- These were offset by a favorable mix which showed an increase in options trades in payment order flow of business.
- Asset-based revenue of $333 million increased $15 million almost entirely due to $12 billion increase in balances with over $3 billion coming from investable assets and $9 billion in money markets and mutual funds.
- Most of the $3 billion growth in investable assets is due to the growth in the conduit business, where the company borrows shares from one broker dealer and loan the shares to a different broker dealer and it earns a small spread. The increase in the proportionate size of this business is the main reason net interest margin of 3.53% decreased 35 basis points versus a year ago. The rate earned and the money market and mutual funds was virtually unchanged.

Expenses excluding advertising year-over-year are up to $254 million.

Important to note here though is that the $254 million from this quarter includes about $8 million of investments for growth, most of which is increasing sales force to better serve clients and promote additional growth. 3 million from severance and 6 million from increased in central accruals, all of which were offset by a 4 million positive settlement.

- The company spends $33 million in advertising, a reduction of $22 million from last year.
- The company had a heavier advertising spend in the June 2006 quarter, as it supported both legacy brands for a month before launching a new brand in the second course of the quarter. That launch required a heavier spend than maintaining an established brand and acquisition effort.
- Tax expense was about $2 million lower than anticipated this quarter, as the company had a catch-up on state tax rate for the 2006 tax year.

The company is accelerating the pace that which it spends $100 million investments for growth.

It is accelerating that spend with $8 million spend at this quarter up to an increase to $20 million for the September quarter. The majority of this expense is compensation related.

The company had anticipated the $10 million spend for the September quarter. If the 2 cents are taken into account, the company beats outlook buy in this quarter, less the 1 cent per share effect of the additional $10 million of investments for growth in the September quarter. That drives the change to the $1.01 from the midpoint or for the outlook midpoint for the 2007 year.

With the clearing conversion out of the way and excluding the impact the investments for growth, redundant expenses are being eliminated aggregating about $44 million in the September quarter. This would result in about $200 million expenses, ex advertising and ex investments for growth or an $800 million of run-rate.

The company continues to exhibit strength in the cash generator, which allows flexible and financial decisions that best impact the firm.

Liquid assets are still higher than normal, but the company is holding at these levels for a $225 million Fiserv acquisition.

The company started the quarter at $543 million in liquid assets. It earned a $159 million in net income for the June quarter and had $20 million D&A. The company is using working capital, regulatory capital and capital expenditures of $41 million. The company made $206 million in debt payments, $200 million of accelerated payments and $6 million of mandatory payments. The company used $49 million to repurchase 3 million shares of stock.

Since the buyback program began through June 30th, the company has used $295 million to repurchase 17.3 million shares of stock at an average cost of 17.08 per share. That leaves $426 million in liquid assets. These liquid assets allow for several uses, including debt repayments, stock buyback, M&A for additional organic growth.

Fiscal 2007 Outlook

- The company expects to be back above 50% pre-tax margins.
- The company has increased the midpoint of its guidance for fiscal 2007 to $1.01 and tightened the outlook range to 97 cents peer share to $1.05 per share. These changes reflect the June quarter''s record results and the impact of spending on the company''s investments for growth.

Key questions from the third quarter earnings call conducted by Ameritrade Holding Corporation on July 26, 2007.

Mike Vinciquerra (BMO Capital Markets): Where you are seeing the first opportunities and why do you have acceleration in spend right now?

Joe Moglia: We talked about a $100 million spend, and the sooner we implement that spend, we think the sooner that we are going to get results. The management team has come with individual requests; I have allocated 85% or 90% of that so far. You should assume all $100 million dollars is absolutely going to be allocated for 2008. Wherever we had approvals, we began to make those investments right away. The vast majority of those investments early on are in the sales force and greater support in the call centers.

Mike Vinciquerra (BMO Capital Markets): RIA is your core business, is there anything specifically being focused on?

Joe Moglia: It would be across the respective client end segments, but the greatest emphasis is in the areas where we think we can openly gather assets.

Mike Vinciquerra (BMO Capital Markets): Is there any financial impact you can provide for us on the five serve deal in terms of revenue contribution because you are buying most of that organization, but there is a piece that is going to another buyer, and it is uncertain what the pre-tax margins are going to be on the piece that you are buying?