Filed by thinkorswim Group Inc.

Pursuant to Rule 425 under the Securities Act of 1933

and deemed filed pursuant to Rule 14a-12

under the Securities and Exchange Act of 1934

 

Subject Company: thinkorswim Group Inc.

Commission File No. 000-52012

 

		For Immediate Release
		March 4, 2009

 

Press Release

 

 

thinkorswim Group Inc. Reports Record 2008 Financial Results

 

Record New Accounts and Trading Volume Drive 164% Rise in Full-Year Net Income

 

NEW YORK — March 4, 2009 — thinkorswim Group Inc. (NASDAQ:SWIM), a leading provider of online brokerage and investor education services, today announced financial results for the full year and fourth quarter ended December 31, 2008.

 

Full Year Highlights (year-over-year comparisons):

 

·                  Record revenues of $371.8 million, 53 percent of which were brokerage-based

·                  Record pre-tax income of $81.0 million, 22 percent of revenues

·                  Record net income of $59.4 million, or $0.87 per diluted share

·                  Non-GAAP Sales Transaction Volume (“STV”) of $320.7 million, 62 percent of which was brokerage-based

·                  Non-GAAP Adjusted EBITDA (before certain items) of $76.5 million, or 24 percent of STV

·                  Record new accounts opened of 108,850. Total accounts of 233,025, an increase of 88 percent

·                  Record funded accounts of 97,800 at year-end, an increase of 69 percent

·                  Record average retail trades per day of 54,200, an increase of 101 percent

·                  Record client assets of $3.0 billion, an increase of 17 percent

 

Fourth Quarter Highlights (quarterly year-over- year comparisons):

 

·                  Revenues of $85.8 million, 57 percent of which were brokerage-based

·                  Pre-tax income of $12.2 million, 14 percent of revenues

·                  Net income of $9.5 million, or $0.14 per diluted share

·                  Non-GAAP Sales Transaction Volume (“STV”) of $76.6 million, 64 percent of which was brokerage-based

·                  Non-GAAP Adjusted EBITDA (before certain items) of $15.7 million, or 21 percent of STV;  Pro forma non-GAAP Adjusted EBITDA (before certain items) of $19.4 million, or 25 percent of STV

·                  New accounts opened of 32,700, an increase of 44 percent

·                  New funded accounts of 12,175 during the quarter, an increase of 10 percent

·                  Average retail trades per day of approximately 61,400, an increase of 47 percent

·                  Annualized brokerage revenue per funded account of $1,800

·                  Customer acquisition cost per new funded account of $440

 

“thinkorswim delivered strong performance in a highly volatile market, primarily driven by robust growth in new accounts and trading volume in our brokerage business.  Full year revenue increased 17 percent from the prior year and reached a record $371.8 million for 2008, while non-GAAP Adjusted EBITDA was $76.5 million.  These results reflect the continued appeal of thinkorswim’s brokerage platform, our relevance to the needs of active traders, and our position as an industry leader,” said Lee Barba, chairman and chief executive officer of thinkorswim.

 

Analysis of Fourth Quarter 2008 Results

 

(All comparisons are to the corresponding year-ago period unless otherwise indicated)

 

For the fourth quarter, brokerage revenue increased 18% to $48.9 million, driven by a 35% increase in transaction revenues (commissions and payment for order flow) offset by a 54% decrease in interest revenue. The increase in transaction revenue was primarily due to the 69% increase year-over-year in

 

 

retail funded accounts and 47% year-over-year increase in retail DARTs. The net interest revenue decline was primarily due to the dramatic year-over-year decline in the average federal funds rate, partly offset by the 17% increase in client assets to $3.0 billion at year end, of which $1.5 billion is held in cash.

 

Fourth Quarter 2008 Pro Forma Results

 

Financial results for the quarter include approximately $3.7 million in brokerage, clearing and execution costs related to unusually large amounts of customer write-offs and trade errors, as well as approximately $1.0 million in other costs and expenses related to the proposed acquisition by TD AMERITRADE.  Adjusting for these items, the Company had pro forma operating income of $19.6 million, net income of $13.2 million and earnings per diluted share of $0.20.  Non-GAAP Adjusted EBITDA excluding these items was $19.4 million and 25% of STV.

 

Proposed Acquisition by TD AMERITRADE Announced January 8, 2009

 

On January 8, 2009, thinkorswim Group Inc. and TD AMERITRADE (NASDAQ: AMTD) announced that they had entered into a definitive agreement for TD AMERITRADE to acquire thinkorswim in a cash and stock deal valued at that time at approximately $606 million.

 

Basis of Presentation

 

The Company has concluded that, in an effort to provide a better understanding of its operations, the level of detail presented on the face of the Statements of Operations should be modified from the “Analysis by Function of expense” approach, to the “Analysis by Nature of Expense” approach. In the Company’s opinion, this new methodology will provide greater transparency of management direction while fairly presenting its results of operations.

 

About thinkorswim Group Inc. (NASDAQ: SWIM)

 

thinkorswim Group Inc. (www.thinkorswim.com) offers market-leading online brokerage, investor education and related financial products and services for self-directed investors and active traders.  thinkorswim, Inc., our award-winning online brokerage division, provides a suite of trading platforms serving self-directed and institutional traders and money managers.  thinkorswim platforms have easy-to-use interfaces, sophisticated analytical and research tools, and fast and efficient order execution for even the most complex trading strategies.  thinkorswim customers trade a broad range of products including stock and stock options, index options, futures and futures options, forex, mutual funds and fixed income. Investools’ Education Group, a subsidiary of thinkorswim Group Inc., offers a full range of investor education products and services that provide lifelong learning in a variety of interactive delivery formats. Investools’ graduates can then apply what they’ve learned by trading with thinkorswim’s online brokerage platforms.

 

Additional Information and Where to Find It

 

In connection with the proposed acquisition, TD AMERITRADE filed with the Securities and Exchange Commission (the “SEC”), a Registration Statement on Form S-4 that includes a proxy statement of thinkorswim, which also constitutes a prospectus of TD AMERITRADE. Thinkorswim will mail the proxy statement/prospectus to its stockholders after the foregoing registration statement is declared effective by the SEC. TD AMERITRADE and thinkorswim urge investors and security holders to read the proxy statement/prospectus regarding the proposed acquisition because it contains important information. You may obtain a free copy of the proxy statement/prospectus and other related documents filed by thinkorswim and TD AMERITRADE with the SEC at the SEC’s website at www.sec.gov. The proxy statement/prospectus (when the registration statement in which it is included is declared effective) and the other documents may also be obtained for free by accessing thinkorswim’s website at www.thinkorswim.com by clicking on the link for “Investors”, then clicking on the link for “Financial Reports” and then clicking on the link for “SEC Filings” or by accessing TD AMERITRADE’s website at www.amtd.com and clicking on the “Investor Relations” link and then clicking on the link for “SEC Filings”.

 

 

Participants in this Transaction

 

thinkorswim, TD AMERITRADE and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from thinkorswim stockholders in favor of the acquisition. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of thinkorswim stockholders in connection with the proposed acquisition is set forth in the proxy statement/prospectus filed with the SEC by TD AMERITRADE. You can find information about thinkorswim’s executive officers and directors in thinkorswim’s definitive proxy statement filed with the SEC on April 29, 2008. You can find information about TD AMERITRADE’s executive officers and directors in their definitive proxy statement filed with the SEC on January 6, 2009. You can obtain free copies of these documents from thinkorswim or TD AMERITRADE using the contact information above.

 

Safe Harbor

 

This press release may contain forward-looking statements. Such forward-looking statements may be identified by words such as “believe,” “intend,” “expect,” “may,” “could,” “would,” “will,” “should,” “plan,” or similar statements.  All forward-looking statements are based largely on current expectations, beliefs and assumptions concerning future events that are subject to substantial risks and uncertainties. These risks and uncertainties include, but are not limited to: general changes in economic conditions and changes in conditions affecting the financial services industry specifically, regulatory developments that affect the way we market or sell our products and services, our inability to protect our proprietary technology, our ability to sell existing products and services in both new and existing markets, and other factors which are more fully described in thinkorswim Group Inc.’s filings with the SEC. Should one or more of these risks or uncertainties materialize, actual results may vary in material aspects from those currently anticipated.  The forward-looking statements made in this press release relate only to events as of the date of this release. We undertake no ongoing obligation to update these statements.

 

Investor Contacts:
Ida Kane, SVP and CFO
801.816.6918
ida.kane@thinkorswim.com	Media Contact:

 

Frank Milano	Fran Del Valle
203.682.8343	212.717.5499
frank.milano@icrinc.com	frances.delvalle@influencecentral.com

 

 

THINKORSWIM GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

 

		Three Months Ended
		December 31,			September 30,			June 30,			March 31,
		2008			2008			2008			2008
Revenue
Commissions		$	35,216		$	39,290		$	33,126		$	26,258
Interest & dividends		3,659			7,109			6,198			7,668
Payment for order flow		7,386			8,451			7,869			6,574
Other brokerage related revenue		2,594			2,140			1,764			1,966
Total brokerage revenue		48,855			56,990			48,957			42,466
Education revenue		36,904			41,075			48,034			48,524
Net revenues		85,759			98,065			96,991			90,990
Costs and expenses
Compensation and benefits		19,411			19,955			22,545			22,057
Brokerage, clearing and execution costs		13,000			11,950			7,962			7,570
Marketing		7,058			8,599			10,164			13,359
Partner commissions		9,075			4,954			6,795			6,530
Events, travel and venue		4,818			5,810			4,501			6,268
Technology and telecommunications		6,338			5,780			6,220			6,246
Depreciation and amortization		6,121			6,198			6,033			5,908
Other		5,003			5,605			5,382			5,336
Total costs and expenses		70,824			68,851			69,602			73,274
Income from operations		14,935			29,214			27,389			17,716
Other income (expense)
Interest expense, net		(2,916		)	(2,140		)	(264		)	(4,190		)
Interest income		220			384			272			455
Other		(89		)	(13		)	—			14
Other income (expense)		(2,785		)	(1,769		)	8			(3,721		)
Net income before income taxes		12,150			27,445			27,397			13,995
Income tax provision		2,606			7,806			8,754			2,468
Net income		$	9,544		$	19,639		$	18,643		$	11,527
Net income per common share:
Basic		$	0.14		$	0.30		$	0.28		$	0.18
Diluted		$	0.14		$	0.29		$	0.27		$	0.17
Weighted average common shares outstanding:
Basic		66,500			66,406			66,043			65,846
Diluted		68,283			68,531			68,754			68,860

 

 

THINKORSWIM GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

 

		Three Months Ended December 31,						Year Ended December 31,
		2008			2007			2008			2007
Revenue
Commissions		$	35,216		$	25,310		$	133,890		$	67,734
Interest & dividends		3,659			7,985			24,634			20,961
Payment for order flow		7,386			6,186			30,280			16,293
Other brokerage related revenue		2,594			1,960			8,464			5,894
Total brokerage revenue		48,855			41,441			197,268			110,882
Education revenue		36,904			52,634			174,537			207,127
Net revenues		85,759			94,075			371,805			318,009
Costs and expenses
Compensation and benefits		19,411			23,164			83,968			95,743
Brokerage, clearing and execution costs		13,000			6,351			40,482			16,052
Marketing		7,058			13,388			39,180			51,832
Partner commissions		9,075			8,649			27,354			35,542
Events, travel and venue		4,818			6,355			21,397			28,566
Technology and telecommunications		6,338			4,987			24,584			18,565
Depreciation and amortization		6,121			5,419			24,260			19,601
Other		5,003			5,155			21,326			19,339
Total costs and expenses		70,824			73,468			282,551			285,240
Income from operations		14,935			20,607			89,254			32,769
Other income (expense)
Interest expense, net		(2,916		)	(3,378		)	(9,510		)	(11,059		)
Interest income		220			574			1,331			1,868
Other		(89		)	5			(88		)	7
Other expense		(2,785		)	(2,799		)	(8,267		)	(9,184		)
Net income before income taxes		12,150			17,808			80,987			23,585
Income tax provision		2,606			—			21,634			1,150
Net income		$	9,544		$	17,808		$	59,353		$	22,435
Net income per common share:
Basic		$	0.14		$	0.27		$	0.90		$	0.36
Diluted		$	0.14		$	0.26		$	0.87		$	0.34
Weighted average common shares outstanding:
Basic		66,500			65,510			66,202			62,942
Diluted		66,283			68,497			68,485			65,790

 

 

THINKORSWIM GROUP INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

(unaudited)

 

		December 31,			December 31,
		2008			2007
ASSETS
Current assets:
Cash and cash equivalents		$	82,560		$	61,579
Marketable securities		—			1,501
Accounts receivable, net of allowance ($150 and $198, respectively)		4,980			11,131
Receivable from clearing brokers		5,738			5,503
Income tax receivable		3,207			—
Deferred tax asset		16,972			13,496
Other current assets		9,179			9,622
Total current assets		122,636			102,832
Long-term restricted cash		373			389
Goodwill		209,546			208,776
Intangible assets, net of accumulated amortization ($32,278 and $17,330, respectively)		117,639			132,587
Software development cost, net of accumulated amortization ($8,470 and $3,363, respectively)		26,198			26,939
Furniture and equipment, net of accumulated depreciation ($12,931 and $8,726, respectively)		6,259			8,007
Other long-term assets		25,557			29,800
Total assets		$	508,208		$	509,330
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of deferred revenue		$	80,391		$	124,486
Other current liabilities		19,889			17,825
Accounts payable		4,196			8,896
Accrued payroll		9,463			13,278
Accrued tax liabilities		6,019			7,544
Current portion of capitalized lease obligations		235			212
Current portion of notes payable		30,000			17,500
Total current liabilities		150,193			189,741
Long-term portion of deferred revenue		30,392			37,384
Long-term portion of capitalized lease obligations		104			330
Long-term portion of notes payable		64,400			100,000
Income tax payable		2,096			—
Deferred tax liabilities		30,555			18,487
Other long-term accrued liabilities		2,579			1,493
Total liabilities		280,319			347,435
Stockholders’ equity:
Common stock $0.01 par value (66,500 and 65,655 shares issued and outstanding, respectively)		665			656
Additional paid-in capital		337,805			331,006
Accumulated other comprehensive (loss) income		(147		)	20
Accumulated deficit		(110,434		)	(169,787		)
Total stockholders’ equity		227,889			161,895
Total liabilities and stockholders’ equity		$	508,208		$	509,330

 

 

THINKORSWIM GROUP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

		Three Months Ended December 31,						Year Ended December 31,
		2008			2007			2008			2007
Cash flows from operating activities:
Net income		$	9,544		$	17,808		$	59,353		$	22,435
Reconciling adjustments:
Depreciation and amortization		6,121			5,419			24,260			19,601
Deferred taxes		657			(136		)	9,956			37
Stock compensation expense		1,960			1,934			8,252			15,325
Amortization of exclusivity rights		311			293			1,226			1,172
Contingent shares in connection with exclusivity rights and intellectual property acquired		—			1,359			—			3,550
Amortization of debt issue costs		240			275			1,044			1,043
Change in fair value of interest rate swap, included in interest expense		1,155			999			1,086			1,478
Provision for (recovery of) sales return reserve		(93		)	471			1,032			1,363
Provision for (gain) on lease termination		—			(31		)	—			105
Provision for bad debt expense		3			70			3			313
Provision for (recovery of) inventory reserve		—			(68		)	—			2
(Gain) Loss on sale of assets		(3		)	(3		)	1			19
Gain on marketable securities		—			(4		)	(7		)	—
Changes in operating assets and liabilities, net of the effect of acquired businesses:
Accounts receivable		2,489			7,776			6,148			(3,641		)
Receivable from clearing brokers		6,373			4,959			(235		)	(1,155		)
Income tax receivable		(2,403		)	(62		)	(3,207		)	—
Other assets		3,163			(5,492		)	100			127
Accounts payable		(7,356		)	(4,942		)	(5,181		)	(7,287		)
Deferred revenue		(9,179		)	(5,497		)	(51,087		)	2,295
Accrued payroll		(1,625		)	81			(3,815		)	4,758
Other liabilities		284			(1,903		)	2,639			(7,750		)
Accrued tax liabilities		1,953			(498		)	812			(668		)
Net cash provided by operating activities		13,594			22,808			52,380			53,122
Cash flows from investing activities:
Proceeds from the sale or maturity of marketable securities		—			1,300			1,501			20,641
Proceeds from the sale of equipment		—			5			—			30
Payments for capitalized software development costs		(918		)	(4,888		)	(6,040		)	(16,357		)
Purchases of furniture and equipment		(450		)	(648		)	(2,105		)	(3,750		)
Cash held in escrow		130			102			1,188			(8,298		)
Cash paid in business acquisitions, net of cash received		(130		)	(1,040		)	(1,188		)	(150,387		)
Net cash used in investing activities		(1,368		)	(5,169		)	(6,644		)	(158,121		)
Cash flows from financing activities:
Payments on capital leases		(56		)	(51		)	(203		)	(190		)
Payments on notes payable		(2,500		)	(2,500		)	(23,100		)	(7,500		)
Changes in restricted cash		—			(4		)	16			(12		)
Proceeds from notes payable		—			—			—			125,000
Payment of debt issuance costs		—			—			—			(4,539		)
Disqualifying dispositions in exercise of stock options		75			—			75			—
Minimum tax withholding on restricted stock awards		(4		)	—			(434		)	—
Repurchase of stock		—			—			(1,455		)	—
Proceeds from exercise of stock options		2			221			506			882
Net cash (used in) provided by financing activities		(2,483		)	(2,334		)	(24,595		)	113,641
Effect of exchange rates on cash and cash equivalents		(135		)	(13		)	(160		)	14
Increase in cash and cash equivalents		9,608			15,292			20,981			8,656
Cash and cash equivalents:
Beginning of period		72,952			46,287			61,579			52,923
End of period		82,560			61,579			82,560			61,579

 

 

THINKORSWIM GROUP INC. AND SUBSIDIARIES

Financial Summary

(unaudited)

 

Reconciliation of Non-GAAP Information

 

The following table provides a reconciliation of GAAP Net Income to non-GAAP Adjusted EBITDA for the periods presented. The Company believes Adjusted EBITDA is an important measure of operating performance given the impact of accounting for deferred revenue and certain other costs.

 

		Three Months Ended									Years Ended
		December 31,			September 30,			December 31,			December 31,			December 31,
in (millions)		2008			2008			2007			2008			2007 *
Net income		$	9.5		$	19.6		$	17.8		$	59.4		$	16.9
Depreciation and amortization		6.7			6.8			7.2			26.5			25.7
Stock compensation expense		2.0			2.0			1.9			8.3			15.3
Special charges, including deal related		1.4			1.1			—			3.6			11.7
Interest expense, net		2.7			1.8			2.8			8.2			9.1
Income tax provision		2.6			7.8			—			21.6			1.1
Net change in deferred revenue		(9.2		)	(16.3		)	(5.5		)	(51.1		)	3.5
Adjusted EBITDA ($)		15.7			22.8			24.2			76.5			83.3
Adjusted EBITDA (as a % of STV)		20.5		%	27.9		%	27.3		%	23.9		%	25.1		%

 

The following table provides a breakout of Revenue on an unaudited basis for all periods presented and a reconciliation of non-GAAP Sales Transaction Volume (“STV”) to GAAP Revenue. STV represents sales in a particular period before the effects of deferred revenue recognition from prior periods and the deferral of current period sales. The Company believes STV is an important measure of business volume in the Investor Education segment.

 

		Three Months Ended									Years  Ended
		December 31,			September 30,			December 31,			December 31,			December 31,
in (000s)		2008			2008			2007			2008			2007 *
Brokerage Services Commissions		$	35,216		$	39,290		$	25,310		$	133,890		$	74,530
Interest & dividends		3,659			7,109			7,985			24,634			22,958
Payment for order flow		7,386			8,451			6,186			30,280			17,114
Other revenue		2,594			2,140			1,960			8,464			6,667
Total brokerage services revenue		48,855			56,990			41,441			197,268			121,269
Investor Education
Sales transaction volume		27,725			24,824			47,137			123,450			210,398
Total sales transaction volume		76,580			81,814			88,578			320,718			331,667
Change in deferred revenue		9,179			16,251			5,497			51,087			(3,528		)
Revenue		85,759			98,065			94,075			371,805			328,139

 

* The Company’s SEC filings for 2007 reflect Investools’ merger with thinkorswim Holdings, Inc. on February 15, 2007. However, for comparative purposes, the year ended December 31, 2007 have included results of operations as if the merger occurred on January 1, 2007 (pro-forma). The Company

 

 

believes that given the size of the merger, comparing actual to actual would not be the most representative way to explain our operating results.

 

Segment Information

 

The following table provides information on an unaudited basis concerning thinkorswim Group Inc.’s operations by reportable segment for the periods presented. The Company’s SEC filings and the table below reflects consolidated results following the Company’s  merger with thinkorswim Holdings, Inc., on February 15, 2007 and the Company’s stand-alone results through February 14, 2007.

 

		Three Months Ended  December 31,						Years Ended  December 31,
in (000s)		2008			2007			2008			2007
Revenue
Brokerage Services		$	48,855		$	41,441		$	197,268		$	110,882
Investor Education		36,904			52,634			174,537			207,127
Revenue		85,759			94,075			371,805			318,009
Income (Loss) from Operations
Brokerage Services		$	15,466		$	18,627		$	82,361		$	42,598
Investor Education		(531		)	1,980			6,893			(9,829		)
Income from operations		14,935			20,607			89,254			32,769

 

 

THINKORSWIM GROUP INC. AND SUBSIDIARIES

Operating Metrics thru December 31, 2008

 

		Three Months Ended  December 31,						Year Ended  December 31,
		2008			2007			2008			2007
thinkorswim Inc.
Trading Days		63.0			63.0			251.5			249.5
New Retail Accounts Opened(1)		32,700			22,675			108,850			75,875
New Funded Retail Accounts		12,175			11,075			45,200			38,325
Period-End Funded Retail Accounts		97,800			57,775			97,800			57,775
Retail DARTs(2)		61,400			41,900			54,200			27,000
Active Trader DARTs(3)		118,300			20,400			78,400			23,300
Total DARTs		179,700			62,300			132,600			50,300
Total Trades		11,325,000			3,926,000			33,361,000			12,552,000
Ending Client Assets ($MM)		$	3,020		$	2,580		$	3,020		$	2,580
Average Client Equity/Retail Account		$	30,900		$	44,900		$	30,900		$	44,900
Retail Commission Per Trade		$	8.41		$	9.01		$	8.41		$	9.01
Investor Education Group
Total Paid Graduates(4)		18,330			12,260			47,890			43,090
Ending Cumulative Graduates(5)		398,000			337,000			398,000			337,000
Ending Active Subscribers(6)		97,600			102,800			97,600			102,800
Upsell Rate (7)		25		%	40		%	32		%	42		%
PHD program		10		%	16		%	10		%	19		%
Masters program		14		%	20		%	14		%	24		%
Associates program		34		%	31		%	36		%	30		%
Apprentice		34		%	0		%	14		%	0		%
Trading rooms		8		%	33		%	26		%	27		%

 

(1) Accounts opened are accounts that have initiated the application process with the intent to fund.

(2) Retail DARTs are trades executed using the retail thinkorswim platform.

(3) Active Trader DARTs are trades executed using an active trader platform such as thinkpipes.

(4) Includes students who graduated from both the Foundation Course and the Currency Trader Course.

(5) Cumulative graduates include graduates and their guest attendees at workshops.

(6) Active Subscribers include subscribers to Investools Online, prophet.net, and Investools FX.

(7) This table illustrates the workshop upsell rates during the periods indicated. Workshop upsell rates are the sales that take place at the workshops of advanced product sales. Upsell rates do not include sales from the Company’s other sales operations.