-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HGIFcu/ZTlji8LKIJqu8I+OWvWy0DpkyF7ymi5puhHLtoaaLMUj2tOvh9b0WYX/u 9i/rN4JcTI7Mk0gqz7VhwQ== 0000316709-03-000029.txt : 20031021 0000316709-03-000029.hdr.sgml : 20031021 20031021114424 ACCESSION NUMBER: 0000316709-03-000029 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20031021 ITEM INFORMATION: FILED AS OF DATE: 20031021 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CHARLES CORP CENTRAL INDEX KEY: 0000316709 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 943025021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09700 FILM NUMBER: 03949166 BUSINESS ADDRESS: STREET 1: 120 KEARNY STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156277000 MAIL ADDRESS: STREET 1: 101 MONTGOMERY ST STREET 2: (SF120KNY-9) CITY: SAN FRANCISCO STATE: CA ZIP: 94104 8-K 1 body.txt BODY, OCTOBER 21, 2003 EARNINGS RELEASE SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 October 21, 2003 Date of Report (Date of earliest event reported) THE CHARLES SCHWAB CORPORATION (Exact name of registrant as specified in its charter) Delaware 1-9700 94-3025021 (State or other jurisdiction Commission (I.R.S. Employer of incorporation or organization) File Number Identification Number) 120 Kearny Street, San Francisco, CA 94108 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (415) 627-7000 Item 12. Results of Operations and Financial Condition On October 21, 2003, The Charles Schwab Corporation issued a press release announcing its financial results for the quarter ended September 30, 2003. A copy of the press release is furnished as Exhibit 99.1 to this report. - 1 - SIGNATURE 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. THE CHARLES SCHWAB CORPORATION (Registrant) Date: October 21, 2003 /s/ Christopher V. Dodds ---------------- ---------------------------- Christopher V. Dodds Executive Vice President and Chief Financial Officer - 2 - Exhibit Index 99.1 Press Release dated October 21, 2003 ("Schwab Announces Quarterly Results") - 3 - EX-99 3 exhibit99_1.txt EXHIBIT 99.1, OCTOBER 21, 2003 EARNINGS RELEASE Exhibit 99.1 FOR IMMEDIATE RELEASE CONTACTS: Media (San Francisco) Glen Mathison (415) 636-5448 Investors/Analysts Rich Fowler (415) 636-9869 SCHWAB ANNOUNCES QUARTERLY RESULTS SAN FRANCISCO, October 21, 2003 - The Charles Schwab Corporation announced today that its net income for the quarter ended September 30, 2003 was $127 million. In comparison, the Company reported net income of $126 million for the second quarter of 2003 and a net loss of $4 million for the third quarter of 2002. Excluding $23 million in after-tax charges relating to previously announced restructuring efforts and a $3 million after-tax benefit relating to the Company's discontinued European operations, Schwab's third quarter 2003 adjusted operating income was $147 million - up 13% from the $130 million adjusted operating income generated in the prior quarter, and up 48% from the year-ago quarter's $99 million. For the nine months ended September 30, 2003, the Company's net income was $324 million, up 72% compared with the $188 million earned during the same period in 2002. Adjusted operating income for the nine months ended September 30, 2003 was $340 million, 7% higher than the $319 million adjusted operating income produced during the same period in 2002. A table that reconciles net income to adjusted operating income is attached.
Three Months Ended Nine Months Ended --September 30,-- % --September 30,-- % Financial Highlights 2003 2002 Change 2003 2002 Change - -------------------------------------------------------------------------------------------------------- Revenues (in millions) $1,051 $1,020 3% $2,969 $3,105 (4)% Reported Results: Net income/loss (in millions) $127 $(4) n/m $324 $188 72% Diluted earnings per share $.09 $.00 n/m $.24 $.14 71% After-tax profit margin 12.1% (.4)% 10.9% 6.1% Return on stockholders' equity 12% 0% 10% 6% Adjusted Operating Results 1: Income (in millions) $147 $99 48% $340 $319 7% Diluted earnings per share $.11 $.07 57% $.25 $.23 9% After-tax profit margin 14.0% 9.7% 11.5% 10.3% 1. Non-GAAP income measures which exclude gains or losses from discontinued operations, an extraordinary gain relating to the 2001 sale of U.S. Trust's corporate trust business, restructuring charges, impairment charges, acquisition-related costs (including intangible asset amortization and merger-related compensation), as well as a non-recurring tax benefit. n/m - not meaningful - --------------------------------------------------------------------------------------------------------
In reviewing the third quarter, CEO David S. Pottruck commented, "With economic news remaining generally encouraging, securities market returns were positive for the second straight quarter. These improving conditions are showing up in our clients' portfolios - net market gains for Schwab client assets have totaled nearly $100 billion since the end of February. Third quarter 2003 net new assets of $11 billion showed improvement over the prior quarter, and we ended the third quarter with $877 billion in client assets, up 21% from a year ago. While new account openings were just 124,000 during the third quarter - due at least in part to our relatively low marketing investment in recent months - we do see multiple signs that clients are re-engaging with their financial affairs, including more than $10 billion of net inflows into actively managed equity and balanced mutual funds from April through September, a 21% increase in margin loan balances during that same period, and increased trading activity." "Continued improvement in the market environment during the third quarter of 2003 helped to generate a 3% increase in our revenues over the prior quarter, and every revenue category once again showed sequential improvement," the CEO said. "While restructuring charges kept net income essentially flat between the second and third quarters, our continued expense discipline enabled us to achieve an after-tax profit margin in excess of 12% for a second straight quarter. Our 14% third quarter after-tax operating profit margin - the highest since the second quarter of 2000 - is further evidence that our restructuring efforts helped pave the way for improved financial performance. We also continued to gain ground when comparing current and year-ago quarters - a 3% increase in revenues for the third quarter of 2003 and a 5% decline in operating expenses combined to yield a 48% increase in adjusted operating income." Mr. Pottruck continued, "While the third quarter is traditionally one of the slower quarters of the year, the improving environment led to continued strength in client demand for the market wisdom, information, tools and services they expect from Schwab. For our actively trading clients, we introduced our Profit Taking Strategies online seminar, the fourth in a series designed to help clients measurably improve their trading results. The program covers practical strategies for setting and adhering to price targets, as well as evaluating when to take profits. Additionally, we announced a price reduction for those clients who trade more than 30 times a quarter - commissions were lowered to $14.95, or $0.01 per share for trades over 1,000 shares with a $14.95 minimum. We also entered into a joint effort with the Chicago Mercantile Exchange to enable CyberTrader clients to trade E-mini S&P 500(R) and Nasdaq 100 stock index contracts. Schwab representatives conducted another 1,200 local investing workshops and educational events during the third quarter, attracting over 12,000 attendees. We also held another 40 Live Online Web-based interactive workshops. The number of clients using our Schwab Private Client service grew to 12,400 by the end of the third quarter, and their accounts currently hold $13 billion in assets, increases of 20% and 23%, respectively, from month-end June 2003. These clients now have access to the Schwab Personal Portfolio Dividend Equity (TM) account, a managed account that invests primarily in dividend-paying stocks that have been rated A or B by Schwab Equity Ratings (TM). Net new client assets in accounts at Schwab with an ongoing advisory component - including Schwab Private Client, accounts managed by independent investment advisors (IAs), and U.S. Trust accounts - totaled $7 billion during the third quarter of 2003, and total assets in these accounts equaled $388 billion, up 21% from month-end September 2002." "Last quarter was the first full quarter of operations for Schwab Bank, N.A., which continues to gain momentum in serving our clients through a lending program that includes first mortgages and home equity loans and a deposit program that offers CDs and money market deposit accounts," Mr. Pottruck added. "The bank originated $1.1 billion in first mortgages during the quarter and outstanding home equity loans reached $100 million by month-end September. The bank ended the third quarter with total assets of $1.6 billion and client deposits of $1.2 billion. In addition, the bank's loan commitments at quarter-end included $350 million in first mortgages and $450 million in new home equity lines." Mr. Pottruck commented, "Also during the third quarter, our Services for Investment Managers (SIM) group continued its tradition of adding value for the IAs who use Schwab for custody, trading and administrative support by sponsoring a series of 13 Institutional Workshops across the country. These workshops provided over 800 of our IAs' back office staff with training and suggestions for maximizing operating efficiency as part of our overall effort to enable IAs to focus on growing their practices. In addition, The Schwab Fund for Charitable Giving (R) recently introduced Charitable Asset Management, a service which enables IAs working with SIM or U.S. Trust to manage the donated assets in client Charitable Gift Accounts of $500,000 or more in a flexible, personalized manner. Client referrals to IAs through our Schwab Advisor Network (R) program totaled 5,400 during the third quarter of 2003, down slightly from the previous quarter. At month-end September, client assets at Schwab associated with IA referral programs equaled $17 billion, and total client assets under the guidance of IAs were a record $260 billion, up 49% and 23%, respectively, from a year ago." "U.S. Trust's acquisition of State Street's New England-based Private Asset Management Group was recently approved by the Office of the Comptroller of the Currency and other regulators, and we are continuing to work towards closing this transaction on October 31," Mr. Pottruck said. "Third quarter referrals from Schwab to U.S. Trust totaled approximately 330, compared with just under 360 in the prior quarter and about 270 in the third quarter of 2002. At month-end September 2003, client assets at U.S. Trust associated with this referral program totaled $2.7 billion and total client assets were $116 billion, up 69% and 9%, respectively, from September 2002." Mr. Pottruck continued, "During the third quarter, our Corporate Services team launched a new service for participants in bundled 401(k) plans serviced by Schwab. Participants in these plans now have either online, telephonic, or in-person access to customized advice provided by GuidedChoice, Inc., including specific recommendations about savings rates and the core investment fund choices available in a given retirement plan. Participants will also have the option of automatic account rebalancing. Overall, net new client assets placed in 401(k) accounts at Schwab totaled $561 million during the third quarter of 2003, up 2% from the year ago quarter. Total client assets in employer-sponsored retirement plans at Schwab now total $105 billion, up 24% from the third quarter of 2002." "Our Capital Markets group continued to focus on delivering high quality trade executions for our institutional and individual clients during the third quarter," Mr. Pottruck continued. "We added William McLaughlin and William Van Buren to our institutional equities trading team during the quarter to head up our listed sales function and our new Chicago office, respectively; the team now totals 114. Our clients will also benefit from a new state-of-the-art trading floor that provides our traders with the hardware and trading systems support they need to work as efficiently and effectively as possible." Mr. Pottruck added, "During the third quarter we launched the Schwab Dividend Equity Fund (TM), which offers clients current income and capital appreciation by primarily investing in dividend-paying stocks that have been rated an A or B by Schwab Equity Ratings. This fund, which recognizes the importance of recent changes in dividend taxation, is the fourth member of the SchwabFunds Family (R) that utilizes Schwab Equity Ratings to help guide stock selection. By quarter-end, assets in the Dividend Equity Fund totaled almost $165 million, making this one of our most successful fund launches ever. Overall, client asset balances in mutual funds at Schwab totaled $362 billion at the end of September, including $90 billion in third-party Mutual Fund OneSource (R) funds, $29 billion in our clearing business, $88 billion in other third-party Mutual Fund Marketplace (R) funds, and $155 billion in proprietary funds." The Charles Schwab Corporation (NYSE:SCH), through Charles Schwab & Co., Inc. (member SIPC/NYSE), U.S. Trust Corporation, CyberTrader, Inc. and its other operating subsidiaries, is one of the nation's largest financial services firms serving investors through offices, regional client telephone service centers and automated telephonic and online channels. The Charles Schwab, U.S. Trust and CyberTrader Web sites can be reached at www.schwab.com, www.ustrust.com and www.cybertrader.com, respectively. ###
THE CHARLES SCHWAB CORPORATION Consolidated Statement of Income (In millions, except per share amounts) (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Three Months Nine Months Ended Ended September 30, September 30, 2003 2002 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Asset management and administration fees $ 467 $ 431 $1,340 $1,316 Commissions 320 305 873 893 Interest revenue 236 287 719 899 Interest expense (55) (83) (183) (264) ------- ------- ------- ------- Net interest revenue 181 204 536 635 Principal transactions 45 47 121 147 Other 38 33 99 114 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,051 1,020 2,969 3,105 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses Excluding Interest Compensation and benefits 445 466 1,311 1,391 Other compensation - merger retention programs - - - 22 Occupancy and equipment 108 109 330 338 Depreciation and amortization 71 78 218 240 Communications 62 62 180 195 Advertising and market development 32 50 101 153 Professional services 45 41 126 134 Commissions, clearance and floor brokerage 21 19 54 53 Restructuring charges 37 159 61 188 Impairment charges - - 5 - Other 33 37 107 95 - ------------------------------------------------------------------------------------------------------------------------------------ Total 854 1,021 2,493 2,809 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before taxes on income and extraordinary gain 197 (1) 476 296 Taxes on income (73) - (152) (110) - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before extraordinary gain 124 (1) 324 186 Gain (loss) from discontinued operations, net of tax 3 (3) - (10) Extraordinary gain on sale of corporate trust business, net of tax expense - - - 12 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) $ 127 $ (4) $ 324 $ 188 ==================================================================================================================================== Weighted-Average Common Shares Outstanding - Diluted 1,366 1,358 1,361 1,382 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share - Basic Income (loss) from continuing operations before extraordinary gain $ .09 - $ .24 $ .14 Gain (loss) from discontinued operations, net of tax - - - $ (.01) Extraordinary gain, net of tax expense - - - $ .01 Net income (loss) $ .09 - $ .24 $ .14 Earnings Per Share - Diluted Income (loss) from continuing operations before extraordinary gain $ .09 - $ .24 $ .14 Gain (loss) from discontinued operations, net of tax - - - $ (.01) Extraordinary gain, net of tax expense - - - $ .01 Net income (loss) $ .09 - $ .24 $ .14 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends Declared Per Common Share $ .014 $ .011 $ .036 $ .033 - ------------------------------------------------------------------------------------------------------------------------------------ All periods have been adjusted to summarize the impact of The Charles Schwab Corporation's sale of its United Kingdom brokerage subsidiary, Charles Schwab Europe, in gain (loss) from discontinued operations. See Notes to Consolidated Statement of Income and Financial and Operating Highlights.
THE CHARLES SCHWAB CORPORATION Financial and Operating Highlights (Unaudited) | 2003 | 2002 | 2001 | - ------------------------------------------------------------------------------------------------------------------------------------ Third Second First Fourth Third Second First Fourth Third (In millions, except per share amounts and as noted) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Revenues (1) Asset management and administration fees $ 467 $ 445 $ 428 $ 433 $ 431 $ 444 $ 441 $ 434 $ 417 Commissions 320 313 240 297 305 290 298 324 271 Interest revenue, net of interest expense 181 180 175 189 204 213 218 206 224 Principal transactions 45 43 33 37 47 49 51 63 42 Other 38 37 24 30 33 41 40 20 51 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,051 1,018 900 986 1,020 1,037 1,048 1,047 1,005 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses Excluding Interest (1) Compensation and benefits 445 449 417 433 466 462 463 434 452 Other compensation - merger retention programs - - - - - 8 14 12 14 Occupancy and equipment 108 111 111 118 109 114 115 114 122 Depreciation and amortization 71 71 76 77 78 80 82 84 84 Communications 62 58 60 61 62 63 70 73 78 Advertising and market development 32 21 48 55 50 51 52 61 41 Professional services 45 44 37 38 41 46 47 48 36 Commissions, clearance and floor brokerage 21 20 13 17 19 17 17 20 19 Restructuring charges (2) 37 24 - 170 159 3 26 172 101 Impairment charges (3) - - 5 37 - - - - - Goodwill amortization - - - - - - - 16 16 Other 33 38 36 49 37 32 26 33 15 - ------------------------------------------------------------------------------------------------------------------------------------ Total 854 836 803 1,055 1,021 876 912 1,067 978 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before taxes on income (loss) and extraordinary gain 197 182 97 (69) (1) 161 136 (20) 27 Tax (expense) benefit on income (loss) (1) (73) (56) (23) 18 - (60) (50) 14 (14) - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before extraordinary gain 124 126 74 (51) (1) 101 86 (6) 13 Gain (loss) from discontinued operations, net of tax 3 - (3) (28) (3) (3) (4) (7) - Extraordinary gain on sale of corporate trust business, net of tax expense - - - - - - 12 - - - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) $ 127 $ 126 $ 71 $ (79) $ (4) $ 98 $ 94 $ (13) $ 13 ==================================================================================================================================== Basic earnings (loss) per share $ .09 $ .10 $ .05 $ (.06) $ - $ .07 $ .07 $ (.01) $ .01 Diluted earnings (loss) per share $ .09 $ .09 $ .05 $ (.06) $ - $ .07 $ .07 $ (.01) $ .01 Dividends declared per common share $ .014 $ .011 $ .011 $ .011 $ .011 $ .011 $ .011 $ .011 $ .011 Weighted-average common shares outstanding - diluted (4) 1,366 1,360 1,357 1,340 1,358 1,385 1,389 1,362 1,395 - ------------------------------------------------------------------------------------------------------------------------------------ Performance Measures Revenue growth (decline) over prior year's quarter (5) 3% (2%) (14%) (6%) 1% (2%) (11%) (21%) (23%) Adjusted operating income (6) $ 147 $ 130 $ 63 $ 90 $ 99 $ 109 $ 111 $ 115 $ 82 After-tax profit margin - reported 12.1% 12.3% 7.9% (8.0%) (.4%) 9.5% 9.0% (1.2%) 1.3% After-tax profit margin - operating (6) 14.0% 12.7% 7.0% 9.1% 9.7% 10.5% 10.6% 11.0% 8.4% Return on stockholders' equity (7) 12% 12% 7% (8%) -% 9% 9% (1%) 1% - ------------------------------------------------------------------------------------------------------------------------------------ Financial Condition (at quarter end) Cash and investments segregated (in billions) $ 22.4 $ 22.6 $ 22.3 $ 21.0 $ 19.2 $ 17.6 $ 18.3 $ 17.7 $ 15.6 Receivables from brokerage clients (in billions) $ 7.7 $ 7.0 $ 6.3 $ 6.8 $ 7.1 $ 8.5 $ 9.5 $ 9.6 $ 9.3 Total assets (in billions) $ 43.8 $ 41.8 $ 40.4 $ 39.7 $ 37.6 $ 37.6 $ 38.8 $ 40.5 $ 37.1 Payables to brokerage clients (in billions) $ 26.1 $ 26.2 $ 25.8 $ 26.4 $ 24.8 $ 24.6 $ 25.9 $ 27.0 $ 24.4 Long-term debt (in millions) $ 776 $ 811 $ 856 $ 642 $ 652 $ 751 $ 730 $ 730 $ 735 Stockholders' equity (in millions) $4,312 $4,179 $4,056 $4,011 $4,143 $4,345 $4,268 $4,163 $4,178 - ------------------------------------------------------------------------------------------------------------------------------------ Other Full-time equivalent employees (at quarter end, in thousands) 16.0 16.1 16.5 16.7 18.8 19.1 19.4 19.6 21.9 Capital expenditures - cash purchases of equipment, office facilities, property, and internal-use software development costs, net (in millions) $ 36 $ 33 $ 32 $ 46 $ 42 $ 40 $ 32 $ 35 $ 58 - ------------------------------------------------------------------------------------------------------------------------------------ Clients' Daily Average Trading Volume (in thousands) (8) Daily average revenue trades (9) 145.1 141.0 114.6 131.6 129.1 129.1 147.4 148.0 133.8 Mutual Fund OneSource(R) and other asset-based trades 58.0 57.1 54.3 51.9 56.5 57.5 58.5 51.9 54.0 - ------------------------------------------------------------------------------------------------------------------------------------ Daily average trades 203.1 198.1 168.9 183.5 185.6 186.6 205.9 199.9 187.8 - ------------------------------------------------------------------------------------------------------------------------------------ Daily Average Trades by Channel (in thousands) (8) Online 178.5 172.4 144.4 155.1 155.2 154.4 170.3 164.6 142.6 TeleBroker(R) and Schwab by Phone(TM) 5.2 5.3 4.6 5.5 5.7 6.1 7.2 7.3 7.0 Regional client telephone service centers, branch offices, and other 19.4 20.4 19.9 22.9 24.7 26.1 28.4 28.0 38.2 - ------------------------------------------------------------------------------------------------------------------------------------ Active Trader Daily Average Revenue Trades (in thousands) (8,9,10) 72.9 69.5 54.5 61.1 58.2 59.6 67.2 65.3 56.8 - ------------------------------------------------------------------------------------------------------------------------------------ Average Revenue Per Revenue Trade (9) $36.96 $37.73 $37.30 $37.48 $39.71 $38.02 $36.03 $36.04 $36.35 - ------------------------------------------------------------------------------------------------------------------------------------ (1) All periods have been adjusted to summarize the impact of The Charles Schwab Corporation's (the Company's) sale of its United Kingdom brokerage subsidiary, Charles Schwab Europe, in gain (loss) from discontinued operations. (2) Restructuring charges include costs relating to workforce, facilities, systems hardware, software, and equipment reductions. (3) Represents investment write-downs related to the Company's U.K. market-making operation, the sale of which was completed in the second quarter of 2003. (4) For the third and fourth quarters of 2002 and the fourth quarter of 2001, excludes outstanding stock options and restrictive shares due to their antidilutive effect on the quarterly loss per share. (5) Excludes non-operating revenue, which primarily consists of a gain on the sale of an investment for the third quarter of 2001. (6) Represents a non-GAAP income measure which excludes gain (loss) from discontinued operations, extraordinary gains, non-operating revenue, restructuring charges, impairment charges, and acquisition-related costs, net of taxes, as well as a non-recurring tax benefit. (7) Calculated based on annualized quarterly net income (loss) and average stockholders' equity for the quarter. (8) Effective in the third quarter of 2003, the Company considers reduced exchange trading sessions as half days in calculating daily average trades. (9) Revenue trades include all client trades (both individuals and institutions) that generate either commission revenue or revenue from principal markups (i.e., fixed income); also known as DART. (10) Active Trader includes all CyberTrader clients and Schwab clients enrolled as making at least 6 equity trades per quarter. Active Trader DART is included in total DART above. See Notes to Consolidated Statement of Income and Financial and Operating Highlights.
THE CHARLES SCHWAB CORPORATION Reconciliation of Net Income to Adjusted Operating Income (In millions) (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 127 $ (4) $ 324 $ 188 Adjustments to reconcile net income to adjusted operating income: Loss (gain) from discontinued operations (1) (5) 5 - 16 Extraordinary gain (2) - - - (22) Restructuring charges (3): Workforce reduction 21 44 21 61 Facilities reduction 16 115 40 127 - ------------------------------------------------------------------------------------------------------------------------------------ Total restructuring charges 37 159 61 188 Impairment charges (4) - - 5 - Acquisition-related charges: Compensation-merger retention programs - - - 22 Intangible asset amortization - - - 5 - ------------------------------------------------------------------------------------------------------------------------------------ Total acquisition-related charges - - - 27 - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items 32 164 66 209 Tax effect (5) (12) (61) (50) (78) - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items, net of tax 20 103 16 131 - ------------------------------------------------------------------------------------------------------------------------------------ Adjusted operating income, after tax (6) $ 147 $ 99 $ 340 $ 319 ==================================================================================================================================== (1) Represents the summarized impact of The Charles Schwab Corporation's (the Company's) sale of its United Kingdom brokerage subsidiary. (2) Represents the remaining gain from the 2001 sale of U.S. Trust Corporation's Corporate Trust business to The Bank of New York Company, Inc. that was recognized upon satisfaction of certain client retention requirements. (3) Restructuring charges reflect the Company's plan to reduce operating expenses due to continued economic uncertainties and difficult market conditions. These charges primarily included a workforce reduction and a reduction in operating facilities. Restructuring charges recorded in the three and nine months ended September 30, 2003 include $31 million related to restructuring initiatives announced in 2003. Restructuring charges recorded in the three and nine months ended September 30, 2003 also include $6 million and $30 million, respectively, primarily due to changes in estimates of sublease income associated with previously announced efforts to sublease excess facilities. (4) Represents an investment write-down related to the Company's U.K. market-making operation, the sale of which was completed in the second quarter of 2003. (5) Includes a $16 million tax benefit associated with the Company's sale of its U.K. market-making operation and an $11 million non-recurring tax benefit in the nine months ended September 30, 2003. (6) In evaluating the Company's financial performance, management uses adjusted operating income, a non-GAAP income measure which excludes items as detailed in the table above. Management believes that adjusted operating income is a useful indicator of its ongoing financial performance, and a tool that can provide meaningful insight into financial performance without the effects of certain material items that are not expected to be an ongoing part of operations.
The Charles Schwab Corporation Notes to Consolidated Statement of Income and Financial and Operating Highlights (Unaudited) The Company The consolidated statement of income and financial and operating highlights include The Charles Schwab Corporation and its subsidiaries (collectively, the Company), including Charles Schwab & Co., Inc., U.S. Trust Corporation, Schwab Capital Markets L.P. and CyberTrader, Inc. The consolidated statement of income and financial and operating highlights should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2002 Annual Report to Stockholders and the Company's Quarterly Reports on Form 10-Q for the periods ended March 31 and June 30, 2003. Certain prior periods' revenues and expenses have been reclassified to conform with the current period presentation. All material intercompany balances and transactions have been eliminated. ********** THE CHARLES SCHWAB CORPORATION Growth in Client Assets and Accounts (Unaudited) | 2003 | 2002 | 2001 | - ------------------------------------------------------------------------------------------------------------------------------------ Third Second First Fourth Third Second First Fourth Third (In billions, at quarter end, except as noted) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Assets in client accounts Schwab One(R), other cash equivalents and deposits from banking clients $ 30.6 $ 30.2 $ 31.1 $ 31.1 $ 29.0 $ 28.6 $ 29.2 $ 31.5 $ 28.1 Proprietary funds (SchwabFunds(R), Excelsior(R) and other): Money market funds 124.4 126.8 132.4 129.7 129.2 126.7 130.0 130.3 130.0 Equity and bond funds 30.7 31.2 27.4 27.7 26.8 30.9 33.2 30.9 27.5 - ------------------------------------------------------------------------------------------------------------------------------------ Total proprietary funds 155.1 158.0 159.8 157.4 156.0 157.6 163.2 161.2 157.5 - ------------------------------------------------------------------------------------------------------------------------------------ Mutual Fund Marketplace(R) (1): Mutual Fund OneSource(R) 90.1 85.0 71.8 73.6 70.0 81.6 90.3 87.0 76.6 Mutual fund clearing services 28.4 24.5 21.4 21.2 19.8 21.9 22.3 21.0 18.2 All other 88.3 84.6 71.6 71.6 68.5 75.9 78.8 73.6 66.8 - ------------------------------------------------------------------------------------------------------------------------------------ Total Mutual Fund Marketplace 206.8 194.1 164.8 166.4 158.3 179.4 191.4 181.6 161.6 - ------------------------------------------------------------------------------------------------------------------------------------ Total mutual fund assets 361.9 352.1 324.6 323.8 314.3 337.0 354.6 342.8 319.1 - ------------------------------------------------------------------------------------------------------------------------------------ Equity and other securities (1) 357.1 338.2 287.9 294.7 272.9 323.3 374.7 379.3 332.0 Fixed income securities (2) 134.6 131.1 125.2 121.8 117.5 116.5 108.4 101.5 98.2 Margin loans outstanding (7.5) (6.9) (6.2) (6.6) (6.9) (8.4) (9.2) (9.2) (9.0) - ------------------------------------------------------------------------------------------------------------------------------------ Total client assets $ 876.7 $ 844.7 $ 762.6 $ 764.8 $ 726.8 $ 797.0 $ 857.7 $ 845.9 $ 768.4 ==================================================================================================================================== Net growth in assets in client accounts (for the quarter ended) Net new client assets $ 10.6 $ 6.5 $ 14.2 $ 10.1 $ 10.6 $ 11.5 $ 15.4 $ 13.5 $ 17.9 Net market gains (losses) 21.4 75.6 (16.4) 27.9 (80.8) (72.2) (3.6) 64.0 (107.8) - ------------------------------------------------------------------------------------------------------------------------------------ Net growth (decline) $ 32.0 $ 82.1 $ (2.2) $ 38.0 $ (70.2) $ (60.7) $ 11.8 $ 77.5 $ (89.9) ==================================================================================================================================== U.S. Trust client assets (3) $ 116.1 $ 114.0 $ 106.7 $ 108.0 $ 106.1 $ 115.3 $ 122.9 $ 124.0 $ 114.7 - ------------------------------------------------------------------------------------------------------------------------------------ New client accounts (in thousands, for the quarter ended) 123.9 151.9 171.0 154.5 159.6 224.6 232.3 212.3 184.2 Active client accounts (in millions) (4) 7.6 7.7 8.0 8.0 8.0 8.0 7.9 7.8 7.8 - ------------------------------------------------------------------------------------------------------------------------------------ Active online Schwab client accounts (in millions) (5) 4.0 4.1 4.2 4.2 4.2 4.3 4.3 4.3 4.3 Online Schwab client assets $ 341.5 $ 328.6 $ 295.7 $ 297.4 $ 279.1 $ 308.2 $ 341.9 $ 341.2 $ 306.3 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Excludes all proprietary money market, equity, and bond funds. (2) Includes certain other securities serviced by Schwab's fixed income division, including exchange-traded unit investment trusts, real estate investment trusts, and corporate debt. (3) Included in total client assets above. (4) Active client accounts are defined as accounts with balances or activity within the preceding eight months. Reflects the removal of 192,000 accounts in the second quarter of 2003 related to the Company's withdrawal from the Employee Stock Purchase Plan business and the transfer of those accounts to other providers. (5) Active online accounts are defined as all active individual and U.S. dollar-based international accounts within a household that has had at least one online session within the past twelve months. Excludes independent investment advisor accounts and U.S. Trust accounts.
The Charles Schwab Corporation Monthly Market Activity Report - October 2003 Investor activity for 7.6 million active client accounts (1) Clients opened 42,900 new accounts during September 2003. Investors' Daily Average 2002 2003 Trading Volume(2) (in thousands) Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug - ------------------------------------------------------------------------------------------------------------------------------------ Daily Average Revenue Trades(3) 112.0 127.5 141.5 126.7 126.3 101.5 114.6 119.8 143.9 159.3 148.6 126.8 Mutual Fund OneSource(R) and Other Asset-Based Trades(4) 51.5 51.8 52.0 51.8 56.2 51.9 54.8 57.4 55.7 58.3 57.7 54.8 - ------------------------------------------------------------------------------------------------------------------------------------ Trading Activity(5) 163.5 179.3 193.5 178.5 182.5 153.4 169.4 177.2 199.6 217.6 206.3 181.6 ==================================================================================================================================== Daily Average Share Volume (in millions) NYSE 1,409 1,655 1,454 1,248 1,475 1,336 1,439 1,423 1,489 1,516 1,451 1,200 Nasdaq 1,451 1,684 1,784 1,424 1,541 1,311 1,500 1,478 1,848 2,032 1,772 1,471 - ------------------------------------------------------------------------------------------------------------------------------------ Total 2,860 3,339 3,238 2,672 3,016 2,647 2,939 2,901 3,337 3,548 3,223 2,671 ==================================================================================================================================== Change in Client Assets (in billions of dollars) Net New Assets (6) 1.8 3.0 2.8 4.3 4.2 4.5 5.5 1.0 2.7 2.8 3.9 3.7 Net Market Gains (Losses) (42.6) 23.7 29.2 (25.0) (10.6) (7.8) 2.0 34.6 32.6 8.4 8.5 15.1 Total Client Assets (at month end, in billions of dollars) 726.8 753.5 785.5 764.8 758.4 755.1 762.6 798.2 833.5 844.7 857.1 875.9 ==================================================================================================================================== Market Indices (at month end) Dow Jones Industrial Average 7,592 8,397 8,896 8,342 8,054 7,891 7,992 8,480 8,850 8,985 9,234 9,416 Nasdaq Composite 1,172 1,330 1,479 1,336 1,321 1,338 1,341 1,464 1,596 1,623 1,735 1,810 Standard & Poor's 500 815 886 936 880 856 841 848 917 964 975 990 1,008 Schwab 1000 2,614 2,826 2,985 2,810 2,738 2,688 2,715 2,928 3,084 3,120 3,181 3,243 Mutual Fund Net Buys (Sells) (7) (in millions of dollars) Domestic Growth (815.4) (471.2) 381.7 (746.9) (52.4) (822.7) 29.3 670.6 1,235.9 957.0 910.8 945.0 International Growth (123.2) (95.9) 40.7 (127.1) 230.7 (197.2) (95.3) 185.1 224.9 121.1 369.8 449.0 Balanced (stock and bond) (11.0) (11.5) 345.1 65.9 486.4 11.8 212.7 506.5 380.4 698.4 421.7 621.8 Bond - Taxable 791.4 (33.5) 477.5 222.6 810.6 1,116.9 838.3 806.2 742.9 336.4 (515.1) (511.3) Bond - Tax Advantaged 123.4 (182.1) (43.5) 44.3 36.4 116.8 7.6 (43.2) 46.8 3.7 (106.7) (71.0) Investors' Daily Average % change Trading Volume (2) (in thousands) Sep Mo. Yr.* - -------------------------------------------------------- Daily Average Revenue Trades (3) 159.9 26% 43% Mutual Fund OneSource(R) and Other Asset-Based Trades (4) 61.5 12% 19% - -------------------------------------------------------- Trading Activity (5) 221.4 22% 35% ======================================================== Daily Average Share Volume (in millions) NYSE 1,437 20% 2% Nasdaq 1,943 32% 34% - -------------------------------------------------------- Total 3,380 27% 18% ======================================================== Change in Client Assets (in billions of dollars) Net New Assets (6) 3.0 (19%) 67% Net Market Gains (Losses) (2.2) Total Client Assets (at month end, in billions of dollars) 876.7 - 21% ======================================================== Market Indices (at month end) Dow Jones Industrial Average 9,275 Nasdaq Composite 1,787 Standard & Poor's 500 996 Schwab 1000 3,202 Mutual Fund Net Buys (Sells) (7) (in millions of dollars) Domestic Growth 913.0 International Growth 142.8 Balanced (stock and bond) 562.1 Bond - Taxable 83.3 Bond - Tax Advantaged (63.6) (1) Active client accounts are defined as accounts with balances or activity within the preceding eight months. Reflects the removal of 192,000 accounts in June 2003 related to the Company's withdrawal from the Employee Stock Purchase Plan (ESPP) business and the transfer of those accounts to other providers. (2) The earnings of Charles Schwab & Co., Inc. (Schwab) and its parent, The Charles Schwab Corporation, are directly affected by many factors not reflected above. (3) Includes all client trades (both individuals and institutions) that generate either commission revenue or revenue from principal markups (i.e., fixed income); also known as DART. (4) Includes mutual fund trades executed through Schwab's Mutual Fund OneSource(R) service. Contact any Schwab representative for complete information on this service. (5) Effective July 2003, the Company considers reduced exchange trading sessions as half days in calculating daily average trades. (6) August 2003 data includes an individual inflow of $0.6 billion related to a mutual fund clearing client. July 2003, March 2003, and January 2003 data includes individual inflows of $0.2 billion, $1.3 billion, and $0.8 billion, respectively, at U.S. Trust related to Special Fiduciary business clients. May 2003 and April 2003 data includes outflows related to the sale of the Company's ESPP business of $0.3 billion and $0.2 billion, respectively. December 2002 data excludes mutual fund capital gains reinvestments of $0.9 billion. November 2002 data includes $0.7 billion in outflows related to an ESPP client. (7) Represents the principal value of client mutual fund (no-load, low-load, load) transactions handled by Schwab and U.S. Trust, including transactions in SchwabFunds(R) and Excelsior(R) Funds, respectively. Includes institutional funds available only to Investment Managers. Excludes money market funds. Contact any Schwab representative for complete information on purchasing mutual funds through Schwab, including a fund prospectus which describes management fees and expenses. Read the prospectus carefully before you invest. * September 2003 vs. September 2002 The Charles Schwab Corporation
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