors.
Intellectual Property Rights
Our success and ability to compete are significantly dependent on our intellectual property. We rely on copyright,
trade secret, trademark, domain name, patent and contract laws to protect our intellectual property and have utilized
the various methods available to us, including filing applications for patents and trademark registrations with the
United States Patent and Trademark Office and entering into written licenses and other technology agreements with
third parties. Our patented and patent pending technologies include stock indexing and investor education
technologies, as well as innovative trading and analysis tools. Our trademarks include both our primary brand,
TD Ameritrade (including the "TD" name through trademark license agreement with The Toronto-Dominion Bank),
as well as brands for other products and services. A substantial portion of our intellectual property is protected by
trade secrets. The source and object code for our proprietary software is also protected using applicable methods
of intellectual property protection and general protections afforded to confidential information. In addition, it is
our policy to enter into confidentiality and intellectual property ownership agreements with our employees and
confidentiality and noncompetition agreements with our independent contractors and business partners and to control
access to and distribution of our intellectual property.
Employees
As of September 30, 2018, we had 9,183 full-time equivalent employees. None of our employees is covered by a
collective bargaining agreement. We believe that our relations with our employees are good.
Financial Information about Segments and Geographic Areas
We primarily operate in the securities brokerage industry and have no other reportable segments. Substantially all
of our revenues from external clients for the fiscal years ended September 30, 2018, 2017 and 2016 were derived
from our operations in the United States.
Websites and Social Media Disclosure
From time to time, the Company may use its website and/or Twitter as distribution channels of material information.
The Company's Code of Business Conduct and Ethics, financial data and other important information regarding the
Company is accessible through and posted on the Company's website at www.amtd.com and its Twitter account
11
@TDAmeritradePR. We ask that interested parties visit or subscribe to newsfeeds at www.amtd.com/newsroom
to automatically receive email alerts and other information, including the most up-to-date corporate financial
information, presentation announcements, transcripts and archives. The website to access the Company's Twitter
account is https://twitter.com/TDAmeritradePR. Website links provided in this report, although correct when
published, may change in the future. We make available free of charge on our website at www.amtd.com/investor-
relations/sec-filings our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-
K and amendments to those reports, as soon as reasonably practicable after we electronically file such material with
or furnish it to the SEC. Our SEC filings are also available on the SEC's website at http://www.sec.gov.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the following factors which
could materially affect our business, financial condition, future results of operations or stock price. Although the
risks described below are those that we believe are the most significant, these are not the only risks facing our
company. Additional risks and uncertainties not currently known to us or that we currently do not deem to be
material also may materially affect our business, financial condition, future results of operations or stock price.
Risk Factors Relating to Our Business Operations
Economic conditions and other securities industry risks could adversely affect our business.
Substantially all of our revenues are derived from our securities brokerage business. Like other securities brokerage
businesses, we are directly affected by economic, social and political conditions, broad trends in business and finance
and changes in volume and price levels of securities transactions. Events in global financial markets in recent years
resulted in substantial market volatility and increased client trading volume. However, any sustained downturn in
general economic conditions or U.S. equity markets could result in reduced client trading volume and net revenues.
Severe market fluctuations or weak economic conditions could reduce our trading volume and net revenues and
have a material adverse effect on our profitability.
We have exposure to interest rate risk.
As a fundamental part of our brokerage business, we invest in interest-earning assets and are obligated on interest-
bearing liabilities. In addition, we earn fees on our FDIC-insured deposit account arrangements with TD Bank
USA, N.A. and TD Bank N.A. and with other third-party financial institutions, which are subject to interest rate
risk. Continued uncertainty resulting from U.S. fiscal and political matters, including concerns about federal, state
and municipal debt levels, taxes, U.S. debt ratings, immigration policies and international conflicts, have impacted
and may continue to impact the U.S. and global economic recovery. The direction and level of interest rates are
important factors in our profitability.
A rising interest rate environment generally results in our earning a larger net interest spread. Conversely, a falling
interest rate environment generally results in our earning a smaller net interest spread.
Our most prevalent form of interest rate risk is referred to as "gap" risk. This risk occurs when the interest rates we
earn on assets change at a different frequency or amount than the interest rates we pay on liabilities. For example,
in a low (but rising) interest rate environment, sharp increases in short-term interest rates could result in net interest
spread compression if the yield paid on interest-bearing client balances were to increase faster than our earnings on
interest-earning assets. If we are unable to effectively manage our interest rate risk, changes in interest rates could
have a material adverse effect on our profitability.
12
Our brokerage operations have exposure to liquidity risk.
Maintaining adequate liquidity is crucial to our brokerage operations, including key functions such as transaction
settlement and margin lending. We are subject to cash deposit and collateral requirements with clearinghouses such
as the DTCC and the OCC, which may fluctuate significantly from time to time based on the nature and size of our
clients' trading activity. Our liquidity needs to support interest-earning assets are primarily met by client cash
balances or financing created from our securities lending activities. A reduction of funds available from these
sources may require us to seek other potentially more expensive forms of financing, such as borrowings on our
revolving credit facilities. Our liquidity could be constrained if we are unable to obtain financing on acceptable
terms, or at all, due to a variety of unforeseen market disruptions. Inability to meet our funding needs on a timely
basis would have a material adverse effect on our business.
We are exposed to credit risk with clients and counterparties.
We extend margin credit and leverage to clients, which are collateralized by client cash and securities. We also
borrow and lend securities in connection with our broker-dealer business. A significant portion of our net revenues
is derived from interest on margin loans. By permitting clients to purchase securities on margin and exercise leverage
with options and futures positions, we are subject to risks inherent in extending credit, especially during periods of
rapidly declining markets in which the value of the collateral held by us could fall below the amount of a client's
indebtedness. In addition, in accordance with regulatory guidelines, we collateralize borrowings of securities by
depositing cash or securities with lenders. Sharp changes in market values of substantial amounts of securities and
the failure by parties to the borrowing transactions to honor their commitments could have a material adverse effect
on our revenues and profitability. We also engage in financial transactions with counterparties, including securities
sold under agreements to repurchase, that expose us to credit losses in the event counterparties cannot meet their
obligations.
Our clearing operations expose us to liability for errors in clearing functions.
Our broker-dealer subsidiary, TDAC, provides clearing and execution services for our securities brokerage business.
Clearing and execution services include the confirmation, receipt, settlement and delivery functions involved in
securities transactions. Clearing brokers also assume direct responsibility for the possession or control of client
securities and other assets and the clearing of client securities transactions. However, clearing brokers also must
rely on third-party clearing organizations, such as the DTCC and the OCC, in settling client securities transactions.
Clearing securities firms, such as TDAC, are subject to substantially more regulatory control and examination than
introducing brokers that rely on others to perform clearing functions. Errors in performing clearing functions,
including clerical and other errors related to the handling of funds and securities held by us on behalf of clients,
could lead to regulatory fines and civil penalties as well as losses and liability in related legal proceedings brought
by clients and others.
A default by a large financial institution could adversely affect financial markets.
The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading,
clearing or other relationships among the institutions. For example, increased centralization of trading activities
through particular clearing houses, central agents or exchanges is occurring. This is driven by market forces and
by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and similar laws in
other jurisdictions, and it may increase our concentration of risk with respect to these entities. As a result, concerns
about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit
problems, losses or defaults by other institutions. This is sometimes referred to as "systemic risk" and may adversely
affect financial intermediaries, such as clearing houses, clearing agencies, exchanges, banks and securities firms,
with which we interact on a daily basis, and therefore could have a material adverse effect on our business.
Systems failures, delays and capacity constraints could harm our business.
We receive and process trade orders through a variety of electronic channels, including the Internet, mobile trading
applications and our interactive voice response system. These methods of trading are heavily dependent on the
integrity of the electronic systems supporting them. Our systems and operations are vulnerable to damage or
interruption from human error, natural disasters, power loss, computer viruses, distributed denial of service
13
("DDOS") attacks, spurious spam attacks, intentional acts of vandalism and similar events. It could take several
hours or more to restore full functionality following any of these events. Extraordinary trading volumes could cause
our computer systems to operate at an unacceptably slow speed or even fail. Extraordinary Internet traffic caused
by DDOS, spam attacks or extreme market volatility could cause our website or other trading applications to be
unavailable or slow to respond. While we have made significant investments to upgrade the reliability and scalability
of our systems and added hardware to address extraordinary Internet traffic, there can be no assurance that our
systems will be sufficient to handle such extraordinary circumstances. Slowness or unavailability may not impact
all trading channels evenly, and some trading channels may be impacted while others are not. Social media and
media reports may conflate one channel being unavailable with all channels being unavailable. We may not be able
to project accurately the rate, timing or cost of any increases in our business or to expand and upgrade our systems
and infrastructure to accommodate any increases in a timely manner. Systems failures and delays could occur and
could cause, among other things, unanticipated disruptions in service to our clients, substantial losses to our clients,
slower system response time resulting in transactions not being processed as quickly as our clients desire, decreased
levels of client service and client satisfaction and harm to our reputation. We are also dependent on the integrity
and performance of securities exchanges, clearing houses and other intermediaries to which client orders are routed
for execution and settlement. Systems failures and constraints and transaction errors at such intermediaries could
result in delays and erroneous or unanticipated execution prices, cause substantial losses for us and our clients and
subject us to claims from our clients for damages. The occurrence of any of these events could have a material
adverse effect on our business, financial condition and results of operations.
Further, a cybersecurity intrusion could occur and persist for an extended period of time without detection, and any
investigation of a cybersecurity intrusion could require a substantial amount of time. During all this time we might
not know the extent of the harm or how best to remediate it, and errors or omissions could be repeated or compounded
before being discovered and remediated, all of which could aggravate the costs and consequences of the intrusion.
As our business model relies heavily on our clients' use of their own personal computers, mobile devices and the
Internet, our business and reputation could be harmed by security breaches of our clients and third parties. Computer
viruses and other attacks on our clients' personal computer systems, home networks and mobile devices or against
the third-party networks and systems of Internet and mobile service providers could create losses for our clients
even without any breach in the security of our systems and could thereby harm our business and our reputation. As
part of our asset protection guarantee, we may reimburse our clients for losses in their accounts caused by a breach
of security of our clients' own computers (through no fault of the client). Such reimbursements may not be covered
by applicable insurance and could have an adverse effect on our business, financial condition and results of operations.
Failure to protect client data or prevent breaches of our information systems could expose us to liability or
reputational damage.
We are dependent on information technology networks and systems to securely process, transmit and store electronic
information and to communicate among our locations and with our clients and vendors. As the breadth and
complexity of this infrastructure continue to grow, the potential risk of security breaches and cyber-attacks increases.
Developing and enhancing new products and services, which is necessary for us to remain competitive, may involve
the use or creation of new technologies, exposes us to cybersecurity and privacy risks that cannot be completely
anticipated and increases the risk of security breaches and cyber-attacks. As a financial services company, we are
continuously subject to cyber-attacks, DDOS and ransomware attacks, malicious code and computer viruses by
activists, hackers, organized crime, foreign state actors and other third parties. Such breaches could lead to shutdowns
or disruptions of our systems, account takeovers and unauthorized gathering, monitoring, misuse, loss, total
destruction and disclosure of data and confidential information of ours, our clients, our employees or other third
parties, or otherwise materially disrupt our or our clients' or other third parties' network access or business operations.
In addition, vulnerabilities of our external service providers and other third parties could pose security risks to client
information. The secure transmission of confidential information over public networks is also a critical element of
our operations.
We, along with the financial services industry in general, have experienced losses related to clients' login and
password information being compromised, generally caused by attacks capturing credentials directly from clients
themselves, through phishing attacks, clients' use of non-secure public computers or vulnerabilities of clients' private
computers and mobile devices. In 2007, we discovered and eliminated unauthorized code from our computer systems
that had allowed an unauthorized third party to retrieve client email addresses, names, addresses and phone numbers
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from an internal database. Following the incident, we incurred significant remediation costs. In addition, in 2013,
Scottrade, which we acquired in September 2017, experienced a database breach. We are aware of subsequent
attempts by other attackers to penetrate our systems using similar techniques and similar attacks against other
financial institutions. Although we have taken steps to reduce the risk of such threats, our risk and exposure to a
cyber-attack or related breach remains heightened due to the evolving nature of these threats, our plans to continue
to implement mobile access solutions to serve our clients, our routine transmission of sensitive information to third
parties, the current global economic and political environment, external extremist parties and other developing
factors. If a cyber-attack or similar breach were to occur, we could suffer damage to our reputation and incur
significant remediation costs and losses.
In providing services to clients, we manage, utilize and store sensitive and confidential client data, including personal
data. As a result, we are subject to numerous laws and regulations designed to protect this information, such as
U.S. federal and state laws and foreign regulations governing the protection of personally identifiable information.
These laws and regulations are increasing in complexity and number, change frequently and sometimes conflict. If
any person, including any of our employees, negligently disregards or intentionally breaches our established controls
with respect to client data, or otherwise mismanages or misappropriates that data, we could be subject to significant
monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions.
Unauthorized disclosure of sensitive or confidential client data, whether through systems failure, employee
negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients. Similarly,
unauthorized access to or through our information systems, whether by our employees or third parties, including a
cyber-attack by third parties who may deploy viruses, worms or other malicious software programs, could result in
negative publicity, significant remediation costs, legal liability, regulatory fines, financial responsibility under our
asset protection guarantee to reimburse clients for losses in their accounts resulting from unauthorized activity in
their accounts (through no fault of the client) and damage to our reputation and could have a material adverse effect
on our results of operations. In addition, our liability insurance might not be sufficient in type or amount to cover
us against claims related to security breaches, cyber-attacks and other related breaches.
We also face risk related to external fraud involving the misappropriation and use of clients' user names, passwords
or other personal information to gain access to their accounts. This could occur from the compromise of clients'
personal electronic devices or as a result of a data security breach at an unrelated company where clients' personal
information is taken and then made available to fraudsters. This risk has grown in recent years due to the increased
sophistication and activities of organized crime and other external parties, including foreign state-sponsored parties.
Losses in client accounts reimbursed under our asset protection guarantee against unauthorized account activity
(through no fault of the client) could have adverse impacts on our business, financial condition and results of
operations.
Aggressive competition could reduce our market share and harm our financial performance.
The market for electronic brokerage services is continually evolving and is intensely competitive. The retail
brokerage industry has experienced significant consolidation, which may continue in the future, and which may
increase competitive pressures in the industry. Consolidation could enable other firms to offer a broader range of
products and services than we do, or offer them at lower prices. There has been aggressive price competition in the
industry, including various free trade offers, reduced trading commissions and higher interest rates paid on cash
held in client accounts. We expect this competitive environment to continue in the future. We face direct competition
from numerous retail brokerage firms, including E*TRADE Financial Corporation, The Charles Schwab Corporation
and Fidelity Investments. We also encounter competition from the broker-dealer affiliates of established full-
commission brokerage firms, such as Merrill Lynch and Morgan Stanley, as well as from banks, mutual fund sponsors,
online wealth management services (including so-called "robo-advisors") and other financial institutions and
organizations, some of which provide online brokerage services. Some of our competitors have greater financial,
technical, marketing and other resources, offer a wider range of services and financial products, and have greater
name recognition and a more extensive client base than we do. We believe that the general financial success of
companies within the retail securities industry will continue to attract new competitors to the industry, such as
software development companies, insurance companies, providers of online financial information and others. These
companies may provide a more comprehensive suite of services than we do or offer services at lower prices. Increased
competition, including pricing pressure, could have a material adverse effect on our financial condition and results
of operations.
15
We will need to introduce new products and services and enhance existing products and services to remain
competitive.
Our future success depends in part on our ability to develop and enhance our products and services. In addition,
the adoption of new Internet, networking or telecommunications technologies or other technological changes could
require us to incur substantial expenditures to enhance or adapt our services or infrastructure.
There are significant technical and financial costs and risks in the development of new or enhanced products and
services, including the risk that we might be unable to effectively use new technologies, adapt our services to
emerging industry standards or develop, introduce and market enhanced or new products and services. An inability
to develop new products and services, or enhance existing offerings, could have a material adverse effect on our
profitability.
Advisory services subject us to additional risks.
We provide investment advisory services to investors through our SEC-registered investment advisors,
TD Ameritrade, Inc., TD Ameritrade Investment Management, LLC and TradeWise Advisors, Inc. ("TradeWise").
TD Ameritrade, Inc. offers AdvisorDirect,® a service that refers a client to an independent RIA. TD Ameritrade
Investment Management, LLC recommends an investment portfolio, through Essential, Selective or Personalized
Portfolios, based on an investor's objectives, time horizon and risk tolerance. TradeWise provides an option advisory
service for self-directed investors. The risks associated with these investment advisory activities include those
arising from possible conflicts of interest, unsuitable investment recommendations, inadequate due diligence,
inadequate disclosure and fraud. Realization of these risks could lead to liability for client losses, regulatory fines,
civil penalties and harm to our reputation and business.
We rely on external service providers to perform certain key functions.
We rely on a number of external service providers for certain key technology, processing, service and support
functions. These include the services of other broker-dealers, market makers, exchanges and clearinghouses to
execute and settle client orders. We contract with external providers for futures and foreign exchange clearing.
External content providers provide us with financial information, market news, charts, option and stock quotes,
research reports and other fundamental data that we offer to clients. These service providers face technological,
operational and security risks of their own. Any significant failures by them, including improper use or disclosure
of our confidential client, employee or company information, could interrupt our business, cause us to incur losses
and harm our reputation.
There is no assurance that any external service providers will be able to continue to provide these services to meet
our current needs in an efficient, cost-effective manner or that they will be able to adequately expand their services
to meet our needs in the future. Some external service providers have assets that are important to the services they
provide us located outside the United States, and their ability to provide these services is subject to risks from
unfavorable political, economic, legal or other developments, such as social or political instability, changes in
governmental policies or changes in laws and regulations.
An interruption in or the cessation of service by an external service provider as a result of systems failures, capacity
constraints, financial constraints or problems, unanticipated trading market closures or for any other reason, and
our inability to make alternative arrangements in a smooth and timely manner, if at all, could have a material adverse
effect on our business, financial condition and results of operations.
Employee misconduct, which can be difficult to detect and deter, could harm our reputation and subject us to
significant legal liability.
There have been a number of highly-publicized cases involving fraud or other misconduct by employees in the
financial services industry. There is a risk that our employees could engage in misconduct that adversely affects
our business. The precautions that we take to detect and deter this activity may not be effective if our employees
engage in misconduct. If one or more of them were to improperly access, use or disclose confidential information
or to engage in other misconduct, we could be subject to regulatory sanctions and suffer serious harm to our financial
condition, reputation, current client relationships and ability to attract future clients.
16
Risk Factors Relating to the Regulatory and Legislative Environment
Legislation has and may continue to result in changes to rules and regulations applicable to our business, which
may negatively impact our business and financial results.
The Dodd-Frank Act, enacted in 2010, requires many federal agencies to adopt new rules and regulations applicable
to the financial services industry and also calls for many studies regarding various industry practices. In particular,
the Dodd-Frank Act gives the SEC discretion to adopt rules regarding standards of conduct for broker-dealers
providing investment advice to retail customers.
The U.S. Department of Labor ("DOL") enacted regulations changing the definition of who is an investment advice
fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA) and how such advice can be
provided to account holders in retirement accounts such as 401(k) plans and Individual Retirement Arrangements
(IRAs). The DOL regulations deemed many of the investment, rollover and asset management recommendations
from us to our clients regarding their retirement accounts fiduciary "investment advice" under ERISA. The U.S.
Court of Appeals for the Fifth Circuit has vacated the DOL's conflict-of-interest rule in its entirety, and the DOL
has announced a conditional enforcement policy pending the issuance of further guidance and may take further
actions in light of the Fifth Circuit's decision. In addition, New York and several other states have proposed or are
expected to propose a heightened standard of care for financial professionals in their respective states and/or relating
to the sale of retirement savings and investment products.
One of the most significant impacts on our business from the DOL regulations and related prohibited transaction
exemptions is the impact on our fee and compensation practices, which are likely to continue to some degree even
though the DOL regulations have been vacated. These regulations also continue to subject us to an increased risk
of class actions and other litigation and regulatory risks. In addition, the SEC or the states' promulgation or enactment,
respectively, of an enhanced standard of care could similarly have adverse impacts on our business. Additional
rulemaking or legislative action on the part of federal or local governments and governmental agencies could
negatively impact our business and financial results. While we have not yet been required to make other material
changes to our business or operations as a result of the Dodd-Frank Act or other rulemaking or legislative action,
it is not certain what the scope of future rulemaking or interpretive guidance from the SEC, FINRA, CFTC, NFA,
DOL, banking regulators and other regulatory agencies may be, how the courts and regulators might interpret these
rules and what impact this will have on our compliance costs, business, operations and profitability.
Our profitability could also be affected by new or modified laws that impact the business and financial communities
generally, including changes to the laws governing banking, the securities market, fiduciary duties, conflicts of
interest, taxation, electronic commerce, client privacy and security of client data. As existing laws are modified
and new laws are implemented, we may incur significant additional costs and have to expend a significant amount
of time to develop and integrate appropriate systems and procedures to ensure initial and continuing compliance
with such laws. These additional costs could have a material adverse effect on our profitability.
Failure to comply with net capital requirements could adversely affect our business.
The SEC, FINRA, CFTC, NFA and various other regulatory agencies have stringent rules with respect to the
maintenance of specific levels of net capital by securities broker-dealers, FCMs and FDMs. Net capital is a measure
of a broker-dealer's, an FCM's or an FDM's readily available liquid assets, reduced by its total liabilities other than
approved subordinated debt. Our broker-dealer and FCM/FDM subsidiaries are required to comply with net capital
requirements. If we fail to maintain the required net capital, the SEC or the CFTC could suspend or revoke our
registration, and FINRA or the NFA could expel us from membership, which could ultimately lead to our liquidation,
or they could impose censures, fines or other sanctions. If the net capital rules are changed or expanded, or if there
is an unusually large charge against net capital, then our operations that require capital could be limited, and we
may not be able to pay dividends or make stock repurchases. A large operating loss or charge against net capital
could have a material adverse effect on our ability to maintain or expand our business.
Extensive regulation and regulatory uncertainties could harm our business.
The securities industry is subject to extensive regulation by federal, state, international government and self-
regulatory agencies, and financial services companies are subject to regulations covering all aspects of the securities
business. Regulations are intended to ensure the integrity of financial markets, appropriate capitalization of broker-
17
dealers, FCMs and FDMs and the protection of clients and their assets. These regulations often serve to limit our
business activities through capital, client protection and market conduct requirements, as well as restrictions on the
activities that we are authorized to conduct. Federal, state, self-regulatory organizations and foreign regulators can,
among other things, censure, fine, issue cease-and-desist orders to, suspend or expel a regulated entity or any of its
officers or employees. Despite our efforts to comply with applicable legal requirements, there are a number of risks,
including in areas where applicable laws or regulations may be unclear or where regulators could revise their previous
guidance, and we could fail to establish and enforce procedures to comply with applicable legal requirements and
regulations, which could have a material adverse effect on our business.
Past turmoil in the financial markets has contributed to changes in laws and regulations, heightened scrutiny of the
conduct of financial services firms and increasing penalties for violations of applicable laws and regulations. We
may be adversely affected by new laws or regulations, changes in the interpretation of existing laws or regulations
or more rigorous enforcement. The new laws and regulations may be complex, and we may not have the benefit
of regulatory or federal interpretations to guide us in compliance. Changes in laws and regulations or new
interpretations of existing laws and regulations also can have adverse effects on our methods and costs of doing
business. We also may be adversely affected by other regulatory changes related to suitability of financial products,
supervision, sales practices, application of fiduciary standards, best execution and market structure, which could
limit the Company's business. Because TD, among other things, owns more than 25% of our common stock, we
are considered a non-bank subsidiary of TD under the Bank Holding Company Act of 1956 (the "BHC Act"). As
a result, under the BHC Act, we are subject to the supervision and regulation of the Federal Reserve. These banking
regulations limit the activities and the types of businesses that we may conduct and the types of companies we may
acquire, and under these regulations the Federal Reserve could impose significant limitations on our current business
and operations. TD is currently regulated as a "financial holding company" under the BHC Act, which allows TD
and us to engage in a much broader set of activities than would otherwise be permitted under the BHC Act. Any
failure of TD to maintain its status as a financial holding company could result in substantial limitations on certain
of our activities.
Financial services firms are subject to numerous conflicts of interest or perceived conflicts of interest, over which
federal and state regulators and self-regulatory organizations have increased their scrutiny. Addressing conflicts of
interest is a complex and difficult undertaking. Our business and reputation could be harmed if we were to fail, or
appear to fail, to address conflicts appropriately.
In addition, we use the Internet as a major distribution channel to provide services to our clients. A number of
regulatory agencies have adopted regulations regarding client privacy, system security and safeguarding practices
and the use of client information by service providers. Additional laws and regulations relating to the Internet and
safeguarding practices could be adopted in the future, including laws related to access, identity theft and regulations
regarding the pricing, taxation, content and quality of products and services delivered over the Internet. Complying
with these laws and regulations may be expensive and time-consuming and could limit our ability to use the Internet
as a distribution channel, which would have a material adverse effect on our business and profitability.
While we maintain systems and procedures designed to ensure that we comply with applicable laws and regulations,
violations could still occur. In addition, some legal and regulatory frameworks provide for the imposition of fines
or penalties for non-compliance even though the non-compliance was inadvertent or unintentional and even though
systems and procedures reasonably designed to prevent violations were in place at the time. There may be other
negative consequences resulting from a finding of non-compliance, including restrictions on certain activities. Such
a finding may also damage our reputation and our relationships with regulators and could restrict the ability of
institutional investment managers to invest in our securities.
We are subject to litigation and regulatory investigations and proceedings and may not always be successful in
defending against such claims and proceedings.
The financial services industry faces substantial litigation and regulatory risks. We are subject to arbitration claims
and lawsuits in the ordinary course of our business, as well as class actions and other significant litigation. We also
are the subject of inquiries, investigations and proceedings by regulatory and other governmental agencies. Actions
brought against us may result in settlements, awards, injunctions, fines, penalties and other results adverse to us.
Predicting the outcome of such matters is inherently difficult, particularly where claims are brought on behalf of
various classes of claimants or by a large number of claimants, when claimants seek substantial or unspecified
18
damages or when investigations or legal proceedings are at an early stage. A substantial judgment, settlement, fine
or penalty could be material to our operating results or cash flows for a particular period, depending on our results
for that period, or could cause us significant reputational harm, which could harm our business prospects. In market
downturns, the volume of legal claims and amount of damages sought in litigation and regulatory proceedings
against financial services companies have historically increased. We are also subject to litigation claims from third
parties alleging infringement of their intellectual property rights. Such litigation can require the expenditure of
significant resources, regardless of whether the claims have merit. If we were found to have infringed a third-party
patent or other intellectual property right, then we could incur substantial liability and in some circumstances could
be enjoined from using the relevant technology or providing related products and services, which could have a
material adverse effect on our business and results of operations.
Risk Factors Relating to Acquisitions
We may not realize all of the financial and strategic goals of our Scottrade acquisition.
Risks we face in connection with our acquisition and continuing integration of Scottrade include that:
•
the Scottrade acquisition might not further our business strategy as we expected, we might not integrate
Scottrade's business or technology as successfully as we expected, or we might have overpaid for Scottrade
or otherwise might not realize the expected return on our investment to the extent or in the timeframe
forecasted, which could adversely affect our business or results of operations;
• we may not realize the benefits or cost savings anticipated to be derived from the Scottrade acquisition as
initially predicted, if at all, for a number of reasons, including if a larger than predicted number of customers
decide not to continue to use Scottrade's or our services;
•
our financial condition or results of operations could be adversely impacted by: claims or liabilities that we
assumed from Scottrade or that are otherwise related to the acquisition, including claims made by government
agencies, terminated employees, current or former customers, former stockholders or other third parties;
contractual relationships of Scottrade that we would not have entered into but for the merger, the termination
or modification of which may be costly or disruptive to our business; and intellectual property claims or
disputes; and
• we may have failed to identify or assess the magnitude of liabilities, shortcomings or other circumstances
of Scottrade, which could result in unexpected litigation or regulatory exposure, unfavorable accounting
treatment, unexpected increases in taxes, a loss of anticipated tax benefits or other adverse effects on our
business, financial condition or results of operations.
As a result of these risks and challenges, we may not realize the financial and strategic goals that we initially
anticipated from the Scottrade transaction in a timely manner or at all.
Acquisitions involve risks that could adversely affect our business.
We may pursue other acquisitions of businesses and technologies. Acquisitions entail numerous risks, including:
•
•
•
•
•
•
•
difficulties in the integration of acquired operations, services and products;
failure to achieve expected synergies;
diversion of management's attention from other business concerns;
assumption of unknown material liabilities of acquired companies;
amortization of acquired intangible assets, which could reduce future reported earnings;
potential loss of clients or key employees of acquired companies; and
dilution to existing stockholders.
As part of our growth strategy, we regularly consider, and from time to time engage in, discussions and negotiations
regarding transactions, such as acquisitions, mergers and combinations within our industry. The purchase price for
possible acquisitions could be paid in cash, through the issuance of common stock or other securities, borrowings
or a combination of these methods.
19
We cannot be certain that we will be able to identify, consummate and successfully integrate acquisitions, and no
assurance can be given with respect to the timing, likelihood or business effect of any possible transaction. For
example, we could begin negotiations that we subsequently decide to suspend or terminate for a variety of reasons.
However, opportunities may arise from time to time that we will evaluate. Any transactions that we consummate
would involve risks and uncertainties to us. These risks could cause the failure of any anticipated benefits of an
acquisition to be realized, which could have a material adverse effect on our business, financial condition, results
of operations and prospects.
Risk Factors Relating to Owning Our Stock
The market price of our common stock has experienced, and may continue to experience, substantial volatility.
Our common stock, and the U.S. securities markets in general, can experience significant price fluctuations. The
market prices of securities of financial services companies, in particular, have been especially volatile. The price
of our common stock could decrease substantially. Among the factors that may affect our stock price are the
following:
•
•
•
•
speculation in the investment community or the press about, or actual changes in, our competitive position,
organizational structure, executive team, operations, financial condition, financial reporting and results,
effectiveness of cost reduction initiatives, or strategic transactions;
the announcement of new products, services, acquisitions, or dispositions by us or our competitors;
sales of a substantial number of shares of our common stock by (i) TD or (ii) J. Joe Ricketts, our founder,
and certain members of his family and trusts held for their benefit, who currently have registration rights
covering approximately 234 million shares and 59 million shares, respectively, of our common stock; and
increases or decreases in revenue or earnings, changes in earnings estimates by the investment community,
changes in the interest rate environment or in market expectations regarding the interest rate environment
and variations between estimated financial results and actual financial results.
Changes in the stock market generally or as it concerns our industry, as well as geopolitical, economic, and business
factors unrelated to us, may also affect our stock price.
Because the market price of our common stock can fluctuate significantly, we could become the object of securities
class action litigation, which could result in substantial costs and a diversion of management's attention and resources
and could have a material adverse effect on our business and the price of our common stock.
We are restricted by the terms of our revolving credit facilities and senior notes.
Our senior unsecured revolving credit facilities contain various covenants and restrictions that may, in certain
circumstances and subject to carveouts and exceptions, which may be material, limit our ability to:
•
•
•
•
incur additional indebtedness;
create liens;
sell all or substantially all of our assets;
change the nature of our business;
• merge or consolidate with another entity; and
•
conduct transactions with affiliates.
Under our revolving credit facilities, we are also required to maintain compliance with a maximum consolidated
leverage ratio covenant (not to exceed 3.00:1.00) and a minimum consolidated interest coverage ratio covenant (not
less than 4.00:1:00). TDAC is required to maintain compliance with a minimum consolidated tangible net worth
covenant and our broker-dealer and FCM/FDM subsidiaries are required to maintain compliance with minimum
regulatory net capital covenants.
20
Our senior unsecured notes contain various covenants and restrictions that may, in certain circumstances and subject
to carveouts and exceptions, which may be material, limit our ability to:
•
create liens;
• merge or consolidate with another entity; and
•
sell all or substantially all of our assets.
As a result of the covenants and restrictions contained in the revolving credit facilities and our senior unsecured
notes, we are limited in how we conduct our business. We cannot guarantee that we will be able to remain in
compliance with these covenants or be able to obtain waivers for noncompliance in the future. A failure to comply
with these covenants could have a material adverse effect on our financial condition by impairing our ability to
secure and maintain financing.
Our corporate debt level may limit our ability to obtain additional financing.
As of November 1, 2018, we had approximately $3.55 billion of long-term debt, consisting of:
•
•
•
•
•
•
$500 million of 5.600% Senior Notes with principal due in full on December 1, 2019;
$600 million of variable-rate Senior Notes with principal due in full on November 1, 2021;
$750 million of 2.950% Senior Notes with principal due in full on April 1, 2022;
$400 million of 3.750% Senior Notes with principal due in full on April 1, 2024;
$500 million of 3.625% Senior Notes with principal due in full on April 1, 2025; and
$800 million of 3.300% Senior Notes with principal due in full on April 1, 2027.
Our ability to meet our cash requirements, including our debt repayment obligations, is dependent upon our future
performance, which will be subject to financial, business and other factors affecting our operations, many of which
are or may be beyond our control. We cannot provide assurance that our business will generate sufficient cash flows
from operations to fund our cash requirements. If we are unable to meet our cash requirements from operations,
we would be required to obtain alternative financing. The degree to which we may be leveraged as a result of the
indebtedness we have incurred could materially and adversely affect our ability to obtain financing for working
capital, acquisitions or other purposes, could make us more vulnerable to industry downturns and competitive
pressures or could limit our flexibility in planning for, or reacting to, changes and opportunities in our industry,
which may place us at a competitive disadvantage. There can be no assurance that we would be able to obtain
alternative financing, that any such financing would be on acceptable terms or that we would be permitted to do so
under the terms of existing financing arrangements. In the absence of such financing, our ability to respond to
changing business and economic conditions, make future acquisitions, react to adverse operating results, meet our
debt repayment obligations or fund required capital expenditures could be materially and adversely affected.
Our business, financial position, and results of operations could be harmed by adverse rating actions by credit
rating agencies.
If our counterparty credit rating or the credit ratings of our outstanding indebtedness are downgraded, or if rating
agencies indicate that a downgrade may occur, our business, financial position, and results of operations could be
adversely affected and perceptions of our financial strength could be damaged. A downgrade would have the effect
of increasing our incremental borrowing costs and could decrease the availability of funds for borrowing. In addition,
a downgrade could adversely affect our relationships with our clients.
TD exercises significant influence over TD Ameritrade.
As of September 30, 2018, TD owned approximately 42% of our outstanding common stock. As a result, TD will
generally have the ability to significantly influence the outcome of any matter submitted to a vote of our stockholders
and as a result of its significant share ownership in TD Ameritrade, TD may have the power, subject to applicable
law, to significantly influence actions that might be favorable to TD, but not necessarily favorable to our other
stockholders.
21
The stockholders agreement provides that TD may designate five of the twelve members of our board of directors,
subject to adjustment based on TD's ownership positions in TD Ameritrade. As of September 30, 2018, based on
its ownership positions, TD has the right to designate five members of our board of directors. Accordingly, TD is
able to significantly influence the outcome of all matters that come before our board.
TD is permitted under the stockholders agreement to exercise voting rights on up to 45% of our outstanding shares
of common stock until termination of the stockholders agreement (January 24, 2021). If our stock repurchases
cause TD's ownership percentage to exceed 45%, TD is required to use reasonable efforts to sell or dispose of such
excess stock, subject to TD's commercial judgment as to the optimal timing, amount and method of sales with a
view to maximizing proceeds from such sales. TD has no absolute obligation to reduce its ownership percentage
to 45% by the termination of the stockholders agreement. However, prior to and following the termination of the
stockholders agreement, TD is required to vote any such excess stock on any matter in the same proportions as all
the outstanding shares of stock held by holders other than TD and its affiliates are voted. In no event may
TD Ameritrade repurchase shares of its common stock that would result in TD's ownership percentage exceeding
47%. There is no restriction on the number of shares TD may own following the termination of the stockholders
agreement.
The ownership position and governance rights of TD could also discourage a third party from proposing a change
of control or other strategic transaction concerning TD Ameritrade. As a result, our common stock could trade at
prices that do not reflect a "takeover premium" to the same extent as do the stocks of similarly situated companies
that do not have a stockholder with an ownership interest as large as TD's ownership interest.
We have extensive relationships and business transactions with TD and some of its affiliates, which if terminated
or adversely modified could have a material adverse effect on our business, financial condition and results of
operations.
We have extensive relationships and business transactions with TD and certain of its affiliates. The insured deposit
account agreement between us and affiliates of TD accounts for a significant portion of our revenue. This agreement
enables our clients to invest in an FDIC-insured (up to specified limits) deposit product without the need for us to
establish the significant levels of capital that would be required to maintain our own bank charter. During fiscal
2018, net revenues related to this agreement accounted for approximately 26% of our net revenues. The termination
or adverse modification of this agreement without replacing it on comparable terms with a different counterparty,
which may not be available, could have a material adverse effect on our business, financial condition and results
of operations. If this agreement was terminated or adversely modified and we were permitted to establish our own
bank charter for purposes of offering an FDIC-insured deposit product, we would be required to establish and
maintain significant levels of capital within a bank subsidiary. We would also be subject to various other risks
associated with banking, including credit risk on loans and investments, liquidity risk associated with bank balance
sheet management, operational risks associated with banking systems and infrastructure and additional regulatory
requirements and supervision.
Conflicts of interest may arise between TD Ameritrade and TD, which may be resolved in a manner that adversely
affects our business, financial condition or results of operations.
Conflicts of interest may arise between us and TD in areas relating to past, ongoing and future relationships and
contracts, including corporate opportunities, potential acquisitions or financing transactions, sales or other
dispositions by TD of its interests in TD Ameritrade and the exercise by TD of its influence over our management
and affairs. Some of the directors on our board are also officers or directors of TD or its subsidiaries. Service as a
director or officer of both TD Ameritrade and TD or its other subsidiaries could create conflicts of interest if such
directors or officers are faced with decisions that could have materially different implications for us and for TD.
Our amended and restated certificate of incorporation contains provisions relating to the avoidance of direct
competition between us and TD. In addition, a committee of our board consisting of outside independent directors
reviews and approves or ratifies transactions with TD and its affiliates. There can be no assurance that any of the
foregoing potential conflicts would be resolved in a manner that does not adversely affect our business, financial
condition or results of operations. In addition, the provisions of the stockholders agreement related to non-
competition are subject to numerous exceptions and qualifications and may not prevent us and TD from competing
with each other to some degree.
22
The terms of the stockholders agreement, our charter documents and Delaware law could inhibit a takeover that
stockholders may consider favorable.
Provisions in the stockholders agreement between TD and the Company, our certificate of incorporation and bylaws
and Delaware law will make it difficult for any party to acquire control of us in a transaction not approved by the
requisite number of directors. These provisions include:
•
•
•
•
the presence of a classified board of directors;
the ability of the board of directors to issue and determine the terms of preferred stock;
advance notice requirements for inclusion of stockholder proposals at stockholder meetings; and
the anti-takeover provisions of Delaware law.
These provisions could delay, deter or prevent a change of control or change in management that might provide
stockholders with a premium to the market price of their common stock.
Our future ability to pay regular dividends to holders of our common stock is subject to the discretion of our
board of directors and will be limited by our ability to generate sufficient earnings and cash flows.
Payment of future cash dividends on our common stock will depend on our ability to generate earnings and cash
flows. However, sufficient cash may not be available to pay such dividends. Payment of future dividends, if any,
will be at the discretion of our board of directors and will depend upon a number of factors that the board of directors
deems relevant, including future earnings, the success of our business activities, capital and liquidity requirements,
the general financial condition and future prospects of our business and general business conditions. If we are
unable to generate sufficient earnings and cash flows from our business, we may not be able to pay dividends on
our common stock.
Our ability to pay cash dividends on our common stock is also dependent on the ability of our subsidiaries to pay
dividends to the parent company. Some of our subsidiaries are subject to requirements of the SEC, FINRA, the
CFTC, the NFA and other regulators relating to liquidity, capital standards and the use of client funds and securities,
which may limit funds available for the payment of dividends to the parent company.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our Company-owned corporate headquarters facility is located in Omaha, Nebraska and provides more than 500,000
square feet of building space. Our headquarters facility has earned Leadership in Energy and Environmental Design
(LEED) Platinum Certification, the highest level of distinction awarded by the U.S. Green Building Council. We
also lease approximately 80,000 square feet of building space on property adjacent to the headquarters for
administrative and operational facilities. These leases expire in 2020. We own additional administrative and
operational facilities that provide approximately 500,000, 300,000 and 200,000 square feet of building space located
in St. Louis, Missouri, Southlake, Texas and Denver, Colorado, respectively.
We lease approximately 195,000 square feet of building space for an additional operation center in Jersey City, New
Jersey. The Jersey City lease expires in 2020. We lease smaller administrative and operational facilities in California,
Colorado, Illinois, Maryland, Massachusetts, Michigan, Texas and Utah. We own two data center facilities, located
in Richardson, Texas and St. Louis, Missouri, and we lease four data center facilities located in Texas, Arizona and
New Jersey. We also lease more than 360 retail branch offices, located in 48 states and the District of Columbia.
We believe that our facilities are suitable and adequate to meet our needs.
Item 3.
Legal Proceedings
For information regarding legal proceedings, see Note 15 — Commitments and Contingencies – "Legal and
Regulatory Matters" under Item 8, Financial Statements and Supplementary Data — Notes to Consolidated Financial
Statements.
23
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Price Range of Common Stock
Our common stock trades on the Nasdaq Global Select Market under the symbol "AMTD." The following table
shows the high and low sales prices for our common stock for the periods indicated, as reported by the Nasdaq
Global Select Market. The prices reflect inter-dealer prices and do not include retail markups, markdowns or
commissions.
Common Stock Price
For the Fiscal Year Ended September 30,
2018
2017
High
Low
High
Low
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
54.24
63.01
62.99
60.99
$
$
$
$
46.66
50.66
54.75
52.73
$
$
$
$
44.79
47.41
44.11
49.24
$
$
$
$
33.26
36.36
36.12
41.88
The closing sale price of our common stock as reported on the Nasdaq Global Select Market on November 1, 2018
was $52.11 per share. As of that date there were 604 holders of record of our common stock based on information
provided by our transfer agent. The number of stockholders of record does not reflect the number of individual or
institutional stockholders that beneficially own our stock because most stock is held in the name of nominees. Based
on information available to us, we believe there are approximately 92,000 beneficial holders of our common stock.
Dividends
We declared and paid a $0.21 per share and a $0.18 per share quarterly cash dividend on our common stock during
each quarter of fiscal years 2018 and 2017, respectively. We recently declared a $0.30 per share quarterly cash
dividend for the first quarter of fiscal 2019. We are scheduled to pay the quarterly cash dividend on November 20,
2018 to all holders of record of our common stock as of November 6, 2018. The payment of any future dividends
will be at the discretion of our board of directors and will depend upon a number of factors that the board of directors
deems relevant, including future earnings, the success of our business activities, capital requirements, the general
financial condition and future prospects of our business and general business conditions.
Our ability to pay cash dividends on our common stock is also dependent on the ability of our subsidiaries to pay
dividends to the parent company. Some of our subsidiaries are subject to requirements of the SEC, FINRA, the
CFTC, the NFA and other regulators relating to liquidity, capital standards and the use of client funds and securities,
which may limit funds available for the payment of dividends to the parent company. See Item 7, Management's
Discussion and Analysis of Results of Operations and Financial Condition — "Liquidity and Capital Resources"
for further information.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about securities authorized for issuance under the Company's equity compensation plans is contained
in Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
24
Performance Graph
The following Company common stock performance information is not deemed to be "soliciting material" or to be
"filed" with the SEC or subject to the SEC's proxy rules or to the liabilities of Section 18 of the Exchange Act and
shall not be deemed to be incorporated by reference into any prior or subsequent filing by the Company under the
Securities Act of 1933, as amended, or the Exchange Act.
The following graph and table set forth information comparing the cumulative total return through the end of the
Company's most recent fiscal year from a $100 investment on September 30, 2013 in the Company's common stock,
a broad-based stock index and the stocks comprising an industry peer group.
Index
9/30/13
9/30/14
9/30/15
9/30/16
9/30/17
9/30/18
TD Ameritrade Holding Corporation
S&P 500
Peer Group
100.00
100.00
100.00
131.74
119.73
139.85
127.87
119.00
140.76
144.69
137.36
156.83
203.98
162.92
221.57
224.23
192.10
253.58
Period Ended
The Peer Group is comprised of the following companies that have significant retail brokerage operations:
E*TRADE Financial Corporation
The Charles Schwab Corporation
25
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
ISSUER PURCHASES OF EQUITY SECURITIES
Period
July 1, 2018 — July 31, 2018 . . . . . . . . . . . . . . . . .
August 1, 2018 — August 31, 2018 . . . . . . . . . . . .
September 1, 2018 — September 30, 2018. . . . . . .
Total — Three months ended September 30, 2018 .
Total
Number of
Shares
Purchased
6,710
Average
Price
Paid per
Share
$ 54.81
1,393,833
$ 57.55
3,199,234
$ 54.64
4,599,777
$ 55.52
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program
—
1,392,199
3,197,128
4,589,327
Maximum Number
of Shares that May
Yet Be Purchased
Under the Program
25,979,986
24,587,787
21,390,659
21,390,659
On November 20, 2015, our board of directors authorized the repurchase of up to 30 million shares of our common
stock. We disclosed this authorization on November 20, 2015 in our annual report on Form 10-K. This program
was the only stock repurchase program in effect and no programs expired during the fourth quarter of fiscal 2018.
During the quarter ended September 30, 2018, 10,450 shares were repurchased from employees for income tax
withholding in connection with distributions of stock-based compensation.
Item 6.
Selected Financial Data
Fiscal Year Ended September 30,
2018*
2017
2016
2015
2014
(In millions, except per share amounts)
Consolidated Statements of Income Data:
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — basic . . . . . . . . . . . . . . . . . . . .
Earnings per share — diluted. . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding — basic . . . . .
Weighted average shares outstanding — diluted. . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . .
$ 5,452
$ 3,676
$ 3,327
$ 3,247
$ 3,123
1,998
1,473
1,466
872
1,318
842
1,325
813
1,285
787
$ 2.60
$ 1.65
$ 1.59
$ 1.50
$ 1.43
$ 2.59
$ 1.64
$ 1.58
$ 1.49
$ 1.42
567
569
529
531
531
534
543
547
550
554
$ 0.84
$ 0.72
$ 0.68
$ 0.60
$ 0.98
As of September 30,
2018
2017*
2016
2015
2014
(In millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Investments available-for-sale, at fair value . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt and other borrowings . . . . . . . . . . . .
Stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,690
$ 1,472
$ 1,855
$ 1,978
$ 1,460
484
746
757
—
—
37,520
38,627
28,818
26,375
23,829
2,535
8,003
2,652
7,247
1,817
5,051
1,800
4,903
1,249
4,748
* The growth in our Consolidated Balance Sheet as of September 30, 2017 and Statement of Income for the fiscal
year ended 2018 was primarily due to our acquisition of Scottrade on September 18, 2017.
26
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion contains forward-looking statements within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995. Statements that are not historical facts, including statements about our beliefs and expectations,
are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that
include the words "may," "could," "would," "should," "believe," "expect," "anticipate," "plan," "estimate," "target,"
"project," "intend" and similar words or 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; the amount of net revenues; average commissions per
trade; the amounts of total operating expenses and advertising expense; our effective income tax rate; our capital
and liquidity needs and our plans to finance such needs; and our plans to return capital to stockholders through cash
dividends and share repurchases.
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: economic, social and political
conditions and other securities industry risks; interest rate risks; liquidity risks; credit risk with clients and
counterparties; risk of liability for errors in clearing functions; systemic risk; systems failures, delays and capacity
constraints; network security risks; competition; reliance on external service providers; new laws and regulations
affecting our business; net capital requirements; extensive regulation, regulatory uncertainties and legal matters;
difficulties and delays in integrating the Scottrade Financial Services, Inc. ("Scottrade") business or fully realizing
cost savings and other benefits from the acquisition; disruptions from the Scottrade acquisition or other factors
making it more difficult to maintain relationships with employees, customers, other business partners or
governmental entities; the inability to achieve synergies or to implement integration plans and other consequences
associated with other acquisitions; and the other risks and uncertainties set forth under Item 1A — Risk Factors of
this Form 10-K. The forward-looking statements contained in this report speak only as of the date on which the
statements were made. We undertake no obligation to publicly update or revise these statements, whether as a result
of new information, future events or otherwise, except to the extent required by the federal securities laws.
Glossary of Terms
In discussing and analyzing our business, we utilize several metrics and other terms that are defined in the following
Glossary of Terms. Italics indicate other defined terms that appear elsewhere in the Glossary. The term "GAAP"
refers to U.S. generally accepted accounting principles.
Asset-based revenues — Revenues consisting of (1) bank deposit account fees, (2) net interest revenue 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 bank deposit account balances, average client margin
balances, average segregated cash balances, average client credit balances, average fee-based investment balances
and average securities borrowing and securities lending balances. Average rates consist of the average interest rates
and fees earned and paid on such balances.
Average client trades per day — Total trades divided by the number of trading days in the period. This metric is
also known as daily average revenue trades ("DARTs").
Average commissions per trade — Total commissions and transaction fee revenues as reported on our consolidated
financial statements, less order routing revenue, divided by total trades for the period. Commissions and transaction
fee revenues primarily consist of trading commissions, order routing revenue and markups on riskless principal
transactions in fixed-income securities.
Basis point — When referring to interest rates, one basis point represents one one-hundredth of one percent.
Bank deposit account fees — Revenues generated from a sweep program that is offered to eligible clients of the
Company whereby clients' uninvested cash is swept to FDIC-insured (up to specified limits) money market deposit
accounts at third-party financial institutions participating in the program.
Beneficiary accounts — Brokerage accounts managed by a custodian, guardian, conservator or trustee on behalf of
one or more beneficiaries. Examples include accounts maintained under the Uniform Gift to Minors Act (UGMA)
or Uniform Transfer to Minors Act (UTMA), guardianship, conservatorship and trust arrangements and pension or
profit plan for small business accounts.
27
Brokerage accounts — Accounts maintained by us on behalf of clients for securities brokerage activities. The
primary types of brokerage accounts are cash accounts, margin accounts, IRA accounts and beneficiary accounts.
Futures accounts are sub-accounts associated with a brokerage account for clients who want to trade futures and/
or options on futures. Forex accounts are sub-accounts associated with a brokerage account for clients who want
to engage in foreign exchange trading.
Cash accounts — Brokerage accounts that do not have margin account approval.
Client assets — The total value of cash and securities in brokerage accounts.
Client cash and money market assets — The sum of all client cash balances, including client credit balances and
client cash balances swept into bank deposit accounts or money market mutual funds.
Client credit balances — Client cash held in brokerage accounts, excluding balances generated by client short sales
on which no interest is paid. Interest paid on client credit balances is a reduction of net interest revenue. Client
credit balances are included in "payable to clients" on our consolidated financial statements.
Client margin balances — The total amount of cash loaned to clients in margin accounts. Such loans are secured
by client assets. Interest earned on client margin balances is a component of net interest revenue. Client margin
balances are included in "receivable from clients, net" on our consolidated financial statements.
Commissions and transaction fees — Revenues earned on trading commissions, order routing revenue and markups
on riskless principal transactions in fixed-income securities. Revenues earned on trading commissions includes
client trades in common and preferred stock, ETFs, exchange-traded notes, closed-end funds, options, futures,
foreign exchange, mutual funds and fixed income securities.
Consolidated duration — The weighted average remaining years until maturity of our spread-based assets. For
purposes of this calculation, floating rate balances are treated as having a one-month duration. Consolidated duration
is used in analyzing our aggregate interest rate sensitivity.
Daily average revenue trades ("DARTs") — Total trades divided by the number of trading days in the period. This
metric is also known as average client trades per day.
EBITDA — EBITDA (earnings before interest, taxes, depreciation and amortization) is a non-GAAP financial
measure. We consider EBITDA to be an important measure of our financial performance and of our ability to
generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing
activities. EBITDA is used as the denominator in the consolidated leverage ratio calculation for covenant purposes
under our senior revolving credit facility. 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, GAAP pre-tax income, net income and cash flows from operating activities.
Fee-based investment balances — Client assets invested in money market mutual funds, other mutual funds and
our programs such as AdvisorDirect,® Essential Portfolios, Selective Portfolios and Personalized Portfolios on
which we earn fee revenues. Fee revenues earned on these balances are included in investment product fees on our
consolidated financial statements.
Forex accounts - Sub-accounts maintained by us on behalf of clients for foreign exchange trading. Each forex
account must be associated with a brokerage account. Forex accounts are not counted separately for purposes of
our client account metrics.
Funded accounts — All open client accounts with a total liquidation value greater than zero.
Futures accounts — Sub-accounts maintained by us on behalf of clients for trading in futures and/or options on
futures. Each futures account must be associated with a brokerage account. Futures accounts are not counted
separately for purposes of our client account metrics.
Insured Deposit Account — We are party to an Insured Deposit Account ("IDA") agreement with TD Bank USA,
N.A. ("TD Bank USA"), TD Bank, N.A. and The Toronto-Dominion Bank ("TD"). Under the IDA agreement,
TD Bank USA and TD Bank, N.A. (together, the "TD Depository Institutions") make available to our clients FDIC-
insured (up to specified limits) money market deposit accounts as either designated sweep vehicles or as non-sweep
deposit accounts. We provide marketing, recordkeeping and support services for the TD Depository Institutions
with respect to the money market deposit accounts. In exchange for providing these services, the TD Depository
28
Institutions pay us an aggregate marketing fee based on the weighted average yield earned on the client IDA assets,
less the actual interest paid to clients, a servicing fee to the TD Depository Institutions and the cost of FDIC insurance
premiums. Fee revenues earned under this agreement are included in bank deposit account fees on our consolidated
financial statements.
Interest-earning assets — Consist of client margin balances, segregated cash, deposits paid on securities borrowing
and other cash and interest-earning investment balances.
Interest rate-sensitive assets — Consist of spread-based assets and client cash invested in money market mutual
funds.
Investment product fees — Revenues earned on fee-based investment balances. Investment product fees consists
of fees earned on client assets invested in money market mutual funds, other mutual funds and through investment
programs such as AdvisorDirect,® Essential Portfolios, Selective Portfolios and Personalized Portfolios. Investment
product fees also includes fees earned on client assets managed by independent registered investment advisors
utilizing our trading and investing platforms.
IRA accounts (Individual Retirement Arrangements) — A personal trust account for the exclusive benefit of a U.S.
individual (or his or her beneficiaries) that provides tax advantages in accumulating funds to save for retirement or
other qualified purposes. These accounts are subject to numerous restrictions on additions to and withdrawals from
the account, as well as prohibitions against certain investments or transactions conducted within the account. We
offer traditional, Roth, Savings Incentive Match Plan for Employees (SIMPLE) and Simplified Employee Pension
(SEP) IRA accounts.
Liquid assets — Liquid assets is a non-GAAP financial measure. We consider liquid assets to be an important
measure of our liquidity, including our ability to meet corporate cash flow needs, fund potential operational
contingencies and support our business strategies. We define liquid assets as the sum of (a) corporate cash and cash
equivalents, (b) corporate investments, less securities sold under agreements to repurchase, and (c) our regulated
subsidiaries' net capital in excess of minimum operational targets established by management. Corporate cash and
cash equivalents includes cash and cash equivalents from our investment advisory subsidiaries. Liquid assets
represents available capital, including any capital from our regulated subsidiaries in excess of established
management operational targets. We include the excess capital of our regulated subsidiaries in the calculation of
liquid assets, rather than simply including regulated subsidiaries' cash and cash equivalents, because capital
requirements may limit the amount of cash available for dividend from the regulated subsidiaries to the parent
company. Excess capital, as defined under clause (c) above, is generally available for dividend from the regulated
subsidiaries to the parent company. Liquid assets is based on more conservative measures of net capital than
regulatory requirements because we generally manage to higher levels of net capital at our regulated subsidiaries
than the regulatory thresholds require. Liquid assets should be considered as a supplemental measure of liquidity,
rather than as a substitute for GAAP cash and cash equivalents.
Liquidation value — The net value of a client's account holdings as of the close of a regular trading session.
Liquidation value includes client cash and the value of long security positions, less margin balances and the cost to
buy back short security positions. It also includes the value of open futures, foreign exchange and options positions.
Margin accounts — Brokerage accounts in which clients may borrow from us to buy securities or for any other
purpose, subject to regulatory and Company-imposed limitations.
Market fee-based investment balances — Client assets invested in mutual funds (except money market funds) and
investment programs such as AdvisorDirect,® Essential Portfolios, Selective Portfolios and Personalized Portfolios
on which we earn fee revenues that are largely based on a percentage of the market value of the investment. Market
fee-based investment balances are a component of fee-based investment balances. Fee revenues earned on these
balances are included in investment product fees on our consolidated financial statements.
Net interest margin ("NIM") — A measure of the net yield on our average spread-based assets. Net interest margin
is calculated for a given period by dividing the annualized sum of bank deposit account fees and net interest revenue
by average spread-based assets.
Net interest revenue — Net interest revenue is interest revenues less brokerage interest expense. Interest revenues
are generated by charges to clients on margin balances maintained in margin accounts, the investment of cash from
operations and segregated cash and interest earned on securities borrowing/securities lending. Brokerage interest
29
expense consists of amounts paid or payable to clients based on credit balances maintained in brokerage accounts
and interest incurred on securities borrowing/securities lending. Brokerage interest expense does not include interest
on our non-brokerage borrowings.
Net new assets — Consists of total client asset inflows, less total client asset outflows, excluding activity from
business combinations. Client asset inflows include interest and dividend payments and exclude changes in client
assets due to market fluctuations. Net new assets are measured based on the market value of the assets as of the
date of the inflows and outflows.
Net new asset growth rate (annualized) — Annualized net new assets as a percentage of client assets as of the
beginning of the period.
Non-GAAP Net Income and Non-GAAP Diluted EPS — Non-GAAP net income and non-GAAP diluted earnings
per share ("EPS") are non-GAAP financial measures. We define non-GAAP net income as net income adjusted to
remove the after-tax effect of amortization of acquired intangible assets and acquisition-related expenses. We
consider non-GAAP net income and non-GAAP diluted EPS as important measures of our financial performance
because they exclude certain items that may not be indicative of our core operating results and business outlook
and may be useful in evaluating the operating performance of the business and facilitating a meaningful comparison
of our results in the current period to those in prior and future periods. Amortization of acquired intangible assets
is excluded because management does not believe it is indicative of our underlying business performance.
Acquisition-related expenses are excluded as these costs are not representative of the costs of running our on-going
business. Non-GAAP net income and non-GAAP diluted EPS should be considered in addition to, rather than as
a substitute for, GAAP net income and diluted EPS.
Order routing revenue — Revenues generated from payments or rebates received from market centers. Order routing
revenue is a component of transaction-based revenues.
Securities borrowing — We borrow securities temporarily from other broker-dealers in connection with our broker-
dealer business. We deposit cash as collateral for the securities borrowed, and generally earn interest revenue on
the cash deposited with the counterparty. We also incur interest expense for borrowing certain securities.
Securities lending — We loan securities temporarily to other broker-dealers in connection with our broker-dealer
business. We receive cash as collateral for the securities loaned, and generally incur interest expense on the cash
deposited with us. We also earn revenue for lending certain securities.
Securities sold under agreements to repurchase (repurchase agreements) — We sell securities to counterparties
with an agreement to repurchase the same or substantially the same securities at a stated price plus interest on a
specified date. We utilize repurchase agreements to finance our short-term liquidity and capital needs. Under these
financing transactions, we receive cash from counterparties and provide U.S. Treasury securities as collateral.
Segregated cash — Client cash and investments segregated in compliance with Rule 15c3-3 of the Securities
Exchange Act of 1934 (the Customer Protection Rule) and other regulations. Interest earned on segregated cash is
a component of net interest revenue.
Spread-based assets — Client and brokerage-related asset balances, consisting of bank deposit account balances
and interest-earning assets. Spread-based assets is used in the calculation of our net interest margin and our
consolidated duration.
Total trades — Revenue-generating client securities trades, which are executed by our broker-dealer and FCM/
FDM subsidiaries. Total trades are a significant source of our revenues. Such trades include, but are not limited
to, trades in equities, options, futures, foreign exchange, mutual funds and debt instruments. Trades generate revenue
from commissions, markups on riskless principal transactions in fixed income securities, transaction fees and/or
order routing revenue.
Trading days — Days in which the U.S. equity markets are open for a full trading session. Reduced exchange
trading sessions are treated as half trading days.
Transaction-based revenues — Revenues generated from client trade execution, consisting primarily of
commissions, markups on riskless principal transactions in fixed income securities, transaction clearing fees and
order routing revenue.
30
Financial Statement Overview
We provide securities brokerage and clearing services to our clients through our introducing and clearing broker-
dealer subsidiaries. We also provide futures and foreign exchange trade execution services to our clients through
our futures commission merchant ("FCM") and forex dealer member ("FDM") subsidiary. Substantially all of our
net revenues are derived from our brokerage activities and clearing and execution services. Our primary focus is
serving retail investors and traders, and independent registered investment advisors by providing services with
straightforward, affordable pricing.
Our largest sources of revenues are asset-based revenues and transaction-based revenues. The primary factors
driving our asset-based revenues are average balances and average rates. Average balances consist primarily of
average client bank deposit account balances, average client margin balances, average segregated cash balances,
average client credit 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 per trade. We also
receive order routing revenue, which results from arrangements we have with many execution agents to receive
cash payments in exchange for routing trade orders to these firms for execution. Order routing revenue is included
in commissions and transaction fees on our consolidated financial statements.
Our largest operating expense generally is employee compensation and benefits. Employee compensation and
benefits expense includes salaries, bonuses, stock-based compensation, group insurance, contributions to benefit
programs, recruitment, severance and other related employee costs.
Clearing and execution costs include incremental third-party expenses that tend to fluctuate as a result of fluctuations
in client accounts or trades. Examples of expenses included in this category are outsourced clearing services,
statement and confirmation processing and postage costs and clearing expenses paid to the National Securities
Clearing Corporation, option exchanges and other market centers. Communications expense includes
telecommunications, other postage, news and quote costs. Occupancy and equipment costs include the costs of
leasing and maintaining our office spaces, software licensing and maintenance costs and maintenance expenses on
computer hardware and other equipment. Depreciation and amortization includes depreciation on property and
equipment and amortization of leasehold improvements. Amortization of acquired intangible assets consists of
amortization of amounts allocated to the value of intangible assets acquired in business acquisitions.
Professional services expense includes costs paid to outside firms for assistance with legal, accounting, technology,
regulatory, marketing and general management issues. Advertising costs include production and placement of
advertisements in various media, including online, television, print and email, as well as client promotion and
development costs. Advertising expenses may fluctuate significantly from period to period. Other operating
expenses include provision for bad debt losses, fraud and error losses, gains or losses on disposal of property,
insurance expenses, travel expenses and other miscellaneous expenses. During fiscal year 2018, other operating
expenses also included costs incurred related to the integration of Scottrade.
Interest on borrowings consists of interest expense on our long-term debt and other borrowings. Loss on sale of
investments represents losses realized on corporate (non broker-dealer) investments.
Acquisition of Scottrade
On September 18, 2017, we completed our acquisition of the brokerage business of Scottrade. The transaction
combined highly complementary franchises and added significant scale to our retail business with the addition of
approximately 3.5 million funded client accounts, extended our leadership in trading, and expanded the size of our
branch network.
For additional information regarding this acquisition, see Note 2 — Business Acquisition under Item 8. Financial
Statements and Supplementary Data — Notes to Consolidated Financial Statements.
31
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make judgments and estimates that may have
a significant impact upon our financial results. Note 1, under Item 8, Financial Statements and Supplementary Data
— Notes to Consolidated Financial Statements, of this Form 10-K contains a summary of our significant accounting
policies, many of which require the use of estimates and assumptions. We believe that the following areas are
particularly subject to management's judgments and estimates and could materially affect our results of operations
and financial position.
Valuation of goodwill and acquired intangible assets
We test goodwill and our indefinite-lived acquired intangible asset for impairment on at least an annual basis, or
whenever events occur or changes in circumstances indicate that the carrying values may not be recoverable. In
performing the goodwill impairment tests, we utilize quoted market prices of our common stock to estimate the fair
value of the Company as a whole. The estimated fair value is then allocated to our reporting unit and is compared
with the carrying value of the reporting unit. No impairment charges have resulted from our annual goodwill
impairment tests.
To determine if the indefinite-lived intangible asset is impaired, we first assess certain qualitative factors. Based
on this assessment, if it is determined that more likely than not the fair value of the indefinite-lived intangible asset
is less than its carrying amount, we perform a quantitative impairment test. No impairment charges have resulted
from the annual indefinite-lived intangible asset impairment tests.
We review our finite-lived acquired intangible assets for impairment whenever events occur or changes in
circumstances indicate that the carrying amount of such asset may not be recoverable. We evaluate recoverability
by comparing the undiscounted cash flows associated with the asset to the asset's carrying amount. We also evaluate
the remaining useful lives of intangible assets each reporting period to determine if events or trends warrant a
revision to the remaining period of amortization. We have had no events or trends that have warranted a material
revision to the originally estimated useful lives.
Estimates of effective income tax rates, uncertain tax positions, deferred income taxes and related valuation
allowances
We estimate our income tax expense based on the various jurisdictions where we conduct business. This requires
us to estimate our current income tax obligations and to assess temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities. Temporary differences result in deferred income tax assets
and liabilities. We must evaluate the likelihood that deferred income tax assets will be realized. To the extent we
determine that realization is not "more likely than not," we establish a valuation allowance. Establishing or increasing
a valuation allowance results in a corresponding increase to income tax expense in our consolidated financial
statements. Conversely, to the extent circumstances indicate that a valuation allowance can be reduced or is no
longer necessary, that portion of the valuation allowance is reversed, reducing income tax expense.
We must make significant judgments to calculate our provision for income taxes, our deferred income tax assets
and liabilities and any valuation allowance against our deferred income tax assets. We must also exercise judgment
in determining the need for, and amount of, any accruals for uncertain tax positions. Because the application of tax
laws and regulations to many types of transactions is subject to varying interpretations, amounts reported in our
consolidated financial statements could be significantly changed at a later date upon final determinations by taxing
authorities.
Accruals for contingent liabilities
Accruals for contingent liabilities, such as legal and regulatory claims and proceedings, reflect an estimate of probable
losses for each matter. In making such estimates, we consider many factors, including the progress of the matter,
prior experience and the experience of others in similar matters, available defenses, insurance coverage,
indemnification provisions and the advice of legal counsel and other experts. In many matters, such as those in
which substantial or indeterminate damages or fines are sought, or where cases or proceedings are in the early stages,
it is not possible to determine whether a loss will be incurred, or to estimate the range of that loss, until the matter
is close to resolution, in which case no accrual is made until that time. Because matters may be resolved over long
32
periods of time, accruals are adjusted as more information becomes available or when an event occurs requiring a
change. Significant judgment is required in making these estimates, and the actual cost of resolving a matter may
ultimately differ materially from the amount accrued.
Valuation of guarantees
We enter into guarantees in the ordinary course of business, primarily to meet the needs of our clients and to manage
our asset-based revenues. We record a liability for the estimated fair value of the guarantee at its inception. If actual
results differ significantly from these estimates, our results of operations could be materially affected. For further
details regarding our guarantees, see the following sections under Item 8, Financial Statements and Supplementary
Data — Notes to Consolidated Financial Statements: "Guarantees" under Note 15 — Commitments and
Contingencies and "Insured Deposit Account Agreement" under Note 21 — Related Party Transactions.
Results of Operations
Conditions in the U.S. equity markets significantly impact the volume of our clients' trading activity. There is a
strong relationship 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 generally 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 client balances, especially bank deposit account, margin, credit and fee-based investment
balances, may significantly impact our results of operations. Changes in interest rates also significantly 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 us earning a smaller net interest spread.
Financial Performance Metrics
Net income, diluted earnings per share and EBITDA are key metrics we use in evaluating our financial performance.
Net income and diluted earnings per share are GAAP financial measures and EBITDA is a non-GAAP financial
measure.
We consider EBITDA to be an important measure of our financial performance and of our ability to generate cash
flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA
is used as the denominator in the consolidated leverage ratio calculation for covenant purposes under the
TD Ameritrade Holding Corporation senior revolving credit facility. 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, GAAP pre-tax income, net income and cash flows from operating activities.
The following table sets forth net income in dollars and as a percentage of net revenues for the periods indicated,
and provides reconciliations to EBITDA (dollars in millions):
Net income (GAAP) . . . . . . . . . . . . . . . . . . . .
Add:
Fiscal Year Ended September 30,
2018
2017
2016
$
$ 1,473
% of Net
Revenues
$
% of Net
Revenues
$
27.0% $ 872
23.7% $ 842
% of Net
Revenues
25.3%
Depreciation and amortization . . . . . . . . . . .
Amortization of acquired intangible assets .
Interest on borrowings . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . .
142
141
99
414
2.6%
2.6%
1.8%
7.6%
102
79
71
522
2.8%
2.1%
1.9%
92
86
53
14.2%
423
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . .
$ 2,269
41.6% $ 1,646
44.8% $ 1,496
2.8%
2.6%
1.6%
12.7%
45.0%
33
Fiscal Year Ended September 30, 2018 Compared to Fiscal Year Ended September 30, 2017
Our net income increased 69% for fiscal year 2018 compared to fiscal year 2017, primarily due to an increase in
net revenues and a lower effective tax rate, primarily due to the enactment of the Tax Cuts and Jobs Act (the "Act")
on December 22, 2017. These increases were partially offset by increases in operating expenses and interest on
borrowings, and an $11 million loss on sale of investments during fiscal year 2018. Net revenues and operating
expenses increased primarily due to the Scottrade acquisition. Detailed analysis of net revenues and expenses is
presented later in this discussion.
Our EBITDA increased 38% for fiscal year 2018 compared to fiscal year 2017, primarily due to an increase in net
revenues, partially offset by an increase in operating expenses excluding depreciation and amortization, and an $11
million loss on sale of investments during fiscal year 2018.
Our diluted earnings per share increased 58% to $2.59 for fiscal year 2018 compared to $1.64 for fiscal year 2017,
primarily due to higher net income, partially offset by a 7% increase in average diluted shares outstanding as a result
of the issuance of our common stock in connection with the Scottrade acquisition. Details regarding our fiscal year
2019 expectations for net revenues and expenses are presented later in this discussion.
Fiscal Year Ended September 30, 2017 Compared to Fiscal Year Ended September 30, 2016
Our net income increased 4% for fiscal year 2017 compared to fiscal year 2016, primarily due to an increase in net
revenues, partially offset by an increase in operating expenses, a higher effective tax rate during fiscal year 2017
and an increase in interest on borrowings due to increases in our average debt outstanding and the average effective
interest rate incurred on our debt.
Our EBITDA increased 10% for fiscal year 2017 compared to fiscal year 2016, primarily due to an increase in net
revenues, partially offset by an increase in operating expenses excluding depreciation and amortization.
Our diluted earnings per share increased 4% to $1.64 for fiscal year 2017 compared to $1.58 for fiscal year 2016,
primarily due to higher net income.
Operating Metrics
Our largest sources of revenues are asset-based revenues and transaction-based revenues. For fiscal year 2018,
asset-based revenues and transaction-based revenues accounted for 62% and 36% of our net revenues, respectively.
Asset-based revenues consist of (1) bank deposit account fees, (2) net interest revenue 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 bank deposit account balances, average client margin balances, average segregated
cash balances, average client credit 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 trades and average commissions
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.
34
Asset-Based Revenue Metrics
We calculate the return on our bank deposit account balances and our interest-earning assets 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 bank deposit account fees and net interest revenue by average spread-based assets. Spread-based assets consist
of average bank deposit account balances and average interest-earning assets, which include client margin balances,
segregated cash, deposits paid on securities borrowing and other cash and interest-earning investment balances.
The following table sets forth net interest margin and average spread-based assets (dollars in millions):
Average bank deposit account balances . . . . .
Average interest-earning assets. . . . . . . . . . . .
2018
$ 116,695
30,849
Fiscal Year
2017
$ 93,922
25,316
2016
$ 83,706
22,652
'18 vs. '17
Increase/
(Decrease)
$ 22,773
5,533
'17 vs. '16
Increase/
(Decrease)
$ 10,216
2,664
Average spread-based balances . . . . . . . . . .
$ 147,544
$ 119,238
$ 106,358
$ 28,306
$ 12,880
Bank deposit account fee revenue . . . . . . . . .
Net interest revenue . . . . . . . . . . . . . . . . . . . .
Spread-based revenue. . . . . . . . . . . . . . . . . .
$
$
1,541
1,272
2,813
$
$
1,107
690
1,797
$
$
926
595
$
434
582
1,521
$ 1,016
$
$
181
95
276
Average yield — bank deposit account fees. .
Average yield — interest-earning assets. . . . .
Net interest margin (NIM) . . . . . . . . . . . . . . .
1.30%
4.07%
1.88%
1.16%
2.69%
1.49%
1.09%
2.59%
1.41%
0.14%
1.38%
0.39%
0.07%
0.10%
0.08%
The following tables set forth key metrics that we use in analyzing net interest revenue, which is a component of
net interest margin (dollars in millions):
Interest Revenue (Expense)
Fiscal Year
2018
2017
2016
Segregated cash . . . . . . . . . . . . . . . . . . . . . . . .
Client margin balances. . . . . . . . . . . . . . . . . . .
Securities lending/borrowing, net . . . . . . . . . .
Other cash and interest-earning investments . .
Client credit balances. . . . . . . . . . . . . . . . . . . .
$
95
$
49
$
920
222
42
(7)
482
139
22
(2)
15
436
141
5
(2)
'18 vs. '17
Increase/
(Decrease)
46
$
'17 vs. '16
Increase/
(Decrease)
34
$
438
83
20
(5)
46
(2)
17
—
95
Net interest revenue. . . . . . . . . . . . . . . . . . . .
$
1,272
$
690
$
595
$
582
$
Segregated cash . . . . . . . . . . . . . . . . . . . . . . . .
Client margin balances. . . . . . . . . . . . . . . . . . .
Securities borrowing . . . . . . . . . . . . . . . . . . . .
Other cash and interest-earning investments . .
Average Balance
Fiscal Year
$
2018
6,832
19,812
925
3,280
$
2017
8,282
12,542
1,004
3,488
$
2016
7,034
11,751
932
2,935
Interest-earning assets . . . . . . . . . . . . . . . . . .
$ 30,849
$ 25,316
$ 22,652
Client credit balances. . . . . . . . . . . . . . . . . . . .
Securities lending. . . . . . . . . . . . . . . . . . . . . . .
$ 20,438
$ 16,182
$ 14,669
2,888
2,004
2,084
Interest-bearing liabilities . . . . . . . . . . . . . . .
$ 23,326
$ 18,186
$ 16,753
'18 vs. '17
%
Change
'17 vs. '16
%
Change
(18)%
58 %
(8)%
(6)%
22 %
26 %
44 %
28 %
18 %
7 %
8 %
19 %
12 %
10 %
(4)%
9 %
35
Segregated cash . . . . . . . . . . . . . . . . . . . . . . . .
Client margin balances. . . . . . . . . . . . . . . . . . .
Other cash and interest-earning investments . .
Client credit balances. . . . . . . . . . . . . . . . . . . .
Average Yield (Cost)
Fiscal Year
2018
1.37 %
4.58 %
1.26 %
2017
0.58 %
3.79 %
0.63 %
2016
0.21 %
3.65 %
0.18 %
'18 vs. '17
Net Yield
Increase/
(Decrease)
'17 vs. '16
Net Yield
Increase/
(Decrease)
0.79 %
0.79 %
0.63 %
(0.03)%
(0.01)%
(0.01)%
(0.02)%
0.37%
0.14%
0.45%
0.00%
0.10%
Net interest revenue. . . . . . . . . . . . . . . . . . . .
4.07 %
2.69 %
2.59 %
1.38 %
The following tables set forth key metrics that we use in analyzing investment product fee revenues (dollars in
millions):
Money market mutual fund . . . . . . . . . . . . . . .
Market fee-based investment balances . . . . . .
Total investment product fees . . . . . . . . . . . .
Fee Revenue
Fiscal Year
2018
2017
2016
$
$
18
539
557
$
$
16
407
423
$
$
11
363
374
'18 vs. '17
Increase/
(Decrease)
2
$
'17 vs. '16
Increase/
(Decrease)
5
$
132
134
$
$
44
49
Money market mutual fund . . . . . . . . . . . . . . .
Market fee-based investment balances . . . . . .
Average Balance
Fiscal Year
2018
4,164
$
2017
3,613
$
2016
5,671
$
248,339
181,510
155,063
Total fee-based investment balances . . . . . . .
$ 252,503
$ 185,123
$ 160,734
'18 vs. '17
%
Change
'17 vs. '16
%
Change
15%
37%
36%
(36)%
17 %
15 %
Money market mutual fund . . . . . . . . . . . . . . .
Market fee-based investment balances . . . . . .
Total investment product fees . . . . . . . . . . . .
Average Yield
Fiscal Year
2018
0.42%
0.21%
0.22%
2017
0.42%
0.22%
0.23%
2016
0.19%
0.23%
0.23%
'18 vs. '17
Increase/
(Decrease)
'17 vs. '16
Increase/
(Decrease)
0.00 %
(0.01)%
(0.01)%
0.23 %
(0.01)%
0.00 %
36
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:
Total trades (in millions). . . . . . . . . . . . . . . .
Average client trades per day . . . . . . . . . . . .
Trading days . . . . . . . . . . . . . . . . . . . . . . . . .
Average commissions per trade(1) . . . . . . . . .
Order routing revenue (in millions) . . . . . . .
2018
202.78
811,110
Fiscal Year
2017
127.68
510,710
250.0
7.45
458
$
$
250.0
8.33
320
$
$
$
$
2016
116.66
462,918
252.0
9.20
299
'18 vs. '17
%
Change
'17 vs. '16
%
Change
59 %
59 %
0 %
(11)%
43 %
9 %
10 %
(1)%
(9)%
7 %
(1) Effective in September 2017, the average commissions per trade metric was revised to exclude order routing
revenue. Prior periods have been updated to conform to the current presentation.
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:
Funded accounts (beginning of year). . . . . . . . . . . . . . . . . . . . .
Funded accounts (end of year). . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage change during year . . . . . . . . . . . . . . . . . . . . . . . . .
Client assets (beginning of year, in billions) . . . . . . . . . . . . . . .
Client assets (end of year, in billions) . . . . . . . . . . . . . . . . . . . .
Percentage change during year . . . . . . . . . . . . . . . . . . . . . . . . .
Net new assets (in billions) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net new assets growth rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
11,004,000
Fiscal Year
2017
6,950,000
11,514,000
11,004,000
2016
6,621,000
6,950,000
5%
58%
5%
$
$
$
1,118.5
1,297.5
16%
92.3
8%
$
$
$
773.8
1,118.5
45%
80.1
10%
$
$
$
667.4
773.8
16%
60.3
9%
37
Consolidated Statements of Income Data
The following table summarizes certain data from our Consolidated Statements of Income for analysis purposes
(dollars in millions):
Fiscal Year
2018
2017
2016
'18 vs. '17
%
Change
'17 vs. '16
%
Change
Revenues:
Transaction-based revenues:
Commissions and transaction fees . . . . .
$ 1,969
$ 1,384
$ 1,372
42 %
1 %
Asset-based revenues:
Bank deposit account fees . . . . . . . . . . . .
Net interest revenue. . . . . . . . . . . . . . . . .
Investment product fees. . . . . . . . . . . . . .
Total asset-based revenues . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . . . . . . . . .
Net revenues . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Employee compensation and benefits . . . . .
Clearing and execution costs . . . . . . . . . . . .
Communications . . . . . . . . . . . . . . . . . . . . .
Occupancy and equipment costs . . . . . . . . .
Depreciation and amortization. . . . . . . . . . .
Amortization of acquired intangible assets .
Professional services . . . . . . . . . . . . . . . . . .
Advertising. . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses. . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . .
Other expense:
Interest on borrowings . . . . . . . . . . . . . . . . .
Loss on sale of investments . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense . . . . . . . . . . . . . . . . .
Pre-tax income . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . .
1,541
1,272
557
3,370
113
5,452
1,555
189
179
302
142
141
303
293
350
3,454
1,998
99
11
1
111
1,887
414
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,473
$
1,107
690
423
2,220
72
3,676
962
149
131
181
102
79
260
254
92
926
595
374
1,895
60
3,327
839
136
137
171
92
86
178
260
110
2,210
1,466
2,009
1,318
71
—
1
72
53
—
—
53
1,394
1,265
522
872
423
842
$
39 %
84 %
32 %
52 %
57 %
48 %
62 %
27 %
37 %
67 %
39 %
78 %
17 %
15 %
280 %
56 %
36 %
39 %
N/A
0 %
54 %
35 %
(21)%
69 %
20 %
16 %
13 %
17 %
20 %
10 %
15 %
10 %
(4)%
6 %
11 %
(8)%
46 %
(2)%
(16)%
10 %
11 %
34 %
N/A
N/A
36 %
10 %
23 %
4 %
Other information:
Effective income tax rate . . . . . . . . . . . . . . . .
Average debt outstanding . . . . . . . . . . . . . . . .
Effective interest rate incurred on
borrowings . . . . . . . . . . . . . . . . . . . . . . . . .
21.9%
37.4%
33.4%
$ 2,743
$ 2,093
$ 1,748
31 %
20 %
3.59%
3.40%
3.03%
38
Fiscal Year Ended September 30, 2018 Compared to Fiscal Year Ended September 30, 2017
Net Revenues
Net revenues increased 48% to $5.45 billion during fiscal year 2018. We expect net revenues to increase to at least
$5.75 billion, or approximately 6%, during fiscal year 2019 compared to fiscal year 2018. Depending on the level
of investor engagement and the nature of the interest rate environment, fiscal year 2019 net revenues could be
considerably higher.
Commissions and transaction fees increased 42% to $1.97 billion, primarily due to the addition of approximately
3.5 million funded accounts as a result of the Scottrade acquisition on September 18, 2017, partially offset by lower
average commissions per trade for fiscal year 2018 compared to fiscal year 2017. Average client trades per day
increased 59% to 811,110 for fiscal year 2018 compared to 510,710 for fiscal year 2017. Order routing revenue
increased 43% to $458 million due to higher trading volumes. Average commissions per trade decreased to $7.45
from $8.33, primarily due to our reduction in client pricing for online equity and option trades during the second
quarter of fiscal 2017 and a higher percentage of equity trades, which earn somewhat lower average commissions
per trade than option and futures trades. Effective March 6, 2017, we reduced our online equity and ETF trade
commissions from $9.99 to $6.95 per trade and also lowered options pricing to $6.95 per trade (plus $0.75 per
contract). We expect average commissions per trade to decrease by 2% to 3% in fiscal year 2019 as compared to
fiscal year 2018, depending on the mix of client trading activity and other factors.
Asset-based revenues increased 52% to $3.37 billion for fiscal year 2018, primarily due to increases in average
spread-based assets, net interest margin earned on spread-based assets and average market fee-based investment
balances. The growth in average spread-based and market fee-based investment balances is primarily due to the
Scottrade acquisition and our success in attracting net new client assets. Net interest margin increased 39 basis
points to 1.88% during fiscal year 2018, primarily due to the Federal Open Market Committee increasing the target
range for the federal funds rate by 75 basis points (to between 1.00% and 1.25%) during fiscal year 2017 and by
100 basis points (to between 2.00% to 2.25%) during fiscal year 2018. The increase in net interest margin was also
due to the impact of higher average client margin balances, which earn a larger net interest spread.
Bank deposit account fees increased 39% to $1.54 billion, primarily due to a 24% increase in average bank deposit
account balances and an increase of 14 basis points in the average yield earned on the bank deposit account assets.
The growth in the average bank deposit account balances is primarily due to the Scottrade acquisition and our
success in attracting net new client assets. The average yield earned on bank deposit account assets increased
primarily due to floating-rate investment balances within the Insured Deposit Account ("IDA") portfolio benefiting
from the federal funds rate increases during fiscal years 2017 and 2018, as described above, partially offset by higher
interest rates paid to clients.
Net interest revenue increased 84% to $1.27 billion due to a 58% increase in average client margin balances, primarily
due to the Scottrade acquisition, increases in the average yields earned on client margin balances, segregated cash
and other cash and interest-earning investments as a result of the federal funds rate increases during fiscal years
2017 and 2018, as described above, and an $83 million increase in net interest revenue from our securities borrowing/
lending program.
Investment product fees increased 32% to $557 million, primarily due to a 37% increase in average market fee-
based investment balances. The increase in market fee-based investment balances is primarily due to the Scottrade
acquisition and growth in our advised solutions products.
Other revenues increased 57% to $113 million, primarily due to favorable fair market value adjustments on
investments held by our broker-dealer subsidiaries and increases in fees related to processing corporate securities
reorganizations, proxy services and other fee revenue associated with additional accounts and transaction processing
volumes resulting from the Scottrade acquisition.
Operating Expenses
Total operating expenses, which includes $445 million of acquisition-related expenses, increased 56% to $3.45
billion during fiscal year 2018. We expect total operating expenses to decrease to between $2.9 billion and $3.0
billion for fiscal year 2019.
39
Employee compensation and benefits expense increased 62% to $1.56 billion, primarily due to $235 million of
severance and other employment benefits related to the Scottrade integration, an increase in average headcount
related to the Scottrade acquisition and our strategic growth initiatives, and annual merit increases. The average
number of full-time equivalent employees increased to 9,728 for fiscal year 2018 compared to 6,661 for fiscal year
2017.
Clearing and execution costs increased 27% to $189 million, primarily due to increased costs associated with
additional accounts and transaction processing volumes resulting from the Scottrade acquisition.
Communications expense increased 37% to $179 million, primarily due to the Scottrade acquisition, resulting in
increased costs for quotes and market information associated with additional accounts and transaction processing
volumes and costs for telecommunications.
Occupancy and equipment costs increased 67% to $302 million, primarily due to additional costs associated with
the Scottrade business, including increased expenses related to leased facilities, software licensing and software
maintenance.
Depreciation and amortization increased 39% to $142 million, primarily due to depreciation on assets recorded in
the Scottrade acquisition, placing our new Southlake, Texas operations center in service during December 2017,
and recent technology infrastructure upgrades.
Amortization of acquired intangible assets increased 78% to $141 million, primarily due to amortization of the
client relationships intangible asset recorded in the Scottrade acquisition.
Professional services expense increased 17% to $303 million, primarily due to higher usage of consulting and
contract services related to operational and technology-related initiatives and in connection with the Scottrade
integration, partially offset by lower costs associated with legal matters.
Advertising expense increased 15% to $293 million, primarily due to the Scottrade acquisition and due to increased
advertising during professional and collegiate sporting events. We expect advertising to increase to between $300
million and $320 million for fiscal year 2019. We generally adjust our level of advertising spending in relation to
stock market activity and other market conditions in an effort to maximize new client relationships and net new
assets.
Other operating expenses increased 280% to $350 million, primarily due to $172 million of costs related to the
Scottrade integration, mainly comprised of contract terminations, a net increase in the provision for bad debt of $56
million related to market volatility during fiscal year 2018 and additional expenses associated with the Scottrade
business.
Other Expense and Income Taxes
Interest on borrowings increased 39% to $99 million, primarily due to a 31% increase in average debt outstanding
and an increase of 19 basis points in the average effective interest rate incurred on our borrowings. On April 27,
2017, we issued $800 million of 3.300% Senior Notes due April 1, 2027 to finance a portion of the cash consideration
paid in connection with the Scottrade acquisition.
Our effective income tax rate was 21.9% for fiscal year 2018, compared to 37.4% for fiscal year 2017. The effective
income tax rate for fiscal year 2018 included an estimated net favorable adjustment of $71 million related to the
remeasurement of the Company's deferred income tax balances as it pertains to the Tax Cuts and Jobs Act, a $5
million income tax benefit resulting from the change in accounting for income taxes related to equity-based
compensation under ASU 2016-09, $12 million of favorable resolutions of state income tax matters and a $30 million
favorable benefit resulting from accelerating certain deductions, including acquisition-related exit costs, to leverage
higher 2017 pre-enactment tax rates. The effective income tax rate was also impacted by a $9 million unfavorable
remeasurement of uncertain tax positions related to certain federal incentives. These items had a net favorable
impact on our earnings for fiscal year 2018 of approximately $0.19 per share. The Tax Cuts and Jobs Act was
enacted on December 22, 2017, reducing the U.S. federal corporate income tax rate from 35% to 21%, requiring
companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax
deferred and creating new taxes on certain foreign sourced earnings. For more information, see Note 11 – Income
Taxes under Item 8, Financial Statements – Notes to Consolidated Financial Statements. As a result of the Act, we
estimate our effective income tax rate to be approximately 25% for fiscal year 2019, excluding the effect of any
40
adjustments related to remeasurement or resolution of uncertain tax positions and federal incentives. However, we
expect to experience some volatility in our quarterly and annual effective income tax rate because current accounting
rules for uncertain tax positions require that any change in measurement of a tax position taken in a prior tax year
be recognized as a discrete event in the period in which the change occurs. We also anticipate the potential for
increased volatility in our future quarterly effective income tax rate from the accounting for income taxes related
to equity-based compensation, which requires the income tax effects of exercised or vested stock-based awards to
be treated as discrete items in the period in which they occur.
Fiscal Year Ended September 30, 2017 Compared to Fiscal Year Ended September 30, 2016
Net Revenues
Commissions and transaction fees increased 1% to $1.38 billion, primarily due to increased client trading activity,
partially offset by lower average commissions per trade and the effect of two less trading days during fiscal year
2017 compared to fiscal year 2016. Total trades increased 9% as average client trades per day increased 10% to
510,710 for fiscal year 2017 compared to 462,918 for fiscal year 2016. Average commissions per trade decreased
to $8.33 from $9.20, primarily due to our reduction in client pricing for online equity and option trades during the
second quarter of fiscal year 2017.
Asset-based revenues, which consist of bank deposit account fees, net interest revenue and investment product fees,
increased 17% to $2.22 billion, primarily due to a 12% increase in average spread-based assets, an increase of 8
basis points in net interest margin to 1.49% and a 17% increase in average market fee-based investment balances.
The increase in net interest margin was primarily due to the Federal Open Market Committee increasing the target
range for the federal funds rate by 75 basis points (to between 1.00% and 1.25%) during fiscal year 2017, partially
offset by the impact of higher average segregated cash and other cash and interest-earning investment balances,
which earn a lower net interest spread and a higher IDA management fee on floating rate balances due to the federal
funds rate increases.
Bank deposit account fees increased 20% to $1.11 billion, primarily due to a 12% increase in average client bank
deposit account balances and an increase of 7 basis points in the average yield earned on those balances. The growth
in the average bank deposit account balances is primarily due to our success in attracting net new client assets. The
average yield earned on bank deposit account assets increased primarily due to floating-rate investment balances
within the IDA portfolio benefiting from the fiscal year 2017 federal funds rate increases and investments within
the IDA portfolio, including maturities of investments and new balance growth, being invested at higher rates. The
increase in the average yield was partially offset by a higher IDA management fee on floating rate balances due to
the federal funds rate increases and higher interest rates paid to clients.
Net interest revenue increased 16% to $690 million, primarily due to increases in the average yields earned on
segregated cash, client margin balances and other cash and interest-earning investment balances as a result of the
federal funds rate increases during fiscal year 2017 and a 7% increase in average client margin balances. The average
yield earned on interest-earning assets increased 10 basis points to 2.69% primarily due to the benefits realized from
the federal funds rate increases during fiscal year 2017.
Investment product fees increased 13% to $423 million, primarily due to a 17% increase in average market fee-
based investment balances and an increase of 23 basis points in the average yield earned on money market mutual
fund balances. These increases were partially offset by a decrease of 1 basis point in the average yield earned on
market fee-based investment balances and a 36% decrease in the average money market mutual fund balances.
Other revenues increased 20% to $72 million, primarily due to increased fees related to proxy and platform services.
Operating Expenses
Total operating expenses, which includes $88 million of acquisition-related expenses, increased 10% to $2.21 billion
during fiscal year 2017.
Employee compensation and benefits expense increased 15% to $962 million, primarily due to an increase in average
headcount related to our strategic growth initiatives and the Scottrade acquisition in September 2017, approximately
$35 million of severance costs related to the Scottrade integration and higher incentive-based compensation related
to Company and individual performance. The average number of full-time equivalent employees increased to 6,661
for fiscal year 2017 compared to 5,858 for fiscal year 2016.
41
Clearing and execution costs increased 10% to $149 million, primarily due to higher client trading volumes and the
impact of a $5 million benefit from a retroactive fee decrease from a clearinghouse during fiscal year 2016.
Communications expense decreased 4% to $131 million, primarily due to decreased costs for quotes and market
information.
Occupancy and equipment costs increased 6% to $181 million, primarily due to increased software licensing and
facilities expenses.
Depreciation and amortization increased 11% to $102 million, primarily due to recent technology infrastructure
upgrades and depreciation of assets recorded in the Scottrade acquisition.
Amortization of acquired intangible assets decreased 8% to $79 million, primarily due to certain acquired intangible
assets becoming fully amortized during fiscal year 2016, partially offset by amortization of intangible assets recorded
in the Scottrade acquisition.
Professional services expense increased 46% to $260 million, primarily due to approximately $50 million of costs
for legal, accounting, consulting and contract services in connection with the Scottrade acquisition and higher usage
of consulting and contract services related to other operational and technology-related initiatives.
Advertising expense decreased 2% to $254 million, primarily due to additional spending during fiscal year 2016 in
connection with our sponsorship of the Summer Olympics.
Other operating expenses decreased 16% to $92 million, primarily due to $11 million of service contract termination
costs incurred during fiscal year 2016 and lower losses on the disposal of property during fiscal year 2017.
Other Expense and Income Taxes
Interest on borrowings increased 34% to $71 million, primarily due to a 20% increase in average debt outstanding
and an increase of 37 basis points in the average effective interest rate incurred on our debt. On April 27, 2017, we
issued $800 million of 3.300% Senior Notes due April 1, 2027 to finance a portion of the cash consideration paid
in connection with the Scottrade acquisition.
Our effective income tax rate was 37.4% for fiscal year 2017, compared to 33.4% for fiscal year 2016. The effective
tax rate for fiscal year 2017 included $8 million of net favorable resolutions of state income tax matters and $4
million of favorable tax benefits for federal incentives. These items had a net favorable impact on our earnings for
fiscal year 2017 of approximately two cents per share. The effective tax rate for fiscal year 2016 was impacted by
$39 million of net favorable adjustments to uncertain tax positions and related deferred income tax assets, which
included a favorable $33 million tax liability remeasurement related to a state court decision. The effective income
tax rate was also impacted by an $18 million favorable tax benefit claimed during fiscal year 2016 for federal
deductions and tax credits related to calendar tax year 2012 through September 30, 2016 and $5 million of net
favorable deferred income tax adjustments due to the remeasurement of deferred tax assets and liabilities and the
cumulative impact of the decline in the state tax rate. These items had a net favorable impact on our earnings for
fiscal year 2016 of approximately $0.12 per share.
Liquidity and Capital Resources
We have established liquidity and capital policies to support the successful execution of business strategies to meet
operational needs and to satisfy applicable regulatory requirements under both normal and modeled stressed
conditions. Our liquidity management policies are designed to mitigate the potential risk that we may be unable
to meet current and future cash flow needs. Management of our liquidity is accomplished by (1) daily monitoring
of our cash flow needs at TD Ameritrade Holding Corporation (the "Parent") and its operating subsidiaries, and (2)
performing periodic liquidity stress testing related to market and company-specific liquidity stress events in order
to identify and plan for liquidity risk exposures.
We have historically financed our liquidity and capital needs primarily through the use of funds generated from
subsidiary operations and from short-term borrowings. We have also issued common stock and long-term debt to
finance mergers and acquisitions and for other corporate purposes. Our liquidity needs during fiscal year 2018 were
financed primarily from our subsidiaries' earnings, cash on hand and short-term borrowings. During fiscal year
2018, we experienced increased liquidity needs at our clearing broker-dealer subsidiary due to an increase in market
volatility and in order to support regulatory and working capital requirements associated with the integration and
42
migration of client accounts from Scottrade to the Company. We plan to finance our ordinary capital and liquidity
needs in fiscal year 2019 primarily from our subsidiaries' earnings, cash on hand and borrowings.
Parent Company
The Parent conducts substantially all of its business through its operating subsidiaries, principally its broker-dealer
and futures commission merchant ("FCM")/forex dealer member ("FDM") subsidiaries. Dividends from our
subsidiaries are an important source of liquidity for the Parent. Some of our subsidiaries are subject to requirements
of the Securities and Exchange Commission ("SEC"), the Financial Industry Regulatory Authority ("FINRA"), the
Commodity Futures Trading Commission ("CFTC"), the National Futures Association ("NFA") and other regulators
relating to liquidity, capital standards and the use of client funds and securities, which may limit funds available for
the payment of dividends to the Parent.
During fiscal 2019, we plan to return between 30% to 40% of our non-GAAP net income to our stockholders through
cash dividends and up to an additional 40% through share repurchases. For more information about our dividends
and stock repurchases, see "Cash Dividends" and "Stock Repurchase Programs" later in this section.
On October 30, 2018, the Company sold, through a public offering, $600 million aggregate principal amount of
unsecured variable-rate senior notes due November 1, 2021 (the "2021 Notes") and $400 million aggregate principal
amount of unsecured 3.750% senior notes due April 1, 2024 (the "2024 Notes"). We intend to use the net proceeds
from the issuance of the 2021 Notes and the 2024 Notes for general corporate purposes, including to augment
liquidity. For additional details, see Note 24 — Subsequent Event under Item 8, Financial Statements and
Supplementary Information — Notes to Consolidated Financial Statements.
The Parent may make loans of cash or securities under committed and/or uncommitted lines of credit with each of
its primary broker-dealer and FCM/FDM subsidiaries in order to provide liquidity. Liquidity could be used to fund
increases in our subsidiaries' deposit requirements with clearinghouses, and to provide operating liquidity for client
trading and investing activity in the normal course of business and during times of market volatility. Committed
facilities of $445 million and uncommitted facilities of $600 million under the Parent's intercompany credit
agreements were available to its primary broker-dealer and FCM/FDM subsidiaries as of September 30, 2018. For
more information about these credit agreements, see "Long-term Debt and Other Borrowings — Intercompany
Credit Agreements" later in this section.
Broker-dealer and Futures Commission Merchant/Forex Dealer Member Subsidiaries
Our broker-dealer and FCM/FDM subsidiaries are subject to regulatory requirements that are intended to ensure
their liquidity and general financial soundness. Under the SEC's Uniform Net Capital Rule (Rule 15c3-1 under the
Securities Exchange Act of 1934, or the "Exchange Act"), our broker-dealer subsidiaries are required to maintain,
at all times, at least the minimum level of net capital required under Rule 15c3-1. For our clearing broker-dealer
subsidiary, the minimum net capital level is determined by a calculation described in Rule 15c3-1 that is primarily
based on the broker-dealer's "aggregate debits," which primarily consist of client margin balances at the clearing
broker-dealer. Since our aggregate debits may fluctuate significantly, our minimum net capital requirements may
also fluctuate significantly from period to period. The Parent may make cash capital contributions to our broker-
dealer and FCM/FDM subsidiaries, if necessary, to meet minimum net capital requirements.
Each of our broker-dealer subsidiaries may not repay any subordinated borrowings, pay cash dividends or make
any unsecured advances or loans to its parent company or employees if such payment would result in a net capital
amount of less than (a) 5% of aggregate debit balances or (b) 120% of its minimum dollar requirement.
TD Ameritrade Futures & Forex LLC ("TDAFF"), our FCM and FDM subsidiary, must provide notice to the CFTC
if its adjusted net capital amounts to less than (a) 110% of its risk-based capital requirement under CFTC Regulation
1.17, (b) 150% of its $1.0 million minimum dollar requirement, or (c) 110% of $20.0 million plus 5% of all liabilities
owed to forex clients in excess of $10.0 million. These broker-dealer, FCM and FDM net capital thresholds, which
are specified in Rule 17a-11 under the Exchange Act and CFTC Regulations 1.12 and 5.6, are typically referred to
as "early warning" net capital thresholds.
43
The following tables summarize our broker-dealer and FCM/FDM subsidiaries' net capital and adjusted net capital,
respectively, as of September 30, 2018 (dollars in millions):
TD Ameritrade Clearing, Inc. . . . . . . . . . . . . . . . . . .
TD Ameritrade, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2,831
181
$
$
1,312
0.3
$
$
1,519
181
Net Capital
Early Warning
Threshold
Net Capital in
Excess of
Early Warning
Threshold
Adjusted Net
Capital
Early Warning
Threshold
Adjusted Net
Capital in
Excess of
Early Warning
Threshold
TD Ameritrade Futures & Forex LLC . . . . . . . . . . . .
$
129
$
25
$
104
Our clearing broker-dealer subsidiary, TD Ameritrade Clearing, Inc. ("TDAC"), engages in activities such as settling
client securities transactions with clearinghouses, extending credit to clients through margin lending, securities
lending and borrowing transactions and processing client cash sweep transactions to and from bank deposit accounts
and money market mutual funds. These types of broker-dealer activities require active daily liquidity management.
Most of TDAC's assets are readily convertible to cash, consisting primarily of cash and investments segregated for
the exclusive benefit of clients, receivables from clients and receivables from brokers, dealers and clearing
organizations. Cash and investments segregated for the exclusive benefit of clients may be held in cash, reverse
repurchase agreements (collateralized by U.S. government debt securities), U.S. Treasury securities, U.S.
government agency mortgage-backed securities and other qualified securities. Receivables from clients consist of
margin loans, which are demand loan obligations secured by readily marketable securities. Receivables from brokers,
dealers and clearing organizations primarily arise from current open transactions, which usually settle or can be
settled within a few business days.
TDAC is subject to cash deposit and collateral requirements with clearinghouses such as the Depository Trust &
Clearing Corporation ("DTCC") and the Options Clearing Corporation ("OCC"), which may fluctuate significantly
from time to time based on the nature and size of our clients' trading activity.
The following table sets forth TDAC's cash and investments deposited with clearing organizations for the clearing
of client equity and option trades (dollars in millions):
September 30,
2018
2017
TD Ameritrade Clearing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
585
$
476
Liquidity needs for TDAC relating to client trading and margin borrowing are met primarily through cash balances
in client brokerage accounts and through lending and pledging of client margin securities. Cash balances in client
brokerage accounts not used for client trading and margin borrowing activity are not generally available for other
liquidity purposes and must be segregated for the exclusive benefit of clients under Rule 15c3-3 of the Exchange
Act.
Cash balances in client brokerage accounts are summarized in the following table (dollars in billions):
TD Ameritrade Clearing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
22.5
$
18.5
September 30,
2018
2017
44
Cash and investments segregated in special reserve bank accounts for the exclusive benefit of clients under Rule
15c3-3 are summarized in the following table (dollars in billions):
September 30,
2018
2017
TD Ameritrade Clearing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2.9
$
6.4
For general liquidity needs, TDAC currently maintains two senior unsecured committed revolving credit facilities
with an aggregate principal amount of $1.45 billion. TDAC also utilizes secured uncommitted lines of credit for
short-term liquidity needs. These facilities are described under "Long-term Debt and Other Borrowings" later in
this section.
In addition, we have established intercompany credit agreements under which the broker-dealer and FCM/FDM
subsidiaries may borrow from the Parent. The Parent's intercompany credit agreements with TDAC provides for
a committed revolving loan facility of $400 million and an uncommitted revolving loan facility of $300 million.
The intercompany credit agreements are described under "Long-Term Debt and Other Borrowings – Intercompany
Credit Agreements" later in this section.
Liquid Assets
Liquid assets is a non-GAAP financial measure. We include the excess capital of our regulated subsidiaries in the
calculation of liquid assets, rather than simply including the regulated subsidiaries' cash and cash equivalents,
because capital requirements may limit the amount of cash available for dividend from the regulated subsidiaries
to the parent company. Excess capital, as defined below, is generally available for dividend from the regulated
subsidiaries to the parent company. Liquid assets should be considered as a supplemental measure of liquidity,
rather than as a substitute for GAAP cash and cash equivalents.
We define liquid assets as the sum of (a) corporate cash and cash equivalents, (b) corporate investments, less securities
sold under agreements to repurchase, and (c) our regulated subsidiaries' net capital in excess of minimum operational
targets established by management. Corporate cash and cash equivalents includes cash and cash equivalents from
our investment advisory subsidiaries. Liquid assets is based on more conservative measures of net capital than
regulatory requirements because we generally manage to higher levels of net capital at our regulated subsidiaries
than the regulatory thresholds require. During fiscal year 2018, the presentation of the liquid assets metric was
revised in order to provide a consolidated view of our liquidity. Liquid assets may be utilized, as necessary, to meet
corporate cash flow needs, fund operational needs, satisfy applicable regulatory requirements and support our
business strategies. The prior period, which provided a view of our liquidity net of operational contingencies and
other obligations, has been updated to conform to the current presentation.
The following table sets forth a reconciliation of cash and cash equivalents, which is the most directly comparable
GAAP measure, to liquid assets (dollars in millions):
September 30,
2018
2017
Change
Cash and cash equivalents (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Non-corporate cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Corporate cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . .
Corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess regulatory net capital over management targets . . . . . . . . . . . . . . . . . .
$ 2,690
(2,307)
383
$ 1,472
(1,174)
298
386
296
714
46
$ 1,218
(1,133)
85
(328)
250
Liquid assets (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,065
$ 1,058
$
7
45
The changes in liquid assets are summarized as follows (dollars in millions):
Liquid assets as of September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,058
Plus:
EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in net capital related to daily futures client cash sweep . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Other changes in working capital and regulatory net capital . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash collateral pledged to interest rate swap counterparties . . . . . . . . . . . . .
Payment for future treasury stock purchases under accelerated stock repurchase
agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock for income tax withholding on stock-based compensation . . . . .
Cash paid in business acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquid assets as of September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,269
14
12
(694)
(477)
(352)
(255)
(229)
(118)
(111)
(31)
(17)
(4)
1,065
(1)
See "Financial Performance Metrics" earlier in this section for a description of EBITDA.
Long-term Debt and Other Borrowings
The following is a summary of our long-term debt and other borrowings. For additional details, see Note 10 —
Long-term Debt and Other Borrowings under Item 8, Financial Statements and Supplementary Information — Notes
to Consolidated Financial Statements.
Senior Notes — As of September 30, 2018 and 2017, the Company had $2.55 billion aggregate principal amount
of unsecured, fixed-rate Senior Notes due during calendar years 2019, 2022, 2025 and 2027 (together, the "Senior
Notes"). Our Senior Notes were each sold through a public offering and pay interest semi-annually in arrears. Key
information about the Senior Notes outstanding as of September 30, 2018 is summarized in the following table
(dollars in millions):
Description
2019 Notes. . . . . . . . . . . . . . .
2022 Notes. . . . . . . . . . . . . . .
2025 Notes. . . . . . . . . . . . . . .
2027 Notes. . . . . . . . . . . . . . .
Date Issued
November 25, 2009
March 4, 2015
October 17, 2014
April 27, 2017
Maturity Date
December 1, 2019
April 1, 2022
April 1, 2025
April 1, 2027
Aggregate
Principal
$500
$750
$500
$800
Interest Rate
5.600%
2.950%
3.625%
3.300%
During October 2018, the Company sold, through a public offering, an additional $1.0 billion aggregate principal
amount of unsecured senior notes, consisting of both variable and fixed-rate senior notes. Key information regarding
the recent debt issuance is summarized in the following table (dollars in millions):
Description
2021 Notes . . . . . . . . .
2024 Notes . . . . . . . . .
Date Issued
October 30, 2018
October 30, 2018
Maturity Date
November 1, 2021
April 1, 2024
Aggregate
Principal
$600
$400
Interest Rate
Variable
3.750%
46
Fair Value Hedging — We are exposed to changes in the fair value of our fixed-rate Senior Notes resulting from
interest rate fluctuations. To hedge this exposure, we entered into fixed-for-variable interest rate swaps on each of
the Senior Notes. Each fixed-for-variable interest rate swap has a notional amount and a maturity date matching
the aggregate principal amount and maturity date, respectively, for each of the respective Senior Notes.
The interest rate swaps effectively change the fixed-rate interest on the Senior Notes to variable-rate interest. Under
the terms of the interest rate swap agreements, we receive semi-annual fixed-rate interest payments based on the
same rates applicable to the Senior Notes, and make quarterly variable-rate interest payments based on three-month
LIBOR plus (a) 2.3745% for the swap on the 2019 Notes, (b) 0.9486% for the swap on the 2022 Notes, (c) 1.1022%
for the swap on the 2025 Notes and (d) 1.0340% for the swap on the 2027 Notes. As of September 30, 2018, the
weighted average effective interest rate on the aggregate principal balance of the Senior Notes was 3.62%.
Lines of Credit — TDAC utilizes secured uncommitted lines of credit for short-term liquidity. Under these secured
uncommitted lines, TDAC borrows on a demand basis from two unaffiliated banks and pledges client margin
securities as collateral. Advances under the secured uncommitted lines are dependent on having acceptable collateral
as determined by each secured uncommitted credit agreement. At September 30, 2018, the terms of the secured
uncommitted credit agreements do not specify borrowing limits. The availability of TDAC's secured uncommitted
lines is subject to approval by the individual banks each time an advance is requested and may be denied at their
discretion. There were no borrowings outstanding under the secured uncommitted lines of credit as of September 30,
2018.
Securities Sold Under Agreements to Repurchase (repurchase agreements) — Under repurchase agreements, we
receive cash from the counterparty and provide U.S. government debt securities as collateral. Our repurchase
agreements generally mature between 30 and 90 days following the transaction date and are accounted for as secured
borrowings. The weighted average interest rate on the $96 million outstanding repurchase agreement balance as
of September 30, 2018 was 2.35%.
TD Ameritrade Holding Corporation Senior Revolving Credit Facility — The Parent has access to a senior unsecured
committed revolving credit facility in the aggregate principal amount of $300 million (the "Parent Revolving
Facility"). The maturity date of the Parent Revolving Facility is April 21, 2022. There were no borrowings
outstanding under the Parent Revolving Facility as of September 30, 2018.
TD Ameritrade Clearing, Inc. Senior Revolving Credit Facilities — TDAC has access to two senior unsecured
committed revolving credit facilities with an aggregate principal amount of $1.45 billion, consisting of a $600
million (the "$600 Million Revolving Facility") and an $850 million (the "$850 Million Revolving Facility") senior
revolving facility. The maturity dates of the $600 Million Revolving Facility and the $850 Million Revolving
Facility are April 21, 2022 and May 16, 2019, respectively. There were no borrowings outstanding under the TDAC
senior revolving facilities as of September 30, 2018.
Intercompany Credit Agreements — The Parent has entered into credit agreements with each of its primary broker-
dealer and FCM/FDM subsidiaries, under which the Parent may make loans of cash or securities under committed
and/or uncommitted lines of credit. Key information about the committed and/or uncommitted lines of credit is
summarized in the following table (dollars in millions):
Borrower Subsidiary
TD Ameritrade Clearing, Inc.. . . . . . . . . . . . . . . . . . . .
TD Ameritrade, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
TD Ameritrade Futures & Forex LLC . . . . . . . . . . . . .
Committed
Facility
$400
N/A
$45
Uncommitted
Facility(1)
$300
$300
N/A
Termination Date
March 1, 2022
March 1, 2022
August 11, 2021
(1) The Parent is permitted, but under no obligation, to make loans under uncommitted facilities.
There were no borrowings outstanding under any of the intercompany credit agreements as of September 30, 2018.
47
Stock Repurchase Programs
On October 20, 2011, our board of directors authorized the repurchase of up to 30 million shares of our common
stock. During the first half of fiscal year 2016, we completed the October 20, 2011 stock repurchase authorization
by repurchasing the remaining 7.9 million shares at a weighted average purchase price of $29.42 per share. From
the inception of this stock repurchase authorization through its completion in March 2016, we repurchased a total
of 30 million shares at a weighted average purchase price of $29.19 per share.
On November 20, 2015, our board of directors authorized the repurchase of up to an additional 30 million shares
of our common stock. During fiscal year 2018, we repurchased approximately 4.6 million shares at a weighted
average purchase price of $55.52 per share. From the inception of this stock repurchase authorization through
September 30, 2018, we have repurchased approximately 8.6 million shares at a weighted average purchase price
of $43.31 per share. As of September 30, 2018, we had approximately 21.4 million shares remaining under the
November 20, 2015 stock repurchase authorization.
Cash Dividends
We declared $0.21 per share, $0.18 per share and $0.17 per share quarterly cash dividends on our common stock
during each quarter of fiscal years 2018, 2017 and 2016, respectively. We paid $477 million, $379 million and $362
million to fund the dividends for fiscal years 2018, 2017 and 2016, respectively.
We declared a $0.30 per share cash dividend on our common stock for the first quarter of fiscal year 2019, which
is payable on November 20, 2018 to all holders of record of our common stock as of November 6, 2018.
Off-Balance Sheet Arrangements
We enter into guarantees and other off-balance sheet arrangements in the ordinary course of business, primarily to
meet the needs of our clients and to manage our asset-based revenues. For information on these arrangements, see
the following sections under Item 8, Financial Statements and Supplementary Data — Notes to Consolidated
Financial Statements: "General Contingencies" and "Guarantees" in Note 15 — Commitments and Contingencies
and "Insured Deposit Account Agreement" in Note 21 — Related Party Transactions. Bank deposit account fees,
generated from the IDA agreement and other sweep arrangements with non-affiliated third-party depository financial
institutions, account for a significant percentage of our net revenues (28% of our net revenues for the fiscal year
ended September 30, 2018). These sweep arrangements enable our clients to invest in FDIC-insured (up to specified
limits) deposit products without the need for the Company to establish the significant levels of capital that would
be required to maintain our own bank charter.
48
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2018 (dollars in millions):
Contractual Obligations
Long-term debt obligations(1) . . . . . . . .
Securities sold under agreements to
repurchase . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . .
Purchase obligations(2) . . . . . . . . . . . . .
Employee severance and involuntary
termination costs(3) . . . . . . . . . . . . . .
Income taxes payable(4) . . . . . . . . . . . .
Payments Due by Period (Fiscal Years):
Less than
1 year
2019
Total
1-3 years
2020-21
3-5 years
2022-23
$
3,000
$
95
$
648
$
846
More than
5 years
After 2023
1,411
$
96
345
371
21
218
96
75
206
20
218
710
—
109
80
1
—
—
62
48
—
—
—
99
37
—
—
$
838
$
956
$
1,547
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,051
$
(1) Represents scheduled principal payments, estimated interest payments and commitment fees pursuant to the
Senior Notes, the interest rate swaps and the revolving credit facilities. Actual amounts of interest may vary
depending on changes in variable interest rates associated with the interest rate swaps.
(2)
Purchase obligations primarily relate to agreements for goods and services such as professional services,
property and equipment, software, telecommunications, market information, advertising and marketing.
Purchase obligations also includes obligations for contracts assumed in the acquisition of Scottrade. We are
consolidating certain functions as a result of the acquisition, which may result in the acceleration of future
obligations into fiscal year 2019.
(3)
Primarily consists of exit and involuntary termination costs incurred in connection with the consolidation of
certain functions and facilities following the Scottrade acquisition.
(4) A significant portion of our income taxes payable as of September 30, 2018 consists of liabilities for uncertain
tax positions and related interest and penalties. The timing of payments, if any, on liabilities for uncertain
tax positions cannot be predicted with reasonable accuracy.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk generally represents the risk of loss that may result from the potential change in the value of a financial
instrument as a result of fluctuations in interest rates and market prices. We have established policies, procedures
and internal processes governing our management of market risks in the normal course of our business operations.
Market-related Credit Risk
Two primary sources of credit risk inherent in our business are (1) client credit risk related to margin lending and
leverage and (2) counterparty credit risk related to securities lending and borrowing. We manage client margin
lending and leverage risk by requiring clients to maintain margin collateral in compliance with regulatory and
internal guidelines. The risks associated with margin lending and leverage increase during periods of rapid market
movements, or in cases where leverage or collateral is concentrated and market movements occur. We monitor
required margin levels daily and, pursuant to such guidelines, require our clients to deposit additional collateral, or
to reduce positions, when necessary. We continuously monitor client accounts to detect excessive concentration,
large orders or positions, patterns of day trading and other activities that may indicate increased risk to us. We
manage risks associated with our securities lending and borrowing activities by requiring credit approvals for
counterparties, by monitoring the market value of securities loaned and collateral values for securities borrowed on
a daily basis and requiring additional cash as collateral for securities loaned or return of collateral for securities
borrowed when necessary, and by participating in a risk-sharing program offered through the Options Clearing
Corporation.
49
We are party to interest rate swaps related to our long-term debt, which are subject to counterparty credit risk. Credit
risk on derivative financial instruments is managed by limiting activity to approved counterparties that meet a
minimum credit rating threshold and by entering into credit support agreements, or by utilizing approved central
clearing counterparties registered with the Commodity Futures Trading Commission. Our interest rate swaps require
daily collateral coverage, in the form of cash or U.S. Treasury securities, for the aggregate fair value of the interest
rate swaps.
Interest Rate Risk
As a fundamental part of our brokerage business, we invest in interest-earning assets and are obligated on interest-
bearing liabilities. In addition, we earn fees on our bank deposit account arrangements and on money market mutual
funds, which are subject to interest rate risk. Changes in interest rates could affect the interest earned on assets
differently than interest paid on liabilities. A rising interest rate environment generally results in us earning a larger
net interest spread. Conversely, a falling interest rate environment generally results in us earning a smaller net
interest spread.
Our most prevalent form of interest rate risk is referred to as "gap" risk. Gap risk occurs when the interest rates we
earn on assets change at a different frequency or amount than the interest rates we pay on liabilities. For example,
in a low interest rate environment, sharp increases in short-term interest rates could result in net interest spread
compression if the yields paid on interest-bearing client balances were to increase faster than our earnings on interest-
earning assets. We seek to mitigate interest rate risk by aligning the average duration of interest-earning assets with
that of interest-bearing liabilities. As of September 30, 2018, our consolidated duration was 2.0 years. We have an
Asset/Liability Committee serve as the governance body with the responsibility of managing interest rate risk,
including gap risk.
We use net interest simulation modeling techniques to evaluate the effect that changes in interest rates might have
on pre-tax income. Our model includes all interest-sensitive assets and liabilities of the Company and interest-
sensitive assets and liabilities associated with bank deposit account arrangements. The simulations involve
assumptions that are inherently uncertain and, as a result, cannot precisely predict the impact that changes in interest
rates will have on pre-tax income. Actual results may differ from simulated results due to differences in timing and
frequency of rate changes, changes in market conditions and changes in management strategy that lead to changes
in the mix of interest-sensitive assets and liabilities.
The simulations assume that the asset and liability structure of our Consolidated Balance Sheet and client bank
deposit account balances would not be changed as a result of a simulated change in interest rates. The results of
the simulations based on our financial position as of September 30, 2018 indicate that a gradual 1% (100 basis
points) increase in interest rates over a 12-month period would result in a range of approximately $85 million to
$170 million higher pre-tax income and a gradual 1% (100 basis points) decrease in interest rates over a 12-month
period would result in a range of approximately $140 million to $170 million lower pre-tax income, depending
largely on the extent and timing of possible increases in payment rates on client cash balances and interest rates
charged on client margin balances.
Other Market Risks
Substantially all of our revenues and financial instruments are denominated in U.S. dollars. We generally do not
enter into derivative transactions, except for hedging purposes.
50
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of TD Ameritrade Holding Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TD Ameritrade Holding Corporation (the
Company) as of September 30, 2018 and 2017, and the related consolidated statements of income, comprehensive
income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2018,
and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at
September 30, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the
period ended September 30, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2018, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) and our report dated November 16, 2018 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ ERNST & YOUNG LLP
We have served as the Company's auditor since 2005.
New York, New York
November 16, 2018
51
TD AMERITRADE HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2018 and 2017
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and investments segregated and on deposit for regulatory purposes . . . . . .
Receivable from brokers, dealers and clearing organizations . . . . . . . . . . . . . . . .
Receivable from clients, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities owned, at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments available-for-sale, at fair value (including $98 million and $99
million of securities pledged as collateral for repurchase agreements at
September 30, 2018 and 2017, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment at cost, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations . . . . . . . . . . . . . . . . . . .
Payable to clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders' equity:
Preferred stock, $0.01 par value, 100 million shares authorized; none issued . .
Common stock, $0.01 par value, one billion shares authorized; 670 million
shares issued; 2018 — 563 million shares outstanding; 2017 — 567 million
shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, common, at cost: 2018 — 107 million shares;
2017 — 103 million shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
See notes to consolidated financial statements.
52
2018
2017
(In millions)
$
$
$
2,690
3,185
1,374
22,616
151
304
156
484
792
4,227
1,329
212
37,520
2,980
22,884
896
45
96
2,439
177
29,517
1,472
10,446
1,334
17,151
137
174
503
746
752
4,213
1,470
229
38,627
2,504
25,107
815
109
97
2,555
193
31,380
—
—
7
3,379
7,011
(2,371)
4
(27)
8,003
37,520
$
7
3,369
6,011
(2,116)
1
(25)
7,247
38,627
TD AMERITRADE HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30, 2018, 2017 and 2016
Revenues:
Transaction-based revenues:
Commissions and transaction fees . . . . . . . . . . . . . . . . . . .
$
1,969
$
1,384
$
1,372
2018
2017
2016
(In millions, except per share amounts)
Asset-based revenues:
Bank deposit account fees . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment product fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total asset-based revenues . . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Employee compensation and benefits . . . . . . . . . . . . . . . . .
Clearing and execution costs . . . . . . . . . . . . . . . . . . . . . . . .
Communications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy and equipment costs . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense:
Interest on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of investments . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — basic . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — diluted . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Weighted average shares outstanding — basic. . . . . . . . . . . .
Weighted average shares outstanding — diluted . . . . . . . . . .
1,541
1,272
557
3,370
113
5,452
1,555
189
179
302
142
141
303
293
350
3,454
1,998
99
11
1
111
1,887
414
1,473
2.60
2.59
567
569
$
$
$
1,107
690
423
2,220
72
3,676
962
149
131
181
102
79
260
254
92
2,210
1,466
71
—
1
72
1,394
522
872
1.65
1.64
529
531
$
$
$
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.84
$
0.72
$
See notes to consolidated financial statements.
926
595
374
1,895
60
3,327
839
136
137
171
92
86
178
260
110
2,009
1,318
53
—
—
53
1,265
423
842
1.59
1.58
531
534
0.68
53
TD AMERITRADE HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended September 30, 2018, 2017 and 2016
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,473
(In millions)
$ 872
$ 842
2018
2017
2016
Other comprehensive income (loss), before tax:
Investments available-for-sale:
Unrealized loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized loss included in net income. . . . . . . .
Net change in investments available-for-sale . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedging instruments:
Reclassification adjustment for portion of realized loss amortized to net
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss), before tax . . . . . . . . . . . . . . . . .
Income tax effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . .
(12)
11
(1)
5
4
(2)
2
(9)
—
(9)
4
(5)
2
(3)
—
—
—
5
5
(2)
3
Comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,475
$ 869
$ 845
See notes to consolidated financial statements.
54
TD AMERITRADE HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 2018, 2017 and 2016
Total
Common
Shares
Outstanding
Total
Stockholders'
Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Deferred
Compensation
Accumulated
Other
Comprehensive
Loss
537
$
4,903
$
(In millions)
$
1,649
$ 5,038
$ (1,765) $
— $
(25)
6
—
—
—
—
—
—
—
6
—
—
—
—
1
—
—
—
—
7
—
—
—
—
—
—
—
—
—
(13)
34
1,670
—
—
—
400
1,261
—
2
—
36
3,369
—
—
—
—
842
—
(362)
—
—
—
—
5,518
872
—
(379)
—
—
—
—
—
—
6,011
1,473
—
(477)
—
—
—
—
(352)
(30)
26
—
(2,121)
—
—
—
—
—
(27)
32
—
—
(2,116)
—
—
—
(255)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
1
—
—
—
—
Repurchases of common stock .
(12)
Balance, September 30, 2015. . . .
Net income . . . . . . . . . . . . . . . .
Other comprehensive income,
net of tax. . . . . . . . . . . . . . . .
Payment of cash dividends . . . .
Repurchases of common stock
for income tax withholding
on stock-based
compensation . . . . . . . . . . . .
Common stock issued for
stock-based compensation,
including tax effects . . . . . . .
Stock-based compensation . . . .
Balance, September 30, 2016. . . .
Net income . . . . . . . . . . . . . . . .
Other comprehensive loss, net
of tax. . . . . . . . . . . . . . . . . . .
Payment of cash dividends . . . .
Issuance of common stock . . . .
Acquisition of Scottrade
Financial Services, Inc. . . . .
Repurchases of common stock
for income tax withholding
on stock-based
compensation . . . . . . . . . . . .
Common stock issued for
stock-based compensation,
including tax effects . . . . . . .
Deferred compensation . . . . . . .
Stock-based compensation . . . .
Balance, September 30, 2017. . . .
Net income . . . . . . . . . . . . . . . .
Other comprehensive income,
net of tax. . . . . . . . . . . . . . . .
Payment of cash dividends . . . .
Repurchases of common stock .
Future treasury stock purchases
under accelerated stock
repurchase agreement . . . . . .
Repurchases of common stock
for income tax withholding
on stock-based
compensation . . . . . . . . . . . .
Common stock issued for
stock-based compensation,
including tax effects . . . . . . .
Deferred compensation . . . . . . .
Stock-based compensation . . . .
Adoption of Accounting
Standards Update 2018-02
(Note 1). . . . . . . . . . . . . . . . .
Balance, September 30, 2018. . . .
—
—
—
842
3
(362)
(352)
(1)
(30)
2
—
526
—
—
—
11
28
13
34
5,051
872
(3)
(379)
400
1,262
(1)
(27)
3
—
—
567
—
—
—
(5)
—
—
1
—
—
—
34
1
36
7,247
1,473
2
(477)
(255)
(17)
—
1
60
—
(31)
—
(31)
—
—
—
—
—
—
—
—
7
—
(19)
—
60
—
—
—
—
—
4
(17)
19
(2)
—
—
$
3,379
$ 7,011
$ (2,371) $
—
—
3
—
—
4
$
563
$
8,003
$
See notes to consolidated financial statements.
55
—
3
—
—
—
—
—
(22)
—
(3)
—
—
—
—
—
—
—
(25)
—
2
—
—
—
—
—
—
—
(4)
(27)
TD AMERITRADE HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2018, 2017 and 2016
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts on client and other receivables. . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Cash and investments segregated and on deposit for regulatory purposes . . . . . . . . . . . . .
Receivable from brokers, dealers and clearing organizations . . . . . . . . . . . . . . . . . . . . . . .
Receivable from clients, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from/payable to affiliates, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities owned, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to brokers, dealers and clearing organizations. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to clients. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid in business acquisition, net of cash and cash equivalents acquired . . . . . . . . . . . . . . . .
Purchase of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale and maturity of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of investments available-for-sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of investments available-for-sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursement (payment) of prepayment premium on long-term debt . . . . . . . . . . . . . . . . . . .
Proceeds from senior revolving credit facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on senior revolving credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Proceeds from (payments on) securities sold under agreements to repurchase . . . . . . . . . .
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock for income tax withholding on stock-based compensation . . . . . . . .
Payment for future treasury stock purchases under accelerated stock repurchase agreement . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash investing activities:
Issuance of common stock in acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See notes to consolidated financial statements.
56
2018
2017
(In millions)
2016
$
1,473
$
872
$
842
142
141
(24)
11
60
69
18
7,261
(40)
(5,536)
(79)
(129)
347
(39)
476
(2,223)
(20)
1,908
(229)
12
(4)
(1)
66
(392)
643
(3)
92
—
(3)
—
2
3,225
(3,225)
(1)
(477)
—
—
(255)
(17)
(31)
(782)
1,218
1,472
2,690
118
352
$
$
$
102
79
(11)
—
36
6
12
1,818
23
(2,079)
(5)
41
(135)
(5)
110
(196)
31
699
(197)
—
(1,288)
(66)
4
—
—
—
(1,547)
798
(8)
(385)
(54)
—
—
97
(379)
400
23
—
(27)
—
465
(383)
1,855
1,472
59
483
— $
1,261
$
$
$
$
92
86
(8)
—
34
5
16
(2,424)
(328)
824
(11)
(16)
94
(17)
(667)
3,020
(58)
1,484
(105)
—
—
(605)
604
(757)
—
—
(863)
—
—
—
—
—
—
—
(362)
—
—
(352)
(30)
—
(744)
(123)
1,978
1,855
54
519
—
$
$
$
$
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 2018, 2017 and 2016
1. Nature of Operations and Summary of Significant Accounting Policies
Basis of Presentation — The consolidated financial statements include the accounts of TD Ameritrade Holding
Corporation (the "Parent"), a Delaware corporation, and its wholly-owned subsidiaries (collectively, the
"Company"). Intercompany balances and transactions have been eliminated.
Nature of Operations — The Company provides securities brokerage services, including trade execution, clearing
services and margin lending, through its broker-dealer subsidiaries; futures and foreign exchange trade execution
services through its futures commission merchant ("FCM") and forex dealer member ("FDM") subsidiary; and
trustee, custodial and other trust-related services to retirement plans and other custodial accounts through its state-
chartered trust company subsidiary. The Company also provides cash sweep and deposit account products through
third-party relationships, including relationships with affiliates.
The Company's broker-dealer subsidiaries are subject to regulation by the Securities and Exchange Commission
("SEC"), the Financial Industry Regulatory Authority ("FINRA") and the various exchanges in which they maintain
membership. The Company's FCM/FDM subsidiary is subject to regulation by the Commodity Futures Trading
Commission ("CFTC") and the National Futures Association ("NFA"). Dividends from the Company's broker-
dealer, FCM/FDM and trust company subsidiaries are a source of liquidity for the Parent. Requirements of the
SEC, FINRA and CFTC relating to liquidity, net capital standards and the use of client funds and securities may
limit funds available for the payment of dividends from the broker-dealer and FCM/FDM subsidiaries to the holding
company. State regulatory requirements may limit funds available for the payment of dividends from the trust
company subsidiary to the holding company.
Use of Estimates — The preparation of consolidated financial statements in conformity with U.S. generally accepted
accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents — The Company considers temporary, highly-liquid investments with an original
maturity of three months or less to be cash equivalents, except for amounts required to be segregated for regulatory
purposes.
Cash and Investments Segregated and on Deposit for Regulatory Purposes — Cash and investments segregated
and on deposit for regulatory purposes consists primarily of qualified deposits in special reserve bank accounts for
the exclusive benefit of clients under Rule 15c3-3 of the Securities Exchange Act of 1934 (the "Exchange Act") and
other regulations. Funds can be held in cash, reverse repurchase agreements, U.S. Treasury securities, U.S.
government agency mortgage-backed securities and other qualified securities. Reverse repurchase agreements
(securities purchased under agreements to resell) are treated as collateralized financing transactions and are carried
at amounts at which the securities will subsequently be resold, plus accrued interest. The Company's reverse
repurchase agreements are collateralized by U.S. government debt securities and generally have a maturity of seven
days. Cash and investments segregated and on deposit for regulatory purposes also includes amounts that have been
segregated or secured for the benefit of futures clients according to the regulations of the CFTC governing futures
commission merchants.
Securities Borrowed and Securities Loaned — Securities borrowed and securities loaned transactions are recorded
at the amount of cash collateral provided or received. Securities borrowed transactions require the Company to
provide the counterparty with collateral in the form of cash. The Company receives collateral in the form of cash
for securities loaned transactions. For these transactions, the fees earned or incurred by the Company are recorded
as net interest revenue on the Consolidated Statements of Income. The related interest receivable from and the
brokerage interest payable to broker-dealers are included in other receivables and in accounts payable and other
liabilities, respectively, on the Consolidated Balance Sheets.
57
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Receivable from/Payable to Clients — Receivable from clients primarily consists of margin loans to securities
brokerage clients, which are collateralized by client securities, and is carried at the amount receivable, net of an
allowance for doubtful accounts that is primarily based on the amount of unsecured margin balances. Payable to
clients primarily consists of client cash held in brokerage accounts and is carried at the amount of client cash on
deposit. The Company earns interest revenue and pays interest expense on its receivable from client and payable
to client balances, respectively. The interest revenue and expense are included in net interest revenue on the
Consolidated Statements of Income.
Securities Owned — Securities owned by our broker-dealer subsidiaries are recorded on a trade-date basis and
carried at fair value, and the related changes in fair value are generally included in other revenues on the Consolidated
Statements of Income.
Investments Available-for-sale — Investments available-for-sale are carried at fair value and unrealized gains and
losses, net of deferred income taxes, are reflected as a component of accumulated other comprehensive income
(loss) on the Consolidated Balance Sheets. Realized gains and losses on investments available-for-sale are
determined on the specific identification method and are reflected on the Consolidated Statements of Income. As
of September 30, 2018, investments available-for-sale consists of U.S. government debt securities with remaining
contractual maturities between less than one year and six years. There were no material unrealized gains or losses
on investments available-for-sale as of September 30, 2018 and 2017.
Property and Equipment — Property and equipment is recorded at cost, net of accumulated depreciation and
amortization, except for land, which is recorded at cost. Depreciation is provided using the straight-line method
over the estimated useful service lives of the assets, which range from seven to 40 years for buildings and building
components and three to seven years for all other depreciable property and equipment. Leasehold improvements
are amortized over the lesser of the economic useful life of the improvement or the term of the lease.
Software Development — From the date technological feasibility has been established until beta testing is complete,
software development costs are capitalized and included in property and equipment. Once the product is fully
functional, such costs are amortized in accordance with the Company's normal accounting policies. Software
development costs that do not meet capitalization criteria are expensed as incurred.
Goodwill — The Company has recorded goodwill for purchase business combinations to the extent the purchase
price of each completed acquisition exceeded the fair value of the net identifiable assets of the acquired company.
The Company tests goodwill for impairment on an annual basis and more frequently as events occur or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable. In performing the impairment
tests, the Company utilizes quoted market prices of the Company's common stock to estimate the fair value of the
Company as a whole. The estimated fair value is then allocated to the Company's reporting unit and is compared
with the carrying value of the reporting unit. No impairment charges have resulted from the annual impairment
tests.
Amortization of Acquired Intangible Assets — Acquired intangible assets with finite lives are amortized on a straight-
line basis over their estimated useful lives, ranging from two to 23 years. The acquired intangible asset associated
with a trademark license agreement is not subject to amortization because the term of the agreement is considered
to be indefinite.
Long-Lived Assets and Acquired Intangible Assets — The Company reviews its long-lived assets and finite-lived
acquired intangible assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. If based on that review, changes in circumstances indicate that the
carrying amount of such assets may not be recoverable, the Company evaluates recoverability by comparing the
undiscounted cash flows associated with the asset to the asset's carrying amount. The Company also evaluates the
remaining useful lives of intangible assets to determine if events or trends warrant a revision to the remaining period
of amortization. Long-lived assets classified as "held for sale" are reported at the lesser of carrying amount or fair
value less cost to sell. As of September 30, 2018 and 2017, the Company had $36 million and $5 million of assets
classified as held for sale, respectively, which are included in other assets on the Consolidated Balance Sheets.
58
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company tests its indefinite-lived acquired intangible asset for impairment on an annual basis and more
frequently as events occur or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. To determine if the indefinite-lived intangible asset is impaired, the Company first assesses certain
qualitative factors. Based on this assessment, if it is determined that more likely than not the fair value of the
indefinite-lived intangible asset is less than its carrying amount, the Company performs a quantitative impairment
test. No impairment charges have resulted from the annual impairment tests.
Securities Sold Under Agreements to Repurchase — Transactions involving sales of securities under agreements to
repurchase (repurchase agreements) are treated as collateralized financing transactions. Under repurchase
agreements, the Company receives cash from counterparties and provides U.S. Treasury securities as collateral.
These agreements are carried at amounts at which the securities will subsequently be repurchased, plus accrued
interest, and the interest expense incurred by the Company is recorded as interest on borrowings on the Consolidated
Statements of Income. See "General Contingencies" in Note 15, Commitments and Contingencies, for a discussion
of the potential risks associated with repurchase agreements and how the Company mitigates those risks.
Income Taxes — The Company files a consolidated U.S. income tax return with its subsidiaries on a calendar year
basis, combined returns for state tax purposes where required and certain of its subsidiaries file separate state income
tax returns where required. Deferred tax assets and liabilities are determined based on the differences between the
financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates expected to apply
to taxable income in the periods in which the deferred tax asset or liability is expected to be settled or realized.
Uncertain tax positions are recognized if they are more likely than not to be sustained upon examination, based on
the technical merits of the position. The amount of tax benefit recognized is the largest amount of benefit that is
greater than 50% likely of being realized upon settlement. The Company recognizes interest and penalties, if any,
related to income tax matters as part of the provision for income taxes on the Consolidated Statements of Income.
Capital Stock — The authorized capital stock of the Company consists of a single class of common stock and one
or more series of preferred stock as may be authorized for issuance by the Company's board of directors. Voting,
dividend, conversion and liquidation rights of the preferred stock would be established by the board of directors
upon issuance of such preferred stock.
Stock-Based Compensation — The Company measures and recognizes compensation expense based on estimated
grant date fair values for all stock-based payment arrangements. Stock-based compensation expense is based on
awards expected to vest and therefore is reduced for estimated forfeitures. Forfeitures are estimated at the time of
grant based on the Company's historical forfeiture experience and revised in subsequent periods if actual forfeitures
differ from those estimates.
Deferred Compensation — Company common stock held in a rabbi trust pursuant to a Company deferred
compensation plan is recorded at the fair value of the stock at the time it is transferred to the rabbi trust and is
classified as treasury stock. The corresponding deferred compensation liability is recorded as a component of
stockholders' equity on the Consolidated Balance Sheets.
Transaction-based Revenues — Client trades are recorded on a settlement-date basis with such trades generally
settling within one to two business days after the trade date. Revenues and expenses related to client trades, including
order routing revenue and revenues from markups on riskless principal trades in fixed-income securities, are recorded
on a trade-date basis. Revenues related to client trades are recorded net of promotional allowances. Securities
owned by clients, including those that collateralize margin or similar transactions, are not reflected in the
accompanying consolidated financial statements.
Bank Deposit Account Fees — Revenues generated from a sweep program that is offered to eligible clients of the
Company whereby clients' uninvested cash is swept to FDIC-insured (up to specified limits) money market accounts
at third-party financial institutions participating in the program. Bank deposit account fees includes revenues from
the Insured Deposit Account ("IDA") agreement with TD Bank USA, N.A. ("TD Bank USA"), TD Bank, N.A. and
The Toronto-Dominion Bank ("TD"). The IDA agreement is described further in Note 21, Related Party
Transactions.
59
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net Interest Revenue — Net interest revenue primarily consists of income generated by interest charged to clients
on margin balances, net interest revenue from securities borrowed and securities loaned transactions and interest
earned on client cash, net of interest paid to clients on their credit balances.
Investment Product Fees — Investment product fee revenue consists of revenues earned on client assets invested
in money market mutual funds, other mutual funds and certain investment programs. Investment product fees also
includes fees earned on client assets managed by independent registered investment advisors utilizing the Company's
trading and investing platforms.
Advertising — The Company expenses advertising costs the first time the advertising takes place. Client cash offers
are also characterized as advertising expense, rather than as a reduction of revenue, because there is generally little
or no cumulative revenue associated with an individual client earning a cash offer at the time the consideration is
recognized in the Consolidated Statement of Income.
Derivatives and Hedging Activities — The Company occasionally utilizes derivative instruments to manage risks,
which may include market price, interest rate and foreign currency risks. The Company does not use derivative
instruments for speculative or trading purposes. Derivatives are recorded on the Consolidated Balance Sheets as
assets or liabilities at fair value. Derivative instruments properly designated to hedge exposure to changes in the
fair value of assets or liabilities are accounted for as fair value hedges. Derivative instruments properly designated
to hedge exposure to the variability of expected future cash flows or other forecasted transactions are accounted for
as cash flow hedges. The Company formally documents the risk management objective and strategy for each hedge
transaction. Derivative instruments that do not qualify for hedge accounting are carried at fair value on the
Consolidated Balance Sheets with unrealized gains and losses recorded currently on the Consolidated Statements
of Income. Cash flows from derivative instruments accounted for as fair value hedges or cash flow hedges are
classified in the same category on the Consolidated Statements of Cash Flows as the cash flows from the items
being hedged. For additional information on the Company's fair value and cash flow hedging instruments, see
Note 10, Long-term Debt and Other Borrowings.
Earnings Per Share — Basic earnings per share ("EPS") is computed by dividing net income by the weighted
average common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted into common stock, except when
such assumed exercise or conversion would have an antidilutive effect on EPS. The difference between the numerator
and denominator used in the Company's computation of basic and diluted earnings per share consists of common
stock equivalent shares related to stock-based compensation. There were no material antidilutive awards for fiscal
years 2018 and 2017. The Company excluded from the calculation of diluted earnings per share 0.4 million shares
underlying the stock-based compensation awards for fiscal year 2016 because their inclusion would have been
antidilutive.
Recently Adopted Accounting Pronouncements
ASU 2018-05 – In March 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.
ASU 2018-05 amends Accounting Standards Codification ("ASC") 740, Income Taxes, to provide guidance on
accounting for the tax effects of the Tax Cuts and Jobs Act (the "Act") pursuant to Staff Accounting Bulletin No.
118, which allows entities to complete the accounting under ASC 740 within a one-year measurement period from
the Act's enactment date. This ASU was effective upon issuance. For additional information regarding the Company's
accounting for the tax effects of the Act under this guidance, see Note 11, Income Taxes.
ASU 2018-02 – In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income, to allow a reclassification from accumulated other comprehensive
income (loss) to retained earnings for stranded income tax effects resulting from the Tax Cuts and Jobs Act enacted
on December 22, 2017, and requires certain disclosures about stranded tax effects. The Company elected to early
adopt the standard in the fourth quarter of fiscal year 2018, applying the updates in the period of adoption. As a
result of the adoption, the Company reclassified $4 million of income tax benefits, related to cash flow hedging
60
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
instruments, from accumulated other comprehensive loss to retained earnings on its Consolidated Balance Sheet.
The reclassification related only to the change in the federal corporate income tax rate due to the Act.
ASU 2016-09 – In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment
Accounting. The guidance in ASU 2016-09 simplified several aspects of the accounting for share-based payment
transactions, including: (1) recognize all excess tax benefits and tax deficiencies as income tax expense or benefit
in the statement of income; (2) treat tax effects of exercised or vested awards as discrete items in the period in which
they occur; (3) recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current
period; (4) classify excess tax benefits with other income tax cash flows as an operating activity; (5) an entity can
make an accounting policy election to either estimate the number of awards that are expected to vest or account for
forfeitures when they occur; (6) the threshold to qualify for equity classification will permit withholding up to the
maximum statutory rates in the applicable jurisdictions; and (7) classify cash paid by an employer when directly
withholding shares for tax withholding purposes as a financing activity in the statement of cash flows. The Company
adopted the amended accounting guidance as of October 1, 2017, and as a result, the Company's provision for
income taxes was reduced by $5 million on its Consolidated Statement of Income for the fiscal year ended September
30, 2018, due to the inclusion of excess tax benefits applied on a prospective basis. The future effects of excess tax
benefits and tax deficiencies recognized in the Company's earnings will depend on the volume of equity compensation
during a particular period and on the market price of the Company's common stock at the date the equity awards
either vest or are exercised. In addition, the Company elected to retrospectively adopt the amendment to present
excess tax benefits on share-based compensation as an operating activity on the statement of cash flows. This
resulted in an increase in cash flows from operating activities and a decrease in cash flows from financing activities
of $12 million and $16 million on the Company's Consolidated Statement of Cash Flows for the fiscal years ended
September 30, 2017 and 2016, respectively. For the purpose of recognizing compensation cost associated with
share-based awards, the Company has elected to continue to follow its current practice of estimating forfeitures.
None of the other provisions in this amended guidance had a significant impact on the Company's consolidated
financial statements.
Recently Issued Accounting Pronouncements
ASU 2018-13 – In August 2018, the FASB issued ASU 2018-13, Disclosure Framework–Changes to the Disclosure
Requirements for Fair Value Measurement. The amendments in this standard will remove, modify and add certain
disclosures under ASC Topic 820, Fair Value Measurement, with the objective of improving disclosure effectiveness.
ASU 2018-13 will be effective for the Company's fiscal year beginning October 1, 2020, with early adoption
permitted. The transition requirements are dependent upon each amendment within this update and will be applied
either prospectively or retrospectively. Since this update is intended to modify disclosures, the adoption of ASU
2018-13 is not expected to have a material impact on the Company's consolidated financial statements.
ASU 2017-12 – In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging
Activities, which will amend the guidance in ASC Topic 815, Derivatives and Hedging. The objective of this ASU
is to improve the financial reporting of hedging relationships to better portray the economic results of an entity's
risk management activities in its financial statements through changes to both the designation and measurement
guidance for qualifying hedging relationships and to the presentation of hedge results. In addition, the amendments
in this ASU make certain targeted improvements to simplify the application of the hedge accounting guidance in
current GAAP. All transition requirements and elections under ASU 2017-12 should be applied to hedging
relationships existing on the date of adoption, with the effect of the adoption reflected as of the beginning of the
fiscal year of adoption. The amended presentation and disclosure guidance is required only prospectively. ASU
2017-12 will be effective for the Company's fiscal year beginning October 1, 2019, with early adoption permitted.
The Company is currently assessing the impact this ASU will have on its consolidated financial statements.
ASU 2017-04 – In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment,
which is intended to simplify the test for goodwill impairment by eliminating Step 2 from the goodwill impairment
test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill
with the carrying amount of that goodwill. Under the amendments in this ASU, an entity should perform its annual
61
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should
recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value;
however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. When
measuring the goodwill impairment loss, income tax effects from any tax deductible goodwill on the carrying amount
of the reporting unit should be considered, if applicable. An entity will still have the option to perform the qualitative
assessment for a reporting unit to determine if the quantitative test is necessary. ASU 2017-04 should be applied
prospectively and will be effective for the Company's fiscal year beginning October 1, 2020, with early adoption
permitted. The Company does not expect this ASU to have a material impact on its consolidated financial statements.
ASU 2016-18 – In November 2016, the FASB issued ASU 2016-18, Restricted Cash. This ASU will amend the
guidance in ASC Topic 230, Statement of Cash Flows, and is intended to reduce the diversity in the classification
and presentation of changes in restricted cash on the statement of cash flows. The amendments within this ASU
will require that the reconciliation of the beginning-of-period and end-of-period cash and cash equivalents amounts
shown on the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash and
restricted cash equivalents are presented separately from cash and cash equivalents on the balance sheet, an entity
will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance
sheet. An entity will also be required to disclose information regarding the nature of the restrictions. ASU 2016-18
requires retrospective application and became effective for the Company's fiscal year beginning October 1, 2018.
The adoption of ASU 2016-18 will change the manner in which restricted cash and restricted cash equivalents are
presented in the Company's consolidated financial statements.
ASU 2016-16 – In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than
Inventory. This ASU will amend the guidance in ASC Topic 740, Income Taxes. The amendments in this ASU are
intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than
inventory by requiring an entity to recognize the income tax consequences when a transfer occurs, instead of when
the asset is sold to a third party. ASU 2016-16 requires modified retrospective adoption and became effective for
the Company's fiscal year beginning October 1, 2018. The adoption of ASU 2016-16 did not have an impact on
the Company's consolidated financial statements.
ASU 2016-13 – In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial
Instruments. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful
information about the expected credit losses on financial instruments and other commitments to extend credit held
by an entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred
loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable information to develop credit loss estimates. ASU
2016-13 will be effective for the Company's fiscal year beginning October 1, 2020, using a modified retrospective
approach. Early adoption is permitted. The Company is currently assessing the impact this ASU will have on its
consolidated financial statements.
ASU 2016-02 – In February 2016, the FASB issued ASU 2016-02, Leases. This ASU will supersede the guidance
in ASC Topic 840, Leases. Under ASU 2016-02, for lease arrangements exceeding a 12-month term, a lessee will
be required to recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-
use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 will retain a distinction
between finance and operating leases; however, the principal difference from the previous guidance is that lease
assets and liabilities arising from operating leases will be recognized in the balance sheet. The recognition,
measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly
change from current GAAP. The accounting applied by a lessor will be largely unchanged from that applied under
current GAAP. Subsequent to issuing ASU 2016-02, the FASB has issued additional standards for the purpose of
clarifying certain aspects of ASU 2016-02 and providing an additional (optional) transition method with which to
adopt the new leases standard. The subsequently issued ASUs have the same effective date and transition
requirements as ASU 2016-02. Under ASU 2016-02, an entity may apply the amendments by using one of the
following two methods: (1) recognize and measure leases at the beginning of the earliest period presented using a
modified retrospective approach or (2) apply the standard at the adoption date and recognize a cumulative-effect
62
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
adjustment to the opening balance of retained earnings in the period of adoption. ASU 2016-02 will be effective
for the Company's fiscal year beginning October 1, 2019, with early adoption permitted. The Company has not
selected a transition method and is currently assessing the impact of this ASU, but does not expect the standard to
have a material impact on its net income. Upon adoption of ASU 2016-02, the Company expects to recognize right-
of-use assets and lease liabilities for its operating leases, with initial measurement as defined by the ASU, in its
Consolidated Balance Sheets.
ASU 2014-09 – In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify
the principles of recognizing revenue from contracts with customers and to improve financial reporting by creating
common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. This ASU
will supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-
specific guidance. Entities are required to apply the following steps when recognizing revenue under ASU 2014-09:
(1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine
the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize
revenue when (or as) the entity satisfies a performance obligation. This ASU also requires additional disclosures
related to the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.
An entity may apply the amendments by using one of the following two methods: (1) retrospective application to
each prior reporting period presented or (2) a modified retrospective approach, requiring the standard be applied
only to the most current period presented, with the cumulative effect of initially applying the standard recognized
at the date of initial application. ASU 2014-09 is effective for annual reporting periods beginning after December
15, 2017, including interim periods within that reporting period, with early adoption permitted. Subsequent to
issuing ASU 2014-09, the FASB has issued additional standards for the purpose of clarifying certain aspects of ASU
2014-09. The subsequently issued ASUs have the same effective date and transition requirements as ASU 2014-09.
The guidance does not apply to revenue associated with financial instruments, such as interest revenue, which is
accounted for under other GAAP. Accordingly, net interest revenue will not be impacted. The Company adopted
the revenue recognition standard as of October 1, 2018 using the modified retrospective method of adoption. This
adoption did not have a material impact on the Company's financial condition, results of operations or cash flows
as the satisfaction of performance obligations under the new guidance is materially consistent with the Company's
previous revenue recognition policies. Similarly, the amended guidance did not have a material impact on the
recognition of costs incurred to obtain new contracts with clients. The Company's implementation work is now
substantially complete and the additional disclosure requirements will be reflected in interim reporting beginning
in the first quarter of fiscal year 2019.
2. Business Acquisition
On September 18, 2017, the Company completed its acquisition of Scottrade Financial Services, Inc. ("Scottrade"),
pursuant to an Agreement and Plan of Merger dated October 24, 2016 (the "Acquisition"), among the Company,
Rodger O. Riney, as Voting Trustee of the Rodger O. Riney Family Voting Trust U/A/D 12/31/2012 (the "Riney
Stockholder"), and Alto Acquisition Corp., a wholly-owned subsidiary of the Company. Founded in 1980, Scottrade
provided securities brokerage and investment services to retail investors and traders, and independent registered
investment advisors through its online platform as well as through nearly 500 branch locations.
Immediately prior to the closing of the Acquisition, pursuant to the terms and conditions set forth in a separate
Agreement and Plan of Merger, TD Bank, N.A., a wholly-owned subsidiary of The Toronto-Dominion Bank ("TD"),
acquired Scottrade Bank, which was a wholly-owned subsidiary of Scottrade, from Scottrade (the "Bank Merger")
for approximately $1.37 billion in cash (the "Bank Merger Consideration"). Immediately prior to the closing of the
Acquisition, the Company also issued 11,074,197 shares of the Company's common stock to TD at a price of $36.12
per share, or approximately $400 million, pursuant to a subscription agreement dated October 24, 2016 between
the Company and TD. Immediately following the Bank Merger, the Acquisition was completed. The aggregate
consideration paid by the Company for all of the outstanding capital stock of Scottrade consisted of 27,685,493
shares of the Company's common stock and $3.07 billion in cash (the "Cash Consideration"). The Cash Consideration
was funded with the Bank Merger Consideration paid by TD Bank, N.A. to Scottrade, the proceeds received from
63
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the Company's issuance of the 3.300% Senior Notes on April 27, 2017, cash on hand and cash proceeds from the
sale of the Company's common stock to TD, as described above. At the closing of the Acquisition, 1,736,815 shares
of the Company's common stock otherwise payable to the Riney Stockholder were deposited into a third-party
custodian account (the “Escrow Account”) pursuant to an escrow agreement to secure certain indemnification
obligations of the Riney Stockholder.
In connection with the closing of the Acquisition, the Company entered into a registration rights agreement with
TD, the Riney Stockholder and the other stockholders described therein (the "Ricketts Stockholders") providing for
certain customary registration rights with respect to their shares of the Company's common stock. Additionally,
the Company and the Riney Stockholder entered into a stockholders agreement (the "Riney Stockholders
Agreement"), which contained various provisions relating to stock ownership, voting, election of directors and other
matters. On December 14, 2017, all of the Company's common stock received as consideration by the Riney
Stockholder in the Acquisition, including shares held in the Escrow Account, were sold in a public offering. Prior
to the public offering, the Riney Stockholder replaced the shares previously held in the Escrow Account with cash.
As a result of the Riney Stockholder no longer owning any shares of the Company's common stock, the registration
rights agreement was terminated solely with respect to the Riney Stockholder and the Riney Stockholders Agreement
was terminated.
The Company accounted for the purchase of Scottrade using the acquisition method of accounting under GAAP
and accordingly, the purchase price of the Acquisition was allocated to the assets acquired and liabilities assumed
based on their estimated fair values as of the date of acquisition. During the fiscal year ended September 30, 2018,
the Company recorded purchase accounting adjustments, primarily attributable to post-closing adjustments related
to the Bank Merger Consideration, assets acquired and liabilities assumed, resulting in a net increase in goodwill
of $14 million. The purchase price allocation was finalized during September 2018, one-year from the anniversary
of the Acquisition. Differences between purchase accounting estimates and actual results that arose prior to
September 18, 2018 resulted in adjustments to the purchase price allocation. Any such adjustments arising on or
after September 18, 2018 will be recorded in earnings. Goodwill associated with the Acquisition was primarily
attributable to the anticipated synergies from combining the operations of the Company and Scottrade.
Approximately $1.63 billion of the goodwill associated with the Acquisition is expected to be deductible for income
tax purposes.
The purchase price for Scottrade was comprised of the following (dollars in millions):
TD Ameritrade Holding Corporation common stock issued to the Riney Stockholder and the
Escrow Account(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid at closing(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,261
3,073
4,334
(1) Represents the value of 27,685,493 shares of the Company's common stock at a price of $45.55 per share. The
per share value is based on the opening market price of the Company's common stock as of September 18, 2017,
the Acquisition date. As discussed above, the shares held in the Escrow Account were sold and replaced with
cash.
(2) Includes $1.37 billion of Bank Merger Consideration paid by TD Bank, N.A. to Scottrade, which was used to
fund a portion of the Acquisition.
64
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The purchase price allocation for Scottrade is summarized as follows (dollars in millions):
Cash and cash equivalents(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and investments segregated and on deposit for regulatory purposes . . . . . . . . . . . . . . .
Receivable from brokers, dealers and clearing organizations . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from clients, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to brokers, dealers and clearing organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provisional purchase price allocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,785
3,535
167
3,136
2
54
37
136
1,760
974
70
35
11,691
(354)
(6,248)
(272)
(47)
(436)
(7,357)
4,334
(1) Includes $1.37 billion of Bank Merger Consideration paid by TD Bank, N.A. to Scottrade, which was used to
fund a portion of the Acquisition.
(2) On the date of Acquisition, amounts owed by Scottrade under its 6.125% senior notes, including a prepayment
premium, and the amount owed under its 6.18% secured loan were repaid by the Company.
The results of operations for Scottrade are included in the Company's consolidated financial statements from the
date of Acquisition. The following unaudited pro forma financial information sets forth the results of operations
of the Company as if the Acquisition had occurred on October 1, 2015, the beginning of the comparable fiscal year
prior to the year of Acquisition. The unaudited pro forma results include certain adjustments for acquisition-related
costs, depreciation, amortization of intangible assets, interest expense on acquisition financing, and related income
tax effects, and do not reflect potential revenue enhancements, cost savings or operating synergies that the Company
expects to realize after the Acquisition. The unaudited pro forma financial information is based on currently available
information, is presented for informational purposes only, and is not indicative of future operations or results had
the Acquisition been completed as of October 1, 2015 or any other date.
65
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the unaudited pro forma financial information for the fiscal years indicated (dollars
in millions):
Pro forma net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
2017
2016
(unaudited)
4,586
921
1.62
1.62
$
$
$
$
4,158
700
1.23
1.22
3. Cash and Cash Equivalents
The Company's cash and cash equivalents is summarized in the following table (dollars in millions):
Broker-dealer subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust company subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Futures commission merchant and forex dealer member subsidiary. . . . . . . . . . . . . . . . . . .
Investment advisory subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
$ 2,094
2017
$ 997
342
124
89
41
279
79
98
19
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,690
$ 1,472
Capital requirements may limit the amount of cash available for dividend from the broker-dealer, trust company
and FCM/FDM subsidiaries to the Parent.
4. Cash and Investments Segregated and on Deposit for Regulatory Purposes
Cash and investments segregated and on deposit for regulatory purposes consists of the following (dollars in
millions):
U.S. government agency mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash in demand deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reverse repurchase agreements (collateralized by U.S. government debt securities) . . .
Cash on deposit with futures commission merchants . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government debt securities on deposit with futures commission merchant . . . . . . .
September 30,
2018
$ 1,302
2017
$ 1,486
956
500
202
200
25
3,653
1,004
209
4,019
75
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,185
$ 10,446
66
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. Receivable from and Payable to Brokers, Dealers and Clearing Organizations
Amounts receivable from and payable to brokers, dealers and clearing organizations consist of the following (dollars
in millions):
September 30,
2018
2017
Receivable:
Deposits paid for securities borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 803
$ 1,154
Clearing organizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker-dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities failed to deliver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
545
14
12
151
21
8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,374
$ 1,334
Payable:
Deposits received for securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,914
$ 2,449
Securities failed to receive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clearing organizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broker-dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
29
3
21
32
2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,980
$ 2,504
6. Allowance for Doubtful Accounts on Receivables
The following table summarizes activity in the Company's allowance for doubtful accounts on client and other
receivables for the fiscal years indicated (dollars in millions):
Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired in business acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
2017
2016
$
$
11
56
—
(13)
$
9
2
2
(2)
12
2
—
(5)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
54
$
11
$
9
67
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. Property and Equipment
Property and equipment consists of the following (dollars in millions):
Buildings and building components. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building construction in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
$ 462
2017
$ 351
326
178
176
—
61
92
270
215
173
101
77
83
1,295
(503)
1,270
(518)
Property and equipment at cost, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 792
$ 752
8. Goodwill and Acquired Intangible Assets
The Company has recorded goodwill for business acquisitions 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 (dollars in millions):
Balance as of September 30, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill recorded in acquisition of Scottrade (see Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of September 30, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase accounting adjustments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of September 30, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2,467
1,746
4,213
14
4,227
(1) The purchasing accounting adjustments are primarily attributable to post-closing adjustments related to the Bank
Merger Consideration, property acquired and liabilities assumed in the acquisition of Scottrade. The purchase
price allocation was finalized during September 2018, one-year from the anniversary of the Acquisition.
Differences between purchase accounting estimates and actual results that arose prior to September 18, 2018
resulted in adjustments to the purchase price allocation. Any such adjustments arising on or after September
18, 2018 will be recorded in earnings.
68
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquired intangible assets consist of the following (dollars in millions):
Client relationships . . . . . . .
Technology and content . . .
Trade names . . . . . . . . . . . .
Trademark license. . . . . . . .
September 30,
2018
Gross
Carrying
Amount
$ 2,183
Accumulated
Amortization
$
(1,003)
Net
Carrying
Amount
$ 1,180
Gross
Carrying
Amount
$ 2,183
108
10
146
(108)
(7)
—
—
3
146
108
10
146
2017
Accumulated
Amortization
$
(877)
(100)
—
—
Net
Carrying
Amount
$ 1,306
8
10
146
$ 2,447
$
(1,118)
$ 1,329
$ 2,447
$
(977)
$ 1,470
Amortization expense on acquired intangible assets was $141 million, $79 million and $86 million for fiscal years
2018, 2017 and 2016, respectively. Estimated future amortization expense for acquired finite-lived intangible assets
outstanding as of September 30, 2018 is as follows (dollars in millions):
Fiscal Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter (to 2035). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Estimated
Amortization
Expense
124
116
106
105
75
657
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,183
69
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Exit Liabilities
As of September 18, 2017, the date of Acquisition, the Company began to incur costs in connection with actions
taken to attain synergies from combining the operations of the Company and Scottrade. These costs, collectively
referred to as "acquisition-related exit costs," include severance and other costs associated with consolidating
facilities and administrative functions. As of September 30, 2018, substantially all of the acquisition-related exit
costs associated with the Acquisition have been incurred.
The following table summarizes activity in the Company's exit liabilities for the fiscal years ended September 30,
2018 and 2017, which are included in accounts payable and other liabilities on the Consolidated Balance Sheets
(dollars in millions):
Balance, September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . .
Exit liabilities assumed in business acquisition . . . . . . . .
Costs incurred and charged to expense . . . . . . . . . . . . . .
Costs paid or otherwise settled . . . . . . . . . . . . . . . . . . . .
Balance, September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . .
Exit liabilities assumed - post closing adjustments . . . . .
Costs incurred and charged to expense . . . . . . . . . . . . . .
Costs paid or otherwise settled . . . . . . . . . . . . . . . . . . . .
Balance, September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . .
Severance Pay
and Other
Employment
Benefits
Contract
Termination
and Other
Costs
$
4
$
—
$
100
43 (1)
(9)
138
—
235 (1)
(352)
21
$
—
1 (2)
(1)
—
9
213 (2)
(174)
48
$
$
Total
4
100
44
(10)
138
9
448
(526)
69
(1) Costs incurred for severance pay and other employment benefits are included in employee compensation and
benefits on the Consolidated Statements of Income.
(2) Costs incurred for contract termination and other costs are primarily included in other operating expense and
professional services on the Consolidated Statements of Income.
There were no material exit costs incurred which were not associated with the Scottrade acquisition during fiscal
years 2018, 2017 and 2016.
The following table summarizes the cumulative amount of acquisition related exit costs incurred by the Company
related to the Scottrade acquisition as of September 30, 2018 (dollars in millions):
Exit liabilities assumed in business acquisition . . . . . . . . . . . . . . .
Employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . .
Clearing and execution costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy and equipment costs. . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Total
$
Severance Pay
and Other
Employment
Benefits
Contract
Termination
and Other
Costs
$
$
100
267
—
—
—
—
—
—
9
—
1
1
7
30
173
2
$
367
$
223
$
109
267
1
1
7
30
173
2
590
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. Long-term Debt and Other Borrowings
Long-term debt and other borrowings consist of the following (dollars in millions):
September 30, 2018
Other borrowings:
Securities sold under agreements to repurchase. . .
Long-term debt:
Senior Notes:
5.600% Notes due 2019 . . . . . . . . . . . . . . . . . . . .
2.950% Notes due 2022 . . . . . . . . . . . . . . . . . . . .
3.625% Notes due 2025 . . . . . . . . . . . . . . . . . . . .
3.300% Notes due 2027 . . . . . . . . . . . . . . . . . . . .
Subtotal - Long-term debt . . . . . . . . . . . . . . . . .
Unamortized
Discounts and
Debt Issuance
Costs
Face
Value
Fair Value
Adjustment(1)
Net Carrying
Value
$
96
$
— $
— $
96
500
750
500
800
2,550
(1)
(4)
(3)
(9)
(17)
2
(27)
(17)
(52)
(94)
501
719
480
739
2,439
2,535
Total long-term debt and other borrowings . . .
$
2,646
$
(17) $
(94) $
September 30, 2017
Other borrowings:
Unamortized
Discounts and
Debt Issuance
Costs
Face
Value
Fair Value
Adjustment(1)
Net Carrying
Value
Securities sold under agreements to repurchase . .
$
97
$
— $
— $
97
Long-term debt:
Senior Notes:
5.600% Notes due 2019 . . . . . . . . . . . . . . . . . . . . .
2.950% Notes due 2022 . . . . . . . . . . . . . . . . . . . . .
3.625% Notes due 2025 . . . . . . . . . . . . . . . . . . . . .
3.300% Notes due 2027 . . . . . . . . . . . . . . . . . . . . .
Subtotal - Long-term debt . . . . . . . . . . . . . . . . .
500
750
500
800
2,550
(1)
(5)
(3)
(9)
(18)
15
—
11
(3)
23
Total long-term debt and other borrowings . . . .
$
2,647
$
(18) $
23
$
514
745
508
788
2,555
2,652
(1) Fair value adjustments relate to changes in the fair value of the debt while in a fair value hedging relationship.
See "Fair Value Hedging" below.
Fiscal year maturities on long-term debt outstanding at September 30, 2018 are as follows (dollars in millions):
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
500
—
750
—
1,300
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,550
71
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Senior Notes — As of September 30, 2018 and 2017, the Company had $2.55 billion aggregate principal amount
of unsecured, fixed-rate Senior Notes due during calendar years 2019, 2022, 2025 and 2027 (together, the "Senior
Notes"). The Company's Senior Notes were each sold through a public offering and pay interest semi-annually in
arrears. Key information about the Senior Notes outstanding as of September 30, 2018 is summarized in the following
table (dollars in millions):
Description
2019 Notes . . . . . . . . . . . . . .
2022 Notes . . . . . . . . . . . . . .
2025 Notes . . . . . . . . . . . . . .
2027 Notes . . . . . . . . . . . . . .
Date Issued
November 25, 2009
Maturity Date
December 1, 2019
March 4, 2015
October 17, 2014
April 27, 2017
April 1, 2022
April 1, 2025
April 1, 2027
Aggregate
Principal
$500
$750
$500
$800
Interest Rate
5.600%
2.950%
3.625%
3.300%
The Company used the proceeds from the issuance of the 2027 Notes during fiscal year 2017 to finance a portion
of the cash consideration paid by the Company in its acquisition of Scottrade.
The 2022 Notes, 2025 Notes and 2027 Notes are not required to be guaranteed by any of the Company's subsidiaries.
Prior to April 21, 2017, the 2019 Notes were required to be jointly, severally, fully and unconditionally guaranteed
by each of the Company's current and future subsidiaries that was or became a borrower or a guarantor under the
TD Ameritrade Holding Corporation Credit Agreement described below. As of April 21, 2017, the obligations under
the TD Ameritrade Holding Corporation Credit Agreement are no longer guaranteed by any subsidiary of the Parent;
therefore the guarantee of the 2019 Notes was released.
The Company may redeem the 2019 Notes, in whole at any time or in part from time to time, at a redemption price
equal to the greater of (a) 100% of the principal amount of the notes being redeemed, and (b) the sum of the present
values of the remaining scheduled payments of principal and interest on the notes being redeemed, discounted to
the date of redemption on a semi-annual basis at the comparable U.S. Treasury rate, plus 35 basis points, plus accrued
and unpaid interest to the date of redemption.
The Company may redeem the 2022 Notes, 2025 Notes and 2027 Notes, in whole or in part, at any time prior to
February 1, 2022, January 1, 2025 and January 1, 2027, respectively, at a redemption price equal to the greater of
(a) 100% of the principal amount of the notes being redeemed, and (b) the sum of the present values of the remaining
scheduled payments of principal and interest on the notes being redeemed, discounted to the date of redemption on
a semi-annual basis at the comparable U.S. Treasury rate, plus 15 basis points in the case of the 2022 Notes, 25
basis points in the case of the 2025 Notes and 20 basis points in the case of the 2027 Notes, plus, in each case,
accrued and unpaid interest to the date of redemption. The Company may redeem the 2022 Notes, 2025 Notes and
2027 Notes, in whole or in part, at any time on or after February 1, 2022, January 1, 2025 and January 1, 2027,
respectively, at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus, in each
case, accrued and unpaid interest to the date of redemption.
On October 30, 2018, the Company sold, through a public offering, an additional $1.0 billion aggregate principal
amount of unsecured senior notes, consisting of both variable and fixed-rate notes. Key information regarding the
recent debt issuance is summarized in the following table (dollars in millions):
Description
2021 Notes . . . . . . . . .
2024 Notes . . . . . . . . .
Date Issued
October 30, 2018
October 30, 2018
Maturity Date
November 1, 2021
April 1, 2024
Aggregate
Principal
$600
$400
Interest Rate
Variable
3.75%
For additional details regarding the October 30, 2018 debt issuance, see Note 24, Subsequent Event.
Lines of Credit — TD Ameritrade Clearing, Inc. ("TDAC"), a clearing broker-dealer subsidiary of the Company,
utilizes secured uncommitted lines of credit for short-term liquidity. Under the secured uncommitted lines, TDAC
borrows on a demand basis from two unaffiliated banks and pledges client margin securities as collateral. Advances
72
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
under the secured uncommitted lines are dependent on having acceptable collateral as determined by each secured
uncommitted credit agreement. At September 30, 2018, the terms of the secured uncommitted credit agreements
do not specify borrowing limits. The availability of TDAC's secured uncommitted lines is subject to approval by
the individual banks each time an advance is requested and may be denied. There were no borrowings outstanding
under the secured uncommitted lines of credit as of September 30, 2018.
Securities Sold Under Agreements to Repurchase (repurchase agreements) — Under repurchase agreements, the
Company receives cash from the counterparty and provides U.S. government debt securities as collateral. The
Company's repurchase agreements generally mature between 30 and 90 days following the transaction date and are
accounted for as secured borrowings. The remaining contractual maturity of the repurchase agreements with
outstanding balances as of September 30, 2018 and 2017 was less than 30 days and 90 days, respectively. The
weighted average interest rate on the balances outstanding as of September 30, 2018 and 2017 was 2.35% and
1.25%, respectively. See "General Contingencies" in Note 15 for a discussion of the potential risks associated with
repurchase agreements and how the Company mitigates those risks.
Fair Value Hedging — The Company is exposed to changes in the fair value of its fixed-rate Senior Notes resulting
from interest rate fluctuations. To hedge this exposure, the Company has entered into fixed-for-variable interest
rate swaps on each of the Senior Notes. Each fixed-for-variable interest rate swap has a notional amount and a
maturity date matching the aggregate principal amount and maturity date, respectively, for each of the respective
Senior Notes.
The interest rate swaps effectively change the fixed-rate interest on the Senior Notes to variable-rate interest. Under
the terms of the interest rate swap agreements, the Company receives semi-annual fixed-rate interest payments
based on the same rates applicable to the Senior Notes, and makes quarterly variable-rate interest payments based
on three-month LIBOR plus (a) 2.3745% for the swap on the 2019 Notes, (b) 0.9486% for the swap on the 2022
Notes, (c) 1.1022% for the swap on the 2025 Notes and (d) 1.0340% for the swap on the 2027 Notes. As of
September 30, 2018, the weighted average interest rate on the aggregate principal balance of the Senior Notes was
3.62%.
The interest rate swaps are accounted for as fair value hedges and qualify for the shortcut method of accounting.
Changes in the payment of interest resulting from the interest rate swaps are recorded in interest on borrowings on
the Consolidated Statements of Income. Changes in fair value of the interest rate swaps are completely offset by
changes in fair value of the related notes, resulting in no effect on net income. The following table summarizes
gains and losses resulting from changes in the fair value of interest rate swaps designated as fair value hedges and
the hedged fixed-rate debt for the fiscal years indicated (dollars in millions):
Gain (loss) on fair value of interest rate swaps. . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on fair value of hedged fixed-rate debt . . . . . . . . . . . . . . . . . . . . . . .
2018
$ (117)
117
2017
2016
$
(56)
56
$
16
(16)
Net gain (loss) recorded in interest on borrowings. . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ —
Cash Flow Hedging – On January 17, 2014, the Company entered into forward-starting interest rate swap contracts
with an aggregate notional amount of $500 million, to hedge against changes in the benchmark interest rate
component of future interest payments resulting from an anticipated debt refinancing. The Company designated
the contracts as a cash flow hedge of the future interest payments. Under cash flow hedge accounting, until settlement
the swap contracts are carried at fair value and, to the extent they are an effective hedge, any unrealized gains or
losses are recorded in other comprehensive income (loss). Any ineffective portion of the unrealized gains or losses
is immediately recorded into earnings. Upon settlement, any realized gain or loss that has been recorded in other
comprehensive income (loss) is amortized into earnings over the term of the newly-issued fixed-rate debt.
On October 17, 2014, the Company sold $500 million of 2025 Notes as described under "Senior Notes" above, and
paid approximately $45 million to settle the forward-starting interest rate swap contracts. As of September 30,
2018, the Company expects to amortize $4.4 million of pre-tax losses, that were reported in accumulated other
73
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
comprehensive loss, into interest on borrowings on the Consolidated Statements of Income within the next 12
months.
Balance Sheet Impact of Hedging Instruments — The following table summarizes the classification and the fair
value of outstanding derivatives designated as hedging instruments on the Consolidated Balance Sheets (dollars in
millions):
September 30,
2018
2017
Pay-variable interest rate swaps designated as fair value hedges:
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2
(96)
$
$
26
(3)
The interest rate swaps are subject to counterparty credit risk. Credit risk is managed by limiting activity to approved
counterparties that meet a minimum credit rating threshold, by entering into credit support agreements, or by utilizing
approved central clearing counterparties registered with the CFTC. The interest rate swaps require daily collateral
coverage, in the form of cash or U.S. Treasury securities, for the aggregate fair value of the interest rate swaps
(including accrued interest). As of September 30, 2018 and 2017, the pay-variable interest rate swap counterparties
had pledged $10 million and $40 million of collateral, respectively, to the Company in the form of cash. A liability
for collateral pledged to the Company in the form of cash is recorded in accounts payable and other liabilities on
the Consolidated Balance Sheets. As of September 30, 2018 and 2017, the Company had pledged $82 million and
$1 million of collateral, respectively, to the pay-variable interest rate swap counterparties in the form of cash. An
asset for collateral pledged to the swap counterparties in the form of cash is recorded in other receivables on the
Consolidated Balance Sheets.
TD Ameritrade Holding Corporation Senior Revolving Credit Facilities — On April 21, 2017, the Parent entered
into a credit agreement consisting of a senior unsecured committed revolving credit facility in the aggregate principal
amount of $300 million (the "Parent Revolving Facility"), replacing the Parent's prior $300 million unsecured
revolving credit facility. The maturity date of the Parent Revolving Facility is April 21, 2022. The obligations
under the Parent Revolving Facility are not guaranteed by any subsidiary of Parent. TD Ameritrade Online Holdings
Corp. ("TDAOH"), a wholly-owned subsidiary of the Company, guaranteed the Parent's obligations under the
Parent's prior revolving credit facility and its 2019 Notes. Upon termination of the Parent's prior revolving credit
facility on April 21, 2017, TDAOH's guarantee of the 2019 Notes was also terminated.
The applicable interest rate under the Parent Revolving Facility is calculated as a per annum rate equal to, at the
option of the Parent, (a) LIBOR plus an interest rate margin ("Parent Eurodollar loans") or (b) (i) the highest of (x)
the prime rate, (y) the federal funds effective rate (or, if the federal funds effective rate is unavailable, the overnight
bank funding rate) plus 0.50% or (z) the eurodollar rate assuming a one-month interest period plus 1.00%, plus (ii)
an interest rate margin ("ABR loans"). The interest rate margin ranges from 0.875% to 1.50% for Parent Eurodollar
loans and from 0% to 0.50% for ABR loans, determined by reference to the Company's public debt ratings. The
Parent is obligated to pay a commitment fee ranging from 0.08% to 0.20% on any unused amount of the Parent
Revolving Facility, determined by reference to the Company's public debt ratings. There were no borrowings
outstanding under the Parent Revolving Facility as of September 30, 2018 and 2017. As of September 30, 2018,
the interest rate margin would have been 1.125% for Parent Eurodollar loans and 0.125% for ABR loans, and the
commitment fee was 0.125%, each determined by reference to the Company's public debt ratings.
The Parent Revolving Facility contains negative covenants that limit or restrict, subject to certain exceptions, the
incurrence of liens, indebtedness of subsidiaries, mergers, consolidations, transactions with affiliates, change in
nature of business and the sale of all or substantially all of the assets of the Company. The Parent is also required
to maintain compliance with a maximum consolidated leverage ratio covenant and a minimum consolidated interest
coverage ratio covenant, and the Company's broker-dealer and FCM/FDM subsidiaries are required to maintain
compliance with a minimum regulatory net capital covenant. The Company was in compliance with all covenants
under the Parent Revolving Facility as of September 30, 2018.
74
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition to the Parent Revolving Facility, the Parent entered into a credit agreement on February 16, 2018,
consisting of a senior unsecured committed revolving credit facility in the aggregate principal amount of $500
million, with substantially the same terms as the Parent Revolving Facility. The February 16, 2018 revolving credit
facility matured on May 17, 2018.
TD Ameritrade Clearing, Inc. Senior Revolving Credit Facilities — TDAC has access to two senior unsecured
committed revolving credit facilities with an aggregate principal amount of $1.45 billion, consisting of a $600
million (the "$600 Million Revolving Facility") and an $850 million (the "$850 Million Revolving Facility") senior
revolving facility (together, the "TDAC Revolving Facilities") entered into on April 21, 2017 and May 17, 2018,
respectively. The maturity dates of the $600 Million Revolving Facility and the $850 Million Revolving Facility
are April 21, 2022 and May 16, 2019, respectively.
The applicable interest rate under each of the TDAC Revolving Facilities is calculated as a per annum rate equal
to, at the option of TDAC, (a) LIBOR plus an interest rate margin ("TDAC Eurodollar loans") or (b) the federal
funds effective rate plus an interest rate margin ("Federal Funds Rate loans"). The interest rate margin ranges from
0.75% to 1.25% for both TDAC Eurodollar loans and Federal Funds Rate loans, determined by reference to the
Company's public debt ratings. TDAC is obligated to pay commitment fees ranging from 0.07% to 0.175% and
from 0.06% to 0.125% on any unused amounts of the $600 Million Revolving Facility and the $850 Million Revolving
Facility, respectively, each determined by reference to the Company's public debt ratings. There were no borrowings
outstanding under the TDAC Revolving Facilities as of September 30, 2018 and 2017. As of September 30, 2018,
the interest rate margin under the TDAC Revolving Facilities would have been 1.00% for both TDAC Eurodollar
loans and Federal Funds Rate loans, determined by reference to the Company's public debt ratings. As of September
30, 2018, the commitment fees under the $600 Million Revolving Facility and the $850 Million Revolving Facility
were 0.10% and 0.08%, respectively, each determined by reference to the Company's public debt ratings.
The TDAC Revolving Facilities contain negative covenants that limit or restrict, subject to certain exceptions, the
incurrence of liens, indebtedness of TDAC, mergers, consolidations, change in nature of business and the sale of
all or substantially all of the assets of TDAC. TDAC is also required to maintain minimum tangible net worth and
is required to maintain compliance with minimum regulatory net capital requirements, which may change from time
to time. TDAC was in compliance with all covenants under the TDAC Revolving Facilities as of September 30,
2018.
TD, along with other financial institutions, is participating as a lender under the Parent Revolving Facility and the
TDAC Revolving Facilities. As of September 30, 2018 and 2017, the total lending commitment received from TD
under these credit facilities was $257 million and $115 million, respectively. For additional information regarding
the Company's transactions with TD, see Note 21, Related Party Transactions.
Intercompany Credit Agreements — The Parent has entered into credit agreements with each of its primary broker-
dealer and FCM/FDM subsidiaries, under which the Parent may make loans of cash or securities under committed
and/or uncommitted lines of credit. Key information about the committed and/or uncommitted lines of credit is
summarized in the following table (dollars in millions):
Borrower Subsidiary
TD Ameritrade Clearing, Inc.. . . . . . . . . . . . . . . . . . . .
TD Ameritrade, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
TD Ameritrade Futures & Forex LLC . . . . . . . . . . . . .
Committed
Facility
$400
N/A
$45
Uncommitted
Facility(1)
$300
$300
N/A
Termination Date
March 1, 2022
March 1, 2022
August 11, 2021
(1) The Parent is permitted, but under no obligation, to make loans under uncommitted facilities.
Loans under both the committed and uncommitted facilities bear interest at the same rate as borrowings under the
TDAC Revolving Facilities and must be repaid with interest on or before the termination date.
75
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
There were no borrowings outstanding under any of the intercompany credit agreements as of September 30, 2018
and 2017.
11. Income Taxes
The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income
tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign
subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of
September 30, 2018, the Company has completed its accounting for the tax effects of the Act. The U.S. federal
statutory income tax rate, for companies with a fiscal year end of September 30, 2018, was a blended rate of 24.5%.
However, as the Company is on a calendar year for tax reporting purposes, the actual computed blended U.S. federal
statutory income tax rate was somewhat lower due to the Company's income being earned unevenly during the
fiscal year.
Provision for income taxes is comprised of the following for the fiscal years indicated (dollars in millions):
Current expense (benefit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Deferred expense (benefit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
2017
2016
$
$
380
58
438
(32)
8
(24)
484
49
533
(11)
—
(11)
435
(4)
431
(5)
(3)
(8)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
414
$
522
$
423
A reconciliation of the U.S. federal statutory income tax rate to the effective tax rate applicable to pre-tax income
follows for the fiscal years indicated:
Federal statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statutory versus actual blended federal income tax rate . . . . . . . . . . . . . . . .
State taxes, net of federal tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to estimated state income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Federal incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest recorded (reversed) on unrecognized tax benefits, net . . . . . . . . . . .
Remeasurement of U.S. deferred income taxes . . . . . . . . . . . . . . . . . . . . . . .
Reversal of accruals for unrecognized tax benefits . . . . . . . . . . . . . . . . . . . .
Share-based payment compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
24.5%
(1.3)
2.6
—
0.4
0.2
(3.8)
(0.4)
(0.3)
—
2017
35.0%
2016
35.0%
—
2.8
—
(0.3)
0.2
—
(0.4)
—
0.1
—
2.8
(0.2)
(1.4)
(1.1)
—
(1.8)
—
0.1
21.9%
37.4%
33.4%
The Company's effective income tax rate for fiscal year 2018 was 21.9%, compared to 37.4% and 33.4% for fiscal
years 2017 and 2016, respectively. The provision for income taxes for fiscal year 2018 included a net favorable
adjustment of $71 million related to the remeasurement of the Company's deferred income tax balances as it pertains
to the Act, a $5 million income tax benefit resulting from the change in accounting for income taxes related to
76
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
equity-based compensation under ASU 2016-09, $12 million of favorable resolutions of state income tax matters
and a $30 million favorable benefit resulting from accelerating certain deductions, including acquisition-related
exit costs, to leverage higher 2017 pre-enactment tax rates. The effective income tax rate was also impacted by a
$9 million unfavorable remeasurement of uncertain tax positions related to certain federal incentives. These items
had a net favorable impact on the Company's earnings for fiscal year 2018 of approximately $0.19 per share. The
provision for income taxes for fiscal year 2017 included $8 million of net favorable resolutions of state income tax
matters and $4 million of favorable tax benefits for certain federal incentives. These items had a net favorable
impact on the Company's earnings for fiscal year 2017 of approximately two cents per share. The provision for
income taxes for fiscal year 2016 was impacted by $39 million of net favorable adjustments to uncertain tax positions
and related deferred income tax assets, which included a favorable $33 million tax liability remeasurement related
to a state court decision. The provision was also impacted by an $18 million favorable tax benefit claimed during
fiscal year 2016 for federal deductions and tax credits related to calendar tax year 2012 through September 30, 2016
and $5 million of net favorable deferred income tax adjustments due to the remeasurement of deferred tax assets
and liabilities and the cumulative impact of the decline in the state tax rate. These items had a net favorable impact
on the Company's earnings for fiscal year 2016 of approximately $0.12 per share.
Deferred tax assets (liabilities) are comprised of the following (dollars in millions):
Deferred tax assets:
Accrued and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized loss on cash flow hedging instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, state tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Acquired intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
2017
78
19
14
9
3
2
125
(2)
123
(236)
(46)
(13)
(2)
(3)
(300)
$ 131
28
6
15
5
1
186
(1)
185
(331)
(35)
(11)
—
(1)
(378)
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (177)
$ (193)
At September 30, 2018, subsidiaries of the Company have approximately $35 million of separate state operating
loss carryforwards. These carryforwards expire between fiscal years 2021 and 2037. Because the realization of
the tax benefit from state loss carryforwards is dependent on certain subsidiaries generating sufficient state taxable
income in future periods, as well as annual limitations on future utilization, the Company has provided a valuation
allowance against the computed benefit in order to reflect the tax benefit expected to be realized.
77
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the activity related to unrecognized tax benefits follows for the fiscal years indicated (dollars in
millions):
Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to lapsed statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to settlements with taxing authorities . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions of prior years. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
2017
2016
$ 152
$ 142
$ 154
35
8
(9)
(3)
(2)
28
—
(7)
(1)
(10)
30
20
(8)
(21)
(33)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 181
$ 152
$ 142
The balance of unrecognized tax benefits as of September 30, 2018 was $181 million ($151 million net of the federal
benefit on state matters), all of which, if recognized, would favorably affect the effective income tax rate in any
future periods. The balance of unrecognized tax benefits as of September 30, 2017 was $152 million ($108 million
net of the federal benefit on state matters), all of which, if recognized, would favorably affect the effective income
tax rate in any future periods. The Company's income tax returns are subject to review and examination by federal,
state and local taxing authorities. The Company's federal claims for refund for tax years 2012 through 2014 are
being examined by the Internal Revenue Service. The federal returns for 2015 through 2017 remain open under
the statute of limitations. The years open to examination by state and local government authorities vary by
jurisdiction, but the statute of limitations is generally three to four years from the date the tax return is filed. It is
reasonably possible that the gross unrecognized tax benefits as of September 30, 2018 could decrease by up to $77
million ($67 million net of the federal benefit on state matters) within the next 12 months as a result of settlements
of certain examinations or expiration of the statute of limitations with respect to other tax filings.
The Company recognized $4 million and $2 million of interest and penalties expense (net of the federal benefit) on
the Consolidated Statements of Income for fiscal years 2018 and 2017, respectively, primarily due to accruals for
unrecognized tax benefits. The Company recognized $17 million of net benefits for interest and penalties (net of
the federal income tax effect) for fiscal year 2016, primarily due to favorable resolutions and remeasurement of
uncertain tax positions. As of September 30, 2018 and 2017, accrued interest and penalties related to unrecognized
tax benefits was $30 million and $26 million, respectively.
12. Capital Requirements
The Company's broker-dealer subsidiaries are subject to the SEC Uniform Net Capital Rule (Rule 15c3-1 under the
Exchange Act), administered by the SEC and FINRA, which requires the maintenance of minimum net capital, as
defined. Net capital and the related net capital requirement may fluctuate on a daily basis. TDAC, the Company's
clearing broker-dealer subsidiary, and TD Ameritrade, Inc., an introducing broker-dealer subsidiary of the Company,
compute net capital under the alternative method as permitted by Rule 15c3-1. TDAC is required to maintain
minimum net capital of the greater of $1.5 million, which is based on the type of business conducted by the broker-
dealer, or 2% of aggregate debit balances arising from client transactions. TD Ameritrade, Inc.is required to maintain
minimum net capital of the greater of $250,000 or 2% of aggregate debit balances. In addition, under the alternative
method, a broker-dealer may not repay any subordinated borrowings, pay cash dividends or make any unsecured
advances or loans to its parent company or employees if such payment would result in net capital of less than (a) 5%
of aggregate debit balances or (b) 120% of its minimum dollar requirement.
TDAFF, the Company's FCM and FDM subsidiary registered with the CFTC, is subject to CFTC Regulations 1.17
and 5.7 under the Commodity Exchange Act, administered by the CFTC and the NFA. As an FCM, TDAFF is
required to maintain minimum adjusted net capital under CFTC Regulation 1.17 of the greater of (a) $1.0 million
or (b) its futures risk-based capital requirement, equal to 8% of the total risk margin requirement for all futures
positions carried by the FCM in client and nonclient accounts. As an FDM, TDAFF is also subject to the net capital
78
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
requirements under CFTC Regulation 5.7, which requires TDAFF to maintain minimum adjusted net capital of the
greater of (a) any amount required under CFTC Regulation 1.17 as described above or (b) $20.0 million plus 5%
of all foreign exchange liabilities owed to forex clients in excess of $10.0 million. In addition, an FCM and FDM
must provide notice to the CFTC if its adjusted net capital amounts to less than (a) 110% of its risk-based capital
requirement under CFTC Regulation 1.17, (b) 150% of its $1.0 million minimum dollar requirement, or (c) 110%
of $20.0 million plus 5% of all foreign exchange liabilities owed to forex clients in excess of $10.0 million.
Net capital and net capital requirements for the Company's broker-dealer subsidiaries are summarized in the
following tables (dollars in millions):
TD Ameritrade Clearing, Inc.
Date
September 30, 2018 . . . . . . . . . . . . . . .
September 30, 2017 . . . . . . . . . . . . . . .
$
$
Net
Capital
2,831
1,595
Required
Net Capital
(2% of
Aggregate
Debit Balances)
525
$
$
340
Net Capital
in Excess of
Required
Net Capital
Ratio of Net
Capital to
Aggregate
Debit Balances
$
$
2,306
1,255
10.79%
9.39%
TD Ameritrade, Inc.
Date
September 30, 2018. . . . . . . . . . . . . . . . . . . . . . .
September 30, 2017. . . . . . . . . . . . . . . . . . . . . . .
$
$
Net
Capital
Required
Net Capital
(Minimum Dollar
Requirement)
Net Capital
in Excess of
Required Net
Capital
181
155
$
$
0.25
0.25
$
$
181
155
Scottrade, Inc.
Date
September 30, 2018(1) . . . . . . . . . . . . .
September 30, 2017 . . . . . . . . . . . . . . .
$
Net
Capital
N/A
348
Required
Net Capital
(2% of
Aggregate
Debit Balances)
N/A
$
70
$
Net Capital
in Excess of
Required Net
Capital
N/A
278
Ratio of Net
Capital to
Aggregate
Debit Balances
N/A
9.99%
(1) On February 26, 2018, Scottrade, Inc. transferred substantially all of its broker-dealer business net assets,
including its clearing operations, to other subsidiaries of the Company. The Company's request to withdraw
Scottrade, Inc.'s registration as a broker-dealer was granted and the withdrawal became effective on September
7, 2018.
79
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Adjusted net capital and adjusted net capital requirements for the Company's FCM and FDM subsidiary are
summarized in the following table (dollars in millions):
TD Ameritrade Futures & Forex LLC
Date
September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . .
$
$
Required Adjusted
Net Capital
($20 Million Plus
5% of All Foreign
Exchange Liabilities
Owed to Forex
Clients in Excess of
$10 Million)
Adjusted Net
Capital
in Excess of
Required
Adjusted Net
Capital
Adjusted Net
Capital
129
77
$
$
23
22
$
$
106
55
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 require TDATC to maintain minimum Tier 1 capital,
as defined. TDATC's Tier 1 capital was $39 million and $32 million as of September 30, 2018 and 2017, respectively,
which exceeded the required Tier 1 capital by $18 million and $13 million, respectively.
13. Stock-based Compensation
The Company has two stock incentive plans under which Company stock-based awards may be granted: the
TD Ameritrade Holding Corporation Long-Term Incentive Plan (the "LTIP") and the 2006 Directors Incentive Plan
(the "Directors Plan"). The LTIP authorizes the award of options to purchase common stock, common stock
appreciation rights, restricted stock, restricted stock units, performance shares and performance units. Under the
LTIP, 42,104,174 shares of the Company's common stock are reserved for issuance to eligible employees, consultants
and non-employee directors. The Directors Plan authorizes the award of options to purchase common stock, common
stock appreciation rights, restricted stock units and restricted stock. Under the Directors Plan, 1,830,793 shares of
the Company's common stock are reserved for issuance to non-employee directors.
Stock options, except for replacement options granted in connection with business combinations, are granted by
the Company with an exercise price not less than the fair market value of the Company's common stock on the grant
date. Stock options generally vest over a one- to four-year period and expire 10 years after the grant date. Restricted
stock units ("RSUs") are awards that entitle the holder to receive shares of Company common stock following a
vesting period. RSUs granted to employees generally vest after the completion of a three-year period or ratably
over a three-year period. RSUs granted to non-employee directors generally vest over a one-year period.
Performance-based restricted stock units ("PRSUs") are a form of RSUs in which the number of shares ultimately
received depends on how the Company's total shareholder return compares to the total shareholder returns of
companies in a selected performance peer group. PRSUs are subject to a three-year cliff vesting period. At the
end of the performance period, the number of shares of common stock issued can range from 80% to 120% of target,
depending on the Company's ranking in the performance peer group. Shares of common stock are issued following
the end of the performance period.
Stock-based compensation expense was $60 million, $36 million and $34 million for fiscal years 2018, 2017 and
2016, respectively. The related income tax benefits were $17 million, $14 million and $13 million for fiscal years
2018, 2017 and 2016, respectively.
80
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary of option activity in the Company's stock incentive plans for the fiscal year ended
September 30, 2018:
Outstanding at beginning and end of year. . . . . .
Exercisable at end of year . . . . . . . . . . . . . . . . . .
Number of
Options
(in thousands)
503
252
Weighted
Average
Exercise
Price
$
$
27.97
27.97
Weighted
Average
Remaining
Contractual
Term (Years)
7.3
Aggregate
Intrinsic
Value
(in millions)
13
$
7.3
$
6
The weighted-average grant-date fair value of options granted during fiscal year 2016 was $6.16. No options were
granted during fiscal years 2018 and 2017. The total intrinsic value of options exercised during fiscal years 2017
and 2016 was $26 million and $0.1 million, respectively. No options were exercised during fiscal year 2018. As
of September 30, 2018, the total unrecognized compensation cost related to nonvested stock options awards was
$1 million and was expected to be recognized over a weighted-average period of 1.3 years.
The fair value of stock options granted during fiscal year 2016 was estimated using a Black-Scholes-Merton valuation
model with the following inputs:
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option life (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.73%
2.4%
27%
6.5
The risk-free interest rate input was based on U.S. Treasury note yields with remaining terms comparable to the
expected option life input used in the valuation model. The expected dividend yield was based on the annual dividend
yield at the time of grant. The expected volatility was based on historical daily price changes of the Company's
stock since July 2009. The expected option life was the average number of years that the Company estimated the
options will be outstanding, based primarily on historical employee option exercise behavior.
The Company measures the fair value of RSUs based upon the volume-weighted average market price of the
underlying common stock as of the date of grant. The grant date fair value of PRSUs was determined based upon
a Monte Carlo simulation model whereby the stock prices of the Company and the selected peer group companies
were simulated using correlated Geometric Brownian motion paths in order to estimate the Company's total expected
shareholder return rank within the peer group index and the corresponding percent of PRSUs that are estimated to
be earned per the PRSU award agreement. RSUs and PRSUs are amortized over their applicable vesting period
using the straight-line method, reduced by expected forfeitures.
The following is a summary of RSU activity in the Company's stock incentive plans for the fiscal year ended
September 30, 2018:
Nonvested at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Units
(in thousands)
2,394
671
(807)
(129)
2,129
Weighted
Average
Grant Date
Fair Value
$
$
$
$
$
34.83
50.61
33.24
41.72
39.99
The weighted-average grant-date fair value of RSUs granted during fiscal years 2018, 2017 and 2016 was $50.61,
$40.66 and $27.97, respectively. As of September 30, 2018, there was $31 million of estimated unrecognized
81
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
compensation cost related to nonvested RSUs, which was expected to be recognized over a weighted average period
of 1.9 years. The total fair value of RSUs that vested during fiscal years 2018, 2017 and 2016 was $42 million, $70
million and $71 million, respectively.
The following is a summary of PRSU activity in the Company's stock incentive plans for the fiscal year ended
September 30, 2018:
Nonvested at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Units
(in thousands)
265
235
500
Weighted
Average
Grant Date
Fair Value
$
$
$
39.48
49.50
44.19
The weighted-average grant-date fair value of the PRSUs granted during the fiscal years 2018 and 2017 was $49.50
and $39.48, respectively. As of September 30, 2018, there was $9 million of estimated unrecognized compensation
cost related to nonvested PRSUs, which was expected to be recognized over a weighted average period of 1.9 years.
No PRSUs were granted during fiscal year 2016.
The fair value of PRSUs granted was estimated using a Monte Carlo simulation model with the following inputs
for the fiscal years indicated:
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
1.84%
2017
1.34%
0%
28%
2.8
0%
27%
2.9
The risk-free interest rate input was based on U.S. Treasury note yields with remaining terms comparable to the
expected term input used in the valuation model. The expected dividend yield was selected to be zero as the vesting
condition is based on total shareholder return, which includes changes in price, plus reinvestment of dividends paid.
The expected volatility was based on historical daily price changes for a period of time that corresponds with the
expected term input used in the valuation model. The expected term input was based on the contractual remaining
period of time until the award vests in accordance with the PRSU award agreement.
Although the Company does not have a formal policy regarding issuance of shares for stock-based compensation,
such shares are generally issued from treasury stock. The stockholders agreement entered into in connection with
the acquisition of TD Waterhouse Group, Inc. requires the Company to repurchase its common stock from time to
time to offset dilution resulting from stock option exercises and other stock awards subsequent to the acquisition.
As of September 30, 2018, the Company was not obligated to repurchase additional shares pursuant to the
stockholders agreement. The Company cannot estimate the amount and timing of repurchases that may be required
as a result of future stock issuances.
14. Employee Benefit Plans
The Company has a 401(k) and profit-sharing plan under which annual profit-sharing contributions are determined
at the discretion of the board of directors. The Company also makes matching contributions pursuant to the plan
document. Profit-sharing and matching contributions expense was $53 million, $38 million and $35 million for
fiscal years 2018, 2017 and 2016, respectively.
82
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Commitments and Contingencies
Lease Commitments — The Company has various non-cancelable operating leases on facilities requiring annual
payments as follows (dollars in millions):
Fiscal Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter (to 2033) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Minimum
Lease
Payments
Sublease
Income
75
64
45
34
28
99
345
$
$
Net Lease
Commitments
74
$
63
45
34
28
99
343
$
(1)
(1)
—
—
—
—
(2)
A majority of the leases for the Company's branch offices contain provisions for renewal at the Company's option.
Rental expense, net of sublease income, was approximately $83 million, $54 million and $51 million for fiscal years
2018, 2017 and 2016, respectively.
Legal and Regulatory Matters
Order Routing Matters — In 2014, five putative class action complaints were filed regarding TD Ameritrade, Inc.'s
routing of client orders and one putative class action was filed regarding Scottrade, Inc.'s routing of client orders.
Five of the six cases were dismissed and the United States Court of Appeals, 8th Circuit, affirmed the dismissals in
those cases that were appealed. The one remaining case is Roderick Ford (replacing Gerald Klein) v. TD Ameritrade
Holding Corporation, et al., Case No. 8:14CV396 (U.S. District Court, District of Nebraska). Plaintiff alleges that,
when routing client orders to various market centers, defendants did not seek best execution, and instead routed
clients' orders to market venues that pay TD Ameritrade, Inc. the most money for order flow. Plaintiff alleges that
defendants made misrepresentations and omissions regarding the Company's order routing practices. The complaint
asserts claims of violations of Section 10(b) and 20 of the Exchange Act and SEC Rule 10b-5. The complaint seeks
damages, injunctive relief, and other relief. Plaintiff filed a motion for class certification, which defendants opposed.
On July 12, 2018, the Magistrate Judge issued findings and a recommendation that plaintiffs' motion for class
certification be denied. Plaintiff filed objections to the Magistrate Judge's findings and recommendation, which
defendants opposed. On September 14, 2018, the District Judge sustained plaintiff's objections, rejected the
Magistrate Judge's recommendation and granted plaintiff's motion for class certification. On September 28, 2018,
defendants filed a petition requesting that the U.S. Court of Appeals, 8th Circuit, grant an immediate appeal of the
District Court's class certification decision. The Securities Industry and Financial Markets Association and the U.S.
Chamber of Commerce filed amicus curiae briefs in support of the petition together with motions for permission
to file the briefs. On October 9, 2018, plaintiff filed an opposition to the petition. The Company intends to vigorously
defend against this lawsuit and is unable to predict the outcome or the timing of the ultimate resolution of the lawsuit,
or the potential loss, if any, that may result.
Certain regulatory authorities are conducting examinations and investigations regarding the routing of client orders.
TD Ameritrade, Inc., TDAC and Scottrade, Inc. have received requests for documents and information from the
regulatory authorities. TD Ameritrade, Inc., TDAC and Scottrade, Inc. are cooperating with the requests.
Lawsuit regarding Scottrade Acquisition — On April 6, 2017, a stockholder of the Company filed a stockholder
derivative complaint regarding the acquisition of Scottrade by the Company and the acquisition of Scottrade Bank
by TD. The suit filed in the Delaware Chancery Court is captioned Vero Beach Police Officers' Retirement Fund,
derivatively on behalf of nominal defendant TD Ameritrade Holding Corp. v. Larry Bettino et al., C.A. No.
2017-0264-JRS. On December 18, 2017, the plaintiff filed an amended complaint. The suit names as defendants
TD and the members of the Company's board of directors. It also names the Company as a nominal defendant. The
83
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
complaint alleges that the Company's acquisition of Scottrade and TD's acquisition of Scottrade Bank were unfair
from the perspective of the Company because TD Bank, N.A. acquired Scottrade Bank for an allegedly low price,
which in turn caused the Company to pay an allegedly high price to acquire Scottrade. The complaint claims that
the Company's directors and TD, as the Company's alleged controlling stockholder, breached their fiduciary duties
to the Company and its stockholders, and that TD aided and abetted the Company directors' breach of fiduciary
duty and was unjustly enriched. The complaint seeks a declaration that demand on the Company's board is excused
as futile and seeks corporate governance reforms, damages, interest and fees. On August 9, 2018, the parties
submitted to the court for its approval a stipulation of settlement of this action. Under the proposed settlement, TD
and an insurer on behalf of the Company's directors will make a settlement payment of an immaterial amount;
plaintiff may apply for an award of attorneys' fees and expenses in an amount not to exceed 20% of the settlement
payment; the balance of the settlement payment will be paid to the Company; and the lawsuit will be dismissed and
the claims will be released. A hearing on approval of the settlement and an award of attorneys' fees and expenses
is scheduled for December 3, 2018. There can be no assurance that the proposed settlement will be finalized and
approved by the court. If the proposed settlement is not finalized or approved by the court, the Company will be
unable to predict the outcome or the timing of the ultimate resolution of this lawsuit, or the potential losses, if any,
that may result.
Aequitas Securities Litigation — An amended putative class action complaint was filed in the U.S. District Court
for the District of Oregon in Lawrence Ciuffitelli et al. v. Deloitte & Touche LLP, EisnerAmper LLP, Sidley Austin
LLP, Tonkon Torp LLP, TD Ameritrade, Inc., and Integrity Bank & Trust, Case No. 3:16CV580, on May 19, 2016.
A second amended putative class action complaint was filed on September 8, 2017, in which Duff & Phelps was
added as a defendant. The putative class includes all persons who purchased securities of Aequitas Commercial
Finance, LLC and its affiliates on or after June 9, 2010. Other groups of plaintiffs have filed five non-class action
lawsuits in Oregon Circuit Court, Multnomah County, against these and other defendants: Walter Wurster, et al. v.
Deloitte & Touche et al., Case No. 16CV25920 (filed Aug. 11, 2016), Kenneth Pommier, et al. v. Deloitte & Touche
et al., Case No. 16CV36439 (filed Nov. 3, 2016), Charles Ramsdell, et al. v. Deloitte & Touche et al., Case No.
16CV40659 (filed Dec. 2, 2016), Charles Layton, et al. v. Deloitte & Touche et al., Case No. 17CV42915 (filed
October 2, 2017) and John Cavanagh, et al. v. Deloitte & Touche et al., Case No. 18CV09052 (filed March 7, 2018).
FINRA arbitrations have also been filed against TD Ameritrade, Inc. The claims in these actions include allegations
that the sales of Aequitas securities were unlawful, the defendants participated and materially aided in such sales
in violation of the Oregon securities laws, and material misstatements and omissions were made. While the factual
allegations differ in various respects among the cases, plaintiffs' allegations include assertions that: TD Ameritrade
customers purchased more than $140 million of Aequitas securities; TD Ameritrade served as custodian for Aequitas
securities; recommended and referred investors to financial advisors as part of its advisor referral program for the
purpose of purchasing Aequitas securities; participated in marketing the securities; recommended the securities;
provided assurances to investors about the safety of the securities; and developed a market for the securities. In the
Ciuffitelli putative class action, plaintiffs allege that more than 1,500 investors were owed more than $600 million
on the Aequitas securities they purchased. On August 1, 2018, the Magistrate Judge in that case issued findings
and a recommendation that defendants' motions to dismiss the pending complaint be denied with limited exceptions
not applicable to the Company. TD Ameritrade and other defendants filed objections to the Magistrate Judge's
findings and recommendation, which plaintiffs opposed. On September 24, 2018, the District Judge issued an
opinion and order adopting the Magistrate Judge's findings and recommendation. Discovery has commenced. In
the five non-class action lawsuits, approximately 200 named plaintiffs collectively allege a total of approximately
$125 million in losses plus other damages. In the Wurster and Pommier cases, the Court, on TD Ameritrade's
motion, dismissed the claims by those plaintiffs who were TD Ameritrade customers, in favor of arbitration.
Discovery is ongoing. The Court in the Wurster and Pommier cases denied TD Ameritrade's motion to dismiss the
claims by the plaintiffs who were not TD Ameritrade customers. Plaintiffs in the Ramsdell case have filed a second
amended complaint in which TD Ameritrade is not named as a defendant. On September 24, 2018, plaintiffs in the
Cavanagh case dismissed their claims against TD Ameritrade. On July 17, 2018, plaintiffs in the Ciuffitelli case
filed a motion for preliminary approval of an $18.5 million settlement with the defendant Tonkon Torp law firm of
the claims against it in all the pending cases. On September 24, 2018, defendants filed a response requesting the
Court to defer considering the plaintiffs' motion or to deny it as presented. The Company intends to vigorously
84
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
defend against this litigation. The Company is unable to predict the outcome or the timing of the ultimate resolution
of this litigation, or the potential losses, if any, that may result.
Other Legal and Regulatory Matters — The Company is subject to a number of other lawsuits, arbitrations, claims
and other legal proceedings in connection with its business. Some of these legal actions include claims for substantial
or unspecified compensatory and/or punitive damages. In addition, in the normal course of business, the Company
discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry.
These matters could result in censures, fines, penalties or other sanctions. ASC 450, Loss Contingencies, governs
the recognition and disclosure of loss contingencies, including potential losses from legal and regulatory matters.
ASC 450 categorizes loss contingencies using three terms based on the likelihood of occurrence of events that result
in a loss: "probable" means that "the future event or events are likely to occur;" "remote" means that "the chance
of the future event or events occurring is slight;" and "reasonably possible" means that "the chance of the future
event or events occurring is more than remote but less than likely." Under ASC 450, the Company accrues for losses
that are considered both probable and reasonably estimable. The Company may incur losses in addition to the
amounts accrued where the losses are greater than estimated by management, or for matters for which an unfavorable
outcome is considered reasonably possible, but not probable.
The Company estimates that the aggregate range of reasonably possible losses in excess of amounts accrued is from
$0 to $175 million as of September 30, 2018. This estimated aggregate range of reasonably possible losses is based
upon currently available information for those legal and regulatory matters in which the Company is involved,
taking into account the Company's best estimate of reasonably possible losses for those matters as to which an
estimate can be made. For certain matters, the Company does not believe an estimate can currently be made, as
some matters are in preliminary stages and some matters have no specific amounts claimed. The Company's estimate
involves significant judgment, given the varying stages of the proceedings and the inherent uncertainty of predicting
outcomes. The estimated range will change from time to time as the underlying matters, stages of proceedings and
available information change. Actual losses may vary significantly from the current estimated range.
The Company believes, based on its current knowledge and after consultation with counsel, that the ultimate
disposition of these legal and regulatory matters, individually or in the aggregate, is not likely to have a material
adverse effect on the financial condition or cash flows of the Company. However, in light of the uncertainties
involved in such matters, the Company is unable to predict the outcome or the timing of the ultimate resolution of
these matters, or the potential losses, fines, penalties or equitable relief, if any, that may result, and it is possible
that the ultimate resolution of one or more of these matters may be material to the Company's results of operations
for a particular reporting period.
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 consolidated financial statements could be significantly changed at a later date upon final
determinations by taxing authorities.
General Contingencies
In the ordinary course of business, there are various contingencies that are not reflected in the consolidated financial
statements. These include the Company's broker-dealer and FCM/FDM subsidiaries' client activities involving the
execution, settlement and financing of various client securities, options, futures and foreign exchange transactions.
These activities may expose the Company to credit risk in the event the clients are unable to fulfill their contractual
obligations.
The Company extends margin credit and leverage to its clients. In margin transactions, the Company extends credit
to the client, subject to various regulatory and internal margin requirements, collateralized by cash and securities
in the client's account. In connection with these activities, the Company also routes client orders for execution and
clears client transactions involving the sale of securities not yet purchased ("short sales"). Such margin-related
85
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. Leverage involves securing a large potential future obligation with a lesser amount
of collateral. The risks associated with margin credit and leverage increase during periods of rapid market
movements, or in cases where leverage or collateral is concentrated and market movements occur. In the event the
client fails to satisfy its obligations, the Company has the authority to liquidate certain positions in the client's
account at prevailing market prices in order to fulfill the client's obligations. However, during periods of rapid
market movements, clients who utilize margin credit or leverage and who have collateralized their obligations with
securities may find that the securities have a rapidly depreciating value and may not be sufficient to cover their
obligations in the event of liquidation. The Company seeks to mitigate the risks associated with its client margin
and leverage 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 contracts with unaffiliated FCM, FDM and broker-dealer entities to clear and execute futures and
foreign exchange transactions for its clients. This can result in concentrations of credit risk with one or more of
these counterparties. This risk is partially mitigated by the counterparties' obligation to comply with rules and
regulations governing FCMs, FDMs and broker-dealers in the United States. These rules generally require
maintenance of net capital and segregation of client funds and securities. In addition, the Company manages this
risk by requiring credit approvals for counterparties and by utilizing account funding and sweep arrangement
agreements that generally specify that all client cash in excess of futures funding requirements be transferred back
to the clients' securities brokerage accounts at the Company on a daily basis.
The Company loans securities temporarily to other broker-dealers in connection with its broker-dealer business.
The Company receives cash as collateral for the securities loaned. Increases in securities prices may cause the
market value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty
to these transactions does not return the loaned securities, the Company may be exposed to the risk of acquiring the
securities at prevailing market prices in order to satisfy its client obligations. The Company mitigates this risk by
requiring credit approvals for counterparties, by monitoring the market value of securities loaned on a daily basis
and requiring additional cash as collateral when necessary, and by participating in a risk-sharing program offered
through the Options Clearing Corporation ("OCC").
The Company borrows securities temporarily from other broker-dealers in connection with its broker-dealer business.
The Company deposits cash as collateral for the securities borrowed. Decreases in securities prices may cause the
market value of the securities borrowed to fall below the amount of cash deposited as collateral. In the event the
counterparty to these transactions does not return the cash deposited, the Company may be exposed to the risk of
selling the securities at prevailing market prices. The Company mitigates this risk by requiring credit approvals for
counterparties, by monitoring the collateral values on a daily basis and requiring collateral to be returned by the
counterparties when necessary, and by participating in a risk-sharing program offered through the OCC.
The Company transacts in reverse repurchase agreements (securities purchased under agreements to resell) in
connection with its broker-dealer business. The Company's policy is to take possession or control of securities with
a market value in excess of the principal amount loaned, plus accrued interest, in order to collateralize resale
agreements. The Company monitors the market value of the underlying securities that collateralize the related
receivable on resale agreements on a daily basis and may require additional collateral when deemed appropriate.
The Company utilizes securities sold under agreements to repurchase (repurchase agreements) to finance its short-
term liquidity and capital needs. Under these agreements, the Company receives cash from the counterparties and
provides U.S. Treasury securities as collateral, allowing the counterparties the right to sell or repledge the collateral.
These agreements expose the Company to credit losses in the event the counterparties cannot meet their obligations.
The Company mitigates this risk by requiring credit approvals for counterparties, by monitoring the market value
of pledged securities owned on a daily basis and requiring the counterparties to return cash or excess collateral
pledged when necessary.
86
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company has accepted collateral in connection with client margin loans and securities borrowed. Under
applicable agreements, the Company is generally permitted to repledge securities held as collateral and use them
to enter into securities lending arrangements. The following table summarizes the fair values of client margin
securities and stock borrowings that were available to the Company to utilize as collateral on various borrowings
or for other purposes, and the amount of that collateral loaned or repledged by the Company (dollars in billions):
Client margin securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total collateral available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateral loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateral repledged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total collateral loaned or repledged. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
$ 31.4
2017
$ 23.8
0.8
1.2
$ 32.2
$ 25.0
$
$
2.9
6.3
9.2
$
$
2.4
4.1
6.5
The Company is subject to cash deposit and collateral requirements with clearinghouses based on its clients' trading
activity. The following table summarizes cash deposited with and securities pledged to clearinghouses by the
Company (dollars in millions):
Assets
Balance Sheet Classification
Cash
Receivable from brokers, dealers and clearing
organizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government debt securities
Securities owned, at fair value . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
2017
$ 545
$ 151
50
398
$ 595
$ 549
The Company enters into off-balance sheet arrangements with TD and unaffiliated third-party depository financial
institutions (together, the "Sweep Program Counterparties") to manage its sweep program. The sweep program is
offered to eligible clients whereby the client's uninvested cash is swept into FDIC-insured (up to specified limits)
money market deposit accounts at the Sweep Program Counterparties. The Company earns revenue on client cash
at the Sweep Program Counterparties based on the return of floating-rate and fixed-rate notional investments. The
Company designates amounts and maturity dates for the fixed-rate notional investments within the sweep program
portfolios, subject to certain limitations. In the event the Company instructs the Sweep Program Counterparties to
withdraw a fixed-rate notional investment prior to its maturity, the Company may be required to reimburse the
Sweep Program Counterparties for any losses as a result of the early withdrawal. In order to mitigate the risk of
potential loss due to the early withdrawal of fixed-rate notional investments, the Company maintains a certain level
of short-term floating-rate investments within the sweep program portfolios to meet client cash demands. See
"Insured Deposit Account Agreement" in Note 21 for a description of the sweep arrangement between the Company
and TD.
Guarantees
The Company is a member of and provides guarantees to securities clearinghouses and exchanges in connection
with client trading activities. 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 Consolidated Balance Sheets for these
guarantees.
87
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company clears its clients' futures transactions on an omnibus account basis through unaffiliated clearing firms.
The Company also contracts with an external provider to facilitate foreign exchange trading for its clients. The
Company has agreed to indemnify these unaffiliated clearing firms and the external provider for any loss that they
may incur from the client transactions introduced to them by the Company.
See "Insured Deposit Account Agreement" in Note 21 for a description of the guarantees included in that agreement.
16. Fair Value Disclosures
Fair Value Measurement — Definition and Hierarchy
ASC 820-10, Fair Value Measurement, 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.
ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when
available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability,
developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect
the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability,
developed based on the best information available in the circumstances.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels, as follows:
• Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company
has the ability to access. This category includes active exchange-traded funds, money market mutual
funds, mutual funds and equity securities.
• Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices
for similar assets and liabilities in active and inactive 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, U.S.
government agency mortgage-backed securities, which consist of Ginnie Mae Home Equity Conversion
Mortgages, and other interest-sensitive financial instruments.
• Level 3 — Unobservable inputs for the asset or liability, where there is little, if any, observable market
activity or data for the asset or liability.
88
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables present the Company's fair value hierarchy for assets and liabilities measured at fair value on
a recurring basis as of September 30, 2018 and 2017 (dollars in millions):
As of September 30, 2018
Level 1
Level 2
Level 3
Fair Value
Assets:
Cash equivalents:
Money market mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,373
$
— $
— $
2,373
Investments segregated and on deposit for regulatory purposes:
U.S. government debt securities . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency mortgage-backed securities . . . . . . . .
Subtotal - Investments segregated for regulatory purposes
Securities owned:
U.S. government debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal - Securities owned . . . . . . . . . . . . . . . . . . . . . . . .
Investments available-for-sale:
U.S. government debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Other assets:
Pay-variable interest rate swaps(1) . . . . . . . . . . . . . . . . . . . . . . .
U.S. government debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Auction rate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal - Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
1
1
—
—
—
—
—
225
1,302
1,527
149
6
155
484
2
1
—
3
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . .
$
2,374
$
2,169
$
Liabilities:
Accounts payable and other liabilities:
—
—
—
—
—
—
—
—
—
1
1
1
225
1,302
1,527
149
7
156
484
2
1
1
4
$
4,544
Pay-variable interest rate swaps(1) . . . . . . . . . . . . . . . . . . . . . . .
$
— $
96
$
— $
96
(1) See "Fair Value Hedging" in Note 10 for details.
89
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of September 30, 2017
Level 1
Level 2
Level 3
Fair Value
Assets:
Cash equivalents:
Money market mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,081
$
— $
— $
1,081
Investments segregated and on deposit for regulatory purposes:
U.S. government debt securities . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency mortgage-backed securities . . . . . . . .
Subtotal - Investments segregated for regulatory purposes
Securities owned:
U.S. government debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal - Securities owned . . . . . . . . . . . . . . . . . . . . . . . .
Investments available-for-sale:
U.S. government debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Other assets:
Pay-variable interest rate swaps(1) . . . . . . . . . . . . . . . . . . . . . . .
U.S. government debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Auction rate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal - Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Accounts payable and other liabilities:
—
—
—
—
1
1
—
—
—
—
—
4,094
1,486
5,580
498
4
502
746
26
1
—
27
$
1,082
$
6,855
$
—
—
—
—
—
—
—
—
—
1
1
1
4,094
1,486
5,580
498
5
503
746
26
1
1
28
$
7,938
Pay-variable interest rate swaps(1) . . . . . . . . . . . . . . . . . . . . . .
$
— $
3
$
— $
3
(1) See "Fair Value Hedging" in Note 10 for details.
There were no transfers between any levels of the fair value hierarchy during the periods covered by this report.
Valuation Techniques
In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities
to determine fair value. This pricing methodology applies to the Company's Level 1 assets and liabilities. If quoted
prices in active markets for identical assets and liabilities are not available to determine fair value, then the Company
uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either
directly or indirectly. This pricing methodology applies to the Company's Level 2 assets and liabilities.
Level 2 Measurements:
Debt securities — Fair values for debt securities are based on prices obtained from an independent pricing vendor.
The primary inputs to the valuation include quoted prices for similar assets in active markets, quoted prices for
identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.
The Company validates the vendor pricing by periodically comparing it to pricing from another independent pricing
90
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
service. The Company has not adjusted prices obtained from the independent pricing vendor for any periods
presented in the consolidated financial statements because no significant pricing differences have been observed.
U.S. government agency mortgage-backed securities — Fair values for mortgage-backed securities are based on
prices obtained from an independent pricing vendor. The primary inputs to the valuation include quoted prices for
similar assets in active markets and in markets that are not active, a market-derived prepayment curve, weighted
average yields on the underlying collateral and spreads to benchmark indices. The Company validates the vendor
pricing by periodically comparing it to pricing from two other independent sources. The Company has not adjusted
prices obtained from the independent pricing vendor for any periods presented in the consolidated financial
statements because no significant pricing differences have been observed.
Interest rate swaps — These derivatives are valued by the Company using a valuation model provided by a third-
party service that incorporates interest rate yield curves, which are observable for substantially the full term of the
contract. The valuation model is widely accepted in the financial services industry and does not involve significant
judgment because most of the inputs are observable in the marketplace. Credit risk is not an input to the valuation
because in each case the Company or counterparty has possession of collateral, in the form of cash or U.S. Treasury
securities, in amounts equal to or exceeding the fair value of the interest rate swaps. The Company validates the
third-party service valuations by comparing them to valuation models provided by the swap counterparties.
Level 3 Measurements:
The Company has no material assets or liabilities classified as Level 3 of the fair value hierarchy.
Fair Value of Financial Instruments Not Recorded at Fair Value
Receivable from/payable to brokers, dealers and clearing organizations, receivable from/payable to clients,
receivable from/payable to affiliates, other receivables, accounts payable and other liabilities and certain other
borrowings are short-term in nature and accordingly are carried at amounts that approximate fair value. These
financial instruments are recorded at or near their respective transaction prices and historically have been settled or
converted to cash at approximately that value (categorized as Level 2 of the fair value hierarchy).
Cash and investments segregated and on deposit for regulatory purposes and other assets include reverse repurchase
agreements (securities purchased under agreements to resell). Reverse repurchase agreements are treated as
collateralized financing transactions and are carried at amounts at which the securities will subsequently be resold,
plus accrued interest. The Company's reverse repurchase agreements generally have a maturity of seven days and
are collateralized by securities in amounts exceeding the carrying value of the resale agreements. Accordingly, the
carrying value of reverse repurchase agreements approximates fair value (categorized as Level 2 of the fair value
hierarchy). Cash and investments segregated and on deposit for regulatory purposes also includes cash held in
demand deposit accounts and on deposit with futures commission merchants, for which the carrying values
approximate the fair value (categorized as Level 1 of the fair value hierarchy). See Note 4 for a summary of cash
and investments segregated and on deposit for regulatory purposes. Other assets included reverse repurchase
agreements of $65 million as of September 30, 2017.
Securities sold under agreements to repurchase (repurchase agreements) — Under repurchase agreements the
Company receives cash from the counterparties and provides U.S. Treasury securities as collateral. The obligations
to repurchase securities sold are reflected as a liability on the Consolidated Balance Sheets. Repurchase agreements
are treated as collateralized financing transactions and are carried at amounts at which the securities will subsequently
be repurchased, plus accrued interest. The Company's repurchase agreements are short-term in nature and
accordingly the carrying value is a reasonable estimate of fair value (categorized as Level 2 of the fair value hierarchy).
Long-term debt — As of September 30, 2018, the Company's Senior Notes had an aggregate estimated fair value,
based on quoted market prices (categorized as Level 1 of the fair value hierarchy), of approximately $2.51 billion,
compared to the aggregate carrying value of the Senior Notes on the Consolidated Balance Sheet of $2.44 billion.
As of September 30, 2017, the Company's Senior Notes had an aggregate estimated fair value, based on quoted
91
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
market prices, of approximately $2.63 billion, compared to the aggregate carrying value of the Senior Notes on the
Consolidated Balance Sheet of $2.56 billion.
17. Offsetting Assets and Liabilities
Substantially all of the Company's securities sold under agreements to repurchase (repurchase agreements), reverse
repurchase agreements, securities borrowing and securities lending activity and derivative financial instruments are
transacted under master agreements that may allow for net settlement in the ordinary course of business, as well as
offsetting of all contracts with a given counterparty in the event of default by one of the parties. However, for
financial statement purposes, the Company does not net balances related to these financial instruments.
The following tables present information about the potential effect of rights of setoff associated with the Company's
recognized assets and liabilities as of September 30, 2018 and 2017 (dollars in millions):
September 30, 2018
Gross Amounts Not Offset
in the
Consolidated Balance Sheet
Gross Amounts
of Recognized
Assets and
Liabilities
Gross Amounts
Offset in the
Consolidated
Balance Sheet
Net Amounts
Presented in
the Consolidated
Balance Sheet
Financial
Instruments(5)
Collateral
Received or
Pledged
(Including
Cash)(6)
Net
Amount(7)
Assets:
Investments segregated for
regulatory purposes:
Reverse repurchase
agreements . . . . . . . . . .
$
Receivable from brokers,
dealers and clearing
organizations:
Deposits paid for
securities borrowed(1) . .
Other assets:
Pay-variable interest rate
swaps . . . . . . . . . . . . . .
500
$
— $
500
$
— $
(500) $
—
803
2
—
—
803
(41)
(744)
2
(2)
—
18
—
18
Total . . . . . . . . . .
$
1,305
$
— $
1,305
$
(43) $
(1,244) $
Liabilities:
Payable to brokers, dealers
and clearing organizations:
Deposits received for
securities loaned(2)(3) . . .
$
Securities sold under
agreements to repurchase(4).
Accounts payable and other
liabilities:
Pay-variable interest rate
swaps . . . . . . . . . . . . . .
2,914
$
— $
2,914
$
(43) $
(2,544) $
327
96
96
—
—
96
96
(96)
(82)
—
—
—
14
Total . . . . . . . . . . . .
$
3,106
$
— $
3,106
$
(221) $
(2,544) $
341
92
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
September 30, 2017
Gross Amounts
of Recognized
Assets and
Liabilities
Gross Amounts
Offset in the
Consolidated
Balance Sheet
Net Amounts
Presented in
the Consolidated
Balance Sheet
Gross Amounts Not Offset
in the
Consolidated Balance Sheet
Collateral
Received or
Pledged
(Including
Cash) (6)
Financial
Instruments(5)
Net
Amount (7)
1,004
$
— $
1,004
$
— $
(1,004) $
—
Assets:
Investments segregated for
regulatory purposes:
Reverse repurchase
agreements . . . . . . . . . .
$
Receivable from brokers,
dealers and clearing
organizations:
Deposits paid for
securities borrowed(1) .
Other assets:
Pay-variable interest rate
swaps . . . . . . . . . . . . . .
Reverse repurchase
agreements . . . . . . . . . .
Total other assets . . .
1,154
26
65
91
—
—
—
—
1,154
(110)
(1,023)
26
65
91
(26)
—
(26)
—
(65)
(65)
21
—
—
—
21
Total . . . . . . . . . . .
$
2,249
$
— $
2,249
$
(136) $
(2,092) $
Liabilities:
Payable to brokers, dealers
and clearing organizations:
Deposits received for
securities loaned(2)(3) . .
$
Securities sold under
agreements to repurchase(4)
Accounts payable and other
liabilities:
Pay-variable interest rate
swaps . . . . . . . . . . . . . .
2,449
$
— $
2,449
$
(112) $
(2,113) $
224
97
3
—
—
97
3
(97)
(1)
—
—
—
2
Total . . . . . . . . . . . . .
$
2,549
$
— $
2,549
$
(210) $
(2,113) $
226
(1)
(2)
Included in the gross amounts of deposits paid for securities borrowed is $462 million and $675 million as of
September 30, 2018 and 2017, respectively, transacted through a risk-sharing program with the OCC, which
guarantees the return of cash to the Company. See "General Contingencies" in Note 15 for a discussion of
the potential risks associated with securities borrowing transactions and how the Company mitigates those
risks.
Included in the gross amounts of deposits received for securities loaned is $2.01 billion and $1.65 billion as
of September 30, 2018 and 2017, respectively, transacted through a risk-sharing program with the OCC, which
guarantees the return of securities to the Company. See "General Contingencies" in Note 15 for a discussion
of the potential risks associated with securities lending transactions and how the Company mitigates those
risks.
93
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(3) Substantially all of the Company's securities lending transactions have a continuous contractual term and,
upon notice by either party, may be terminated within two business days. The following table summarizes
the Company's gross liability for securities lending transactions by the class of securities loaned (dollars in
millions):
September 30,
2018
2017
Deposits received for securities loaned:
Equity securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange-traded funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closed-end funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,583
$
223
74
34
2,109
230
66
44
$
2,914
$
2,449
(4) The collateral pledged includes available-for-sale U.S. government debt securities at fair value. All of the
Company's repurchase agreements have a remaining contractual maturity of less than 90 days and, upon default
by either party, may be terminated at the option of the non-defaulting party. See "General Contingencies" in
Note 15 for a discussion of the potential risks associated with repurchase agreements and how the Company
mitigates those risks.
(5) Amounts represent recognized assets and liabilities that are subject to enforceable master agreements with
rights of setoff.
(6) Represents the fair value of collateral the Company had received or pledged under enforceable master
agreements, limited for table presentation purposes to the net amount of the recognized assets due from or
liabilities due to each counterparty. At September 30, 2018 and 2017, the Company had received total collateral
with a fair value of $1.30 billion and $2.26 billion, respectively, and pledged total collateral with a fair value
of $2.76 billion and $2.32 billion, respectively.
(7) Represents the amount for which, in the case of net recognized assets, the Company had not received collateral,
and in the case of net recognized liabilities, the Company had not pledged collateral.
94
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
18. Accumulated Other Comprehensive Loss
The following table presents the net change in fair value recorded for each component of other comprehensive
income (loss) before and after income tax for the fiscal years indicated (dollars in millions):
2018
Tax
Effect
Before
Tax
Net of
Tax
Before
Tax
2017
Tax
Effect
Net of
Tax
Before
Tax
2016
Tax
Effect
Net of
Tax
Investments available-for-sale:
Unrealized loss. . . . . . . . . . . . .
$ (12)
$
3
$
(9)
$
(9)
$
4
$
(5)
$ — $ — $ —
Reclassification adjustment for
realized loss included in net
income (1) . . . . . . . . . . . . . . . .
Net change in investments
available-for-sale . . . . . . .
Cash flow hedging instruments:
Reclassification adjustment for
portion of realized loss
amortized to net income (2) . .
Net change in cash flow
hedging instruments . . . . .
Other comprehensive
income (loss) . . . . . . .
$
11
(1)
5
5
4
(4)
(1)
(1)
(1)
$
(2)
$
7
(2)
4
4
2
—
(9)
4
4
—
4
(2)
(2)
—
(5)
2
2
$
(5)
$
2
$
(3)
$
—
—
5
5
5
—
—
(2)
(2)
$
(2)
$
—
—
3
3
3
(1) The before tax reclassification amount and related tax effect are included in loss on sale of investments and
provision for income taxes, respectively, on the Consolidated Statements of Income.
(2) The before tax reclassification amounts and the related tax effects are included in interest on borrowings and
provision for income taxes, respectively, on the Consolidated Statements of Income.
95
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents after-tax changes in each component of accumulated other comprehensive loss for the
fiscal years indicated (dollars in millions):
2018
2017
2016
Investments available-for-sale:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassification . . . . . . . . . . . . . . . . . . . . . .
Amount reclassified from accumulated other comprehensive loss . . . . . . . . .
Current period change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedging instruments:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount reclassified from accumulated other comprehensive loss . . . . . . . . .
Adoption of Accounting Standards Update 2018-02 (Note 1) . . . . . . . . . . . . .
Current period change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
(5) $ — $ —
(5)
(9)
—
—
7
(5)
(2)
—
—
(7) $
(5) $ —
(20) $
4
(4)
—
(22) $
2
—
2
(25)
3
—
3
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(20) $
(20) $
(22)
Total accumulated other comprehensive loss:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(25) $
(2)
(22) $
(3)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(27) $
(25) $
(25)
3
(22)
19. Segment and Geographic Area Information
The Company primarily operates in the securities brokerage industry and has no other reportable segments.
Substantially all of the Company's revenues from external clients for the fiscal years ended September 30, 2018,
2017 and 2016 were derived from its operations in the United States.
20. Accelerated Stock Repurchase Agreements
On September 12, 2018, the Company entered into an agreement with an investment bank counterparty to purchase
shares of its common stock under an accelerated stock repurchase transaction (the "September 2018 ASR
Agreement"). The Company paid $150 million to the counterparty and received an initial delivery of 2.2 million
shares of its common stock on September 13, 2018, representing 80% of the potential shares to be repurchased
based on the closing stock price of $54.69 on September 12, 2018. Settlement of the transaction occurred after the
end of an averaging period, which began on September 13, 2018 and ended on October 12, 2018. The total number
of shares the Company purchased from the counterparty was based on the average of the daily volume-weighted
average share prices of the Company's common stock during the averaging period, less a pre-determined discount.
Upon settlement, the Company received an additional 0.6 million shares on October 16, 2018. The Company
ultimately repurchased a total of approximately 2.8 million shares under the September 2018 ASR Agreement at a
net weighted average price of $53.13 per share.
In June 2016, the Company entered into an agreement with an investment bank counterparty to purchase $42.5
million of its common stock under an accelerated stock repurchase transaction (the "June 2016 ASR Agreement").
Pursuant to the terms of the June 2016 ASR Agreement, the Company received an initial delivery of 1.1 million
shares of its common stock in June 2016 and received an additional 0.3 million shares upon completion of the
agreement in September 2016. The Company ultimately repurchased a total of approximately 1.4 million shares
under the June 2016 ASR Agreement at a net weighted average price of $29.89 per share.
96
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In December 2015, the Company entered into an agreement with an investment bank counterparty to purchase $45
million of its common stock under an accelerated stock repurchase transaction (the "December 2015 ASR
Agreement"). Pursuant to the terms of the December 2015 ASR Agreement, the Company received an initial delivery
of 1.0 million shares of its common stock in December 2015 and received an additional 0.3 million shares upon
completion of the agreement in January 2016. The Company ultimately repurchased a total of approximately 1.3
million shares under the December 2015 ASR Agreement at a net weighted average price of $33.98 per share.
The Company treated the ASR agreements as forward contracts indexed to its own common stock. The forward
contracts met all of the applicable criteria for equity classification, including the Company's right to settle in shares.
The Company reflected the shares received from the investment bank counterparties as treasury stock as of the dates
the shares were delivered, which resulted in reductions of the outstanding shares used to calculate the weighted
average common shares outstanding for both basic and diluted earnings per share during the respective periods.
21. Related Party Transactions
Transactions with TD and its Affiliates
As a result of the Company's acquisition of TD Waterhouse Group, Inc. during fiscal year 2006, TD became an
affiliate of the Company. TD owned approximately 42% of the Company's common stock as of September 30,
2018. Pursuant to the stockholders agreement between TD and the Company, TD has the right to designate five of
twelve members of the Company's board of directors. The Company transacts business and has extensive
relationships with TD and certain of its affiliates. Transactions with TD and its affiliates are discussed and
summarized below.
Insured Deposit Account Agreement
Under the IDA agreement, TD Bank USA and TD Bank, N.A. (together, the "TD Depository Institutions") make
available to clients of the Company FDIC-insured (up to specified limits) money market deposit accounts as either
designated sweep vehicles or as non-sweep deposit accounts. The Company provides marketing, recordkeeping
and support services for the TD Depository Institutions with respect to the money market deposit accounts. In
exchange for providing these services, the TD Depository Institutions pay the Company an aggregate marketing
fee based on the weighted average yield earned on the client IDA assets, less the actual interest paid to clients, a
servicing fee to the TD Depository Institutions and the cost of FDIC insurance premiums.
The current IDA agreement became effective as of January 1, 2013 and had an initial term expiring July 1, 2018.
It is automatically renewable for successive five-year terms, provided that it may be terminated by either the Company
or the TD Depository Institutions by providing written notice of non-renewal at least two years prior to the initial
expiration date or the expiration date of any subsequent renewal period. As of July 1, 2016, notice of non-renewal
was not provided by either party, therefore the IDA agreement was automatically renewed for an additional five-
year term on July 1, 2018.
The fee earned on the IDA agreement is calculated based on two primary components: (a) the yield on fixed-rate
notional investments, based on prevailing fixed rates for identical balances and maturities in the interest rate swap
market (generally LIBOR-based) at the time such investments were added to the IDA portfolio (including any
adjustments required to adjust the variable rate leg of such swaps to a one-month reset frequency and the overall
swap payment frequency to monthly) and (b) the yield on floating-rate investments. As of September 30, 2018, the
IDA portfolio was comprised of approximately 78% fixed-rate notional investments and 22% floating-rate
investments.
The IDA agreement provides that the Company may designate amounts and maturity dates for the fixed-rate notional
investments in the IDA portfolio, subject to certain limitations. For example, if the Company designates that $100
million of deposits be invested in 5-year fixed-rate investments, and on the day such investment is confirmed by
the TD Depository Institutions the prevailing fixed yield for the applicable 5-year U.S. dollar LIBOR-based swaps
is 1.45%, then the Company will earn a gross fixed yield of 1.45% on that portion of the portfolio (before any
deductions for interest paid to clients, the servicing fee to the TD Depository Institutions and the cost of FDIC
97
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
insurance premiums). In the event that (1) the federal funds effective rate is established at 0.75% or greater and
(2) the rate on 5-year U.S. dollar interest rate swaps is equal to or greater than 1.50% for 20 consecutive business
days, then the rate earned by the Company on new fixed-rate notional investments will be reduced by 20% of the
excess of the 5-year U.S. dollar swap rate over 1.50%, up to a maximum of 0.10%.
The yield on floating-rate investments is calculated daily based on the greater of the following rates published by
the Federal Reserve: (1) the interest rate paid by Federal Reserve Banks on balances held in excess of required
reserve balances and contractual clearing balances under Regulation D and (2) the daily effective federal funds rate.
The interest rates paid to clients are set by the TD Depository Institutions and are not linked to any index. The
servicing fee to the TD Depository Institutions under the IDA agreement is equal to 25 basis points on the aggregate
average daily balance in the IDA accounts, subject to adjustment as it relates to deposits of less than or equal to $20
billion kept in floating-rate investments or in fixed-rate notional investments with a maturity of up to 24 months
("short-term fixed-rate investments"). For such floating-rate and short-term fixed-rate investments, the servicing
fee is equal to the difference of the interest rate earned on the investments less the FDIC premiums paid (in basis
points), divided by two. The servicing fee has a floor of 3 basis points (subject to adjustment from time to time to
reflect material changes to the TD Depository Institutions' leverage costs) and a maximum of 25 basis points.
In the event the marketing fee computation results in a negative amount, the Company must pay the TD Depository
Institutions the negative amount. This effectively results in the Company guaranteeing the TD Depository
Institutions revenue equal to the servicing fee on the IDA agreement, plus the reimbursement of FDIC insurance
premiums. The marketing fee computation under the IDA agreement is affected by many variables, including the
type, duration, principal balance and yield of the fixed-rate and floating-rate investments, the prevailing interest
rate environment, the amount of client deposits and the yield paid on client deposits. Because a negative marketing
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 likelihood that the marketing fee calculation would result in a
negative amount is remote. Accordingly, no contingent liability is carried on the Consolidated Balance Sheets for
the IDA agreement. In the event the Company withdraws a notional investment prior to its maturity, the Company
is required to reimburse the TD Depository Institutions an amount equal to the economic replacement value of the
investment, as defined in the IDA agreement. See "General Contingencies" in Note 15 for a discussion of how the
Company mitigates the risk of losses due to the early withdrawal of fixed-rate notional investments.
In addition, the Company has various other services agreements and transactions with TD and its affiliates. The
following tables summarize revenues and expenses resulting from transactions with TD and its affiliates for the
fiscal years indicated (dollars in millions):
Description
Statement of Income
Classification
Bank deposit account fees . .
Investment product fees . . . .
Various . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insured Deposit Account Agreement
Mutual Fund Agreements
Other
Description
Canadian Call Center Services Agreement(1)
Referral and Strategic Alliance Agreement
Other
Various . . . . . . . . . . . . . . . . .
Other expense. . . . . . . . . . . .
Various . . . . . . . . . . . . . . . . .
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statement of Income
Classification
Revenues from TD and its Affiliates
2018
$ 1,426
17
13
$ 1,456
2017
$ 1,101
15
10
$ 1,126
2016
926
11
7
944
$
$
Expenses to TD and its Affiliates
2018
2017
2016
$ — $
5
2
7
$
$
11
5
1
17
$
$
22
3
1
26
98
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(1) The Company notified TD of its intent to not extend or renew the Canadian Call Center Services Agreement
and services under this agreement ended by September 30, 2017.
The following table summarizes the classification and amount of receivables from and payables to TD and its
affiliates on the Consolidated Balance Sheets resulting from related party transactions (dollars in millions):
September 30,
2018
2017
Assets:
Receivable from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 151
$ 110
Liabilities:
Payable to brokers, dealers and clearing organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
47
7
$
37
38
Payables to brokers, dealers and clearing organizations primarily relate to securities lending activity and are settled
in accordance with customary contractual terms. 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.
As of September 30, 2018, payables to affiliates on the Consolidated Balance Sheets included $38 million of liabilities
assumed in connection with the acquisition of Scottrade. These liabilities were settled during the first quarter of
fiscal year 2019. As of September 30, 2017, receivables from and payables to affiliates included $27 million of
assets acquired and $71 million of liabilities assumed, respectively, in connection with the acquisition of Scottrade.
99
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
22. Condensed Financial Information (Parent Company Only)
The following tables present the Parent company's condensed balance sheets, statements of income and statements
of cash flows. Because all other comprehensive income (loss) activity occurred on the Parent company for all
periods presented, the Parent company's condensed statements of comprehensive income are not presented.
PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
As of September 30, 2018 and 2017
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments available-for-sale, at fair value (including $98 million and $99 million
of securities pledged as collateral for repurchase agreements at September 30,
2018 and 2017, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2018
2017
(In millions)
$
151
8
154
6
$
$
484
9,976
162
10,781
240
3
96
2,439
2,778
8,003
746
9,043
108
10,057
104
54
97
2,555
2,810
7,247
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
10,781
$
10,057
100
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PARENT COMPANY ONLY
CONDENSED STATEMENTS OF INCOME
For the Years Ended September 30, 2018, 2017 and 2016
2018
2017
2016
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes and equity in income of subsidiaries . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before equity in income of subsidiaries . . . . . . . . . . . . . . . . . . . . . . .
Equity in income of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52
21
31
106
(75)
15
(90)
1,563
(In millions)
31
$
$
34
(3)
71
(74)
(22)
(52)
924
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,473
$
872
$
30
26
4
53
(49)
6
(55)
897
842
101
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PARENT COMPANY ONLY
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2018, 2017 and 2016
2018
2017
(In millions)
2016
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash flows provided by operating activities:
$
1,473
$
872
$
842
Equity in income of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Receivable from subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to subsidiaries and affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans made under intercompany credit agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collections on intercompany credit agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid in business acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of investments available-for-sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of investments available-for-sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale and maturity of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursement (payment) of prepayment premium on long-term debt . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from (payments on) securities sold under agreements to repurchase. . . . . . . . . . . . . .
Proceeds from Parent Senior Revolving Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on Parent Senior Revolving Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock for income tax withholding on stock-based compensation . . . . . . . . . . .
Payment for future treasury stock under accelerated stock repurchase agreement . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash investing activities:
Issuance of common stock in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets transferred to a subsidiary, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,563)
13
1,030
11
60
9
(2)
(92)
42
(24)
957
(425)
(175)
175
(4)
643
(392)
—
—
(178)
—
(3)
—
2
(1)
200
(200)
(477)
—
(255)
(17)
(31)
—
(782)
(3)
154
151
94
309
$
$
$
(924)
(12)
1,230
—
36
9
2
—
(67)
(4)
1,142
(15)
—
—
(1,698)
—
—
—
—
(1,713)
798
(8)
(385)
(54)
97
—
—
(379)
400
—
(27)
—
35
477
(94)
248
154
50
452
— $
— $
1,261
15
$
$
$
$
$
$
$
$
$
$
(897)
—
825
—
34
8
(3)
1
38
26
874
(60)
—
—
—
—
(757)
600
(601)
(818)
—
—
—
—
—
—
—
(362)
—
(352)
(30)
—
16
(728)
(672)
920
248
47
488
—
—
102
TD AMERITRADE HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
23. Quarterly Data (Unaudited)
(Dollars in millions, except per share amounts)
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . .
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share. . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . .
For the Fiscal Year Ended September 30, 2018
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
1,257
336
297
0.52
0.52
$
$
$
$
$
1,415
396
271
0.48
0.48
$
$
$
$
$
1,382
631
451
0.79
0.79
$
$
$
$
$
1,398
635
454
0.80
0.80
For the Fiscal Year Ended September 30, 2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
859
353
216
0.41
0.41
$
$
$
$
$
904
358
214
0.41
0.40
$
$
$
$
$
931
394
231
0.44
0.44
$
$
$
$
$
983
361
211
0.40
0.39
$
$
$
$
$
$
$
$
$
$
Quarterly amounts may not sum to fiscal year totals due to rounding.
24. Subsequent Event
Senior Notes — On October 30, 2018, the Company sold, through a public offering, $600 million aggregate principal
amount of unsecured variable-rate senior notes due November 1, 2021 (the "2021 Notes") and $400 million aggregate
principal amount of unsecured 3.750% senior notes due April 1, 2024 (the "2024 Notes"). The Company intends
to use the net proceeds from the issuance of the 2021 Notes and 2024 Notes for general corporate purposes, including
to augment liquidity.
The 2021 Notes will bear interest at a variable rate, reset quarterly, equal to three-month LIBOR plus 0.430% per
annum, payable quarterly on February 1, May 1, August 1 and November 1 of each year, beginning on February 1,
2019. Interest on the fixed-rate 2024 Notes will be payable in arrears semi-annually on April 1 and October 1 of
each year, beginning on April 1, 2019.
The Company's obligations in respect to the 2021 Notes and the 2024 Notes are not guaranteed by any of its
subsidiaries. The Company may redeem the 2024 Notes, in whole or in part, at any time prior to March 2, 2024 at
a redemption price equal to the greater of (a) 100% of the principal amount of the notes being redeemed, and (b) the
sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed,
discounted to the date of redemption on a semi-annual basis at the comparable U.S. Treasury rate, plus 15 basis
points, plus accrued and unpaid interest to the date of redemption. The Company may redeem the 2021 Notes and
2024 Notes, in whole or in part, at any time on or after October 2, 2021 and March 2, 2024, respectively, at a
redemption price equal to 100% of the principal amount of the notes being redeemed, plus, in each case, accrued
and unpaid interest to the date of redemption.
103
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Management's Annual Report on Internal Control Over Financial Reporting
Management of TD Ameritrade Holding Corporation and its subsidiaries (the "Company") is responsible for
establishing and maintaining adequate internal control over financial reporting. The Company's internal control
over financial reporting is a process designed under the supervision of and effected by the Company's chief executive
officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles.
The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial
statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation. Also, projections of any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of the Company's internal control over financial reporting
as of September 30, 2018 based on framework established in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this
assessment, management concluded that, as of September 30, 2018, the Company's internal control over financial
reporting is effective.
The Company's internal control over financial reporting as of September 30, 2018 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their accompanying report which expresses
an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of
September 30, 2018. That opinion appears on the next page.
104
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of TD Ameritrade Holding Corporation
Opinion on Internal Control over Financial Reporting
We have audited TD Ameritrade Holding Corporation's internal control over financial reporting as of September 30,
2018, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion,
TD Ameritrade Holding Corporation (the Company) maintained, in all material respects, effective internal control
over financial reporting as of September 30, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2018 and 2017, and the
related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of
the three years in the period ended September 30, 2018, and the related notes and our report dated November 16,
2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ ERNST & YOUNG LLP
New York, New York
November 16, 2018
105
Disclosure Controls and Procedures
Management, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the
effectiveness of the Company's disclosure controls and procedures as of September 30, 2018. Management,
including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and
procedures were effective as of September 30, 2018.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as that term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required to be furnished pursuant to this item is incorporated by reference from our definitive proxy
statement for our 2019 annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A within
120 days after September 30, 2018 (the "Proxy Statement").
Item 11. Executive Compensation
The information required to be furnished pursuant to this item is incorporated by reference from the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required to be furnished pursuant to this item, with the exception of the equity compensation plan
information presented below, is incorporated by reference from the Proxy Statement.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes, as of September 30, 2018, information about compensation plans under which
equity securities of the Company are authorized for issuance:
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future
issuance under equity
compensation plans
(excluding
securities reflected
in column (a))
Plan Category
Equity compensation plans
approved by security
holders. . . . . . . . . . . . . . . . .
(a)
(b)
(c)
3,286,766 (1) $
27.97 (2)
5,552,799 (3)
(1) Consists of 503,247 stock options, 2,129,241 restricted stock units, 499,830 performance restricted stock units,
and 154,448 deferred stock units outstanding under the Company's stock incentive plans.
(2) The weighted average exercise price does not take into account awards that have no exercise price, such as
restricted stock units and deferred stock units.
106
(3) The TD Ameritrade Holding Corporation Long-Term Incentive Plan (the "LTIP") and the 2006 Directors
Incentive Plan (the "Directors Plan") authorize the issuance of shares of common stock as well as options. As
of September 30, 2018, there were 4,733,256 shares and 819,543 shares remaining available for issuance
pursuant to the LTIP and the Directors Plan, respectively.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required to be furnished pursuant to this item is incorporated by reference from the Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required to be furnished pursuant to this item is incorporated by reference from the Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of this Report
1. Financial Statements
See Item 8, "Financial Statements and Supplementary Data."
2. Financial Statement Schedules
Consolidated Financial Statement Schedules have been omitted because the required information is not
present, or not present in amounts sufficient to require submission of the schedules, or because the
required information is provided in the Consolidated Financial Statements or Notes.
3. Exhibits
See Item 15(b) below.
107
(b) Exhibits
Exhibit No.
2.1^
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
10.1*
10.2*
10.3*
Description
Agreement and Plan of Merger, dated as of October 24, 2016, by and among Scottrade Financial
Services, Inc., Rodger O. Riney, as Voting Trustee of the Rodger O. Riney Family Voting Trust U/A/
D 12/31/2012, TD Ameritrade Holding Corporation and Alto Acquisition Corp. (incorporated by
reference to Exhibit 2.1 of the Company's Form 8-K filed on October 28, 2016)
Amended and Restated Certificate of Incorporation of TD Ameritrade Holding Corporation, dated
January 24, 2006 (incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed on
January 27, 2006)
Amended and Restated By-Laws of TD Ameritrade Holding Corporation, effective February 12, 2014
(incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed on February 19, 2014)
Form of Certificate for Common Stock (incorporated by reference to Exhibit 4.1 of the Company's
Form 8-A filed on September 5, 2002)
First Supplemental Indenture, dated November 25, 2009, among TD Ameritrade Holding Corporation,
TD Ameritrade Online Holdings Corp., as guarantor, and The Bank of New York Mellon Trust
Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company's
Form 8-K filed on November 25, 2009)
Form of 5.600% Senior Note due 2019 (included in Exhibit 4.2)
Indenture, dated October 22, 2014, between TD Ameritrade Holding Corporation and U.S. Bank
National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company's Form 8-
K filed on October 23, 2014)
Form of 3.625% Senior Note due 2025 (included in Exhibit 4.4)
Supplemental Indenture, dated October 22, 2014, between TD Ameritrade Holding Corporation and
U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.3 of the Company's
Form 8-K filed on October 23, 2014)
Second Supplemental Indenture, dated March 9, 2015 between TD Ameritrade Holding Corporation
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 of the
Company's Form 8-K filed on March 9, 2015)
Form of 2.950% Senior Note due 2022 (included in Exhibit 4.7)
Third Supplemental Indenture, dated April 27, 2017, between TD Ameritrade Holding Corporation
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 of the
Company's Form 8-K filed on April 28, 2017)
Form of 3.300% Senior Note due 2027 (included in Exhibit 4.9)
Fourth Supplemental Indenture, dated November 1, 2018, between TD Ameritrade Holding
Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2
of the Company's Form 8-K filed on November 1, 2018)
Form of 3.750% Senior Notes due 2024 (included in Exhibit 4.11)
Form of Senior Floating Rate Notes due 2021 (included in Exhibit 4.11)
Form of Indemnification Agreement between TD Ameritrade Holding Corporation and members of
the Company's board of directors (incorporated by reference to Exhibit 10.1 of the Company's Form
8-K filed on November 26, 2014)
Chairman of the Board of Directors Term Sheet, effective as of June 1, 2011, between Joseph H.
Moglia and TD Ameritrade Holding Corporation (incorporated by reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K filed on November 18, 2011)
Employment Agreement, effective as of January 2, 2016, between Tim Hockey and TD Ameritrade
Holding Corporation (incorporated by reference to Exhibit 10.1 of the Company's quarterly report on
Form 10-Q filed on February 4, 2016)
108
Exhibit No.
10.4*
Description
Form of Performance-Based Restricted Stock Unit Agreement for Tim Hockey (incorporated by
reference to Exhibit 10.3 of the Company's quarterly report on Form 10-Q filed on February 6, 2017)
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
Restricted Stock Unit Agreement, dated January 21, 2016, between Tim Hockey and TD Ameritrade
Holding Corporation (incorporated by reference to Exhibit 10.2 of the Company's quarterly report on
Form 10-Q filed on February 4, 2016)
Non-Qualified Stock Option Agreement, dated January 21, 2016, between Tim Hockey and
TD Ameritrade Holding Corporation (incorporated by reference to Exhibit 10.3 of the Company's
quarterly report on Form 10-Q filed on February 4, 2016)
Employment Agreement, as amended and restated, effective as of October 13, 2008, between Ellen
L.S. Koplow and TD Ameritrade Holding Corporation (incorporated by reference to Exhibit 10.9 of
the Company's Form 10-K filed on November 26, 2008)
Amendment to Employment Agreement, executed on December 20, 2012, between Ellen L.S. Koplow
and TD Ameritrade Holding Corporation (incorporated by reference to Exhibit 10.4 of the Company's
quarterly report on Form 10-Q filed on February 6, 2013)
Amendment to Employment Agreement, executed on August 30, 2013, between Ellen L.S. Koplow
and TD Ameritrade Holding Corporation (incorporated by reference to Exhibit 10.10 of the Company's
Annual Report on Form 10-K filed on November 22, 2013)
Executive Employment Term Sheet, effective as of July 1, 2015, between Stephen J. Boyle and
TD Ameritrade Holding Corporation (incorporated by reference to Exhibit 10.1 of the Company's
quarterly report on Form 10-Q filed on May 7, 2015)
Form of Restricted Stock Unit Agreement for Stephen J. Boyle (incorporated by reference to Exhibit
10.1 of the Company's quarterly report on Form 10-Q filed on August 7, 2015)
Executive Employment Term Sheet, effective as of September 18, 2017, between Peter J. deSilva and
TD Ameritrade Holding Corporation (incorporated by reference to Exhibit 10.12 of the Company's
Annual Report on Form 10-K filed on November 17, 2017)
Separation and Release of Claims Agreement, effective November 1, 2017, between J. Thomas
Bradley and TD Ameritrade Holding Corporation (incorporated by reference to Exhibit 10.13 of the
Company's Annual Report on Form 10-K filed on November 17, 2017)
TD Ameritrade Holding Corporation Long-Term Incentive Plan, as amended and restated
(incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed on February 24, 2016)
Form of 1996 Long Term Incentive Plan Non-Qualified Stock Option Agreement for Executives
(incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K filed on
December 9, 2004)
Form of Performance-Based Restricted Stock Unit Agreement for Employees (incorporated by
reference to Exhibit 10.4 of the Company's quarterly report on Form 10-Q filed on February 6, 2017)
Form of Restricted Stock Unit Agreement for Employees (3 Year Cliff Vesting) (incorporated by
reference to Exhibit 10.2 of the Company's quarterly report on Form 10-Q filed on August 5, 2016)
Form of Restricted Stock Unit Agreement for Employees (3 Year Pro Rata Vesting)
TD Ameritrade Holding Corporation 2006 Directors Incentive Plan, effective as of November 15,
2006 (incorporated by reference to Appendix A of the Company's Proxy Statement filed on January 24,
2007)
Form of Restricted Stock Unit Agreement for Non-employee Directors (incorporated by reference to
Exhibit 10.3 of the Company's quarterly report on Form 10-Q filed on August 5, 2016)
Amended and Restated Ameritrade Holding Corporation Executive Deferred Compensation Program
effective December 28, 2005 (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K
filed on December 30, 2005)
10.22*
TD Ameritrade Holding Corporation Management Incentive Plan, as amended and restated
(incorporated by reference to Exhibit 10.2 of the Company's Form 8-K filed on February 24, 2016)
109
Exhibit No.
10.23
Description
Stockholders Agreement among Ameritrade Holding Corporation, The Toronto-Dominion Bank,
J. Joe Ricketts and certain of his affiliates dated as of June 22, 2005 (incorporated by reference to
Exhibit 10.1 of the Company's Form 8-K filed on June 28, 2005)
10.24
10.25
10.26
10.27
10.28
10.29†
10.30
10.31
10.32
10.33
10.34
10.35
Amendment No. 1 to Stockholders Agreement among TD Ameritrade Holding Corporation, The
Toronto-Dominion Bank and certain other stockholders of TD Ameritrade, dated February 22, 2006
(incorporated by reference to Exhibit 10.4 of the Company's quarterly report on Form 10-Q filed on
May 8, 2006)
Amendment No. 2 and Waiver to Stockholders Agreement among TD Ameritrade Holding
Corporation, The Toronto-Dominion Bank and certain other stockholders of TD Ameritrade, dated
August 3, 2009 (incorporated by reference to Exhibit 10.33 of the Company's Annual Report on Form
10-K filed on November 13, 2009)
Amendment No. 3 to Stockholders Agreement among TD Ameritrade Holding Corporation, The
Toronto-Dominion Bank and certain other stockholders of TD Ameritrade, dated August 6, 2010
(incorporated by reference to Exhibit 10.35 of the Company's Annual Report on Form 10-K filed on
November 19, 2010)
Amendment No. 4 to Stockholders Agreement among TD Ameritrade Holding Corporation, The
Toronto-Dominion Bank and certain other stockholders of TD Ameritrade, dated October 31, 2011
(incorporated by reference to Exhibit 10.1 of the Company's quarterly report on Form 10-Q filed on
February 7, 2012)
Amendment No. 5 to Stockholders Agreement among TD Ameritrade Holding Corporation, The
Toronto-Dominion Bank and certain other stockholders of TD Ameritrade, dated December 4, 2013
(incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed on December 5, 2013)
Insured Deposit Account Agreement, effective as of January 1, 2013, among TD Bank USA, N.A.,
TD Bank, N.A., The Toronto-Dominion Bank, TD Ameritrade, Inc., TD Ameritrade Clearing, Inc.
and TD Ameritrade Trust Company (incorporated by reference to Exhibit 10.1 of the Company's
quarterly report on Form 10-Q filed on August 7, 2018)
Amendment No. 1, dated as of October 24, 2016, to the Insured Deposit Account Agreement by and
among TD Bank USA, N.A., TD Bank, N.A., TD Ameritrade, Inc., TD Ameritrade Clearing, Inc.,
TD Ameritrade Trust Company and solely for purposes of Sections 7(b), 14 and 15(c), The Toronto-
Dominion Bank, effective as of January 1, 2013 (incorporated by reference to Exhibit 10.3 of the
Company's Form 8-K filed on October 28, 2016)
Registration Rights Agreement, dated as of September 18, 2017, by and among TD Ameritrade
Holding Corporation, The Toronto-Dominion Bank, TD Luxembourg International Holdings S.à.r.l.,
Rodger O. Riney, as Voting Trustee of the Rodger O. Riney Family Voting Trust U/A/D 12/31/2012
and the other stockholders described therein (incorporated by reference to Exhibit 10.1 of the
Company's Form 8-K filed on September 18, 2017)
Stockholders Agreement, dated as of September 18. 2017, by and among TD Ameritrade Holding
Corporation and Rodger O. Riney, as Voting Trustee of the Rodger O. Riney Family Voting Trust U/
A/D 12/31/2012 (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K filed on
September 18, 2017)
Trademark License Agreement among The Toronto-Dominion Bank and Ameritrade Holding
Corporation, dated as of June 22, 2005 (incorporated by reference to Exhibit 99.3 of the Company's
Form 8-K filed on September 12, 2005)
Subscription Agreement, dated as of October 24, 2016, by and among TD Ameritrade Holding
Corporation, The Toronto-Dominion Bank and TD Luxembourg International Holdings S.à.r.l.
(incorporated by reference to Exhibit 10.2 of the Company's Form 8-K filed on October 28, 2016)
Credit Agreement, dated April 21, 2017, among TD Ameritrade Holding Corporation, the lenders
party thereto, U.S. Bank National Association, as syndication agent, Barclays Bank PLC,
TD Securities (USA) LLC and Wells Fargo Securities, LLC, as co-documentation agents and
JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of
the Company's Form 8-K filed on April 21, 2017)
110
Exhibit No.
10.36
Description
Credit Agreement, dated April 21, 2017, among TD Ameritrade Clearing, Inc., the lenders party
thereto, U.S. Bank National Association, as syndication agent, Barclays Bank PLC, TD Securities
(USA) LLC and Wells Fargo Securities, LLC, as co-documentation agents and JPMorgan Chase Bank,
N.A., as administrative agent (incorporated by reference to Exhibit 10.2 of the Company's Form 8-
K filed on April 21, 2017)
10.37
10.38
12
14
21.1
23.1
31.1
31.2
32.1
99.1
Credit Agreement, dated May 17, 2018, among TD Ameritrade Clearing, Inc., the lenders party thereto,
Wells Fargo Securities, LLC, Barclays Bank PLC, Citibank, N.A., JPMorgan Chase Bank, N.A., U.S.
Bank National Association and TD Securities (USA) LLC, as joint bookrunners and joint lead
arrangers, and Wells Fargo Bank, National Association, as administrative agent (incorporated by
reference to Exhibit 10.1 of the Company's Form 8-K filed on May 21, 2018)
First Amendment, dated May 17, 2018, to Credit Agreement, dated April 21, 2017, among TD
Ameritrade Clearing, Inc., the lenders party thereto, U.S. Bank National Association, as syndication
agent, Barclays Bank PLC, TD Securities (USA) LLC, Wells Fargo Securities, LLC, and Industrial
and Commercial Bank of China Ltd., New York Branch, as co-documentation agents and JPMorgan
Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.2 of the Company's
Form 8-K filed on May 21, 2018)
Statement Re: Computation of Ratio of Earnings to Fixed Charges
Code of Ethics (incorporated by reference to Exhibit 14 of the Company's quarterly report on Form
10-Q filed February 4, 2011)
Subsidiaries of the Registrant
Consent of Ernst & Young LLP
Certification of Tim Hockey, Principal Executive Officer, as required pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Stephen J. Boyle, Principal Financial Officer, as required pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Press Release, dated October 30, 2018 (incorporated by reference to Exhibit 99.1 of the Company's
Form 8-K filed on November 1, 2018)
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation
101.LAB XBRL Taxonomy Extension Label
101.PRE XBRL Taxonomy Extension Presentation
101.DEF XBRL Taxonomy Extension Definition
^
Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish
supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request.
* Management contracts and compensatory plans and arrangements required to be filed as exhibits under
Item 15(b) of this report.
†
Confidential treatment has been granted with respect to the omitted portions of this Exhibit, which portions
have been filed separately with the Securities and Exchange Commission.
111
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 16th day of
November, 2018.
TD AMERITRADE HOLDING CORPORATION
By:
/s/ TIM HOCKEY
Tim Hockey
President, Chief Executive Officer and Director
(Principal Executive Officer)
By:
/s/ STEPHEN J. BOYLE
Stephen J. Boyle
Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on this 16th day of November, 2018.
/s/ IRENE R. MILLER
Irene R. Miller
Director
/s/ MARK L. MITCHELL
Mark L. Mitchell
Director
/s/ WILBUR J. PREZZANO
Wilbur J. Prezzano
Director
/s/ TODD M. RICKETTS
Todd M. Ricketts
Director
/s/ ALLAN R. TESSLER
Allan R. Tessler
Director
/s/ JOSEPH H. MOGLIA
Joseph H. Moglia
Chairman of the Board
/s/ BHARAT B. MASRANI
Bharat B. Masrani
Vice Chairman of the Board
/s/ LORENZO A. BETTINO
Lorenzo A. Bettino
Director
/s/ V. ANN HAILEY
V. Ann Hailey
Director
/s/ BRIAN M. LEVITT
Brian M. Levitt
Director
/s/ KAREN E. MAIDMENT
Karen E. Maidment
Director
112
TD AMERITRADE HOLDING CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Dollars in millions, except per share amounts
(Unaudited)
Non-GAAP Net Income and Non-GAAP Diluted EPS (1)
Net income and diluted EPS - GAAP . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP adjustments:
Amortization of acquired intangible assets . . . . . . . . . . . . .
Acquisition-related expenses . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect of above adjustments . . . . . . . . . . . . . . .
Non-GAAP net income and non-GAAP diluted EPS . . . . . . . . . . .
Fiscal Year Ended
Sept. 30, 2018
Sept. 30, 2017
Amount
$
1,473
Diluted EPS
$
2.59
Amount
$
872
Diluted EPS
$
1.64
141
445
(158)
1,901
$
0.25
0.78
(0.28)
3.34
$
79
88
(63)
976
$
0.15
0.17
(0.12)
1.84
$
Note: The term "GAAP" in the following explanation refers to generally accepted accounting principles in the United States.
(1)
Non-GAAP net income and non-GAAP diluted earnings per share (EPS) are non-GAAP financial measures as defined by SEC
Regulation G. We define non-GAAP net income as net income adjusted to remove the after-tax effect of amortization of acquired
intangible assets and acquisition-related expenses. We consider non-GAAP net income and non-GAAP diluted EPS as important
measures of our financial performance because they exclude certain items that may not be indicative of our core operating results
and business outlook and may be useful in evaluating the operating performance of the business and facilitating a meaningful
comparison of our results in the current period to those in prior and future periods. Amortization of acquired intangible assets is
excluded because management does not believe it is indicative of our underlying business performance. Acquisition-related
expenses are excluded as these costs are not representative of the costs of running the Company’s on-going business. Non-GAAP
net income and non-GAAP diluted EPS should be considered in addition to, rather than as a substitute for, GAAP net income and
diluted EPS.
113
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Corporate leadership
Leading our charge
with confidence.
Management Team
Tim Hockey
President & Chief Executive Officer
Prashant Bhatia
Managing Director, Corporate Strategy
& Business Development
Board of Directors
Joseph H. Moglia
Chairman
Tim Hockey
President & Chief Executive Officer
Lorenzo A. Bettino
Stephen Boyle
Executive Vice President, Chief Financial Officer
V. Ann Hailey
Brian M. Levitt
Karen E. Maidment
Bharat B. Masrani
Irene R. Miller
Mark L. Mitchell
Wilbur J. Prezzano
Todd M. Ricketts
Allan R. Tessler
Peter deSilva
President, Retail
Karen Ganzlin
Executive Vice President, Chief Human
Resources Officer
Denise Karkos
Chief Marketing Officer
David Kimm
Executive Vice President, Chief Risk Officer
Ellen Koplow
Executive Vice President, General Counsel
& Secretary
Thomas Nally
President, TD Ameritrade Institutional
Steven Quirk
Executive Vice President, Trading & Education
Vijay Sankaran
Managing Director, Chief Information Officer
ix
Corporate Headquarters
200 South 108th Avenue
Omaha, NE 68154
Mailing Address
P.O. Box 3288
Omaha, NE 68103-0288
Corporate Information
www.amtd.com
Investor Relations
www.amtd.com/investor-relations
Common Stock
The common stock of TD Ameritrade Holding
Corporation is listed on the Nasdaq Global Select
Market under the symbol AMTD.
Independent Registered Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, NY 10036
Send Certificates for Transfer and Address Changes to:
TD Ameritrade Holding Corporation
C/O Computershare
250 Royall Street
Canton, MA 02021
1-877-889-1984
www.computershare.com/investor
E-mail for Transfer Agent
https://www-us.computershare.com/investor/contact/
enquiry
Transforming lives and
investing for the better.
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affiliate of the broker-dealers, investment advisors, and other regulated financial businesses of the company.
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TD Ameritrade Holding Corporation (NASDAQ: AMTD). Brokerage services provided by TD Ameritrade, Inc. member FINRA/SIPC. TD Ameritrade is a trademark
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