SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

OR

Commission file number: 0-49992

AMERITRADE HOLDING CORPORATION

4211 South 102^nd Street, Omaha, Nebraska
68127
(Address of principal executive offices)
(Zip Code)
(402) 331-7856
(Registrant’s telephone number, including area code)

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 twelve months, and (2) has been subject to such filing requirements for the past ninety days. Yes (X) No (  )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes (X) No (  )

As of April 30, 2004, there were 417,560,953 outstanding shares of the registrant’s Common Stock.

AMERITRADE HOLDING CORPORATION

INDEX

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Part I – FINANCIAL INFORMATION

     Item 1. – Condensed Consolidated Financial Statements

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

To the Board of Directors
Ameritrade Holding Corporation
Omaha, Nebraska

We have reviewed the accompanying condensed consolidated balance sheet of Ameritrade Holding Corporation and subsidiaries (collectively, the “Company”) as of March 26, 2004, and the related condensed consolidated statements of operations for the three-month and six-month periods ended March 26, 2004 and March 28, 2003, and of cash flows for the six-month periods ended March 26, 2004 and March 28, 2003. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Ameritrade Holding Corporation and subsidiaries as of September 26, 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated November 6, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 26, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP

May 3, 2004
Omaha, Nebraska

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Ameritrade Holding Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share amounts)

See notes to condensed consolidated financial statements.

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Ameritrade Holding Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

See notes to condensed consolidated financial statements.

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Ameritrade Holding Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

See notes to condensed consolidated financial statements.

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AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Columnar amounts in thousands, except per share amounts)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements include the accounts of Ameritrade Holding Corporation and its wholly owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated.

These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“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 accounting principles generally accepted in the United States of America. 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 26, 2003.

Certain items in prior year condensed consolidated financial statements have been reclassified to conform to the current presentation.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN No. 46”). In December 2003, the FASB issued FASB Interpretation No. 46R, which served to clarify guidance in FIN No. 46. The FASB deferred the effective date for applying the provisions of FIN No. 46 for certain variable interest entities to periods ending after March 15, 2004. The implementation of FIN No. 46, as revised, had no impact on the Company’s consolidated financial statements.

2. BUSINESS COMBINATIONS, GOODWILL AND ACQUIRED INTANGIBLE ASSETS

On January 2, 2004, the Company completed the acquisition of Bidwell & Company (“Bidwell”) for $55 million, including $2 million that was deposited into an escrow account for indemnification purposes. The Company utilized cash on hand to fund the acquisition. The Company allocated approximately $19.1 million of the Bidwell purchase price to acquired intangible assets for the fair value of the Bidwell client relationships, to be amortized over a 15-year period; and $0.3 million to the fair value of a noncompete agreement, to be amortized over a three-year period. Amounts allocated to Bidwell acquired intangible assets, and their respective amortization periods, were based on an independent valuation.

On February 13, 2004, the Company completed its purchase of approximately 11,000 online brokerage accounts from BrokerageAmerica LLC. The purchase price was $1.25 million. The entire purchase price has been allocated to acquired intangible assets for the fair value of the BrokerageAmerica LLC client relationships. This intangible asset is being amortized over a 15-year period.

The Company has recorded goodwill for purchase business combinations to the extent the purchase price of each acquisition exceeded the fair value of the net identifiable assets of the acquired company. The following table summarizes changes in the carrying amount of goodwill by reportable segment for the six months ended March 26, 2004:

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The Company’s acquired intangible assets consist primarily of client relationship intangible assets and had a carrying value of $252.9 million, net of $18.1 million of accumulated amortization as of March 26, 2004. The Company expects amortization expense on existing acquired intangible assets to be $6.2 million for the remainder of fiscal 2004 and $12.5 million for each of the five succeeding fiscal years.

3. INVESTMENTS

The Company’s investments consist primarily of ownership of approximately 7.9 million shares of Knight Trading Group, Inc. (“Knight”), representing approximately seven percent of Knight’s outstanding common shares as of March 26, 2004. Knight is a publicly held company that is a market maker in equity securities. The Company accounts for its investment in Knight as a marketable equity security available-for-sale. As of March 26, 2004 and September 26, 2003, the Company’s investment in Knight was valued at $98.8 million and $90.0 million, respectively. The Company’s cost basis is $0.7 million; therefore the gross unrealized gain was $98.1 million and $89.3 million at March 26, 2004 and September 26, 2003, respectively.

During fiscal 2003, the Company and a counterparty entered into a series of prepaid variable forward contracts on the Knight shares. The forward contracts mature on various dates in fiscal years 2006 and 2007. The forward contracts each contain a zero-cost embedded collar on the value of the Knight shares, with a weighted average floor price of $5.13 per share and a weighted average cap price of $6.17 per share. The Company has designated the forward contracts as cash flow hedges of the forecasted future sales of 7.9 million Knight shares. Accordingly, all changes in the fair value of the embedded collars are recorded in other comprehensive income, net of income taxes. As of March 26, 2004 and September 26, 2003, the total fair value of the embedded collars was approximately $54.2 million and $46.7 million, respectively, and was included under the caption “Prepaid variable forward derivative instrument” on the condensed consolidated balance sheet.

The following table summarizes the Company’s investments, liabilities associated with the prepaid variable forward contracts, and related deferred income tax effects (see Note 11 for a complete summary of comprehensive income):

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4. RESTRUCTURING AND EXIT LIABILITIES

     The following table summarizes activity in the Company’s restructuring and acquisition exit liabilities for the three-month and six-month periods ended March 26, 2004:

The Company expects to pay the employee compensation restructuring liabilities during fiscal 2004. The Company expects to utilize the remaining occupancy and equipment, professional services and other restructuring liabilities over the respective lease periods through fiscal 2015. Acquisition employee compensation liabilities are expected to be paid in fiscal 2004. Remaining acquisition occupancy and equipment exit liabilities are expected to be utilized over the respective lease periods through fiscal 2011.

5. CREDIT FACILITIES

On December 15, 2003, the Company entered into a third amended and restated revolving credit agreement. The revolving credit agreement permits borrowings of up to $75 million through December 13, 2004, and is secured primarily by the Company’s stock in its subsidiaries and personal property. The interest rate on borrowings, determined on a monthly basis, is equal to the lesser of (i) the prime rate or (ii) one month LIBOR plus 2.0 percent. At March 26, 2004, the interest rate on the revolving credit agreement would have been 3.09 percent. The Company also pays a commitment fee of 0.0025 percent of the unused borrowings through the maturity date. The Company had no outstanding indebtedness under the revolving credit agreement at March 26, 2004 and no outstanding indebtedness under the prior revolving credit agreement at September 26, 2003. The revolving credit agreement contains certain covenants and restrictions, including requiring prior written consent of the revolving lenders for certain business combinations and investments, and prohibits the payment of cash dividends to stockholders. The Company was in compliance with or obtained waivers for all covenants under the revolving credit agreements.

The Company, through its wholly owned broker-dealer subsidiaries Ameritrade, Inc., iClearing LLC (“iClearing”) and Ameritrade Northwest, Inc. (formerly Bidwell) had access to secured credit facilities with financial institutions of up to $180

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million and $160 million as of March 26, 2004 and September 26, 2003, respectively. Ameritrade, Inc. and Ameritrade Northwest, Inc. also had access to unsecured credit facilities of up to $330 million and $310 million as of March 26, 2004 and September 26, 2003, respectively. The financial institutions may make loans under line of credit arrangements or, in some cases, issue letters of credit under these facilities. The secured credit facilities require the Company to pledge client securities to secure outstanding obligations under these facilities. There were $8.5 million in broker/dealer notes payable outstanding under the secured credit facilities as of March 26, 2004 and none as of September 26, 2003. No borrowings were outstanding under the unsecured credit facilities as of March 26, 2004 or September 26, 2003. Letters of credit in the amount of $40 million as of September 26, 2003, were issued on behalf of the Company and reduced the amount available for borrowings under these credit facilities. The letters of credit, which were for the benefit of a securities clearinghouse, were issued for the contingent purpose of financing and supporting margin requirements. The Company is generally required to pledge client securities to secure letters of credit under these credit facilities. No letters of credit were issued as of March 26, 2004. As of March 26, 2004 and September 26, 2003, approximately $502 million and $430 million, respectively, was available to the Company for either loans or, in some cases, letters of credit.

6. CONVERTIBLE SUBORDINATED NOTES

On October 23, 2003, the Company redeemed the remaining $46.3 million of convertible subordinated notes for an amount equal to 101.15 percent of the principal amount, resulting in a loss on the redemption of approximately $0.8 million which is included in other expense in the condensed consolidated statement of operations.

7. NET CAPITAL

The Company’s broker-dealer subsidiaries are subject to the SEC Uniform Net Capital Rule (Rule 15c3-1 of the Securities Exchange Act of 1934), which requires the maintenance of minimum net capital, as defined. Net capital and the related net capital requirement may fluctuate on a daily basis.

The Company’s broker-dealer subsidiaries had aggregate net capital of $355.6 million and $279.5 million as of March 26, 2004 and September 26, 2003, respectively, which exceeded aggregate minimum net capital requirements by $271.6 million and $224.4 million, respectively.

8. STOCK OPTION AND INCENTIVE PLANS

Effective September 27, 2003, the Company adopted the fair value based method of accounting for stock-based compensation under Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, using the prospective transition method of SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123. Stock-based employee compensation expense for the three months and six months ended March 26, 2004 was insignificant. Pro forma information regarding stock-based compensation expense, net income and earnings per share is required by SFAS No. 148. This information is presented as if the Company had accounted for its stock-based awards under the fair value method for all periods:

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9. COMMITMENTS AND CONTINGENCIES

Legal – In September 1998, a putative class action complaint was filed against the Company by Zannini, et al. in the District Court of Douglas County, Nebraska, claiming the Company was not able to handle the volume of subscribers to its Internet brokerage services. The complaint, as amended, seeks injunctive relief enjoining alleged deceptive, fraudulent and misleading practices, equitable relief compelling the Company to increase capacity, and unspecified compensatory damages. In May 2001, the Company filed a motion for summary judgment in the matter, which the plaintiffs opposed. The District Court granted summary judgment for the Company on January 2, 2002, and the plaintiffs appealed. On August 1, 2003, the Nebraska Supreme Court reversed the district court’s grant of summary judgment and remanded the case to the district court for further proceedings. The Nebraska Supreme Court did not decide whether the plaintiffs’ claims have merit. On October 8, 2003, the Company filed with the District Court a renewed motion for summary judgment. The District Court held a hearing on the summary judgment motion on December 5, 2003. The District Court has not yet ruled on the motion. The Company believes it has adequate legal defenses and intends to continue to vigorously defend against this action. In October 2003, Keener, a pro se plaintiff, filed a putative class action against the Company, Knight Trading Group, Inc. and certain individuals in the United States District Court for the District of Nebraska. The plaintiff asserts his action on behalf of persons who became clients of the Company during the period from March 29, 1995 through September 30, 2003. As it pertains to the Company, the principal allegations of the complaint are that the Company had an indirect and direct equity interest in Knight, to which it directed most of its orders for execution; that the Company failed to accurately disclose the nature of its relationship with Knight and the consideration it received from Knight for directing order flow to Knight; and that clients of Ameritrade did not receive best execution of their orders from Knight and the Company. The plaintiff claims that the Company’s conduct violated certain provisions of the federal securities laws, including Sections 11Ac, 10(b) and 3(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), and SEC rules promulgated thereunder. Plaintiff further claims the individual defendants, including a present director and a former director of the Company, are liable under Section 20(a) of the Exchange Act as “controlling persons” for the claimed wrongs attributed to the Company and Knight. In his prayer for relief, plaintiff requests monetary damages and/or rescissionary relief in the amount of $4.5 billion against all defendants, jointly and severally. On January 16, 2004, the Company, Knight and the individual defendants filed motions to dismiss the complaint and to deny class certification or strike the class action allegations. The Company and the defendant directors of the Company believe they have adequate legal defenses and they intend to vigorously defend against this action.

The nature of the Company’s business subjects it to lawsuits, arbitrations, claims and other legal proceedings. Management cannot predict with certainty the outcome of pending legal proceedings. A substantial adverse judgment or other resolution regarding the proceedings could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. However, in the opinion of management, after consultation with legal counsel, the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent and the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

NASD Investigation – On March 11, 2004 the Company reached a settlement with the National Association of Securities Dealers, Inc. (“NASD”) resolving all issues related to the NASD’s investigation into specified client trading in cash accounts that had occurred at Datek Online Financial Services, LLC, iClearing and Ameritrade, Inc. Under the terms of the settlement, the Company agreed to censures and to pay NASD a fine of $10 million. As part of the settlement, the Company neither admitted nor denied the allegations; there were no allegations of monetary harm to investors. Approximately $7.8 million of the settlement was included in accruals recorded in connection with the merger with Datek Online Holdings Corp. The remaining amount was also accrued for in prior periods. The settlement had no impact on the Company’s consolidated statement of operations for the three months or six months ended March 26, 2004.

General Contingencies - In the ordinary course of business, there are various contingencies which are not reflected in the condensed consolidated financial statements. These include Ameritrade, Inc., iClearing and Ameritrade Northwest, Inc. client activities involving the execution, settlement and financing of various client securities transactions. These activities may expose the Company to credit risk in the event the clients are unable to fulfill their contracted obligations.

Client securities activities are transacted on either a cash or margin basis. In margin transactions, the Company may extend credit to the client, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the client’s account. In connection with these activities, the Company also executes and clears client transactions involving the sale of securities not yet purchased (“short sales”). Such margin-related transactions may expose the Company to credit risk in the event each client’s assets are not sufficient to fully cover losses which clients may incur. In the event the client fails to satisfy its obligations, the Company has the authority to purchase or sell financial instruments in the client’s account at prevailing market prices in order to fulfill the client’s obligations.

The Company seeks to control the risks associated with its client activities by requiring clients to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels throughout each

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trading day and, pursuant to such guidelines, requires clients to deposit additional collateral, or to reduce positions, when necessary.

The Company loans securities temporarily to other broker-dealers in connection with its broker-dealer business. The Company receives cash as collateral for the securities loaned. Increases in securities prices may cause the market value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its client obligations. The Company controls this risk by requiring credit approvals for counterparties, by monitoring the market value of securities loaned on a daily basis, by participating in a risk-sharing program offered through a securities clearinghouse and by requiring additional cash as collateral when necessary.

The Company borrows securities temporarily from other broker-dealers in connection with its broker-dealer business. The Company deposits cash as collateral for the securities borrowed. Decreases in securities prices may cause the market value of the securities borrowed to fall below the amount of cash deposited as collateral. In the event the counterparty to these transactions does not return the cash deposited, the Company may be exposed to the risk of selling the securities at prevailing market prices. The Company controls this risk by requiring credit approvals for counterparties, by monitoring the collateral values on a daily basis, and by requiring collateral to be returned by the counterparties when necessary.

As of March 26, 2004, client margin securities of approximately $5.3 billion and stock borrowings of approximately $2.8 billion were available to the Company to utilize as collateral on various borrowings or for other purposes. The Company had loaned or repledged approximately $4.8 billion of that collateral as of March 26, 2004.

The Company is a member of and provides guarantees to securities clearinghouses and exchanges. Under related agreements, the Company is generally required to guarantee the performance of other members. Under the agreements, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, the potential for the Company to be required to make payments under these agreements is remote. Accordingly, no contingent liability is carried on the condensed consolidated balance sheet for these transactions.

Employment Agreements – The Company has entered into employment agreements with several of its key executive officers. These employment agreements generally provide for annual base salary compensation, stock option acceleration and severance payments in the event of termination of employment under certain defined circumstances or changes in control of the Company. Salaries are subject to adjustments according to the Company’s financial performance and other factors.

As of March 26, 2004 and September 26, 2003, the Company had an equity index swap arrangement for the purpose of hedging its obligation under its Chief Executive Officer (“CEO”) deferred compensation plan. Effective April 15, 2004, the CEO changed his investment election under the deferred compensation arrangement from an equity index to a group of fixed income securities currently earning interest at an annual rate of approximately 1.15 percent. Accordingly, the Company terminated its equity index swap arrangement.

10. SEGMENT INFORMATION

     Financial information for the Company’s Private Client Division, which is the Company’s only reportable segment, and all other segments is presented in the following table. The totals are equal to the Company’s consolidated amounts as reported in the condensed consolidated statements of operations.

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11. COMPREHENSIVE INCOME

Comprehensive income is as follows:

12. RELATED PARTY TRANSACTION

In November 2003, the Company purchased 7.5 million shares of its Common Stock from certain stockholders (and certain donees of those shares) concurrent with a secondary offering by those stockholders of approximately 43.1 million shares of their Common Stock. The Company acquired the 7.5 million shares from the selling stockholders at the net public offering price of $12.159 per share. The selling stockholders and the respective quantities of shares sold to the Company are as follows:

The total shares sold by entities affiliated with Bain Capital includes 541,450 shares contributed by certain partners and other employees of the Bain Capital entities to certain charities prior to the offering. The charities sold the donated shares to the Company concurrent with the offering. Stephen G. Pagliuca, a director of the Company, is Managing Director of Bain Capital. Glenn H. Hutchins, a director of the Company, is a Managing Member of Silver Lake Partners. C. Kevin Landry, a director of the Company, is a Managing Director and Chief Executive Officer of TA Associates, Inc. J. Joe Ricketts is Chairman and

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Founder of the Company. J. Peter Ricketts is the Company’s Executive Vice President and Chief Operating Officer and serves as Vice Chairman of the Board of Directors. The secondary offering was conducted pursuant to the terms of a registration rights agreement dated July 26, 2002 entered into among the Company and the selling stockholders, among others, in connection with the Datek merger. In accordance with the terms of the registration rights agreement, the Company agreed to pay various expenses of the offering totaling approximately $0.6 million.

Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 2003, and the Condensed Consolidated Financial Statements and Notes thereto contained in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results to 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, volatility in the stock market, changes in client trading activity, competition, systems failures and capacity constraints, regulatory and legal uncertainties and the other risks and uncertainties set forth under the heading “Risk Factors” in Item 7 of the Company’s annual report on Form 10-K for the fiscal year ended September 26, 2003. 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.

In particular, the following statements contained in this discussion are forward-looking statements: our expectations regarding the effect of client trading activity on our results of operations; our expectations regarding average commissions and clearing fees per trade; our expectations regarding growth of net interest revenue; our expectations regarding the effect of client trading activity on account maintenance fee revenues; our expectations regarding the number of full-time equivalent employees; our expected amounts of employee compensation and benefits, professional services and advertising expenses; our expectations regarding our effective income tax rate; our anticipated capital and liquidity needs and our plans to finance such needs; and our expectations regarding the impact of recently issued accounting pronouncements.

Our significant accounting policies are disclosed in the Notes to Consolidated Financial Statements for the fiscal year ended September 26, 2003. In the opinion of management, we do not have any critical accounting policies which routinely involve unusually difficult, subjective or complex judgments.

Unless otherwise indicated, the terms “we”, “us” or “Company” in this report refer to Ameritrade Holding Corporation and its wholly owned subsidiaries. The term “GAAP” refers to generally accepted accounting principles in the United States.

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.

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RESULTS OF OPERATIONS

Over the past four fiscal quarters, the U.S. equity markets have improved. Trading activity on the primary U. S. equity markets increased. Major U.S. equity indexes including the Dow Jones Industrial Average, the Nasdaq Composite Index and the S&P 500 Index have risen. Improved conditions in the U.S. equity markets have significantly impacted our results of operations. There is a positive correlation between the increased volume of our clients’ trading activity and our improved results of operations. We cannot predict future trading volumes in the U.S. equity markets. If client trading activity is maintained or improves as compared to the most recent fiscal quarter, we expect that it would have a positive impact on our results of

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operations. If client trading activity were to decline, we expect that it would have a negative impact on our results of operations.

Financial Performance Metrics

Pre-tax income, operating margin and EBITDA (earnings before interest, taxes, depreciation and amortization) are key metrics we use in evaluating our financial performance. Operating margin and EBITDA are both considered non-GAAP financial measures as defined by SEC Regulation G.

We define operating margin as pre-tax income, adjusted to remove advertising expense 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. 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 and net income.

We consider EBITDA 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 eliminates the non-cash effect of tangible asset depreciation and intangible asset amortization, as well as any non-cash gains or charges. 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 tables set forth operating margin and EBITDA in dollars and as a percentage of net revenues for the periods indicated, and provide reconciliations to pre-tax income, which is the most directly comparable GAAP measure (dollars in thousands):

Our improved pre-tax income, operating margin and EBITDA for the three- and six-month periods ended March 26, 2004 compared to the three- and six-month periods ended March 28, 2003 are largely due to significantly increased net revenues resulting primarily from increased client trading volumes and increased client margin and credit balances. While net revenues increased, we did not incur corresponding significant increases in expenses. More detailed analysis of net revenues and expenses is presented later in this discussion.

Trading Activity and Account Metrics

The following table sets forth several operating metrics, which we utilize in measuring and evaluating performance and the results of our operations:

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Net Interest Revenue Metrics

The following tables set forth metrics that we use in analyzing net interest revenue:

Three-Month Periods Ended March 26, 2004 and March 28, 2003

Net Revenues.

Commissions and clearing fees increased 82 percent to $169.1 million for the second quarter of fiscal 2004 from $92.7 million for the second quarter of fiscal 2003, primarily due to higher client trading volumes and increased commissions and clearing fees per trade, partially offset by the impact of one less trading day during the second quarter of fiscal 2004. Average trades per day increased 82 percent to 211,917 for the second quarter of fiscal 2004 from 116,246 in the second quarter of fiscal 2003. Clients averaged approximately 15.8 annualized trades per account during the second quarter of fiscal 2004, compared to approximately 9.5 annualized trades per account for the second quarter of fiscal 2003. Commissions and clearing fees per trade increased to $13.53 in the second quarter of fiscal 2004 from $13.29 for the second quarter of fiscal 2003, due primarily to higher payment for order flow revenue per trade during the second quarter of fiscal 2004 compared to the second quarter of fiscal 2003. We expect average commissions and clearing fees per trade to range from approximately $13.10 to $13.60 per trade during the second half of fiscal 2004, depending on the mix of trading activity, level of payment for order flow revenue and other factors.

Net interest revenue increased 73 percent to $57.2 million for the second quarter of fiscal 2004 from $33.0 million for the second quarter of fiscal 2003. Average client margin balances increased 129 percent in the second quarter of fiscal 2004 compared to the second quarter of fiscal 2003, and the average interest rate charged on client margin balances increased by four basis points. Average segregated cash increased by 25 percent in the second quarter of fiscal 2004 from the second quarter of fiscal 2003. The increased interest income resulting from these factors was partially offset by a decrease of 22 basis points in the average interest rate earned on segregated cash and an increase of 34 percent in average client credit balances in the second quarter of fiscal 2004 from the second quarter of fiscal 2003. We generally expect net interest revenue to grow as our account base grows. However, it will also be affected by changes in interest rates and fluctuations in the levels of client margin and credit balances.

Other revenues decreased six percent to $20.6 million for the second quarter of fiscal 2004 from $21.9 million for the second quarter of fiscal 2003, due primarily to a $3.5 million decrease in account maintenance fee revenue in fiscal 2004, partially offset by higher money market fee income due to higher fund balances. Account maintenance fees are charged based in part on client trading activity, therefore increased client trading activity may result in decreased revenues from account maintenance fees.

Expenses.

Employee compensation and benefits expense decreased 12 percent to $43.9 million for the second quarter of fiscal 2004 compared to $49.7 million for the second quarter of fiscal 2003. Full-time equivalent employees totaled 1,938 at the end of the second quarters of both fiscal 2004 and fiscal 2003. Employee compensation expense decreased, due primarily to the elimination of duplicate clearing and technology functions during fiscal 2003 in connection with the Datek merger integration, partially offset by client service employees added during fiscal 2004 to accommodate increased client trading volume. We currently expect the number of full-time equivalent employees to range between 1,900 and 2,200 during the remainder of fiscal

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2004, depending on market conditions. We expect quarterly employee compensation expense to range between $36 million and $43 million for the remainder of fiscal 2004.

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 statement and confirmation processing and postage costs and clearing expenses paid to the National Securities Clearing Corporation, option exchanges and other market centers. Clearing and execution costs were virtually unchanged at $6.8 million for the second quarter of fiscal 2004 compared to $6.9 million for the second quarter of fiscal 2003, as the impact of higher client trading volumes was offset by the effect of approximately $3 million in refunds and adjustments in the second quarter of fiscal 2004 for clearing and execution costs related to previous periods.

Communications expense increased slightly to $11.2 million for the second quarter of fiscal 2004 compared to $10.9 million for the second quarter of fiscal 2003, due primarily to increased expense for quotes and market information, partially offset by lower telecommunications expenses.

Occupancy and equipment costs decreased 36 percent to $9.9 million for the second quarter of fiscal 2004 from $15.6 million for the second quarter of fiscal 2003, due to facilities and equipment reductions during fiscal 2003 resulting from the Datek merger and lower technology licensing costs.

Depreciation and amortization decreased 27 percent to $5.6 million for the second quarter of fiscal 2004 from $7.6 million for the second quarter of fiscal 2003, due primarily to the effects of noncompete agreements related to the Datek merger that expired and became fully amortized by the end of fiscal 2003 and tangible assets that have become fully depreciated.

Professional services expense decreased four percent to $8.7 million for the second quarter of fiscal 2004, from $9.1 million for the second quarter of fiscal 2003. Our usage of consulting services during the second quarters of both fiscal 2004 and fiscal 2003 was relatively high, due to new corporate development initiatives in fiscal 2004 and the Datek merger integration in fiscal 2003. We expect professional services expense to range between $7 million and $9 million per quarter for the remainder of fiscal 2004.

(Gain)/loss on disposal of property includes approximately $5.3 million of gain recognized on the sale/leaseback of our Kansas City data center facility in the second quarter of fiscal 2003.

Advertising expenses increased 12 percent to $30.2 million for the second quarter of fiscal 2004 from $27.0 million for the second quarter of fiscal 2003. We increased our advertising spending during the second quarter of fiscal 2004, due primarily to improved stock market conditions. We expect approximately $37 million to $68 million of advertising expenditures for the remainder of fiscal 2004, depending on market conditions.

Restructuring and asset impairment charges during the second quarter of fiscal 2003 consisted primarily of severance pay and benefits for approximately 110 employees in connection with the closing of our TradeCast business and consolidation of the Ameritrade and Datek technology organizations; and non-cancelable lease costs in connection with the closing of the TradeCast business.

Our effective income tax rate was approximately 35 percent for the second quarter of fiscal 2004, compared to approximately 42 percent for the second quarter of fiscal 2003. The Datek integration has resulted in a larger percentage of our payroll and assets being located in lower income tax states such as Nebraska and Texas as opposed to higher income tax states such as New York and New Jersey. Accordingly, we expect our effective income tax rate for the remainder of fiscal 2004 to be approximately 39 percent. The adjustment to our net deferred income tax liabilities to apply the current 39 percent rate resulted in a lower than normal effective income tax rate for the second quarter of fiscal 2004.

Six-Month Periods Ended March 26, 2004 and March 28, 2003

Net Revenues.

Commissions and clearing fees increased 54 percent to $321.4 million in the first half of fiscal 2004 from $208.9 million in the first half of fiscal 2003, primarily due to higher client trading volumes and increased commissions and clearing fees per trade. Average trades per day increased 48 percent to 192,605 in the first half of fiscal 2004 from 130,002 in the first half of fiscal 2003. Clients averaged approximately 14.6 annualized trades per account during the first half of fiscal 2004, compared to approximately 10.7 annualized trades per account during the first half of fiscal 2003. Commissions and clearing fees per trade increased to $13.51 in the first half of fiscal 2004 from $12.96 in the first half of fiscal 2003, due primarily to the implementation of a new pricing schedule effective October 19, 2002 and higher payment for order flow revenue per trade during the first half of fiscal 2004 compared to the first half of fiscal 2003.

Net interest revenue increased 60 percent to $110.7 million in the first half of fiscal 2004 from $69.0 million in the first half of fiscal 2003. Average client margin balances increased 113 percent in the first half of fiscal 2004 compared to the first half of

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fiscal 2003. Average segregated cash increased by 25 percent in the first half of fiscal 2004 from the first half of fiscal 2003. The increased interest income resulting from the higher client margin balances and segregated cash was partially offset by a decrease of 35 basis points in the average interest rate earned on segregated cash and an increase of 33 percent in client credit balances in the first half of fiscal 2004 from the first half of fiscal 2003.

Other revenues decreased 18 percent to $41.2 million in the first half of fiscal 2004 from $50.2 million in the first half of fiscal 2003, due primarily to lower account maintenance fee income in the first half of fiscal 2004 and decreased licensing fee revenue due to the shutdown of our Watcher Technologies business in fiscal 2003, partially offset by higher money market fee income for the first half of fiscal 2004.

Expenses.

Employee compensation and benefits expense decreased 18 percent to $78.2 million in the first half of fiscal 2004 from $95.5 million in the first half of fiscal 2003, due primarily to the elimination of duplicate clearing and technology functions during fiscal 2003 in connection with the Datek merger integration, partially offset by client service employees added during fiscal 2004 to accommodate increased client trading volume. Full-time equivalent employees totaled 1,938 at the end of the second quarters of both fiscal 2004 and fiscal 2003. During the first half of fiscal 2003, we also incurred approximately $3.8 million of compensation expense for stock appreciation rights assumed in the Datek merger, due to increases in our stock price and costs of a cash-out offer to SAR holders. As of March 26, 2004, there were approximately 19,000 SARs outstanding with a weighted average exercise price of $4.87 per share, compared with approximately 75,000 SARs outstanding at March 28, 2003.

Clearing and execution costs decreased 12 percent to $15.9 million for the first half of fiscal 2004 compared to $18.1 million for the first half of fiscal 2003, due primarily to approximately $3 million in refunds and adjustments in the first half of fiscal 2004 for clearing and execution costs related to previous periods, partially offset by the effect of higher client trading volumes.

Communications expense decreased 11 percent to $20.4 million in the first half of fiscal 2004 compared to $23.0 million in the first half of fiscal 2003, due primarily to lower telecommunications expenses.

Occupancy and equipment costs decreased 34 percent to $21.4 million in the first half of fiscal 2004 from $32.2 million in the first half of fiscal 2003, due to facilities and equipment reductions during fiscal 2003 resulting from the Datek merger and lower technology licensing costs.

Depreciation and amortization decreased 29 percent to $11.6 million in the first half of fiscal 2004 from $16.4 million in the first half of fiscal 2003, due primarily to the effects of noncompete agreements related to the Datek merger that expired and became fully amortized by the end of fiscal 2003 and tangible assets that have become fully depreciated.

Professional services expense decreased 27 percent to $15.1 million in the first half of fiscal 2004 from $20.7 million in the first half of fiscal 2003. This decrease was primarily due to increased usage of consulting services during the first half of fiscal 2003 due to the Datek merger integration.

(Gain)/loss on disposal of property includes approximately $5.3 million of gain recognized on the sale/leaseback of our Kansas City data center facility in the first half of fiscal 2003.

Advertising expenses decreased 10 percent to $53.2 million in the first half of fiscal 2004 from $59.0 million in the first half of fiscal 2003. The higher level of advertising expenditures during the first half of fiscal 2003 was principally due to our introduction of a new suite of products and services and a new pricing schedule in October 2002.

Restructuring and asset impairment charges during the first half of fiscal 2003 consisted primarily of severance pay and benefits for approximately 110 employees in connection with the closing of our TradeCast business and consolidation of the Ameritrade and Datek technology organizations, and non-cancelable lease costs in connection with the closing of the TradeCast business.

Our effective income tax rate was approximately 38 percent for the first half of fiscal 2004, compared to approximately 41 percent for the first half of fiscal 2003. The Datek integration has resulted in a larger percentage of our payroll and assets being located in lower income tax states such as Nebraska and Texas as opposed to higher income tax states such as New York and New Jersey. Accordingly, we expect our effective income tax rate for the remainder of fiscal 2004 to be approximately 39 percent. The adjustment to our net deferred income tax liabilities to apply the current 39 percent rate resulted in a lower than normal effective income tax rate for the first half of fiscal 2004.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our liquidity and capital needs primarily through the use of funds generated from operations and from borrowings under our credit agreements. We have also issued Common Stock and convertible subordinated notes to finance mergers and acquisitions and for other corporate purposes. Our liquidity and capital needs during the first half of fiscal 2004 were financed primarily from our earnings and cash on hand. We plan to finance our capital and liquidity needs

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primarily from our earnings and cash on hand. In addition, we may utilize our revolving credit facility or issue equity or debt securities.

Dividends from our subsidiaries are another source of liquidity for the holding company. Some of our subsidiaries are subject to requirements of the SEC and NASD 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 holding company.

Under the SEC’s Uniform Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934), our broker-dealer subsidiaries are required to maintain at all times at least the minimum level of net capital required under Rule 15c3-1. This minimum net capital level is determined based upon an involved calculation described in Rule 15c3-1 that is primarily based on each broker-dealer’s “aggregate debits”, which primarily are a function of client margin balances at our broker-dealer subsidiaries. Since our aggregate debits may fluctuate significantly, our minimum net capital requirements may also fluctuate significantly from period to period. The holding company may make cash capital contributions to broker-dealer subsidiaries, if necessary, to meet net capital requirements.

Liquid Assets

We consider liquid assets an important measure of our liquidity and of our ability to fund corporate investing and financing activities. 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 and b) regulatory net capital of our broker-dealer subsidiaries in excess of 5% of aggregate debit items. We include the excess regulatory net capital of our broker-dealer subsidiaries in liquid assets rather than simply including broker-dealer cash and cash equivalents, because regulatory net capital requirements may limit the amount of cash available for dividend from the broker-dealer subsidiaries to the holding company. Liquid assets should be considered as a supplemental measure of liquidity, rather than as a substitute for cash and cash equivalents. The following table sets forth a reconciliation of cash and cash equivalents to liquid assets for the periods indicated (in thousands):

The decrease in liquid assets from September 26, 2003 to March 26, 2004 is primarily due to cash used in financing activities of $198.9 million (see “Cash Flow” below) and an increase in aggregate debit items which resulted in increased regulatory net capital required of $72.1 million, partially offset by net income of $152.9 million. The remaining $21.2 million of the change in liquid assets is due to non-cash expenses that are reflected in net income, changes in non broker-dealer working capital due to timing of income tax and other payments, and other miscellaneous changes in excess regulatory net capital.

Cash Flow

Cash provided by operating activities was $212.2 million for the first half of fiscal 2004, compared to $48.4 million of cash used in operating activities for the first half of fiscal 2003. Cash flow activity in the first half of fiscal 2003 included substantial reductions in accounts payable and accrued liabilities assumed in the Datek merger, which were funded by cash acquired in the Datek merger.

Cash used in investing activities was $60.9 million for the first half of fiscal 2004, compared to cash provided by investing activities of $17.5 million for the first half of fiscal 2003. The cash used in investing activities in the first half of fiscal 2004 consisted primarily of $55.1 million paid in the acquisition of Bidwell & Company. The cash provided by investing activities in the first half of fiscal 2003 was due primarily to $23.2 million of proceeds from the sale/leaseback of our Kansas City data center facility.

Cash used in financing activities was $198.9 million for the first half of fiscal 2004, compared to $16.1 million for the first half of fiscal 2003. The financing activities in the first half of fiscal 2004 consisted primarily of $172.2 million of stock repurchases and the early redemption of the convertible subordinated notes for $46.8 million. Ameritrade Northwest, Inc. (formerly Bidwell) also borrowed $8.5 million on its secured credit facility to fund daily liquidity needs. We expect to repay this borrowing upon the transfer of Ameritrade Northwest, Inc.’s client accounts to Ameritrade, Inc., which is expected to occur during the third quarter of fiscal 2004.

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Loan Agreement

On December 15, 2003, we entered into a third amended and restated revolving credit agreement. The revolving credit agreement permits borrowings of up to $75 million through December 13, 2004, and is secured primarily by our stock in our subsidiaries and personal property. The interest rate on borrowings, determined on a monthly basis, is equal to the lesser of (i) the prime rate or (ii) one month LIBOR plus 2.0 percent. At March 26, 2004, the interest rate on the revolving credit agreement would have been 3.09 percent. We also pay a commitment fee of 0.0025 percent of the unused borrowings through the maturity date. We had no outstanding indebtedness under the revolving credit agreement at March 26, 2004 and no outstanding indebtedness under the prior revolving credit agreement at September 26, 2003. The revolving credit agreement contains certain covenants and restrictions, including requiring prior written consent of the revolving lenders for certain business combinations and investments, and prohibits the payment of cash dividends to stockholders. We were in compliance with or obtained waivers for all covenants under the revolving credit agreements.

Prepaid Variable Forward Contract

During fiscal 2003, we entered into a series of prepaid variable forward contracts (the “forward contracts”) with a counterparty with a total notional amount of approximately $41.4 million on 7.9 million underlying Knight shares. The forward contracts each contain a zero-cost embedded collar on the value of the Knight shares, with a weighted average floor price of $5.13 per share and a weighted average cap price of $6.17 per share. At the inception of the forward contracts, we received cash of approximately $35.5 million, equal to approximately 86 percent of the notional amount. The forward contracts mature on various dates in fiscal years 2006 and 2007. At maturity, we may settle the forward contracts in shares of Knight or in cash, at our option. If the market price of the Knight stock at maturity is equal to or less than the floor price, the counterparty will be entitled to receive one share of Knight or its cash equivalent for each underlying share. If the market price of the Knight stock at maturity is greater than the cap price, the counterparty will be entitled to receive the number of shares of Knight or its cash equivalent equal to the ratio of the floor price plus the excess of the market price over the cap price, divided by the market price, for each underlying share. If the market price at maturity is greater than the floor price but less than or equal to the cap price, the counterparty will be entitled to receive the number of Knight shares or its cash equivalent equal to the ratio of the floor price divided by the market price for each underlying share. Regardless of whether the forward contract is settled in Knight shares or in cash, we intend to sell the underlying Knight shares at maturity.

We have designated the forward contracts as cash flow hedges of the forecasted future sales of 7.9 million Knight shares. The forward contracts are expected to be perfectly effective hedges against changes in the cash flows associated with the forecasted future sales outside the price ranges of the collars. Accordingly, all changes in the fair value of the embedded collars are recorded in other comprehensive income, net of income taxes. As of March 26, 2004 and September 26, 2003, the total fair value of the embedded collars was approximately $54.2 million and $46.7 million, respectively, and was included under the caption “Prepaid variable forward derivative instrument” on the condensed consolidated balance sheet.

The $35.5 million of cash received on the forward contracts is accounted for as an obligation on the consolidated balance sheet. We are accreting interest on the obligation to the notional maturity amount of $41.4 million over the terms of the forward contracts using effective interest rates with a weighted average of approximately 4.3 percent. Upon settlement of a forward contract, the fair value of the collar and the realized gain or loss on the Knight stock delivered to the counterparty or otherwise sold will be reclassified from other comprehensive income into earnings.

Stock Repurchase Program

On September 9, 2002, our Board of Directors authorized a program to repurchase up to 40 million shares of our Common Stock from time to time over a two-year period beginning September 19, 2002. On May 5, 2004, our Board of Directors extended the stock repurchase program through May 5, 2006. Under the stock repurchase program, as extended, we may repurchase, from time to time, up to 70 million shares of our Common Stock, a 30 million-share increase from the previous authorization. Through March 26, 2004, we have repurchased a total of approximately 29.7 million shares at a weighted average purchase price of $8.86 per share. During the first half of fiscal 2004, we repurchased approximately 13.1 million shares at a weighted average purchase price of $13.19 per share.

Off-Balance Sheet Arrangements

The Company does not have any obligations which meet the definition of an off-balance sheet arrangement and which have or are reasonably likely to have a material effect on our financial statements.

NEW ACCOUNTING PRONOUNCEMENTS

FIN No. 46 – In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN No. 46”). In December 2003, the FASB issued FASB Interpretation No. 46R, which served to clarify guidance in FIN No. 46. The FASB deferred the effective date for applying the provisions of FIN No. 46 for

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certain variable interest entities to periods ending after March 15, 2004. The implementation of FIN No. 46, as revised, had no impact on our consolidated financial statements.

Item 3. – Quantitative and Qualitative Disclosures about Market Risk

Market risk generally represents the risk of loss that may result from the potential change in the value of a financial instrument as a result of fluctuations in interest rates and market prices. We have established policies, procedures and internal processes governing our management of market risks in the normal course of our business operations. We do not hold any market risk-sensitive instruments for trading purposes.

We seek to control the risks associated with our client activities by requiring clients to maintain margin collateral in compliance with regulatory and internal guidelines. We monitor required margin levels daily and, pursuant to such guidelines, require our clients to deposit additional collateral, or to reduce positions, when necessary.

As a fundamental part of our brokerage business, we hold short-term interest earning assets, mainly funds required to be segregated in compliance with federal regulations. These funds totaled $7.3 billion at March 26, 2004 and $7.9 billion at September 26, 2003. We invest these funds in repurchase agreements, short-term fixed-rate U.S. Treasury Bills and other qualified securities. Our interest earning assets are financed primarily by short-term interest bearing liabilities, totaling $9.4 billion at March 26, 2004 and $9.6 billion at September 26, 2003, in the form of client credit balances. We earn a net interest spread on the difference between amounts earned on client margin balances and amounts paid on client credit balances. Because we establish the rate paid on client credit balances and the rate charged on client margin balances, a substantial portion of our interest rate risk is under our direct management.

At March 26, 2004 and September 26, 2003, we had $0 and $46.3 million, respectively, of convertible subordinated notes outstanding, which bore interest at a fixed rate of 5.75 percent. We had no borrowings outstanding under our $75 million revolving credit agreement, which bears interest at a floating rate, as of March 26, 2004 and September 26, 2003. At March 26, 2004, one of our broker/dealer subsidiaries had $8.5 million borrowed on a secured credit facility for purposes of funding daily liquidity needs. This borrowing bears interest at a floating rate, which was approximately 1.4 percent at March 26, 2004. We hold two marketable equity securities, our investments in approximately 7.9 million shares of Knight and 75,700 shares of The Nasdaq Stock Market, Inc., which were recorded at fair value of $99.4 million ($61.3 million net of tax) at March 26, 2004 and have exposure to market price risk. The same securities were recorded at fair value of $90.6 million ($55.0 million net of tax) at September 26, 2003. The potential loss in fair value resulting from a hypothetical 10 percent adverse change in prices quoted by the stock exchanges was approximately $9.9 million at March 26, 2004. During fiscal 2003, we entered into a series of prepaid variable forward contracts with a total notional amount of approximately $41.4 million on 7.9 million underlying Knight shares. The forward contracts each contain an embedded collar on the value of the Knight shares, with a weighted average floor price of $5.13 per share and a weighted average cap price of $6.17 per share. We have designated the forward contracts as cash flow hedges of the forecasted future sales of 7.9 million Knight shares. As of March 26, 2004 and September 26, 2003, the fair value of the embedded collars was approximately $54.2 million and $46.7 million, respectively, and was included under the caption “Prepaid variable forward derivative instrument” on the condensed consolidated balance sheet. The forward contracts are expected to be perfectly effective hedges against changes in cash flows associated with changes in the value of Knight shares outside the price ranges of the collars.

At March 26, 2004 and September 26, 2003, we had an equity index swap arrangement for the purpose of hedging our obligation under our deferred compensation plan for our CEO. Changes in the fair value of this instrument were offset by changes in our obligation to our CEO. Effective April 15, 2004, the CEO changed his investment election under the deferred compensation arrangement from an equity index to a group of fixed income securities currently earning interest at an annual rate of approximately 1.15 percent. Accordingly, we terminated our equity index swap arrangement.

Our revenues and financial instruments are denominated in U.S. dollars, and we generally do not invest, except for hedging purposes, in derivative financial instruments or derivative commodity instruments.

Item 4. – Controls and Procedures

Management, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of March 26, 2004. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in its periodic reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – OTHER INFORMATION

Item 1. – Legal Proceedings

Litigation – The nature of the Company’s business subjects it to lawsuits, arbitrations, claims and other legal proceedings. We cannot predict with certainty the outcome of pending legal proceedings. A substantial adverse judgment or other resolution regarding the proceedings could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. However, in the opinion of management, after consultation with legal counsel, the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent and the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

NASD Investigation – On March 11, 2004 the Company reached a settlement with the National Association of Securities Dealers, Inc. (“NASD”) resolving all issues related to the NASD’s investigation into specified client trading in cash accounts that had occurred at Datek Online Financial Services, LLC, iClearing LLC and Ameritrade, Inc. Under the terms of the settlement, the Company agreed to censures and to pay NASD a fine of $10 million. As part of the settlement, the Company neither admitted nor denied the allegations; there were no allegations of monetary harm to investors. Approximately $7.8 million of the settlement was included in accruals recorded in connection with the merger with Datek Online Holdings Corp. The remaining amount was also accrued for in prior periods. The settlement had no impact on the Company’s consolidated statement of operations for the three months or six months ended March 26, 2004.

Item 2. – Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s Common Stock repurchase program was announced on September 9, 2002. The Company’s Board of Directors authorized the Company to repurchase up to 40 million shares over a two-year period expiring September 9, 2004. On May 5, 2004, the Company’s Board of Directors extended the stock repurchase program through May 5, 2006. Under the stock repurchase program, as extended, the Company may repurchase, from time to time, up to 70 million shares of Common Stock, a 30 million-share increase from the previous authorization. The September 9, 2002 program, as extended, is the only program currently in effect and there have been no programs that have expired during the period covered by this report. The Company did not make any repurchases other than through the publicly announced program during the quarter covered by this report.

Item 4. – Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Stockholders on February 10, 2004. Three persons were nominated by the Board of Directors to serve as Class II directors for terms of three years. There was no solicitation in opposition to the nominees proposed to be elected in the Proxy Statement. The following sets forth the results of the election of directors:

Name of Nominee		FOR				WITHHELD
J. Peter Ricketts			315,304,643				72,504,378
C. Kevin Landry			359,636,341				28,172,680
Mark L. Mitchell			363,960,683				23,848,338

The proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for the fiscal year ending September 24, 2004, was approved as follows:

ABSTENTIONS

AND BROKER

FOR

AGAINST

NON-VOTES

Votes

382,312,636

5,408,765

87,620

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Item 5. – Other Information

Amendments to the Company’s Code of Ethics

On May 4, 2004, the Board of Directors of the Company adopted a new Code of Business Conduct and Ethics (the “New Code”). The New Code is applicable to the Board of Directors, officers and employees of the Company.

Sections I-III, V and VI of the New Code constitute the Company’s code of ethics for the purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated by the SEC thereunder (“Section 406 Code”) and the Company’s code of conduct for the purposes of NASD Rule 4350(n). These sections of the New Code supercede the Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Other Senior Financial Officers (the “Prior Code”), which the Company previously adopted and filed with the SEC. These sections of the New Code are substantially similar to the Prior Code; however, they contain changes that, among other things, (a) reflect the broader scope of persons covered by the New Code, (b) address other requirements of The Nasdaq Stock Market, (c) add provisions regarding regulatory reporting and supplemental provisions regarding public disclosure, and (d) add provisions stating that the standards contained in the New Code do not prohibit any action permitted by the Company’s Certificate of Incorporation.

The New Code in Section IV contains or refers to standards and policies that are in addition to the Section 406 Code.

The full text of the New Code is attached as Exhibit 14.

Item 6. – Exhibits and Reports on Form 8-K

(a)		Exhibits:
		3.1		Restated Certificate of Incorporation of Ameritrade Holding Corporation (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-A filed on September 5, 2002)
		3.2		Amended and Restated By-Laws of Ameritrade Holding Corporation (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-K filed on November 7, 2003)
		10.1		Executive Employment Agreement, dated as of February 1, 2004, between Anne L. Nelson and Ameritrade Holding Corporation
		10.2		Ameritrade Holding Corporation Executive Deferred Compensation Program, As Amended and Restated on October 1, 2000 and As Further Amended Through February 2004
		14		Code of Ethics
		15.1		Independent accountants’ awareness letter
		31.1		Certification of Joseph H. Moglia, Principal Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		31.2		Certification of John R. MacDonald, Principal Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		32.1		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)		Reports on Form 8-K:
		On January 20, 2004, a Form 8-K was furnished under Items 7 and 12.
		On March 9, 2004, a Form 8-K was furnished under Item 9.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 6, 2004

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