TD Ameritrade 2018 Annual Report

40 Employee compensation and benefits expense increased 62% to $1.56 billion, primarily due to $235 million of severance and other employment benefits related to the Scottrade integration, an increase in average headcount related to the Scottrade acquisition and our strategic growth initiatives, and annual merit increases. The average number of full-time equivalent employees increased to 9,728 for fiscal year 2018 compared to 6,661 for fiscal year 2017. Clearing and execution costs increased 27% to $189 million, primarily due to increased costs associated with additional accounts and transaction processing volumes resulting from the Scottrade acquisition. Communications expense increased 37% to $179 million, primarily due to the Scottrade acquisition, resulting in increased costs for quotes and market information associated with additional accounts and transaction processing volumes and costs for telecommunications. Occupancy and equipment costs increased 67% to $302 million, primarily due to additional costs associated with the Scottrade business, including increased expenses related to leased facilities, software licensing and software maintenance. Depreciation and amortization increased 39% to $142 million, primarily due to depreciation on assets recorded in the Scottrade acquisition, placing our new Southlake, Texas operations center in service during December 2017, and recent technology infrastructure upgrades. Amortization of acquired intangible assets increased 78% to $141 million, primarily due to amortization of the client relationships intangible asset recorded in the Scottrade acquisition. Professional services expense increased 17% to $303 million, primarily due to higher usage of consulting and contract services related to operational and technology-related initiatives and in connection with the Scottrade integration, partially offset by lower costs associated with legal matters. Advertising expense increased 15% to $293 million, primarily due to the Scottrade acquisition and due to increased advertising during professional and collegiate sporting events. We expect advertising to increase to between $300 million and $320 million for fiscal year 2019. We generally adjust our level of advertising spending in relation to stock market activity and other market conditions in an effort to maximize new client relationships and net new assets. Other operating expenses increased 280% to $350 million, primarily due to $172 million of costs related to the Scottrade integration, mainly comprised of contract terminations, a net increase in the provision for bad debt of $56 million related to market volatility during fiscal year 2018 and additional expenses associated with the Scottrade business. Other Expense and Income Taxes Interest on borrowings increased 39% to $99 million, primarily due to a 31% increase in average debt outstanding and an increase of 19 basis points in the average effective interest rate incurred on our borrowings. On April 27, 2017, we issued $800 million of 3.300%Senior Notes dueApril 1, 2027 to finance a portion of the cash consideration paid in connection with the Scottrade acquisition. Our effective income tax rate was 21.9% for fiscal year 2018, compared to 37.4% for fiscal year 2017. The effective income tax rate for fiscal year 2018 included an estimated net favorable adjustment of $71 million related to the remeasurement of the Company's deferred income tax balances as it pertains to the Tax Cuts and Jobs Act, a $5 million income tax benefit resulting from the change in accounting for income taxes related to equity-based compensation underASU 2016-09, $12million of favorable resolutions of state income taxmatters and a $30million favorable benefit resulting from accelerating certain deductions, including acquisition-related exit costs, to leverage higher 2017 pre-enactment tax rates. The effective income tax rate was also impacted by a $9 million unfavorable remeasurement of uncertain tax positions related to certain federal incentives. These items had a net favorable impact on our earnings for fiscal year 2018 of approximately $0.19 per share. The Tax Cuts and Jobs Act was enacted on December 22, 2017, reducing the U.S. federal corporate income tax rate from 35% to 21%, requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes on certain foreign sourced earnings. For more information, see Note 11 – Income Taxes under Item 8, Financial Statements – Notes to Consolidated Financial Statements. As a result of the Act, we estimate our effective income tax rate to be approximately 25% for fiscal year 2019, excluding the effect of any