10-K 1 amtd_20140930x10k.htm 10-K AMTD_2014.09.30_10K
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
 
 
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended September 30, 2014
 
 
 
 
 
¨

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
 
82-0543156
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
 
 
200 South 108th Avenue,
Omaha, Nebraska 68154
(Address of principal executive offices) (Zip Code)
(402) 331-7856
(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
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
 
 
 
(Title of class)
 
 
 
 
 
 
None
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ        No  ¨
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  ¨    No  þ
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  þ        No  ¨
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  þ        No  ¨
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.    þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer  ¨
Smaller reporting company ¨
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨        No  þ
The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $8.7 billion computed by reference to the closing sale price of the stock on the New York Stock Exchange on March 31, 2014, 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 7, 2014 was 543,824,055 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement relating to the registrant’s 2015 Annual Meeting of Stockholders to be filed hereafter (incorporated into Part III hereof).
 



TD AMERITRADE HOLDING CORPORATION
INDEX
 
 
 
Page No.
 
 
 
 
 
 
 
Item 1.
 
Item 1A.
 
Item 1B.
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
 
 
Item 5.
 
Item 6.
 
Item 7.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 7A.
 
Item 8.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 9.
 
Item 9A.
 
Item 9B.
 
 
 
 
 
 
 
 
Item 10.
 
Item 11.
 
Item 12.
 
Item 13.
 
Item 14.
 
 
 
 
 
 
 
 
Item 15.
 
 
 
 
 

2



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.
PART I
Item 1.    Business
Form of Organization
The Company was established in 1971 as a local investment banking firm 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 investors, traders and independent registered investment advisors (“RIAs”). We provide our services predominantly through the Internet, a national branch network and relationships with RIAs. We believe that our services appeal to a broad market of independent, value-conscious retail investors, traders, financial planners and institutions. We use our efficient platform to offer brokerage services to retail investors and institutions under a simple, low-cost commission structure.
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; unlimited, streaming, free real-time quotes; extended trading hours; direct access to market destinations; and commitment on the speed of order execution. Since initiating online trading, we have substantially increased our number of brokerage accounts, number of RIA relationships, average daily trading volume and total assets in client accounts. 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 and effective 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 long-term investors, RIAs and active traders. We strive to enhance the client experience by providing sophisticated 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 active traders, long-term investors 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 execute client trades on an agency, rather than a principal, basis. We maintain only a small inventory of fixed income securities to meet client requirements.
Provide a comprehensive long-term 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 simple-to-use investment tools, guidance, education and objective third-party research.
Maintain industry leadership and market share with active traders.    We help active traders make better-informed investment decisions by offering fast access to markets, insight into market trends and innovative tools such as strategy back-testing and comprehensive options research and trading capabilities.

3


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 very robust online experience for long-term investors and active traders. Our low-cost, scalable systems provide speed, reliability and quality trade execution services for clients. The scalable capacity of our trading system allows us to add a significant number of 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.
Continue to differentiate our offerings through innovative technologies and service enhancements.    We have been an innovator in our industry for nearly 40 years. We continually strive to provide our clients with the ability to customize their trading experience. We provide our clients greater choice by tailoring our 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.
Client Offerings
We deliver products and services aimed at providing a comprehensive, personalized experience for active traders, long-term investors 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. We offer sophisticated tools and services, including alerts, screeners, conditional orders, free fundamental third-party research and a customizable workspace. SnapTicket conveniently stays at the bottom of the browser window no matter where investors navigate on the site, so that quotes may be accessed and trades placed seamlessly at a moment’s notice. Free planning tools are also provided, such as Portfolio Planner to efficiently create a bundle of securities to trade, invest and rebalance and WealthRuler to realistically assess retirement needs.
Trade Architect® is a powerful and intuitive web-based platform that helps active investors and traders identify opportunities and stay informed. It includes advanced features such as complex options, Level II equity and option quotes, streaming news from CNBC and Dow Jones, free reports from S&P Capital IQ and Morningstar and visual position profit/loss analysis.
thinkorswim® is a downloadable desktop platform designed for advanced traders, featuring easy-to-use interfaces, elite-level trading and analytical tools, and fast and efficient order execution for complex trading strategies. thinkorswim clients 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 and streaming market commentary. 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.
TD Ameritrade Institutional is a leading provider of comprehensive brokerage and custody services to more than 4,500 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

4


robust offering of products, programs and services. These services are all designed to help advisors build their businesses and do the best possible job they can to help their clients with their financial goals.
Other Offerings
TD Ameritrade Apex status offers top benefits to retail clients who place an average of five trades per month over a three-month period or maintain a total account value of at least $100,000. Apex clients receive certain services for free that are otherwise subject to service fees, as well as discounts on certain premium content.
Investools® offers a comprehensive suite of investor education products and services for stock, option, foreign exchange, futures, mutual fund and fixed-income investors. Our education subsidiary, Investools, Inc., offers educational products and services primarily built around an investing method that is designed to teach both experienced and beginning investors how to approach the selection process for investment securities and actively manage their investment portfolios. Course offerings are generally combined with web-based tools, personalized instruction techniques and ongoing service and support and are offered in a variety of learning formats. Designed for the advanced student, continuing education programs offer students comprehensive access to a multitude of education products and services priced either individually or on a bundled basis. Typically included in the continuing education bundles are additional curriculum, online courses, live workshops and coaching services.
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, Amerivest Investment Management, LLC, recommends an investment portfolio based on an investor’s objective, time horizon and risk tolerance.
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. All RIAs participating in AdvisorDirect meet or exceed TD Ameritrade's professional eligibility requirements.
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 TD Ameritrade Trust Company subsidiary.
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 over 100 commission-free ETFs, each of which has been selected by independent experts at Morningstar Associates, LLC. 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, multi-leg option strategies. In 2013, we began offering the ability to trade mini-options on certain high-priced securities. Mini-option contracts are 1/10 the size of a standard option contract and were created to respond to the evolving needs of investors who utilize options as part of their trading 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 100 different currency pairs.

5


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 that 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.
We earn commissions and transaction fees on client trades in common and preferred stock, ETFs, closed-end funds, options, futures, foreign exchange, mutual funds and fixed income securities. Margin lending and the related securities lending business generate net interest revenue. Cash management services and fee-based mutual funds generate insured deposit account fees and investment product fee revenues. Other revenues include revenue from education services, miscellaneous securities brokerage fees and annuities. The following table presents the percentage of net revenues contributed by each class of similar services during the last three fiscal years:
 
 
Percentage of Net Revenues
Fiscal Year Ended September 30,
Class of Service
 
2014
 
2013
 
2012
Commissions and transaction fees
 
43.2
%
 
42.4
%
 
41.2
%
Net interest revenue
 
18.6
%
 
17.0
%
 
17.0
%
Insured deposit account fees
 
26.3
%
 
29.1
%
 
31.4
%
Investment product fees
 
9.9
%
 
9.0
%
 
7.4
%
Other revenues
 
2.0
%
 
2.5
%
 
3.0
%
Net revenues
 
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 highly-rated 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 the clients of each of our client segments; and
Expanding our use of technology to provide automated responses to the most typical inquiries generated in the course of clients’ securities trading and related activities.

6


We provide access to client service and support through the following means:
Websites.    Our websites provide basic information on how to use our services, as well as an in-depth education center that includes a selection of online investing courses. “Ted”, our Virtual Investment Consultant, is a web tool that allows retail clients to interact with a virtual representative to ask questions regarding our products, tools and services.
Branches.    We offer a nationwide network of over 100 retail branches, located primarily in large metropolitan areas.
Email.    Clients are encouraged to use e-mail to contact our client service representatives. Our operating standards require a response within 24 hours of receipt of the e-mail; 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 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.
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.
Our trading platforms currently have the capacity to process approximately 1,500,000 trades per day. The greatest number of trades our clients have made in a single day is approximately 895,000.
Advertising and Marketing
We intend to continue to grow and increase our market share by advertising online, on television, in print and direct mail and 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. We intend to continue to aggressively advertise our services. From time to time, we may choose to increase our advertising to target specific groups of investors or to decrease advertising in response to market conditions.
Advertising for retail clients is generally conducted through websites, financial news networks and other television and cable networks. We also place print advertisements in a broad range of business publications and use direct mail advertising. 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 use a data gathering and tracking system. This system enables us to determine the type of advertising that best appeals to our target market so that we can invest in these programs in the future. Additionally, through the use of our database tools, we are working to more efficiently determine the needs of our various client segments and tailor our services to their individual needs. We intend to utilize this system to strengthen our client relationships and support marketing campaigns to attract new 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 brokerage-related communications with the public are regulated by the National Futures Association (“NFA”).

7


Clearing Operations
Our subsidiary, TD Ameritrade Clearing, Inc. (“TDAC”), provides clearing and execution services to TD Ameritrade, Inc., our introducing broker-dealer subsidiary. Clearing services include the confirmation, receipt, settlement, delivery and record-keeping functions involved in processing securities transactions. Our clearing broker-dealer subsidiary 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;
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 insured 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 external providers 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 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, Fidelity Investments and Scottrade, Inc. We also encounter competition from established full-commission brokerage firms such as Merrill Lynch and Morgan Stanley Smith Barney, as well as financial institutions, mutual fund sponsors and other organizations, some of which provide online brokerage services.
Regulation
The securities and futures industries are subject to extensive regulation under federal and state law. Broker-dealers are required to register with the U.S. Securities and Exchange Commission (“SEC”) and to be members of FINRA. In addition, our introducing broker-dealer subsidiary (TD Ameritrade, Inc.) is registered with the Commodity Futures Trading Commission (“CFTC”) as a futures commission merchant 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) and segregation of client funds under the SEC Customer Protection Rule (Rule 15c3-3), administered by the SEC and FINRA. TD Ameritrade, Inc. is also subject to regulations under the Commodity Exchange Act, administered by

8


the CFTC and NFA, including CFTC Regulation 1.17, which requires the maintenance of minimum 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 to have sufficient liquid resources available to satisfy its financial obligations. Net capital is a measure, defined by the SEC, of a broker-dealer’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.
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 and the District of Columbia, 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 and The Options Clearing Corporation, 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 and federal 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, 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.
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 execution of client trades primarily on an agency, rather than a principal, basis and our maintenance of only a small inventory of fixed-income securities to meet client requirements. Interest rate risk is our most prevalent form of

9


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.
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 broker-dealer 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, 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, 2014, we had 5,771 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. In fiscal 2014, we surveyed our employees and found that 88% responded favorably to questions designed to measure sustainable employee engagement. This score placed us above the benchmark for U.S. high-performance companies as measured by Towers Watson.
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, 2014, 2013 and 2012 were derived from our operations in the United States.

10


Website and Social Media Disclosure
From time to time, the Company may use its website and/or Twitter as distribution channels of material information.  Financial and other important information regarding the Company is routinely accessible through and posted on the Company’s website at www.amtd.com and its Twitter account @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/TDAmeritrade. Website links provided in this report, although correct when published, may change in the future. We make available free of charge on our website 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.
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 or future results of operations. Although the risks described below are those that management believes 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 or future results of operations.
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 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, including failures and government bailouts of large financial services companies, 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. For example, events such as the terrorist attacks in the United States on September 11, 2001 and the invasion of Iraq in 2003 resulted in periods of substantial market volatility and reductions in 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 arrangement with TD Bank USA, N.A. and TD Bank N.A., which are subject to interest rate risk. During fiscal 2009, the Federal Open Market Committee reduced the federal funds rate from 2.00% to between 0% and 0.25%, where it has remained. In addition, medium- to long-term interest rates have also decreased substantially since fiscal 2009. This lower interest rate environment has compressed our net interest spread and reduced our spread-based revenues. It has also resulted in our voluntarily waiving fees on certain money market mutual funds in order to prevent our clients’ yields on such funds from becoming negative.
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 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 our assets change at a different frequency or amount than the interest rates we pay on our liabilities. For example, in the current 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. If we are unable to effectively manage our interest rate risk, changes in interest rates could have a material adverse effect on our profitability.

11


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. 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 facility. 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.
Our clearing operations expose us to liability for errors in clearing functions.
Our broker-dealer subsidiary, TDAC, provides clearing and execution services to our introducing broker-dealer subsidiary, TD Ameritrade, Inc. 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 Depository Trust & Clearing Corporation and The Options Clearing Corporation, 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.
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 (“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 or spam attacks could cause our website 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. 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, 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. The occurrence of any of these events could have a material adverse effect on our business, results of operations and financial condition.

12


Failure to protect client data or prevent breaches of our information systems could expose us to liability or reputational damage.
The secure transmission of confidential information over public networks is a critical element of our operations. 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. As a financial services company, we are continuously subject to cyber-attacks by third parties. In addition, vulnerabilities of our external service providers and other third parties could pose security risks to client information. Such breaches could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of confidential information.
We, along with the financial services industry in general, have experienced losses related to clients’ login and password information being compromised, generally caused by clients’ use of public computers or vulnerabilities of clients’ private computers and mobile devices. Also, 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 from an internal database. Following the incident, the Company incurred significant remediation costs. If a similar incident 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, financial responsibility under our security guarantee to reimburse clients for losses resulting from unauthorized activity in their accounts 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.
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. 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, Fidelity Investments and Scottrade, Inc. We also encounter competition from the broker-dealer affiliates of established full-commission brokerage firms, such as Merrill Lynch and Morgan Stanley Smith Barney, as well as from financial institutions, mutual fund sponsors and other 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 banks, 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. Increased competition, including pricing pressure, could have a material adverse effect on our results of operations and financial condition.

13


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., Amerivest Investment Management, LLC (“Amerivest”) and Red Option Advisors, Inc. (“Red Option”). TD Ameritrade, Inc. offers AdvisorDirect,® a service that refers a client to an independent RIA. Amerivest® is an online 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. Red Option 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 and operational 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.
We cannot assure that any external service providers will be able to continue to provide these services in an efficient, cost-effective manner or that they will be able to adequately expand their services to meet our needs. 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 any 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, results of operations and financial condition.
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 Wall Street Reform and Consumer Protection Act (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. Additional rulemaking or legislative action could negatively impact our business and financial results. While we have not yet been required to make material changes to our business or operations as a result of the Dodd-

14


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, Department of Labor, banking regulators and other regulatory agencies may be, 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.
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. Net capital is a measure, defined by the SEC, of a broker-dealer’s readily available liquid assets, reduced by its total liabilities other than approved subordinated debt. Our broker-dealer subsidiaries are required to comply with net capital requirements. If we fail to maintain the required net capital, the SEC could suspend or revoke our registration, or FINRA 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. 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-dealers 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. We could fail to establish and enforce procedures to comply with applicable regulations, which could have a material adverse effect on our business.
Recent 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 The Toronto-Dominion Bank ("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. Federal and state regulators and self-regulatory organizations have increased their scrutiny of potential conflicts of interest. 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

15


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.
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 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 Strategic Acquisitions and the Integration of Acquired Operations
Acquisitions involve risks that could adversely affect our business.
We may pursue strategic acquisitions of businesses and technologies. Acquisitions may 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 strategic 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.
We cannot be certain that we will be able to continue to identify, consummate and successfully integrate strategic transactions, 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 revenues and profitability.

16


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; and
increases or decreases in revenue or earnings, changes in earnings estimates by the investment community, 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, senior notes and secured loan agreement.
Our senior unsecured revolving credit facilities contain various negative covenants and restrictions that may 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 and secured loan agreement, 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 subsidiaries are required to maintain compliance with minimum regulatory net capital covenants. 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 14, 2014, we have approximately $1.7 billion of notes payable and long-term debt, consisting of:
$500 million of 4.150% Senior Notes with principal due in full on December 1, 2014 (expected to be repaid on the maturity date using the proceeds of the 3.625% Senior Notes, together with cash on hand);
$500 million of 5.600% Senior Notes with principal due in full on December 1, 2019;
$500 million of 3.625% Senior Notes with principal due in full on April 1, 2025;

17


$125 million of borrowings outstanding on our parent company's revolving credit facility, which expires June 11, 2019; and
a $69 million secured real estate loan with quarterly principal payments due through October 1, 2019.
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 and the Ricketts holders exercise significant influence over TD Ameritrade.
As of September 30, 2014, TD and J. Joe Ricketts, our founder, members of his family and trusts held for their benefit (which we collectively refer to as the Ricketts holders), owned approximately 41% and 11%, respectively, of our outstanding common stock. As a result, TD and the Ricketts holders have the ability to significantly influence the outcome of any matter submitted for the vote of our stockholders. TD is permitted under a stockholders agreement to exercise voting rights on up to 45% of our outstanding shares of common stock until termination of the stockholders agreement (which will occur no later than January 24, 2021). Beginning January 24, 2016, 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. Beginning January 24, 2016, in no event may TD Ameritrade repurchase shares of its common stock that would result in TD’s ownership percentage exceeding 47%. The Ricketts holders are permitted under the stockholders agreement to own up to 29% of our outstanding common stock until January 24, 2016, when they will no longer be a party to the stockholders agreement. There is no restriction on the number of shares TD may own following the termination of the stockholders agreement or on the number of shares the Ricketts holders may own after January 24, 2016. As a result of their significant share ownership in TD Ameritrade, TD or the Ricketts holders may have the power, subject to applicable law, to significantly influence actions that might be favorable to TD or the Ricketts holders, but not necessarily favorable to our other stockholders.
The stockholders agreement also provides that TD may designate five of the twelve members of our board of directors and the Ricketts holders may designate three of the twelve members of our board of directors, subject to adjustment based on their respective ownership positions in TD Ameritrade. As of September 30, 2014, based on their ownership positions, TD has designated five members of our board of directors, and the Ricketts holders have designated one. Accordingly, TD and the Ricketts holders are able to significantly influence the outcome of all matters that come before our board.

18


The ownership position and governance rights of TD and the Ricketts holders 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 and the Ricketts holders’ combined 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 provides a significant portion of our revenue. This agreement enables 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. During fiscal 2014, net revenues related to this agreement accounted for approximately 26% of our net revenues. For fiscal year 2014, the average balance of client cash swept to our insured deposit account offering was $73 billion. The average yield earned on the insured deposit account balances was 99 basis points higher than the average net yield earned on segregated cash balances during fiscal 2014. 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 elected 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, 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 persons who 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, an independent committee of our board of 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 in the future.
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 among TD and the Ricketts holders, 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.

19


These provisions could delay 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 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. In July 2014, our headquarters facility 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 178,000 square feet of building space on property adjacent to the headquarters for administrative and operational facilities. These leases expire on various dates from 2016 through 2020.
We lease approximately 190,000 and 140,000 square feet of building space for additional operations centers in Jersey City, New Jersey and Ft. Worth, Texas, respectively. The Jersey City and Ft. Worth leases expire in 2020. We lease smaller administrative and operational facilities in California, Colorado, Illinois, Maryland, Michigan, Texas and Utah, and we recently purchased a data center facility in Richardson, Texas. We also lease over 100 branch offices located in large metropolitan areas in 34 states. We believe that our facilities are suitable and adequate to meet our needs.
Item 3.    Legal Proceedings
For information regarding legal proceedings, see Note 13Commitments and Contingencies – "Reserve Fund Matters" and "Other Legal and Regulatory Matters" under Item 8, Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements.
Item 4.    Mine Safety Disclosures
Not applicable.

20


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 New York Stock Exchange (“NYSE”) 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 NYSE. 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,
 
 
2014
 
2013
 
 
High
 
Low
 
High
 
Low
First Quarter
 
$
30.68

 
$
25.47

 
$
17.24

 
$
15.20

Second Quarter
 
$
35.82

 
$
29.78

 
$
21.56

 
$
17.07

Third Quarter
 
$
34.32

 
$
29.18

 
$
24.51

 
$
18.79

Fourth Quarter
 
$
34.61

 
$
30.43

 
$
28.12

 
$
24.17

The closing sale price of our common stock as reported on the NYSE on November 3, 2014 was $33.98 per share. As of that date there were 706 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 54,000 beneficial holders of our common stock.
Dividends
We declared and paid a $0.12 per share and a $0.09 per share quarterly cash dividend on our common stock during each quarter of fiscal years 2014 and 2013, respectively. We also declared and paid a $0.50 per share special cash dividend on our common stock during the first quarters of fiscal 2014 and 2013. On October 28, 2014, we declared a $0.15 per share quarterly cash dividend for the first quarter of fiscal 2015. We paid the quarterly cash dividend on November 20, 2014 to all holders of record of our common stock as of November 6, 2014. 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.

21


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, 2009 in the Company’s common stock, a broad-based stock index and the stocks comprising an industry peer group.
 
Period Ended
Index
9/30/09
9/30/10
9/30/11
9/30/12
9/30/13
9/30/14
TD Ameritrade Holding Corporation
100.00

82.27

75.70

80.25

143.33

188.82

S&P 500
100.00

110.16

111.42

145.07

173.13

207.30

Peer Group
100.00

74.39

58.86

66.30

112.95

157.96

The Peer Group is comprised of the following companies that have significant retail brokerage operations:
E*TRADE Financial Corporation
The Charles Schwab Corporation

22


Purchases of Equity Securities by the Issuer and Affiliated Purchasers
ISSUER PURCHASES OF EQUITY SECURITIES
Period
 
Total
Number of
Shares
Purchased
 
Average Price Paid per
Share
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program
 
Maximum Number
of Shares that May
Yet Be Purchased
Under the Program
July 1, 2014 — July 31, 2014
 
1,402,773

 
$
31.19

 
1,379,300

 
20,620,500

August 1, 2014 — August 31, 2014
 
695,266

 
$
32.32

 
695,266

 
19,925,234

September 1, 2014 — September 30, 2014
 
1,049,019

 
$
33.46

 
1,048,863

 
18,876,371

Total — Three months ended September 30, 2014
 
3,147,058

 
$
32.19

 
3,123,429

 
18,876,371

On October 20, 2011, our board of directors authorized the repurchase of up to 30 million shares of our common stock. We disclosed this authorization on November 18, 2011 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 2014.
During the quarter ended September 30, 2014, 23,629 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,
 
 
2014
 
2013
 
2012
 
2011
 
2010
 
 
(In millions, except per share amounts)
Consolidated Statements of Income Data:
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
3,123

 
$
2,764

 
$
2,641

 
$
2,763

 
$
2,560

Operating income
 
1,285

 
1,056

 
934

 
1,048

 
965

Net income
 
787

 
675

 
586

 
638

 
592

Earnings per share — basic
 
$
1.43

 
$
1.23

 
$
1.07

 
$
1.12

 
$
1.01

Earnings per share — diluted
 
$
1.42

 
$
1.22

 
$
1.06

 
$
1.11

 
$
1.00

Weighted average shares outstanding — basic
 
550

 
549

 
548

 
570

 
585

Weighted average shares outstanding — diluted
 
554

 
554

 
554

 
576

 
592

Dividends declared per share
 
$
0.98

 
$
0.86

 
$
0.24

 
$
0.20

 
$
0.00

 
 
As of September 30,
 
 
2014
 
2013
 
2012
 
2011
 
2010
 
 
(In millions)
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,460

 
$
1,062

 
$
915

 
$
1,032

 
$
741

Total assets
 
23,831

 
21,836

 
19,513

 
17,126

 
14,727

Notes payable and long-term obligations
 
1,251

 
1,052

 
1,350

 
1,348

 
1,323

Stockholders’ equity
 
4,748

 
4,676

 
4,425

 
4,116

 
3,772


23


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; diluted earnings per share; average commissions and transaction fees per trade; amounts of commissions and transaction fees, asset-based revenues, net interest revenue, insured deposit account fees, investment product fees and other revenues; net interest margin; growth in spread-based, fee-based and interest-earning asset balances; amounts of total operating expenses, advertising expense and other expense; our effective income tax rate; and our capital and liquidity needs and our plans to finance such needs.
The Company’s actual results could differ materially from those anticipated in such forward-looking statements. Important factors that may cause such differences include, but are not limited to: general economic and political conditions and other securities industry risks; fluctuations in interest rates; stock market fluctuations and changes in client trading activity; credit risk with clients and counterparties; increased competition; systems failures, delays and capacity constraints; network security risks; liquidity risk; new laws and regulations affecting our business; regulatory and legal matters and uncertainties 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.
Activity rate — funded accounts  Average client trades per day during the period divided by the average number of funded accounts during the period.
Asset-based revenues — Revenues consisting of (1) net interest revenue, (2) insured deposit account fees and (3) investment product fees. The primary factors driving our asset-based revenues are average balances and average rates. Average balances consist primarily of average client margin balances, average segregated cash balances, average client credit balances, average client insured deposit account 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 funded account (annualized) — Total trades divided by the average number of funded accounts during the period, annualized based on the number of trading days in the fiscal year.
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 and transaction fees per trade  Total commissions and transaction fee revenues as reported on the Company’s Consolidated Statements of Income (excluding clearing revenues from TD Waterhouse UK) 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.
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.

24


Brokerage accounts   Accounts maintained by the Company 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 wish to trade futures and/or options on futures.
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 insured 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 Balance Sheets.
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 Balance Sheets.
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 holding company’s 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, pre-tax income, net income and cash flows from operating activities.
EPS excluding amortization of intangible assets  —  Earnings per share (“EPS”) excluding amortization of intangible assets is a non-GAAP financial measure. We define EPS excluding amortization of intangible assets as earnings (loss) per share, adjusted to remove the after-tax effect of amortization of acquired intangible assets. We consider EPS excluding amortization of intangible assets an important measure of our financial performance. Amortization of acquired intangible assets is excluded because we believe it is not indicative of underlying business performance. EPS excluding amortization of intangible assets should be considered in addition to, rather than as a substitute for, GAAP earnings per share.
EPS from ongoing operations  EPS from ongoing operations is a non-GAAP financial measure. We define EPS from ongoing operations as earnings (loss) per share, adjusted to remove any significant unusual gains or charges. We consider EPS from ongoing operations an important measure of the financial performance of our ongoing business. Unusual gains and charges are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. EPS from ongoing operations should be considered in addition to, rather than as a substitute for, GAAP earnings per share.
Fee-based investment balances — Client assets invested in money market mutual funds, other mutual funds and Company programs such as AdvisorDirect® and Amerivest,® on which we earn fee revenues. Fee revenues earned on these balances are included in investment product fees on our Consolidated Statements of Income.
Funded accounts — All open client accounts with a total liquidation value greater than zero.
Futures accounts — Sub-accounts maintained by the Company 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 the Company’s client account metrics.
Insured deposit account — The Company is party to an Insured Deposit Account (“IDA”) agreement with TD Bank USA, N.A. (“TD Bank USA”), TD Bank, N.A. and The Toronto-Dominion Bank (“TD”). Under the IDA

25


agreement, TD Bank USA and TD Bank, N.A. (together, the “TD Depository Institutions”) make available to clients of the Company FDIC-insured money market deposit accounts as either designated sweep vehicles or as non-sweep deposit accounts. The Company provides marketing, recordkeeping and support services for the 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 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.
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 include fees earned on money market mutual funds, other mutual funds and through Company programs such as AdvisorDirect® and Amerivest®.
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. The Company offers traditional, Roth, Savings Incentive Match Plan for Employees (SIMPLE) and Simplified Employee Pension (SEP) IRA accounts.
Liquid assets — management target — “Liquid assets — management target” is a non-GAAP financial measure. We define “liquid assets — management target” as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments and (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 10% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of a minimum operational target established by management ($50 million in the case of our primary introducing broker-dealer, TD Ameritrade, Inc.). We include the excess capital of our broker-dealer subsidiaries in “liquid assets — management target,” rather than simply including broker-dealer cash and cash equivalents, because capital requirements may limit the amount of cash available for dividend from the broker-dealer subsidiaries to the parent company. Excess capital, as defined under clause (c) above, is generally available for dividend from the broker-dealer subsidiaries to the parent company. “Liquid assets — management target” is based on more conservative measures of broker-dealer net capital than “liquid assets — regulatory threshold” (defined below) because we prefer to maintain significantly more conservative levels of net capital at the broker-dealer subsidiaries than the regulatory thresholds require. We consider “liquid assets — management target” to be a measure that reflects our liquidity that would be readily available for corporate investing and financing activities under normal operating circumstances. “Liquid assets — regulatory threshold” is a related metric that reflects our liquidity that would be available for corporate investing and financing activities under unusual operating circumstances, such as the need to provide funding for significant strategic business transactions. Our liquid assets metrics should be considered as supplemental measures of liquidity, rather than as substitutes for cash and cash equivalents.
Liquid assets — regulatory threshold — “Liquid assets — regulatory threshold” is a non-GAAP financial measure. We define “liquid assets — regulatory threshold” as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments, (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 5% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of the applicable “early warning” net capital requirement and (d) Tier 1 capital of our trust company in excess of the minimum requirement. We include the excess capital of our broker-dealer and trust company subsidiaries in “liquid assets — regulatory threshold,” rather than simply including broker-dealer and trust company cash and cash equivalents, because capital requirements may limit the amount of cash available for dividend from the broker-dealer and trust company subsidiaries to the parent company. Excess capital, as defined under clauses (c) and (d) above, is generally available for dividend from the broker-dealer and trust company subsidiaries to the parent company. We consider “liquid assets — regulatory threshold” to be a measure that reflects our liquidity that would be available for corporate investing and financing activities under unusual operating circumstances, such as the need to provide funding for significant strategic business transactions. “Liquid assets — management target” is a related metric that reflects our liquidity that would be readily available for corporate investing and financing activities under normal operating

26


circumstances. Our liquid assets metrics should be considered as supplemental measures of liquidity, rather than as substitutes for 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 the Company 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 Company programs such as AdvisorDirect® and Amerivest,® 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 Statements of Income.
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 net interest revenue and insured deposit account fees 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 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 Company 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.
Operating expenses excluding advertising — Operating expenses excluding advertising is a non-GAAP financial measure. Operating expenses excluding advertising consists of total operating expenses, adjusted to remove advertising expense. We consider operating expenses excluding advertising an important measure of the financial performance of our ongoing business. Advertising spending is excluded because it is largely at the discretion of the Company, can vary significantly from period to period based on market conditions and generally relates to the acquisition of future revenues through new accounts rather than current revenues from existing accounts. Operating expenses excluding advertising should be considered in addition to, rather than as a substitute for, total operating expenses.
Order routing revenue — Revenues generated from revenue-sharing arrangements with market destinations (also referred to as "payment for order flow"). 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.
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.

27


Spread-based assets — Client and brokerage-related asset balances, consisting of interest-earning assets and insured deposit account balances. 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 the Company’s broker-dealer subsidiaries, excluding trades processed for TD Waterhouse UK. Total trades are a significant source of the Company’s 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.
Financial Statement Overview
We provide securities brokerage and clearing services to our clients through our introducing and clearing broker-dealers. Substantially all of our net revenues are derived from our brokerage activities and clearing and execution services. Our primary focus is serving retail clients 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 margin balances, average segregated cash balances, average client credit balances, average client insured deposit account balances, average fee-based investment balances and average securities borrowing and lending balances. Average rates consist of the average interest rates and fees earned and paid on such balances. The primary factors driving our transaction-based revenues are total client trades and average commissions and transaction fees per trade. We also 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 Statements of Income.
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 and the lease expenses on computer 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 combinations.
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 direct mail, 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.
Interest on borrowings consists of interest expense on our long-term debt, capital leases and other borrowings. Gain on investments represents net gains realized on corporate (non broker-dealer) investments.

28


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 and 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 units, if applicable, based on operating revenues, and is compared with the carrying value of the reporting units. 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 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 Statements of Income. 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

29


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 13Commitments and Contingencies and “Insured Deposit Account Agreement” under Note 18Related Party Transactions.
Results of Operations
Conditions in the U.S. equity markets significantly impact the volume of our clients’ trading activity. There is a direct correlation between the volume of our clients’ trading activity and our results of operations. We cannot predict future trading volumes in the U.S. equity markets. If client trading activity increases, we expect that it would have a positive impact on our results of operations. If client trading activity declines, we expect that it would have a negative impact on our results of operations.
Changes in average balances, especially client margin, credit, insured deposit account and mutual fund 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 our earning a smaller net interest spread.
Financial Performance Metrics
Pre-tax income, net income, earnings per share and EBITDA are key metrics we use in evaluating our financial performance. 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 our holding company’s 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, pre-tax income, net income and cash flows from operating activities.
The following table sets forth EBITDA in dollars and as a percentage of net revenues for the periods indicated, and provides reconciliations to net income, which is the most directly comparable GAAP measure (dollars in millions):
 
 
Fiscal Year Ended September 30,
 
 
2014
 
2013
 
2012
 
 
$
 
% of Net
Revenues
 
$
 
% of Net
Revenues
 
$
 
% of Net
Revenues
EBITDA
 
$
1,480

 
47.4
 %
 
$
1,290

 
46.7
 %
 
$
1,098

 
41.6
 %
  
Less:
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
(95
)
 
(3.0
)%
 
(86
)
 
(3.1
)%
 
(72
)
 
(2.7
)%
Amortization of acquired intangible assets
 
(90
)
 
(2.9
)%
 
(91
)
 
(3.3
)%
 
(92
)
 
(3.5
)%
Interest on borrowings
 
(25
)
 
(0.8
)%
 
(25
)
 
(0.9
)%
 
(28
)
 
(1.1
)%
Provision for income taxes
 
(483
)
 
(15.5
)%
 
(413
)
 
(14.9
)%
 
(320
)
 
(12.1
)%
  
Net income
 
$
787

 
25.2
 %
 
$
675

 
24.4
 %
 
$
586

 
22.2
 %

30


Our EBITDA increased 15% for fiscal 2014 compared to fiscal 2013, primarily due to a 13% increase in net revenues, partially offset by an 8% increase in operating expenses excluding depreciation and amortization and a $47 million decrease in net gains on investments. The increase in net revenues was due to a 15% increase in transaction-based revenues and a 12% increase in asset-based revenues. The increase in operating expenses excluding depreciation and amortization was primarily due to a 10% increase in employee compensation and benefits expense, a 23% increase in clearing and execution costs, a 5% increase in advertising expense and a 7% increase in professional services expense. Detailed analysis of our operating results is presented later in this discussion.
Our diluted earnings per share was $1.42, $1.22 and $1.06 for fiscal years 2014, 2013 and 2012, respectively. Higher EBITDA for fiscal 2014 contributed to a 17% increase in net income compared to the prior year. Based on our expectations for net revenues and expenses, we expect diluted earnings per share to range from $1.45 to $1.70 for fiscal year 2015, depending largely on the level of client trading activity, client asset growth and the nature of the interest rate environment. Details regarding our fiscal year 2015 expectations for net revenues and expenses are presented later in this discussion.
Operating Metrics
Our largest sources of revenues are asset-based revenues and transaction-based revenues. For fiscal 2014, asset-based revenues and transaction-based revenues accounted for 55% and 43% of our net revenues, respectively. Asset-based revenues consist of (1) net interest revenue, (2) insured deposit account fees and (3) investment product fees. The primary factors driving our asset-based revenues are average balances and average rates. Average balances consist primarily of average client margin balances, average segregated cash balances, average client credit balances, average client insured deposit account balances, average fee-based investment balances and average securities borrowing and lending balances. Average rates consist of the average interest rates and fees earned and paid on such balances. The primary factors driving our transaction-based revenues are total client trades and average commissions and transaction fees per trade. We also consider client account and client asset metrics, although we believe they are generally of less significance to our results of operations for any particular period than our metrics for asset-based and transaction-based revenues.
Asset-Based Revenue Metrics
We calculate the return on our interest-earning assets and our insured deposit account balances using a measure we refer to as net interest margin. Net interest margin is calculated for a given period by dividing the annualized sum of net interest revenue and insured deposit account fees by average spread-based assets. Spread-based assets consist of client and brokerage-related asset balances, including client margin balances, segregated cash, insured deposit account balances, 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):
 
 
Fiscal Year
 
‘14 vs. ‘13
Increase/
(Decrease)
 
‘13 vs. ‘12
Increase/
(Decrease)
 
 
2014
 
2013
 
2012
 
Average interest-earning assets
 
$
18,541

 
$
15,857

 
$
14,884

 
$
2,684

 
$
973

Average insured deposit account balances
 
72,933

 
67,981

 
59,384

 
4,952

 
8,597

Average spread-based balances
 
$
91,474

 
$
83,838

 
$
74,268

 
$
7,636

 
$
9,570

  
Net interest revenue
 
$
581

 
$
469

 
$
450

 
$
112

 
$
19

Insured deposit account fee revenue
 
820

 
804

 
828

 
16

 
(24
)
Spread-based revenue
 
$
1,401

 
$
1,273

 
$
1,278

 
$
128

 
$
(5
)
   
Average yield — interest-earning assets
 
3.09
%
 
2.92
%
 
2.97
%
 
0.17
 %
 
(0.05
)%
Average yield — insured deposit account fees
 
1.11
%
 
1.17
%
 
1.37
%
 
(0.06
)%
 
(0.20
)%
Net interest margin (NIM)
 
1.51
%
 
1.50
%
 
1.69
%
 
0.01
 %
 
(0.19
)%
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):

31


 
 
Interest Revenue (Expense)
Fiscal Year
 
‘14 vs. ‘13
Increase/
(Decrease)
 
‘13 vs. ‘12
Increase/
(Decrease)
 
 
2014
 
2013
 
2012
 
Segregated cash
 
$
7

 
$
6

 
$
4

 
$
1

 
$
2

Client margin balances
 
405

 
345

 
345

 
60

 

Securities lending/borrowing, net
 
169

 
118

 
101

 
51

 
17

Other cash and interest-earning investments
 
1

 
1

 
1

 

 

Client credit balances
 
(1
)
 
(1
)
 
(1
)
 

 

Net interest revenue
 
$
581

 
$
469

 
$
450

 
$
112

 
$
19

 
 
Average Balance
Fiscal Year
 
‘14 vs. ‘13
%
Change
 
‘13 vs. ‘12
%
Change
 
 
2014
 
2013
 
2012
 
Segregated cash
 
$
5,307

 
$
4,626

 
$
4,346

 
15
%
 
6
%
Client margin balances
 
10,493

 
8,576

 
8,200

 
22
%
 
5
%
Securities borrowing
 
1,085

 
1,056

 
804

 
3
%
 
31
%
Other cash and interest-earning investments
 
1,656

 
1,599

 
1,534

 
4
%
 
4
%
Interest-earning assets
 
$
18,541

 
$
15,857

 
$
14,884

 
17
%
 
7
%
  
Client credit balances
 
$
11,240

 
$
9,469

 
$
9,171

 
19
%
 
3
%
Securities lending
 
2,513

 
2,139

 
1,969

 
17
%
 
9
%
Interest-bearing liabilities
 
$
13,753

 
$
11,608

 
$
11,140

 
18
%
 
4
%
 
 
Average Yield (Cost)
Fiscal Year
 
‘14 vs. ‘13
Net Yield
Increase/
(Decrease)
 
‘13 vs. ‘12
Net Yield
Increase/
(Decrease)
 
 
2014
 
2013
 
2012
 
Segregated cash
 
0.13
 %
 
0.12
 %
 
0.08
 %
 
0.01
 %
 
0.04
 %
Client margin balances
 
3.81
 %
 
3.97
 %
 
4.13
 %
 
(0.16
)%
 
(0.16
)%
Other cash and interest-earning investments
 
0.07
 %
 
0.08
 %
 
0.09
 %
 
(0.01
)%
 
(0.01
)%
Client credit balances
 
(0.01
)%
 
(0.01
)%
 
(0.01
)%
 
0.00
 %
 
0.00
 %
Net interest revenue
 
3.09
 %
 
2.92
 %
 
2.97
 %
 
0.17
 %
 
(0.05
)%

32


The following tables set forth key metrics that we use in analyzing investment product fee revenues (dollars in millions):
 
 
Fee Revenue
Fiscal Year
 
‘14 vs. ‘13
Increase/
(Decrease)
 
‘13 vs. ‘12
Increase/
(Decrease)
 
 
2014
 
2013
 
2012
 
Money market mutual fund
 
$

 
$
1

 
$
3

 
$
(1
)
 
$
(2
)
Market fee-based investment balances
 
309

 
249

 
193

 
60

 
56

Total investment product fees
 
$
309

 
$
250

 
$
196

 
$
59

 
$
54

 
 
Average Balance
Fiscal Year
 
‘14 vs. ‘13
%
Change
 
‘13 vs. ‘12
%
Change
 
 
2014
 
2013
 
2012
 
Money market mutual fund
 
$
5,306

 
$
5,163

 
$
5,113

 
3
%
 
1
%
Market fee-based investment balances
 
131,360

 
107,653

 
81,024

 
22
%
 
33
%
Total fee-based investment balances
 
$
136,666

 
$
112,816

 
$
86,137

 
21
%
 
31
%
 
 
Average Yield
Fiscal Year
 
‘14 vs. ‘13
Increase/
(Decrease)
 
‘13 vs. ‘12
Increase/
(Decrease)
 
 
2014
 
2013
 
2012
 
Money market mutual fund
 
0.00
%
 
0.02
%
 
0.07
%
 
(0.02
)%
 
(0.05
)%
Market fee-based investment balances
 
0.23
%
 
0.23
%
 
0.23
%
 
0.00
 %
 
0.00
 %
Total investment product fees
 
0.22
%
 
0.22
%
 
0.22
%
 
0.00
 %
 
0.00
 %

33


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:
 
 
Fiscal Year
 
‘14 vs. ‘13
%
Change
 
‘13 vs. ‘12
%
Change
 
 
2014
 
2013
 
2012
 
Total trades (in millions)
 
106.94

 
92.85

 
89.91

 
15
%
 
3
 %
Average client trades per day
 
426,888

 
373,630

 
359,631

 
14
%
 
4
 %
Average client trades per funded account (annualized)
 
17.4

 
15.8

 
15.8

 
10
%
 
0
 %
Activity rate — funded accounts
 
6.9
%
 
6.3
%
 
6.3
%
 
10
%
 
0
 %
Trading days
 
250.5

 
248.5

 
250.0

 
1
%
 
(1
)%
Average commissions and transaction fees per trade(1)
 
$
12.62

 
$
12.61

 
$
12.09

 
0
%
 
4
 %
Order routing revenue (in millions)
 
$
304

 
$
236

 
$
184

 
29
%
 
28
 %
Average order routing revenue per trade(2)
 
$
2.84

 
$
2.54

 
$
2.05

 
12
%
 
24
 %
 
(1)    Average commissions and transaction fees per trade excludes the TD Waterhouse UK business.
(2)    Average order routing revenue per trade is included in average commissions and transaction fees per trade.
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:
 
 
Fiscal Year
 
 
2014
 
2013
 
2012
Funded accounts (beginning of year)
 
5,993,000

 
5,764,000

 
5,617,000

Funded accounts (end of year)
 
6,301,000

 
5,993,000

 
5,764,000

Percentage change during year
 
5
%
 
4
%
 
3
%

Client assets (beginning of year, in billions)
 
$
555.9

 
$
472.3

 
$
378.7

Client assets (end of year, in billions)
 
$
653.1

 
$
555.9

 
$
472.3

Percentage change during year
 
17
%
 
18
%
 
25
%

Net new assets (in billions)
 
$
53.4

 
$
49.5

 
$
40.8

Net new assets annualized growth rate
 
10
%
 
10
%
 
11
%


34


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
 
‘14 vs. ‘13
%
Change
 
‘13 vs. ‘12
%
Change
 
 
2014
 
2013
 
2012
 
Revenues:
 
 
 
 
 
 
 
 
 
 
Transaction-based revenues:
 
 
 
 
 
 
 
 
 
 
Commissions and transaction fees
 
$
1,351

 
$
1,171

 
$
1,087

 
15
 %
 
8
 %
Asset-based revenues:
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
587

 
476

 
456

 
23
 %
 
4
 %
Brokerage interest expense
 
(6
)
 
(7
)
 
(6
)
 
(14
)%
 
17
 %
Net interest revenue
 
581

 
469

 
450

 
24
 %
 
4
 %
  
Insured deposit account fees
 
820

 
804

 
828

 
2
 %
 
(3
)%
Investment product fees
 
309

 
250

 
196

 
24
 %
 
28
 %
Total asset-based revenues
 
1,710

 
1,523

 
1,474

 
12
 %
 
3
 %
Other revenues
 
62

 
70

 
80

 
(11
)%
 
(13
)%
  
Net revenues
 
3,123

 
2,764

 
2,641

 
13
 %
 
5
 %
  
Operating expenses:
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
760

 
692

 
690

 
10
 %
 
0
 %
Clearing and execution costs
 
134

 
109

 
89

 
23
 %
 
22
 %
Communications
 
116

 
113

 
111

 
3
 %
 
2
 %
Occupancy and equipment costs
 
156

 
160

 
150

 
(3
)%
 
7
 %
Depreciation and amortization
 
95

 
86

 
72

 
10
 %
 
19
 %
Amortization of acquired intangible assets
 
90

 
91

 
92

 
(1
)%
 
(1
)%
Professional services
 
155

 
145

 
168

 
7
 %
 
(14
)%
Advertising
 
250

 
239

 
248

 
5
 %
 
(4
)%
Other
 
82

 
73

 
87

 
12
 %
 
(16
)%
  
Total operating expenses
 
1,838

 
1,708

 
1,707

 
8
 %
 
0
 %
  
Operating income
 
1,285

 
1,056

 
934

 
22
 %
 
13
 %
  
Other expense (income):
 
 
 
 
 
 
 
 
 
 
Interest on borrowings
 
25

 
25

 
28

 
0
 %
 
(11
)%
Gain on investments, net
 
(10
)
 
(57
)
 

 
(82
)%
 
N/A

  
Total other expense (income)
 
15

 
(32
)
 
28

 
N/A

 
N/A

  
Pre-tax income
 
1,270

 
1,088

 
906

 
17
 %
 
20
 %
Provision for income taxes
 
483

 
413

 
320

 
17
 %
 
29
 %
  
Net income
 
$
787

 
$
675

 
$
586

 
17
 %
 
15
 %

Other information:
 
 
 
 
 
 
 
 
 
 
Effective income tax rate
 
38.0
%
 
38.0
%
 
35.3
%
 
 
 
 
Average debt outstanding
 
$
1,106

 
$
1,151

 
$
1,257

 
(4
)%
 
(8
)%
Effective interest rate incurred on borrowings
 
2.20
%
 
2.14
%
 
2.21
%
 
 
 
 

35


Fiscal Year Ended September 30, 2014 Compared to Fiscal Year Ended September 30, 2013
Net Revenues
Commissions and transaction fees increased 15% to $1.35 billion, primarily due to increased client trading activity. Total trades increased 15%, as average client trades per day increased 14% to 426,888 for fiscal 2014 compared to 373,630 for fiscal 2013, and there were two more trading days during fiscal 2014. Two trading days were lost during the prior year due to unscheduled market closures resulting from Hurricane Sandy. Average client trades per funded account were 17.4 for fiscal 2014 compared to 15.8 for fiscal 2013. Average commissions and transaction fees per trade was relatively unchanged overall at $12.62 for fiscal 2014 compared to $12.61 for fiscal 2013, as a 12% increase in average order routing revenue per trade was mostly offset by a higher percentage of reduced commission trades, including negotiated rates for our active trader clients and promotional trades to attract new accounts and client assets, as well as lower average contracts per trade on option trades. We expect average commissions and transaction fees to range between $12.50 and $12.75 per trade during fiscal 2015, depending on the mix of client trading activity, level of order routing revenue and other factors. We expect revenues from commissions and transaction fees to range from $1.26 billion to $1.49 billion for fiscal 2015, depending on the volume of client trading activity, average commissions and transaction fees per trade and other factors.
Asset-based revenues, which consist of net interest revenue, insured deposit account fees and investment product fees, increased 12% to $1.71 billion, primarily due to a 9% increase in average spread-based assets and a 22% increase in average market fee-based investment balances. Our net interest margin was relatively unchanged at 1.51% for fiscal 2014, compared to 1.50% for the prior year, as increased net interest revenue from our securities borrowing/lending program was mostly offset by lower average yields earned on client margin and insured deposit account balances. We expect net interest margin to range between 1.49% and 1.57% for fiscal 2015, depending largely on the interest rate environment. We expect asset-based revenues to increase to between $1.79 billion and $2.01 billion for fiscal 2015, primarily due to expected growth in spread-based and fee-based asset balances. The low end of this estimated range assumes no change in the federal funds rate or LIBOR yield curve for fiscal 2015. The high end of the estimated range assumes a gradual increase in the federal funds rate and in interest rates across the LIBOR yield curve for fiscal 2015. The following paragraphs provide further analysis of the components of asset-based revenues.
Net interest revenue increased 24% to $581 million, primarily due to a 22% increase in average client margin balances and a $51 million increase in net interest revenue from our securities borrowing/lending program, partially offset by a decrease of 16 basis points in the average yield earned on client margin balances. We expect net interest revenue to increase to between $590 million and $675 million for fiscal 2015, primarily due to expected growth in average interest-earning asset balances, with the extent of the increase also dependent on the interest rate environment.
Insured deposit account fees increased 2% to $820 million, primarily due to a 7% increase in average client IDA balances, mostly offset by a decrease of 6 basis points in the average yield earned on the IDA assets. The increased IDA balances are mostly due to our success in attracting net new client assets over the past year. We expect insured deposit account fees to increase to between $860 million and $945 million for fiscal 2015, primarily due to expected growth in average IDA balances, with the extent of the increase also dependent on the interest rate environment. For more information about the IDA agreement, please see Note 18Related Party Transactions under Item 8, Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements.
Investment product fees increased 24% to $309 million, primarily due to a 22% increase in average market fee-based investment balances. We expect investment product fees to increase to between $340 million and $385 million for fiscal 2015, primarily due to expected growth in average fee-based investment balances.
Other revenues decreased 11% to $62 million, due primarily to lower client education revenue. We expect other revenues to decrease to between $50 million and $60 million for fiscal 2015.
Operating Expenses
Total operating expenses increased 8% to $1.84 billion during fiscal 2014, as described below. Analysis of the individual components of operating expenses is provided below. We expect total operating expenses to range from $1.8 billion to $2.0 billion for fiscal 2015.

36


Employee compensation and benefits expense increased 10% to $760 million, primarily due to an increase in average headcount related to strategic growth initiatives and higher incentive-based compensation related to Company and individual performance. The average number of full-time equivalent employees increased to 5,578 for fiscal 2014 compared to 5,310 for fiscal 2013.
Clearing and execution costs increased 23% to $134 million, primarily due to higher client trading volumes, increased option clearing and execution costs and increased client statement processing costs.
Occupancy and equipment costs decreased 3% to $156 million, primarily due to costs associated with exiting our previous headquarters building and placing our new Omaha corporate campus in service during the prior year.
Depreciation and amortization increased 10% to $95 million, primarily due to depreciation on our new Omaha corporate campus, which was placed in service in April 2013, and on recent technology infrastructure upgrades.
Professional services increased 7% to $155 million, primarily due to higher costs associated with legal and regulatory matters and increased usage of consulting and contract services in connection with operational and technology projects.
Advertising expense increased 5% to $250 million, primarily due to increased advertising in connection with our sponsorship of the Winter Olympics and an increase in new account promotions. We generally adjust our level of advertising spending in relation to stock market activity and other market conditions in an effort to maximize the number of new accounts while minimizing the advertising cost per new account. We find trading volumes in the stock market to be an effective indicator of self-directed investor engagement. When self-directed investors are actively engaged in the stock market, we tend to experience more success with our advertising, resulting in a lower cost per new account. We also find that self-directed investors tend to demonstrate more interest in financial products and services during certain times of the year, such as in the months immediately preceding the annual April tax filing deadline, and less interest during certain other times, such as the summer months. In addition, in periods when advertising market demand is weak, we may adjust our spending to take advantage of attractive advertising rates. We expect advertising expense to range from $230 million to $270 million for fiscal 2015.
Other operating expenses increased 12% to $82 million, primarily due to higher travel expenses during fiscal 2014 and the impact of a $4 million bad debt recovery during the prior year.
Other Expense (Income) and Income Taxes
Other expense (income) represented $15 million of expense during fiscal 2014 and $32 million of income during fiscal 2013. The change was primarily due to $49 million of net gains recognized on our investment in Knight Capital Group, Inc. during the prior year. We expect to incur other expense ranging from $25 million to $40 million for fiscal 2015, consisting primarily of interest on borrowings.
Our effective income tax rate was 38.0% for both fiscal 2014 and fiscal 2013. The effective tax rate for fiscal 2014 includes $10 million of favorable resolutions of state income tax matters, partially offset by $2 million of unfavorable deferred income tax adjustments resulting from state income tax law changes. These items had a net favorable impact on the Company’s earnings for fiscal 2014 of approximately one cent per share. We expect our effective income tax rate to range from 38% to 39% for fiscal 2015, excluding the effect of any adjustments related to remeasurement or resolution of uncertain tax positions. 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.
Fiscal Year Ended September 30, 2013 Compared to Fiscal Year Ended September 30, 2012
Net Revenues
Commissions and transaction fees increased 8% to $1.17 billion, primarily due to growth in funded accounts and higher average commissions and transaction fees per trade, partially offset by the effect of 1.5 fewer trading days during fiscal 2013 compared to fiscal 2012. Total trades increased 3%, as average client trades per day increased 4% to 373,630 for fiscal 2013 compared to 359,631 for fiscal 2012. Funded accounts increased 4% during fiscal 2013, while average client trades per funded account was unchanged at 15.8 for fiscal 2013 and fiscal 2012. Two trading days were lost during fiscal 2013 due to unscheduled market closures resulting from Hurricane Sandy.

37


Average commissions and transaction fees per trade increased to $12.61 for fiscal 2013 from $12.09 for fiscal 2012, primarily due to higher order routing revenue per trade and, to a lesser extent, a higher percentage of option trades, which earn higher average commissions and transaction fees per trade.
Asset-based revenues increased 3% to $1.52 billion for fiscal 2013, primarily due to a 33% increase in average market fee-based investment balances and a 13% increase in average spread-based assets, partially offset by a decrease of 19 basis points in the net interest margin earned on spread-based assets. Our net interest margin was 1.50% for fiscal 2013, compared to 1.69% for fiscal 2012. The following paragraphs provide further analysis of the components of asset-based revenues.
Net interest revenue increased 4% to $469 million, due primarily to a $17 million increase in net interest revenue from our securities borrowing/lending program and a 5% increase in average client margin balances, partially offset by a decrease of 16 basis points in the average yield earned on client margin balances.
Insured deposit account fees decreased 3% to $804 million, primarily due to a decrease of 20 basis points in the average yield earned on the IDA assets, partially offset by a 14% increase in average client IDA balances. The increased IDA balances are mostly due to our success in attracting net new client assets over the past year and, to a lesser extent, due to our strategy of migrating client cash held in client credit balances or swept to money market mutual funds to the IDA offering. During fiscal 2012, we moved approximately $3 billion of client cash out of money market mutual funds.
Investment product fees increased 28% to $250 million, primarily due to a 33% increase in average market fee-based investment balances.
Other revenues decreased 13% to $70 million, due primarily to lower client education revenue, partially offset by increased fees from processing corporate securities reorganizations.
Operating Expenses
Total operating expenses was unchanged overall at approximately $1.71 billion for both fiscal 2013 and fiscal 2012. Analysis of the individual components of operating expenses is provided below.
Employee compensation and benefits expense increased slightly to $692 million, primarily due to annual merit increases and higher incentive-based compensation related to Company and individual performance, including our continued success in attracting net new client assets. These items were mostly offset by the effect of higher costs during the prior year for severance related to staff reductions and for stock-based compensation expense due to the effect of retirement eligibility provisions in certain stock award agreements.
Clearing and execution costs increased 22% to $109 million, primarily due to higher futures and option trade execution costs resulting from increased client futures and option trading activity, increased client statement processing costs, and the effect of a favorable adjustment during the prior year related to the thinkorswim clearing conversion.
Occupancy and equipment costs increased 7% to $160 million, primarily due to upgrades to our technology infrastructure and facilities and costs associated with exiting our previous headquarters building and placing our new Omaha corporate campus in service during fiscal 2013.
Depreciation and amortization increased 19% to $86 million, primarily due to depreciation on our new Omaha corporate campus, which was placed in service in April 2013, and on recent technology infrastructure upgrades and leasehold improvements.
Professional services decreased 14% to $145 million, primarily due to lower usage of consulting and contract services.
Advertising expense decreased 4% to $239 million, primarily due to lower investor education promotion costs during fiscal 2013.
Other operating expenses decreased 16% to $73 million, primarily due to lower bad debt expense and lower losses on disposal of property and equipment. Fiscal 2012 included $10 million of losses on disposal of property and equipment, primarily related to our discontinued use of certain software and hardware.

38


Other Expense (Income) and Income Taxes
Other expense (income) represented $32 million of income during fiscal 2013 and $28 million of expense during fiscal 2012. The change was primarily due to $49 million of net gains recognized on our investment in Knight Capital Group, Inc. during fiscal 2013.
Our effective income tax rate was 38.0% for fiscal 2013, compared to 35.3% for fiscal 2012. The effective tax rate for fiscal 2012 was significantly lower than normal primarily due to $19 million of favorable resolutions of state income tax matters and a $3 million benefit resulting from the reversal of a valuation allowance related to a capital loss carryover. These items favorably impacted the Company’s earnings for fiscal 2012 by approximately four cents per share.
Liquidity and Capital Resources
As a holding company, TD Ameritrade Holding Corporation conducts substantially all of its business through its operating subsidiaries, principally its broker-dealer subsidiaries.
We have historically financed our liquidity and capital needs primarily through the use of funds generated from subsidiary operations and from borrowings under our credit agreements. 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 2014 were financed primarily from our subsidiaries’ earnings, cash on hand and borrowings. We financed our payment of a $0.50 per share special cash dividend on December 17, 2013 with $121 million from cash on hand and $155 million borrowed on our parent company’s revolving credit facility. During fiscal 2014, we borrowed an additional $75 million on our parent's revolving credit facility to partially fund repurchases of our common stock under our stock repurchase program. As of September 30, 2014, $150 million of borrowings remained outstanding under the parent company's revolving credit facility. We currently expect to repay the outstanding borrowings on our parent company's revolving credit facility during fiscal 2015; however, we may alter our plans if other capital or liquidity needs arise. On September 15, 2014, we also entered into a secured bank loan in the aggregate principal amount of $69 million, the proceeds of which were used to purchase real estate for use in our operations. We plan to finance our capital and liquidity needs in fiscal 2015 primarily from our subsidiaries’ earnings, cash on hand, and borrowings.
On October 17, 2014, we sold, through a public offering, $500 million aggregate principal amount of unsecured 3.625% Senior Notes due April 1, 2025. We intend to use the net proceeds from the issuance of the 3.625% Senior Notes, together with cash on hand, to repay in full the outstanding principal under our 4.150% Senior Notes that mature on December 1, 2014.
Dividends from our subsidiaries are the primary source of liquidity for the parent company. 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 company.
Broker-dealer Subsidiaries
Our broker-dealer 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, this 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 are a function 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 company may make cash capital contributions to our broker-dealer 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 (a) less than 5% of aggregate debit balances, (b) less than 110% of its risk-based capital requirement under CFTC Regulation 1.17 or (c) less than 120% of its minimum dollar requirement. These net capital thresholds,

39


which are specified in Rule 17a-11 under the Exchange Act and CFTC Regulation 1.12, are typically referred to as “early warning” net capital thresholds. As of September 30, 2014, our clearing and introducing broker-dealer subsidiaries had $1,569 million and $347 million of net capital, respectively, which exceeded the early warning net capital thresholds by $868 million and $328 million, respectively.
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 insured 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. Treasury securities), U.S. Treasury 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. TDAC had $284 million and $175 million of cash and investments deposited with clearing organizations for the clearing of client equity and option trades as of September 30, 2014 and 2013, respectively.
TDAC’s liquidity needs relating to client trading and margin borrowing are met primarily through cash balances in client brokerage accounts, which were $14.2 billion and $13.0 billion as of September 30, 2014 and 2013, respectively. 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. TDAC had $4.8 billion and $5.7 billion of cash and investments segregated in special reserve bank accounts for the exclusive benefit of clients under Rule 15c3-3 as of September 30, 2014 and 2013, respectively.
For general liquidity needs, TDAC also maintains a senior unsecured revolving credit facility in an aggregate principal amount of $300 million. This facility is described under “Loan Facilities” later in this section. There were no borrowings outstanding on this facility as of September 30, 2014 and 2013.
Liquid Assets
We consider our liquid assets metrics to be important measures of our liquidity and of our ability to fund corporate investing and financing activities. Our liquid assets metrics are considered non-GAAP financial measures. We include the excess capital of our broker-dealer and trust company subsidiaries in the calculation of our liquid assets metrics, rather than simply including broker-dealer and trust company cash and cash equivalents, because capital requirements may limit the amount of cash available for dividend from the broker-dealer and trust company subsidiaries to the parent company. Excess capital, as defined below, is generally available for dividend from the broker-dealer and trust company subsidiaries to the parent company. The liquid assets metrics should be considered as supplemental measures of liquidity, rather than as substitutes for cash and cash equivalents.
We define “liquid assets — management target” as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments and (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 10% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of a minimum operational target established by management ($50 million in the case of our primary introducing broker-dealer, TD Ameritrade, Inc.). “Liquid assets — management target” is based on more conservative measures of broker-dealer net capital than “liquid assets — regulatory threshold” (defined below) because we prefer to maintain significantly more conservative levels of net capital at the broker-dealer subsidiaries than the regulatory thresholds require. We consider “liquid assets — management target” to be a measure that reflects our liquidity that would be readily available for corporate investing or financing activities under normal operating circumstances.

40


We define “liquid assets — regulatory threshold” as the sum of (a) corporate cash and cash equivalents, (b) corporate short-term investments, (c) regulatory net capital of (i) our clearing broker-dealer subsidiary in excess of 5% of aggregate debit items and (ii) our introducing broker-dealer subsidiaries in excess of the applicable “early warning” net capital requirement and (d) Tier 1 capital of our trust company in excess of the minimum requirement. For more information about the regulatory capital requirements of our broker-dealer and trust subsidiaries, please see Note 10 — Capital Requirements of the Notes to Consolidated Financial Statements under Item 8 — Financial Statements and Supplementary Data. We consider “liquid assets — regulatory threshold” to be a measure that reflects our liquidity that would be available for corporate investing or financing activities under unusual operating circumstances, such as the need to provide funding for significant strategic business transactions.
The following table sets forth a reconciliation of cash and cash equivalents, which is the most directly comparable GAAP measure, to our liquid assets metrics (dollars in millions):
 
 
 
 
Liquid Assets —
Management Target
 
Liquid Assets —
Regulatory Threshold
 
 
 
 
September 30,
 
Change
 
September 30,
 
Change
 
 
 
 
2014
 
2013
 
2014
 
2013
 
Cash and cash equivalents
 
$
1,460

 
$
1,062

 
$
398

 
$
1,460

 
$
1,062

 
$
398

Less:
 
Broker-dealer cash and cash equivalents
 
(1,090
)
 
(540
)
 
(550
)
 
(1,090
)
 
(540
)
 
(550
)
 
 
Trust company cash and cash equivalents
 
(53
)
 
(74
)
 
21

 
(53
)
 
(74
)
 
21

 
 
Investment advisory cash and cash equivalents
 
(19
)
 
(19
)
 

 
(19
)
 
(19
)
 

 
Corporate cash and cash equivalents
 
298

 
429

 
(131
)
 
298

 
429

 
(131
)
Plus:
 
Excess trust company Tier 1 capital
 

 

 

 
12

 
8

 
4

 
 
Excess broker-dealer regulatory net capital
 
464

 
445

 
19

 
1,196

 
1,040

 
156

 
Liquid assets
 
$
762

 
$
874

 
$
(112
)
 
$
1,506

 
$
1,477

 
$
29


41


The changes in liquid assets are summarized as follows (dollars in millions):
 
 
Liquid Assets
 
 
Management
Target
 
Regulatory
Threshold
Liquid assets as of September 30, 2013
 
$
874

 
$
1,477

Plus:
 
EBITDA(1)
 
1,480

 
1,480

 
 
Proceeds from issuance of long-term debt
 
69

 
69

 
 
Proceeds from notes payable
 
230

 
230

 
 
Proceeds from exercise of stock options
 
8

 
8

 
 
Proceeds from sale of investments
 
25

 
25

 
 
Other investing activities
 
2

 
2

Less:
 
Income taxes paid
 
(489
)
 
(489
)
 
 
Interest paid
 
(30
)
 
(30
)
 
 
Purchase of property and equipment
 
(144
)
 
(144
)
 
 
Principal payments on notes payable
 
(80
)
 
(80
)
 
 
Payment of cash dividends
 
(540
)
 
(540
)
 
 
Purchase of treasury stock
 
(207
)
 
(207
)
 
 
Additional net capital requirement due to increase in aggregate debits
 
(289
)
 
(145
)
 
 
Other changes in working capital and regulatory net capital
 
(147
)
 
(150
)
Liquid assets as of September 30, 2014
 
$
762

 
$
1,506

 
(1)    See “Financial Performance Metrics” earlier in this section for a description of EBITDA.
Loan Facilities
Senior Notes — As of September 30, 2014 and 2013, we had $500 million aggregate principal amount of 4.150% Senior Notes due December 1, 2014 (the “2014 Notes”) and $500 million aggregate principal amount of 5.600% Senior Notes due December 1, 2019 (the “2019 Notes”). The 2014 Notes and 2019 Notes are unsecured and were sold on November 25, 2009 through a public offering. Interest on the 2014 Notes and 2019 Notes is payable semi-annually in arrears on June 1 and December 1 of each year.
We may redeem the 2014 Notes and 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: 30 basis points in the case of the 2014 Notes and 35 basis points in the case of the 2019 Notes, plus, in each case, accrued and unpaid interest to the date of redemption.
On October 17, 2014, we sold, through a public offering, $500 million aggregate principal amount of unsecured 3.625% Senior Notes due April 1, 2025 (the “2025 Notes”). Interest on the 2025 Notes will be payable in arrears semi-annually on April 1 and October 1 of each year. We intend to use the net proceeds from the issuance of the 2025 Notes, together with cash on hand, to repay in full the outstanding principal under the 2014 Notes that mature on December 1, 2014.
We may redeem the 2025 Notes, in whole or in part, at any time prior to January 1, 2025 at a redemption price equal to the greater of (a) 100% of the principal amount of the notes being redeemed, and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, discounted to the date of redemption on a semi-annual basis at the comparable U.S. Treasury rate, plus 25 basis points, plus accrued and unpaid interest to the date of redemption. We may redeem the 2025 Notes, in whole or in part, at any time on or after January 1, 2025 at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest to the date of redemption.

42


Secured Loan - On September 15, 2014, we entered into a bank loan agreement (the “Loan Agreement”) in the aggregate principal amount of $69 million, the proceeds of which were used to purchase real estate for use in our operations. The loan is secured by a lien against the purchased real estate. The principal amount of the loan plus accrued interest is due and payable in 20 consecutive quarterly installments, beginning January 1, 2015, with the last installment due on October 1, 2019. The interest rate under the Loan Agreement is based on the one-month London Interbank Offered Rate (“LIBOR”), adjusted and determined monthly, plus 1.375 percentage points. At September 30, 2014, the interest rate was 1.53%. We may prepay any principal or interest under the loan without penalty or other cost. The covenants applicable under the Loan Agreement are substantially consistent with the terms of the TD Ameritrade Holding Corporation Credit Agreement, dated June 11, 2014, described below.
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, on December 30, 2009, we entered into a fixed-for-variable interest rate swap on the 2014 Notes for a notional amount of $500 million, with a maturity date matching the maturity date of the 2014 Notes. In addition, on January 7, 2011, we entered into a fixed-for-variable interest rate swap on the 2019 Notes for a notional amount of $500 million, with a maturity date matching the maturity date of the 2019 Notes. The interest rate swaps effectively change the fixed-rate interest on the Senior Notes to variable-rate interest. Under the terms of the interest rate swap agreements, 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) 1.245% for the swap on the 2014 Notes and (b) 2.3745% for the swap on the 2019 Notes. As of September 30, 2014, the weighted average effective interest rate on the Senior Notes was 2.04%.
In addition, on November 19, 2014, we entered into a fixed-for-variable interest rate swap on the 2025 Notes for a notional amount of $500 million, with a maturity date matching the maturity date of the 2025 Notes. Under the terms of this interest rate swap agreement, we receive semi-annual fixed-rate interest payments based on the same rate applicable to the 2025 Notes, and make quarterly variable-rate interest payments based on three-month LIBOR plus 1.1022%.
Cash Flow Hedging — On January 17, 2014, we 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 the anticipated refinancing of the 2014 Notes.  
On October 17, 2014, we 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.
TD Ameritrade Holding Corporation Credit Agreement — On June 11, 2014, TD Ameritrade Holding Corporation (the “Parent”) entered into a credit agreement consisting of a senior unsecured revolving credit facility in the aggregate principal amount of $300 million (the “Parent Revolving Facility”). The Parent Revolving Facility replaced the Parent's prior $300 million unsecured revolving credit facility, which was scheduled to expire on June 28, 2014. The maturity date of the Parent Revolving Facility is June 11, 2019.
The applicable interest rate under the Parent Revolving Facility is calculated as a per annum rate equal to, at the option of the Parent, (a) LIBOR plus an interest rate margin (“Parent LIBOR loans”) or (b) (i) the highest of (x) the prime rate, (y) the federal funds effective rate plus 0.50% or (z) one-month LIBOR plus 1.00%, plus (ii) an interest rate margin (“Base Rate loans”). The interest rate margin ranges from 0.875% to 1.75% for Parent LIBOR loans and from 0% to 0.75% for Base Rate loans, determined by reference to the Company’s public debt ratings. The Parent is obligated to pay a commitment fee ranging from 0.10% to 0.25% on any unused amount of the Parent Revolving Facility, determined by reference to the Company's public debt ratings.
As of September 30, 2014, there was $150 million of borrowings outstanding under the Parent Revolving Facility, consisting of Parent LIBOR loans. As of September 30, 2014, the commitment fee was 0.15% and the interest rate margin was 1.25%, each determined by reference to the Company’s public debt ratings, and the interest rate was 1.40%, based on one-month LIBOR plus the interest rate margin.
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 subsidiaries are required to maintain compliance with a

43


minimum regulatory net capital covenant. The Company was in compliance with all covenants under the Parent Revolving Facility as of September 30, 2014.
TD Ameritrade Clearing, Inc. Credit Agreement — On June 11, 2014, TD Ameritrade Clearing, Inc. (“TDAC”), the Company’s clearing broker-dealer subsidiary, entered into a credit agreement consisting of a senior unsecured revolving credit facility in the aggregate principal amount of $300 million (the “TDAC Revolving Facility”). The TDAC Revolving Facility replaced TDAC’s prior $300 million unsecured revolving credit facility, which was scheduled to expire on June 28, 2014. The maturity date of the TDAC Revolving Facility is June 11, 2019.
The applicable interest rate under the TDAC Revolving Facility is calculated as a per annum rate equal to, at the option of TDAC, (a) LIBOR plus an interest rate margin (“TDAC LIBOR loans”) or (b) the federal funds effective rate plus an interest rate margin (“Fed Funds Rate loans”). The interest rate margin ranges from 0.75% to 1.50% for both TDAC LIBOR loans and Fed Funds Rate loans, determined by reference to the Company’s public debt ratings. TDAC is obligated to pay a commitment fee ranging from 0.08% to 0.20% on any unused amount of the TDAC Revolving Facility, determined by reference to the Company’s public debt ratings. As of September 30, 2014, the interest rate margin would have been 1.00% for both TDAC LIBOR loans and Fed Funds Rate loans, and the commitment fee was 0.125%, each determined by reference to the Company’s public debt ratings. There were no borrowings outstanding under the TDAC Revolving Facility as of September 30, 2014.
The TDAC Revolving Facility contains negative covenants that limit or restrict, subject to certain exceptions, the incurrence of liens, indebtedness of TDAC, mergers, consolidations, change in nature of business and the sale of all or substantially all of the assets of TDAC. TDAC is also required to maintain minimum tangible net worth and is required to maintain compliance with minimum regulatory net capital requirements. TDAC was in compliance with all covenants under the TDAC Revolving Facility as of September 30, 2014.
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 fiscal 2014, we repurchased approximately 6.0 million shares under the plan at a weighted average purchase price of $31.37 per share. From the inception of this stock repurchase authorization through September 30, 2014, we have repurchased approximately 11.1 million shares at a weighted average purchase price of $25.02 per share. As of September 30, 2014, we had approximately 18.9 million shares remaining on the stock repurchase authorization.
Cash Dividends
We declared $0.12 per share, $0.09 per share and $0.06 per share quarterly cash dividends on our common stock during each quarter of fiscal years 2014, 2013 and 2012, respectively. We also declared and paid a $0.50 per share special cash dividend on our common stock during both the first quarter of fiscal 2014 and the first quarter of fiscal 2013. We paid $540 million, $471 million and $132 million to fund the dividends for fiscal years 2014, 2013 and 2012, respectively.
On October 28, 2014, we declared a $0.15 per share quarterly cash dividend on our common stock for the first quarter of fiscal 2015. We paid approximately $82 million on November 20, 2014 to fund the quarterly cash dividend.
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” under Note 13Commitments and Contingencies and “Insured Deposit Account Agreement” under Note 18Related Party Transactions. The IDA agreement accounts for a significant percentage of our net revenues (26% of our net revenues for the fiscal year ended September 30, 2014) and enables 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.

44


Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2014 (dollars in millions):
 
 
Total
 
Payments Due by Period (Fiscal Years):
 
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
Contractual Obligations
 
2015
 
2016-17
 
2018-19
 
After 2019
Notes payable and long-term debt obligations(1)
 
$
1,296

 
$
677

 
$
57

 
$
56

 
$
506

Operating lease obligations
 
345

 
54