EX-99.1 2 c04567exv99w1.htm PRESS RELEASE exv99w1
 

EXHIBIT 99.1
     
At the Company:
Katrina Becker
Director, Corporate Communications
(402) 578-3193
kbecker@ameritrade.com
  For Investors:
Tim Nowell
Director, Investor Relations
(402) 597-8440
tnowell@ameritrade.com
TD AMERITRADE DEAL IMMEDIATELY ACCRETIVE
Second Best Quarter in Company History
Asset-Based Revenues Top 50 Percent
Joe Moglia Agrees to 5-Year Contract
OMAHA, Neb., April 24, 2006 –TD AMERITRADE Holding Corporation (NASDAQ: AMTD) today announced that its acquisition of TD Waterhouse is immediately accretive and that it realized the second best quarter in Company history.(1)
Quarterly Results
Following are results for the quarter ended March 31, 2006. These metrics reflect combined results following the close of Ameritrade Holding Corporation’s acquisition of TD Waterhouse Group, Inc., on Jan. 24, 2006, through the end of the fiscal quarter.
  •   Record net income of $173 million, or $0.30 per diluted share ($0.22 per diluted share excluding a one-time gain realized on the sale of the Company’s investment in Knight Capital Group, Inc.);(2)
 
  •   Non-GAAP EPS(2) of $0.26;
 
  •   Record pre-tax income of $282 million, or 57 percent of net revenues ($203 million, or 41 percent of net revenues, excluding the gain on Knight);
 
  •   Record operating margin(2) of $251 million, or 50 percent;
 
  •   Record EBITDA(2) of $324 million, or 65 percent ($246 million, or 49 percent, excluding the gain on Knight);
 
  •   Record net revenues of $497 million;
 
  •   Average client trades per day of approximately 254,000;
 
  •   Annualized return on equity of 34 percent for the quarter, excluding the gain on Knight;
 
  •   Client assets of approximately $262.9 billion, including $36.6 billion of client cash and money market funds;
 
  •   Liquid assets(2) of $374 million; cash and cash equivalents of $483 million;
 
  •   140,000 new accounts at an average cost of $339 per account, 61,000 closed accounts, 6,070,000 Total Accounts, 3,293,000 Qualified Accounts;(3) and

 

 

  •   Average client margin balances of approximately $6.8 billion. On March 31, 2006, client margin balances were approximately $7.8 billion.
“The TD Waterhouse deal is already accretive, and today we reach a milestone in our integration efforts as we launch our new value propositions and brand,” said Joe Moglia, chief executive officer.
New Value Propositions Launched
As was detailed in a separate news release distributed today, the Company has announced new value propositions for the retail client base of its brokerage subsidiary. While management is confident that the simple, straightforward pricing schedule will help with account growth and retention, it has not included any of these potential benefits in its new guidance. The quantifiable impact of these changes was factored into the updated Outlook Statement.
“Over the last few years, as we have rolled out new initiatives, we have consistently not provided the positive impact until we started to see progress on our assumptions. In a similar manner, the guidance we have provided assumes none of the expected benefits from incremental accounts, trades or assets. As we see results, we will provide an update,” added Moglia.
Outlook Updated
The Company has adjusted its fiscal 2006 and 2007 Outlook Statement. The midpoint for fiscal 2006 is increasing $0.03 per share to $0.94, and the midpoint for fiscal 2007 is $1.06, a $0.09 decrease. The principal changes include the effect of the new value propositions, the two recent increases in the Fed Funds Rate and the actual results for the March 2006 quarter. An updated Outlook Statement is available at the Company’s corporate Web site located at www.amtd.com .

Joe Moglia Renews Commitment
Joe Moglia has agreed in principle to a new five-year contract, of which over 90 percent is performance-based, that includes an initial three-year term and an automatic two-year extension, extending his employment as CEO until 2011. Under the agreement, Moglia will receive:
  •   An annual base salary of $1 million and an annual $9 million performance-based bonus, $3 million of which is in cash and $6 million in an equity award; and
 
  •   An up-front $10 million performance-based equity award, which will cliff vest in three years.
“I am very excited about what I believe we can do for clients and shareholders over the next five years. Since March 2001, our stock has outperformed the S&P 500 by more than 250 percent. Our shareholders have benefited from our growth and were additionally rewarded this year with a $6 dividend – one of the largest paid in U.S. history,” Moglia continued.
Other Corporate News
Executive Vice President and Chief Strategy Officer Phylis M. Esposito has decided not to renew her contract in order to pursue other opportunities in the financial services industry. Managing Director William Murray will oversee investor relations functions and serve as a liaison with government and regulatory agencies. He will report directly to Chief Financial Officer and Chief Administrative Officer Randy MacDonald.

 

 

Company Hosts Conference Call
The Company will host its March Quarter conference call this morning, April 24, 2006, at 7:30 a.m. CT. Participants may listen to the call by dialing 1-877-502-9273. A live Webcast will also be available online at the Company’s Web site, www.amtd.com.
As the Company will be discussing a number of financial metrics, participants are encouraged to download the slides associated with the presentation from the Web site before the start of the call. A podcast and an archived version of the presentation will be available following the call.
AMTD-E
About TD AMERITRADE Holding Corporation
TD AMERITRADE Holding Corporation, through its brokerage subsidiaries,(4) provides a dynamic balance of investment products and services that furthers the Independent Spirit of individual investors. The Company’s full spectrum of services include a leading active trader program and long-term investor solutions, including a national branch system, as well as relationships with one of the largest networks of independent registered investment advisors. The Company’s common stock trades under the ticker symbol AMTD. For more information, please visit www.amtd.com.
Forward-looking Statements
This document contains forward-looking statements within the meaning of the federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions of the federal securities laws. In particular, any statements regarding financial guidance and future operations are forward-looking statements. These statements reflect only our current expectations or plans and are not guarantees of future performance, results or operations. These statements involve risks, uncertainties and assumptions that could cause actual results or performance to differ materially from those contained in the forward-looking statements. These risks, uncertainties and assumptions include general economic and political conditions, interest rates, market fluctuations and changes in client trading activity, increased competition, systems failures and capacity constraints, ability to service debt obligations, integration associated with the TD Waterhouse transaction, realization of synergies from the TD Waterhouse transaction, regulatory and legal matters and uncertainties and other risk factors described in our latest Quarterly Report on Form 10-Q/A filed with the SEC on Feb. 10, 2006 and our latest Annual Report on Form 10-K filed with the SEC on Dec. 14, 2005. These forward-looking statements speak only as of the date on which the statements were made. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
 
(1)   Second best quarter references $0.22 earnings per share, which excludes a one-time gain realized on the sale of the Company’s investment in Knight Capital Group, Inc.
 
(2)   See attached reconciliation of financial measures.
 
(3)   Total Accounts include all open client accounts (funded and unfunded), except clearing accounts, and include those accounts purchased in the TD Waterhouse acquisition and excludes those accounts included in the sale of Ameritrade Canada to TD Bank Financial Group. Qualified Accounts include all open client accounts with a total liquidation value greater than or equal to $2,000, except clearing accounts. See Glossary of Terms on the Company’s web site at www.amtd.com for additional information.
 
(4)   TD AMERITRADE, Inc., member NASD/SIPC, receives clearing and custodial services from Ameritrade, Inc., member NASD/SIPC, and National Investor Services Corporation (NISC), member NYSE/SIPC. TD AMERITRADE, Ameritrade and NISC are subsidiaries of TD AMERITRADE Holding Corporation.

 

 

TD AMERITRADE HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data
(Unaudited)
                                 
    Quarter Ended     Six Months Ended  
    Mar. 31, 2006     Mar. 25, 2005     Mar. 31, 2006     Mar. 25, 2005  
                                 
Revenues:
                                
Commissions and clearing fees
   $ 221,394     $ 127,973     $ 351,193     $ 281,519  
 
                                
Interest revenue
     254,048       116,301       431,402       229,402  
Brokerage interest expense
     (80,648 )     (30,169 )     (130,402 )     (54,849 )
 
                        
Net interest revenue
     173,400       86,132       301,000       174,553  
 
                                
Money market deposit account fees
     45,306       —       45,306       —  
Money market and other mutual fund fees
     32,503       5,438       40,164       11,493  
Other
     24,623       12,962       36,824       26,922  
 
                        
Net revenues
     497,226       232,505       774,487       494,487  
 
                        
 
                                
Expenses:
                                
Employee compensation and benefits
     111,722       42,850       156,614       86,839  
Clearing and execution costs
     12,403       6,371       18,370       12,900  
Communications
     17,164       9,450       25,918       18,896  
Occupancy and equipment costs
     18,148       9,588       33,195       20,593  
Depreciation and amortization
     5,181       2,230       8,664       4,832  
Amortization of acquired intangible assets
     11,281       3,144       14,790       6,814  
Professional services
     37,072       9,208       46,665       18,775  
Interest on borrowings
     25,796       449       26,444       1,006  
Gain on disposal of property
     (219 )     (148 )     (426 )     (246 )
Other
     8,818       5,160       15,826       9,107  
Advertising
     47,477       27,525       74,041       50,635  
Unrealized fair value adjustments of derivative instruments
     (986 )     (10,336 )     10,717       2,669  
 
                        
Total expenses
     293,857       105,491       430,818       232,820  
 
                        
Income before other income and income taxes
     203,369       127,014       343,669       261,667  
 
                                
Other income:
                                
Gain on disposal of investment
     78,840       0       78,840       0  
 
                        
Pre-tax income
     282,209       127,014       422,509       261,667  
Provision for income taxes
     109,374       49,643       163,677       99,887  
 
                        
Net income
   $ 172,835     $ 77,371     $ 258,832     $ 161,780  
 
                        
 
                                
Basic earnings per share
   $ 0.31     $ 0.19     $ 0.54     $ 0.40  
Diluted earnings per share
   $ 0.30     $ 0.19     $ 0.53     $ 0.39  
 
                                
Weighted average shares outstanding — basic
     553,813       402,833       479,377       404,357  
Weighted average shares outstanding — diluted
     566,710       410,674       491,065       412,840  

 

TD AMERITRADE HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited)
                 
    Mar. 31, 2006     Sept. 30, 2005  
Assets:
                
Cash and cash equivalents
   $ 483,410     $ 171,064  
Short-term investments
     40,000       229,819  
Segregated cash and investments
     7,471,254       7,595,359  
Broker/dealer receivables
     4,056,136       3,420,226  
Client receivables
     7,826,854       3,784,688  
Goodwill and intangible assets
     2,777,933       1,028,974  
Other
     297,629       186,980  
 
            
Total assets
   $ 22,953,216     $ 16,417,110  
 
            
 
                
Liabilities and stockholders’ equity:
                
 
                
Liabilities:
                
Broker/dealer payables
   $ 6,781,010     $ 4,449,686  
Client payables
     11,934,186       10,095,837  
Prepaid variable forward derivative instrument
     —       20,423  
Prepaid variable forward contract obligation
     —       39,518  
Notes payable to affiliate
     100,000       —  
Long-term debt
     1,900,000       —  
Other
     789,519       292,779  
 
            
Total liabilities
     21,504,715       14,898,243  
Stockholders’ equity
     1,448,501       1,518,867  
 
            
Total liabilities and stockholders’ equity
   $ 22,953,216     $ 16,417,110  
 
            

 

TD AMERITRADE HOLDING CORPORATION
SELECTED OPERATING DATA
                                 
    Quarter Ended     Six Months Ended  
    Mar. 31, 2006     Mar. 25, 2005     Mar. 31, 2006     Mar. 25, 2005  
Trading Activity Metrics:
                                
Total trades (in millions)
     15.8       9.5       25.5       21.1  
Average commissions and clearing fees per trade
   $ 14.04     $ 13.43     $ 13.75     $ 13.34  
Average client trades per day
     254,382       167,209       205,116       169,472  
Average client trades per account (annualized)
     11.7       11.7       10.9       12.0  
Activity rate
     4.7 %     4.6 %     4.3 %     4.7 %
Trading days
     62.0       57.0       124.5       124.5  
 
                                
Interest Revenue Metrics:
                                
Segregated cash:
                                
Average balance (in billions)
   $ 7.6     $ 7.9     $ 7.5     $ 7.9  
Average annualized yield
     4.18 %     2.37 %     3.98 %     2.11 %
 
                        
Interest revenue (in millions)
   $ 79.6     $ 43.5     $ 150.3     $ 84.6  
 
                        
 
                                
Client margin balances:
                                
Average balance (in billions)
   $ 6.8     $ 3.7     $ 5.3     $ 3.5  
Average annualized yield
     7.37 %     5.33 %     7.37 %     5.24 %
 
                        
Interest revenue (in millions)
   $ 126.2     $ 45.5     $ 196.3     $ 93.4  
 
                        
 
                                
Securities borrowing:
                                
Average balance (in billions)
   $ 3.3     $ 4.3     $ 3.2     $ 4.1  
Average annualized yield
     5.08 %     2.62 %     4.61 %     2.37 %
 
                        
Interest revenue (in millions)
   $ 41.4     $ 26.0     $ 73.9     $ 48.8  
 
                        
Interest revenue — other (in millions)
   $ 6.8     $ 1.3     $ 10.9     $ 2.6  
 
                        
Interest revenue — total (in millions)
   $ 254.0     $ 116.3     $ 431.4     $ 229.4  
 
                        
 
                                
Brokerage Interest Expense Metrics:
                                
Client credit balances:
                                
Average balance (in billions)
   $ 10.2     $ 9.7     $ 9.7     $ 9.6  
Average annualized cost
     0.99 %     0.37 %     0.90 %     0.33 %
 
                        
Interest expense (in millions)
   $ 25.3     $ 8.3     $ 44.0     $ 15.8  
 
                        
 
                                
Securities lending:
                                
Average balance (in billions)
   $ 5.8     $ 5.1     $ 4.8     $ 4.9  
Average annualized cost
     3.77 %     1.81 %     3.49 %     1.60 %
 
                        
Interest expense (in millions)
   $ 54.8     $ 21.6     $ 85.6     $ 39.5  
 
                        
Brokerage interest expense — other (in millions)
   $ 0.5     $ 0.3     $ 0.8       ($0.5 )
 
                        
Brokerage interest expense — total (in millions)
   $ 80.6     $ 30.2     $ 130.4     $ 54.8  
 
                        
 
                                
Other Revenue Metrics:
                                
Money market deposit account fees:
                                
Average balance (in billions)
   $ 6.5       N/A     $ 3.1       N/A  
Average annualized yield
     2.85 %     N/A       2.85 %     N/A  
Fee revenue (in millions)
   $ 45.3       N/A     $ 45.3       N/A  
 
                                
Money market mutual fund fees:
                                
Average balance (in billions)
   $ 12.6     $ 2.7     $ 8.0     $ 2.6  
Average annualized yield
     0.74 %     0.71 %     0.74 %     0.72 %
Fee revenue (in millions)
   $ 23.1     $ 4.5     $ 29.6     $ 9.6  
 
                                
Other mutual fund fees:
                                
Average balance (in billions)
   $ 26.3     $ 3.2     $ 14.9     $ 3.0  
Average annualized yield
     0.14 %     0.13 %     0.14 %     0.12 %
Fee revenue (in millions)
   $ 9.4     $ 1.0     $ 10.6     $ 1.9  
 
                                
Client Account and Client Asset Metrics:
                                
Qualified accounts (beginning of period)
     1,722,000       1,764,000       1,735,000       1,677,000  
Qualified accounts (end of period)
     3,293,000       1,730,000       3,293,000       1,730,000  
Percentage increase (decrease) during period
     91 %     (2 %)     90 %     3 %
 
                                
Total accounts (beginning of period)
     3,739,000       3,627,000       3,717,000       3,520,000  
Total accounts (end of period)
     6,070,000       3,665,000       6,070,000       3,665,000  
Percentage increase (decrease) during period
     62 %     1 %     63 %     4 %
 
                                
Client assets (beginning of period, in billions)
   $ 85.5     $ 79.9     $ 83.3     $ 68.8  
Client assets (end of period, in billions)
   $ 262.9     $ 75.6     $ 262.9     $ 75.6  
Percentage increase (decrease) during period
     207 %     (5 %)     216 %     10 %
NOTE: See Glossary of Terms on the Company’s web site at www.amtd.com for definitions of the above metrics.

 

TD AMERITRADE HOLDING CORPORATION
RECONCILIATION OF FINANCIAL MEASURES
In thousands, except percentages and per share amounts
(Unaudited)
                                                                 
    Quarter Ended     Six Months Ended  
    Mar. 31, 2006     Mar. 25, 2005     Mar. 31, 2006     Mar. 25, 2005  
Net Income Excluding Investment Gains/Losses (1)
                                
Net income, as reported
   $ 172,835     $ 77,371     $ 258,832     $ 161,780  
Adjustments:
                                
Gain on disposal of investment
     (78,840 )     —       (78,840 )     —  
Unrealized fair value adjustments of investment-related derivative instruments
     —       (10,336 )     11,703       2,669  
Income tax effect of above adjustments
     30,353       3,979       25,848       (1,028 )
 
                        
Net income excluding investment gains/losses
   $ 124,348     $ 71,014     $ 217,543     $ 163,421  
 
                        
 
                                
EPS Excluding Investment Gains/Losses (1)
                                
Diluted earnings per share, as reported
   $ 0.30     $ 0.19     $ 0.53     $ 0.39  
Adjustments on a per share basis, net of income tax effect:
                                
Gain on disposal of investment
     (0.08 )     —       (0.10 )     —  
Unrealized fair value adjustments of investment-related derivative instruments
     —       (0.02 )     0.01       0.01  
 
                        
EPS excluding investment gains/losses
   $ 0.22     $ 0.17     $ 0.44     $ 0.40  
 
                        
 
                                
Non-GAAP Net Income (2)
                                
Net income, as reported
   $ 172,835     $ 77,371     $ 258,832     $ 161,780  
Adjustments:
                                
Amortization of acquired intangible assets
     11,281       3,144       14,790       6,814  
Interest on borrowings
     25,796       449       26,444       1,006  
Unrealized fair value adjustments of investment-related derivative instruments
     —       (10,336 )     11,703       2,669  
Gain on disposal of investment
     (78,840 )     —       (78,840 )     —  
Income tax effect of above adjustments
     15,883       2,596       9,776       (4,038 )
 
                        
Non-GAAP net income
   $ 146,955     $ 73,224     $ 242,705     $ 168,231  
 
                        
 
                                
Non-GAAP EPS (2)
                                
Diluted earnings per share, as reported
   $ 0.30     $ 0.19     $ 0.53     $ 0.39  
Adjustments on a per share basis, net of income tax effect:
                                
Amortization of acquired intangible assets
     0.01       0.01       0.02       0.01  
Interest on borrowings
     0.03       —       0.03       —  
Unrealized fair value adjustments of investment-related derivative instruments
     —       (0.02 )     0.01       0.01  
Gain on disposal of investment
     (0.08 )     —       (0.10 )     —  
 
                        
Non-GAAP earnings per share
   $ 0.26     $ 0.18     $ 0.49     $ 0.41  
 
                        
                                                                 
    Quarter Ended     Six Months Ended  
    Mar. 31, 2006     Mar. 25, 2005     Mar. 31, 2006     Mar. 25, 2005  
    $     % of Rev.     $     % of Rev.     $     % of Rev.     $     % of Rev.  
Operating Margin (3)
                                                                
Operating margin
   $ 250,627       50.4 %   $ 144,055       62.0 %   $ 428,987       55.4 %   $ 314,725       63.6 %
Less:
                                                                
Advertising
     (47,477 )     (9.5 %)     (27,525 )     (11.8 %)     (74,041 )     (9.6 %)     (50,635 )     (10.2 %)
Gain on disposal of property
     219       0.0 %     148       0.1 %     426       0.1 %     246       0.0 %
Unrealized fair value adjustments of investment-related derivative instruments
     0       0.0 %     10,336       4.4 %     (11,703 )     (1.5 %)     (2,669 )     (0.5 %)
 
                                                        
Income before other income and income taxes
     203,369       40.9 %     127,014       54.6 %     343,669       44.4 %     261,667       52.9 %
Gain on disposal of investment
     78,840       15.9 %     0       0.0 %     78,840       10.2 %     0       0.0 %
 
                                                        
Pre-tax income
   $ 282,209       56.8 %   $ 127,014       54.6 %   $ 422,509       54.6 %   $ 261,667       52.9 %
 
                                                        
 
                                                                
EBITDA and EBITDA Excluding Investment Gains(4)
                                                                
EBITDA excluding investment gains
   $ 245,627       49.4 %   $ 132,837       57.1 %   $ 393,567       50.8 %   $ 274,319       55.5 %
Plus: Gain on disposal of investment
     78,840       15.9 %     0       0.0 %     78,840       10.2 %     0       0.0 %
 
                                                        
EBITDA
     324,467       65.3 %     132,837       57.1 %     472,407       61.0 %     274,319       55.5 %
Less:
                                                                
Depreciation and amortization
     (5,181 )     (1.0 %)     (2,230 )     (1.0 %)     (8,664 )     (1.1 %)     (4,832 )     (1.0 %)
Amortization of acquired intangible assets
     (11,281 )     (2.3 %)     (3,144 )     (1.4 %)     (14,790 )     (1.9 %)     (6,814 )     (1.4 %)
Interest on borrowings
     (25,796 )     (5.2 %)     (449 )     (0.2 %)     (26,444 )     (3.4 %)     (1,006 )     (0.2 %)
 
                                                        
Pre-tax income
   $ 282,209       56.8 %   $ 127,014       54.6 %   $ 422,509       54.6 %   $ 261,667       52.9 %
 
                                                        

 

                                         
    As of  
    Mar. 31,     Dec. 31,     Sept. 30,     June 24,     Mar. 25,  
    2006     2005     2005     2005     2005  
Liquid Assets (5)
                                        
Liquid assets
   $  374,423     $ 489,938     $ 396,708     $ 271,117     $ 152,227  
Plus: Broker-dealer cash and cash equivalents
     411,208       122,444       107,236       205,408       135,084  
Less:
                                        
Non broker-dealer short-term investments
     (40,000 )      (302,921 )     (229,819 )     (20,000 )     (64,375 )
Excess broker-dealer regulatory net capital
     (262,221 )      (121,342 )     (103,061 )     (189,209 )     (33,219 )
 
                              
Cash and cash equivalents
   $ 483,410     $ 188,119     $ 171,064     $ 267,316     $ 189,717  
 
                              
Note: The term “GAAP” in the following explanations refers to generally accepted accounting principles in the United States.
 
(1)   Net income excluding investment gains/losses and earnings per share (EPS) excluding investment gains/losses are Non-GAAP financial measures as defined by SEC Regulation G. We define net income excluding investment gains/losses as net income, adjusted to remove the after-tax effect of investment-related gains and losses. We consider net income excluding investment gains/losses and EPS excluding investment gains/losses important measures of our financial performance. Gains/losses on investments and investment-related derivatives are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. Net income excluding investment gains/losses and EPS excluding investment gains/losses should be considered in addition to, rather than as a substitute for, GAAP net income and EPS.
 
(2)   Non-GAAP net income and Non-GAAP earnings per share (EPS) are Non-GAAP financial measures as defined by SEC Regulation G. We define Non-GAAP net income as net income, adjusted to remove the after-tax effect of amortization of acquired intangible assets, interest on borrowings, unrealized gains and losses on investment-related derivative instruments and any unusual gains or charges. We consider Non-GAAP net income and Non-GAAP EPS important measures of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. Amortization of acquired intangible assets and unrealized gains and losses on investment-related derivative instruments are excluded because they are non-cash expenses that do not require further cash investment. Interest on borrowings is excluded because we use these measures as an indicator of the earnings available to service debt. Unusual gains and charges are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. Non-GAAP net income and EPS should be considered in addition to, rather than as a substitute for, GAAP net income and EPS.
 
(3)   Operating margin is considered a Non-GAAP financial measure as defined by SEC Regulation G. We define operating margin as pre-tax income, adjusted to remove advertising expense, unrealized gains and losses on investment-related derivative instruments and any unusual gains or charges. We consider operating margin an important measure of the financial performance of our ongoing business. Advertising spending is excluded because it is largely at the discretion of the Company, varies significantly from period to period based on market conditions and relates to the acquisition of future revenues through new accounts rather than current revenues from existing accounts. Unrealized gains and losses on investment-related derivative instruments and unusual gains and charges are excluded because we believe they are not likely to be indicative of the ongoing operations of our business. Operating margin should be considered in addition to, rather than as a substitute for, pre-tax income, net income and earnings per share.
 
(4)   EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA excluding investment gains are considered Non-GAAP financial measures as defined by SEC Regulation G. We consider EBITDA and EBITDA excluding investment gains important measures of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA eliminates the non-cash effect of tangible asset depreciation and intangible asset amortization. EBITDA excluding investment gains also eliminates the effect of unusual gains that are not likely to be indicative of the ongoing operations of our business. EBITDA and EBITDA excluding investment gains should be considered in addition to, rather than as a substitute for, pre-tax income, net income and cash flows from operating activities.
 
(5)   Liquid assets is considered a Non-GAAP financial measure as defined by SEC Regulation G. We define liquid assets as the sum of a) non broker-dealer cash and cash equivalents, b) non broker-dealer short-term investments and c) regulatory net capital of our broker-dealer subsidiaries in excess of 5% of aggregate debit items. We consider liquid assets an important measure of our liquidity and of our ability to fund corporate investing and financing activities. Liquid assets should be considered as a supplemental measure of liquidity, rather than as a substitute for cash and cash equivalents.