Basis of Presentation, Organization and Recent Accounting Pronouncements

3 Months Ended

Dec. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation, Organization and Recent Accounting Pronouncements

Basis of Presentation, Organization and Recent Accounting Pronouncements

Basis of Presentation

The condensed consolidated financial statements include the accounts of TD Ameritrade Holding Corporation (the "Parent") and its wholly-owned subsidiaries (collectively, the "Company"). Intercompany balances and transactions have been eliminated.

These financial statements have been prepared pursuant to the rules and regulations of the SEC and, in the opinion of management, reflect all adjustments, which are all of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles ("GAAP"). These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report filed on Form 10-K for the fiscal year ended September 30, 2019.

Organization

The Company provides securities brokerage services, including trade execution, clearing services and margin lending, through its broker-dealer subsidiaries; futures and foreign exchange trade execution services through its futures commission merchant ("FCM") and forex dealer member ("FDM") subsidiary; and bundled retirement plan solutions to plan sponsors and their advisors through its state-chartered trust company subsidiary. The Company also provides cash sweep and deposit account products through third-party relationships, including relationships with affiliates.

On November 24, 2019, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with The Charles Schwab Corporation ("Schwab") and Americano Acquisition Corp., a wholly-owned subsidiary of Schwab. The Merger Agreement was included as Exhibit 2.1 to the Company's Form 8-K filed with the Securities and Exchange Commission ("SEC") on November 27, 2019. Upon the terms and subject to the conditions of the Merger Agreement, Americano Acquisition Corp. will merge with and into the Company (the "Merger"), with the Company surviving as a wholly-owned subsidiary of Schwab. Pursuant to and subject to the terms of the Merger Agreement, at the effective time of the Merger, each share of the Company's common stock, $0.01 par value, issued and outstanding immediately prior to the effective time of the Merger (other than treasury shares held by the Company and certain shares held by Schwab), will be converted into the right to receive 1.0837 shares of Schwab's voting common stock, $0.01 par value (the "Merger Consideration"); however, if the Merger Consideration issuable to The Toronto-Dominion Bank ("TD") and its affiliates, together with any other shares of Schwab common stock then owned by TD and its affiliates, would equal a number of shares of Schwab common stock exceeding 9.9% (or such lower percentage of shares of Schwab common stock as the Federal Reserve Board permits TD to acquire in the Merger consistent with a determination that TD does not control Schwab for purposes of the Bank Holding Company Act of 1956, as amended, or the Home Owners' Loan Act of 1933, as amended) of the issued and outstanding shares of Schwab common stock as of immediately following the closing of the Merger, then TD will receive one share of nonvoting common stock of Schwab in lieu of each such excess share of Schwab common stock. Completion of the Merger is subject to certain conditions, including obtaining the necessary approvals from stockholders of both the Company and Schwab, the satisfaction of certain regulatory approvals and other customary closing conditions. The parties expect the transaction to close during the second half of calendar year 2020.

For the three months ended December 31, 2019, the Company has incurred $25 million of costs related to the proposed Merger, which are included in professional services on the Condensed Consolidated Statements of Income.

Recently Adopted Accounting Pronouncements

ASU 2016-02 — On October 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02, Leases, by applying the standard at the adoption date, recognizing a cumulative-effect adjustment to the opening balance of retained earnings. As a result, restated financial information and the additional disclosures required under the new standard will not be provided for the comparative periods presented. The new guidance requires quantitative and qualitative disclosures that provide information about the amounts related to leasing arrangements recorded in the condensed consolidated financial statements. The Company elected a package of practical expedients available under the new guidance, which allows an entity to not reassess prior conclusions related to existing contracts containing leases, lease classification and initial direct costs. In addition, the Company has elected to apply the short-term lease exception for lease arrangements with a maximum term of 12 months or less. Upon the adoption of the lease standard, the Company recognized a right-of-use ("ROU") asset and a lease liability on the Condensed Consolidated Balance Sheet related to non-cancelable operating leases.

The cumulative effect of the changes made to the Company's Condensed Consolidated Balance Sheet as of October 1, 2019 for the adoption of ASU 2016-02 were as follows (dollars in millions):

	Balance at September 30, 2019		Adjustments from Adoption of ASU 2016-02					Balance at October 1, 2019
Assets:
Other assets	$	308	$	341		(1	)	$	649
Liabilities:
Accounts payable and other liabilities	884		342			(2	)	1,226
Stockholders' Equity:
Retained earnings	8,580		(1		)	(3	)	8,579

(1) Adjustments include the following: (a) an increase of $347 million for the recognition of the ROU asset and (b) a decrease of $6 million for lease payments made to lessors at or before the commencement date, which were reclassified to the ROU lease liability upon the adoption of the lease standard.

(2) Adjustments include the following: (a) an increase of $379 million for the recognition of the ROU lease liability and (b) decreases of $30 million for deferred rent and $7 million related to the early termination of lease obligations, which were reclassified to the ROU asset upon the adoption of the lease standard.

(3) Represents the impact of a lease obligation which had no future benefit upon the adoption of the lease standard.

The adoption of this standard did not have a material impact on the Company's results of operations or cash flows. See Note 6 for additional information regarding the Company's operating leases.

Recently Issued Accounting Pronouncements

ASU 2019-12 — In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification ("ASC") Topic 740, Income Taxes. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for the Company's fiscal year beginning October 1, 2021, with early adoption permitted. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The Company does not expect this ASU to have a material impact on its condensed consolidated financial statements.

ASU 2016-13 — In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about an entity's expected credit losses on financial instruments and other commitments to extend credit at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to develop credit loss estimates. Subsequent to issuing ASU 2016-13, the FASB has issued additional standards for the purpose of clarifying certain aspects of ASU 2016-13, as well as providing codification improvements and targeted transition relief under the standard. The subsequently issued ASUs have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 will be effective for the Company's fiscal year beginning October 1, 2020, using a modified retrospective approach. Early adoption is permitted. The Company is currently assessing the impact this ASU will have on its condensed consolidated financial statements.