TD Ameritrade 2018 Annual Report

42 Clearing and execution costs increased 10% to $149 million, primarily due to higher client trading volumes and the impact of a $5 million benefit from a retroactive fee decrease from a clearinghouse during fiscal year 2016. Communications expense decreased 4% to $131 million, primarily due to decreased costs for quotes and market information. Occupancy and equipment costs increased 6% to $181 million, primarily due to increased software licensing and facilities expenses. Depreciation and amortization increased 11% to $102 million, primarily due to recent technology infrastructure upgrades and depreciation of assets recorded in the Scottrade acquisition. Amortization of acquired intangible assets decreased 8% to $79 million, primarily due to certain acquired intangible assets becoming fully amortized during fiscal year 2016, partially offset by amortization of intangible assets recorded in the Scottrade acquisition. Professional services expense increased 46% to $260 million, primarily due to approximately $50 million of costs for legal, accounting, consulting and contract services in connection with the Scottrade acquisition and higher usage of consulting and contract services related to other operational and technology-related initiatives. Advertising expense decreased 2% to $254 million, primarily due to additional spending during fiscal year 2016 in connection with our sponsorship of the Summer Olympics. Other operating expenses decreased 16% to $92 million, primarily due to $11 million of service contract termination costs incurred during fiscal year 2016 and lower losses on the disposal of property during fiscal year 2017. Other Expense and Income Taxes Interest on borrowings increased 34% to $71 million, primarily due to a 20% increase in average debt outstanding and an increase of 37 basis points in the average effective interest rate incurred on our debt. On April 27, 2017, we issued $800 million of 3.300% Senior Notes due April 1, 2027 to finance a portion of the cash consideration paid in connection with the Scottrade acquisition. Our effective income tax rate was 37.4% for fiscal year 2017, compared to 33.4% for fiscal year 2016. The effective tax rate for fiscal year 2017 included $8 million of net favorable resolutions of state income tax matters and $4 million of favorable tax benefits for federal incentives. These items had a net favorable impact on our earnings for fiscal year 2017 of approximately two cents per share. The effective tax rate for fiscal year 2016 was impacted by $39 million of net favorable adjustments to uncertain tax positions and related deferred income tax assets, which included a favorable $33 million tax liability remeasurement related to a state court decision. The effective income tax rate was also impacted by an $18 million favorable tax benefit claimed during fiscal year 2016 for federal deductions and tax credits related to calendar tax year 2012 through September 30, 2016 and $5 million of net favorable deferred income tax adjustments due to the remeasurement of deferred tax assets and liabilities and the cumulative impact of the decline in the state tax rate. These items had a net favorable impact on our earnings for fiscal year 2016 of approximately $0.12 per share. Liquidity and Capital Resources We have established liquidity and capital policies to support the successful execution of business strategies to meet operational needs and to satisfy applicable regulatory requirements under both normal and modeled stressed conditions. Our liquidity management policies are designed to mitigate the potential risk that we may be unable to meet current and future cash flow needs. Management of our liquidity is accomplished by (1) daily monitoring of our cash flow needs at TDAmeritrade Holding Corporation (the "Parent") and its operating subsidiaries, and (2) performing periodic liquidity stress testing related to market and company-specific liquidity stress events in order to identify and plan for liquidity risk exposures. We have historically financed our liquidity and capital needs primarily through the use of funds generated from subsidiary operations and from short-term borrowings. We have also issued common stock and long-term debt to finance mergers and acquisitions and for other corporate purposes. Our liquidity needs during fiscal year 2018 were financed primarily from our subsidiaries' earnings, cash on hand and short-term borrowings. During fiscal year 2018, we experienced increased liquidity needs at our clearing broker-dealer subsidiary due to an increase in market volatility and in order to support regulatory and working capital requirements associated with the integration and