TD Ameritrade 2018 Annual Report

33 periods of time, accruals are adjusted as more information becomes available or when an event occurs requiring a change. Significant judgment is required in making these estimates, and the actual cost of resolving a matter may ultimately differ materially from the amount accrued. Valuation of guarantees We enter into guarantees in the ordinary course of business, primarily to meet the needs of our clients and to manage our asset-based revenues. We record a liability for the estimated fair value of the guarantee at its inception. If actual results differ significantly from these estimates, our results of operations could be materially affected. For further details regarding our guarantees, see the following sections under Item 8, Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements: "Guarantees" under Note 15 — Commitments and Contingencies and "Insured Deposit Account Agreement" under Note 21 — Related Party Transactions. Results of Operations Conditions in the U.S. equity markets significantly impact the volume of our clients' trading activity. There is a strong relationship between the volume of our clients' trading activity and our results of operations. We cannot predict future trading volumes in the U.S. equity markets. If client trading activity increases, we generally expect that it would have a positive impact on our results of operations. If client trading activity declines, we expect that it would have a negative impact on our results of operations. Changes in average client balances, especially bank deposit account, margin, credit and fee-based investment balances, may significantly impact our results of operations. Changes in interest rates also significantly impact our results of operations. We seek to mitigate interest rate risk by aligning the average duration of our interest-earning assets with that of our interest-bearing liabilities. We cannot predict the direction of interest rates or the levels of client balances. If interest rates rise, we generally expect to earn a larger net interest spread. Conversely, a falling interest rate environment generally would result in us earning a smaller net interest spread. Financial Performance Metrics Net income, diluted earnings per share and EBITDAare key metrics we use in evaluating our financial performance. Net income and diluted earnings per share are GAAP financial measures and EBITDA is a non-GAAP financial measure. We consider EBITDA to be an important measure of our financial performance and of our ability to generate cash flows to service debt, fund capital expenditures and fund other corporate investing and financing activities. EBITDA is used as the denominator in the consolidated leverage ratio calculation for covenant purposes under the TD Ameritrade Holding Corporation senior revolving credit facility. EBITDA eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization. EBITDA should be considered in addition to, rather than as a substitute for, GAAPpre-tax income, net income and cash flows fromoperating activities. The following table sets forth net income in dollars and as a percentage of net revenues for the periods indicated, and provides reconciliations to EBITDA (dollars in millions): Fiscal Year Ended September 30, 2018 2017 2016 $ % of Net Revenues $ % of Net Revenues $ % of Net Revenues Net income (GAAP) . . . . . . . . . . . . . . . . . . . . $1,473 27.0% $ 872 23.7% $ 842 25.3% Add: Depreciation and amortization . . . . . . . . . . . 142 2.6% 102 2.8% 92 2.8% Amortization of acquired intangible assets . 141 2.6% 79 2.1% 86 2.6% Interest on borrowings . . . . . . . . . . . . . . . . . 99 1.8% 71 1.9% 53 1.6% Provision for income taxes. . . . . . . . . . . . . . 414 7.6% 522 14.2% 423 12.7% EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . $2,269 41.6% $1,646 44.8% $1,496 45.0%