-----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, GE1TPICHApqNawrUJUoYGSgsFrGvoitiYzP666L84C6uz27JSwW3WO5pu3o1cIay PVwfhIiCPSL+StRcaNJ30g== 0000316709-04-000008.txt : 20040329 0000316709-04-000008.hdr.sgml : 20040329 20040329121453 ACCESSION NUMBER: 0000316709-04-000008 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040329 ITEM INFORMATION: FILED AS OF DATE: 20040329 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: 04695175 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, FORM 8-K, MARCH 29, 2004 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 March 29, 2004 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 THE CHARLES SCHWAB CORPORATION Item 12. Results of Operations and Financial Condition Certain additional financial information (which was not required to be filed as part of Exhibit 13.1 to The Charles Schwab Corporation's Form 10-K for the year ended December 31, 2003) and the Letter from the Chief Financial Officer included in The Charles Schwab Corporation's 2003 Annual Report to Stockholders is furnished as Exhibits 99.1, 99.2, 99.3, 99.4, and 99.5 to this report. Forward-Looking Statements: In addition to historical information, this Current Report on Form 8-K contains forward-looking statements that reflect management's goals, objectives, and expectations as of the date hereof. These statements relate to, among other things, compensation and benefits expense and marketing communications expense as a percentage of total revenues, long-term debt to total capital ratio, capital expenditures, revenue growth, after-tax profit margin, and return on stockholders' equity (see Letter from the Chief Financial Officer at Exhibit 99.2 to this Current Report on Form 8-K). Achievement of the expressed goals, objectives, and expectations is subject to certain risks and uncertainties that could cause actual results to differ materially from those goals, objectives, or expectations. Important factors that may cause such differences include, but are not limited to: the success of The Charles Schwab Corporation and its subsidiaries (collectively referred to as the Company) in building fee-based relationships with its clients; the effect of client trading patterns on Company revenues and earnings; changes in revenues and profit margin due to cyclical securities markets and fluctuations in interest rates; the level and continuing volatility of equity prices; a significant downturn in the securities markets over a short period of time or a sustained decline in securities prices, trading volumes, and investor confidence; geopolitical developments affecting the securities markets, the economy, and investor sentiment; the size and number of the Company's insurance claims; and a significant decline in the real estate market, including the Company's ability to sublease certain properties. Other more general factors that may cause such differences include, but are not limited to: the Company's inability to attract and retain key personnel; the timing and impact of changes in the Company's level of investments in personnel, technology, or advertising; changes in technology; computer system failures and security breaches; evolving legislation, regulation and changing industry practices adversely affecting the Company; adverse results of litigation or regulatory matters; the inability to obtain external financing at acceptable rates; the effects of competitors' pricing, product and service decisions; and intensified industry competition and consolidation. Certain of these factors are discussed in greater detail in The Charles Schwab Corporation's 2003 Annual Report to Stockholders and in The Charles Schwab Corporation's Form 10-K for the year ended December 31, 2003. - 1 - THE CHARLES SCHWAB CORPORATION 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: March 29, 2004 /s/ Christopher V. Dodds -------------- ---------------------------- Christopher V. Dodds Executive Vice President and Chief Financial Officer - 2 - THE CHARLES SCHWAB CORPORATION Exhibit Index 99.1 Financial Highlights 99.2 Letter from the Chief Financial Officer 99.3 11-Year Selected Financial and Operating Data 99.4 Reconciliation of Net Income to Adjusted Operating Income 99.5 Quarterly Financial Information (Unaudited) - 3 - EX-99 3 exh99_1.txt EXHIBIT 99.1
EXHIBIT 99.1 Financial Highlights The Charles Schwab Corporation (In Millions, Except Per Share Amounts and as Noted) - ------------------------------------------------------------------------------------------------------------------------------------ Growth Rate ----------- 1-Year 2002-2003 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues (1) - $ 4,087 $ 4,091 $ 4,292 Net income 333% $ 472 $ 109 $ 199 Basic earnings per share (2) 338% $ .35 $ .08 $ .14 Diluted earnings per share (2) 338% $ .35 $ .08 $ .14 Adjusted operating income (3) 20% $ 490 $ 409 $ 424 Dividends declared per common share 14% $ .050 $ .044 $ .044 Weighted-average common shares outstanding - diluted (1%) 1,364 1,375 1,399 - ------------------------------------------------------------------------------------------------------------------------------------ Closing market price per share (at year end) 9% $ 11.84 $ 10.85 $ 15.47 Book value per common share (at year end) 10% $ 3.29 $ 2.98 $ 3.04 - ------------------------------------------------------------------------------------------------------------------------------------ Pre-tax profit margin - reported 17.4% 4.6% 8.3% After-tax profit margin - reported 11.5% 2.7% 4.6% After-tax profit margin - operating (3) 12.0% 10.0% 9.9% Long-term debt (at year end) 20% $ 772 $ 642 $ 730 Stockholders' equity (at year end) 11% $ 4,461 $ 4,011 $ 4,163 Return on stockholders' equity 11% 3% 5% - ------------------------------------------------------------------------------------------------------------------------------------ Full-time equivalent employees (at year end, in thousands) (2%) 16.3 16.7 19.6 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Revenues are presented net of interest expense. 2002 and 2001 have been adjusted to summarize the impact of The Charles Schwab Corporation's sale of its U.K. brokerage subsidiary, Charles Schwab Europe, in loss from discontinued operations. (2) Both basic and diluted earnings per share include loss from discontinued operations of $.00, $(.03), and $(.01) per share in 2003, 2002, and 2001, respectively, and an extraordinary gain of $.01 and $.08 per share in 2002 and 2001, respectively. (3) Represents a non-GAAP income measure, which excludes non-operating revenue (which primarily consists of gains on sales of investments), restructuring and other charges, impairment charges, acquisition- and merger-related charges, discontinued operations, and extraordinary items. See reconciliation of net income to adjusted operating income at Exhibit 99.4 to this Current Report on Form 8-K.
EX-99 4 exh99_2.txt EXHIBIT 99.2 Exhibit 99.2 The Charles Schwab Corporation From the Chief Financial Officer Schwab's Financial Picture When I wrote the inaugural CFO overview for our 2002 Annual Report, I commented that we believe any review of our financial picture should begin by addressing the question of 'How did we do with our clients?' The logic is simple - - if we build trusted, long-term relationships with current and new clients, then over time revenues, earnings, margins and returns on capital will follow. While we feel that this logic still holds true today, as I think about how the market environment unfolded in 2003 - how it began so poorly and ended with such promise - I thought we would focus first on our financial management before we look at client results. As last year got underway, any hope we had for an early improvement in market conditions was quickly dashed as the environment actually deteriorated further - war with Iraq looked increasingly imminent, economic reports showed continued weakness, and interest rates were testing the lowest levels seen in a generation. All of these factors affected client asset valuations and trading activity, and our business suffered in turn. We had endured two years of restructuring, including the departure of almost 40% of our colleagues, to create a leaner, more efficient and productive Schwab. Over 2001 and 2002, we had pulled out over $800 million in annual operating expenses to create a Schwab capable of producing solid financial results despite an extended bear market. Yet as we entered March 2003, we felt that we had to take further steps to bring down expenses and enhance our financial performance. We chose to reduce certain expenses that would have an immediate effect on profitability while being relatively straightforward to reinstate as appropriate - lowering our marketing investment, suspending our employee 401(k) match and cutting certain other discretionary expenses. Even as the market environment began to rebound in the second quarter, we maintained our expense discipline and focus on improved efficiency. While this focus led to the unfortunate elimination of about 250 jobs in the second half of 2003, as well as the consolidation of some of our branch offices, these efforts enabled the Company to leverage a steadily improving environment into dramatically stronger financial performance. By year end, we had achieved three consecutive quarters of growth across all revenue categories. In addition, our year-over-year financial comparisons for the fourth quarter of 2003 included a 13% increase in revenues, net income of $148 million versus a $79 million loss, and a 67% increase in Adjusted operating income (which is described in detail in the reconciliation of net income to adjusted operating income at Exhibit 99.4 to this Current Report on Form 8-K). Our after-tax reported and operating profit margins for 2003 were 11.5% and 12.0%, respectively, versus just 7.9% and 7.0% for the first quarter. We were also able to increase our marketing investment as the year went on, and we achieved a full-year employee bonus payout that was about 50% higher than 2002's minimal level. In addition, we reinstated our employee 401(k) match in January 2004. Another piece of good news on the financial front for 2003 was that we finally achieved our goal of at least $250,000 in Revenues per average full-time equivalent employee. As I've mentioned before, our approach to managing the Company's expenses - 1 - includes keeping a sharp eye on productivity and the portions of our revenues that we use to support our employee base. In general, we strive to keep the expense line most directly tied to our staffing levels - Compensation and Benefits - at about 42% of revenues, and we achieved that goal during the second half of 2003. To close out my comments on earnings, we continue to view our marketing investment - which utilizes media and other channels to help build our brands and expand our client base - as a key part of our investment in future growth. We can and do adjust this investment in keeping with business conditions and our financial picture - our 2003 outlay of $139 million for Advertising and market development, which encompasses much of this effort, was 33% below 2002. Our experience last year leaves us more convinced than ever, however, that sustained investment is essential for sustained growth, and our current goal is to rebuild the Company's marketing communications investment to about 4.5% of revenues. Moving on to our balance sheet (page 25. All page number references in this exhibit are to The Charles Schwab Corporation's 2003 Annual Report to Stockholders, which was filed as Exhibit 13.1 to The Charles Schwab Corporation's Form 10-K for the year ended December 31, 2003), its size remains largely driven by liabilities relating to client activity. The cash clients place in their brokerage accounts is recorded as a payable (included in Payables to Brokerage Clients), and by law those funds can be lent back to clients in the form of margin loans (which make up the vast majority of Receivables from Brokerage Clients), used to cover open client transactions, or placed in an investment portfolio that is segregated from other Company assets. Similarly, Deposits from banking clients either fund Loans to banking clients or are invested in liquid instruments as part of Securities owned. The rest of our balance sheet consists mainly of the Company's cash and carrying value of our fixed assets, as well as our debt and equity capital. As you compare our 2003 balance sheet to year end 2002, you'll notice an increase in client receivables, which reflects a rebound in margin loan usage. You can also see higher levels of deposits from, and loans to, banking clients, as well as securities owned, which reflects the expansion of our banking offer through the launch of Schwab Bank, which is discussed on page 16. Also visible are higher balances of Goodwill and Intangible assets, which, as we discuss on pages 30-31, relate to our acquisition of State Street's Private Asset Management Group (PAM). On the liability side of the balance sheet, you can also see we do not incur lots of short- and long-term debt. We do not view our business model as being particularly capital intensive, and we continue to believe that it is inadvisable to compound operating leverage with significant financial leverage. As a result, we expect our long-term debt to total capital ratio will remain well below 30%. Turning to our statement of cash flows (page 26), please note that we continue to focus on the sum of two lines - Net income and Depreciation and amortization - as the main indicator of usable cash flow being generated by the Company. For 2003, we'd also add the $18 million in Non-cash restructuring and Impairment charges. We monitor changes in Receivables from brokerage clients very carefully since we set aside roughly 10% of any increase in margin loans as capital that must stay on the balance sheet. As to other uses of our cash and capital, our capital expenditures (Purchases of equipment, office facilities and property, also called capex) in 2003 totaled $153 million, or less than 4% of net revenues, which funded certain of our desired investments and still maintained ample capacity for serving current and potential client needs. With certain data - 2 - processing equipment nearing the end of its planned service life and needing replacement during 2004, we could see capex rise by about 35% over the 2003 level. What do we do with the rest of the cash that the Company generates? One major potential use of available liquidity is, of course, acquisitions. As we think about sustaining the Company's long-term growth prospects, we continue to believe acquisitions may be helpful in two main ways - expanding our existing businesses to extend our reach and leverage our scale, and enhancing our usefulness to clients by adding to our product or service capabilities. The PAM and SoundView Technology acquisitions are good examples of this philosophy in action. PAM, which closed last October, utilized about $365 million of our available cash; SoundView, which closed in January 2004, took about $340 million. The key financing items we manage on a day-to-day basis include Proceeds from and Repayments of long-term debt, Dividends paid, and share repurchases (Purchases of treasury stock). We ended 2003 with a debt to total capital ratio of just 15%, still well under that 30% limit I mentioned above. We increased our dividend by 27% in August 2003 following the implementation of more favorable tax treatment. Our dividend rate, however, remains relatively small - just five cents per share in 2003 - reflecting the Company's ongoing philosophy of reinvesting the bulk of its available resources in its most promising growth opportunities. In a similar vein, our share repurchase program remains opportunistic in nature. For example, our repurchases totaled a comparatively modest $32 million in 2003, reflecting both the unsettled environment of the first quarter and our near-term focus on exploring acquisition opportunities. Now let's turn to how we did with clients in 2003. Just as in 2002, by certain measures we did relatively well. The $44 billion in non- acquisition-related, or "organic" Net new client assets brought to the Company was just 7% lower than 2002 despite the cut in our marketing investment, and it was 57% above the highest number reported by any other financial services firm. New account openings of 592,000 for 2003 were also apparently affected by our reduced marketing investment, which persisted until September, yet by year end the daily rate of new account openings had rebounded more than 40% over August's rate. In addition, the average 90-day funding level for new accounts (excluding U.S. Trust) continued to rise - by the end of 2003 it had reached more than $140,000, up 37% from the end of 2002. So, we think we did a credible job once again last year in terms of winning in the client marketplace. At the same time, the improved environment yielded over $140 billion in market value gains in client portfolios during 2003, which helped push total client assets to $967 billion at year end, our highest reported level since initially hitting the $1 trillion mark in August 2000. We'd also note that client trading frequency, measured in terms of annualized trades per $100,000 in assets, never rose above 3.9 for any quarter in 2003 - versus an average of 5.0 for the last five years - which means there's plenty of room for further client reengagement. This relatively modest trading frequency, along with pressure on net interest income from spread compression and lower margin loan balances, helped limit our revenue per dollar of client assets to 48 basis points in 2003, down from 51 basis points in 2002. Overall, Schwab's complexity is growing along with its capabilities, and our financial management has to keep pace. At the same time, our basic "keep it simple" philosophy hasn't changed. Maintaining a conservative capital structure and plenty of liquidity enables us to focus on pursuing superior long-term results - annual revenue - 3 - growth of at least 20%, after-tax profit margins consistently at or above 12%, and a return on equity of at least 20%. The substantial improvement in the Company's financial performance as 2003 progressed provided clear evidence that our restructuring efforts are paying off, and we believe that we have the products, services and investment insight that clients want. How we're doing with clients remains our key issue, but keep an eye on our performance relative to those long-term financial objectives - we're focused on both fronts. Sincerely, /s/ Christopher V. Dodds - ------------------------ Christopher V. Dodds Executive Vice President and Chief Financial Officer March 12, 2004 - 4 - EX-99 5 exh99_3.txt EXHIBIT 99.3
EXHIBIT 99.3 The Charles Schwab Corporation 11-Year Selected Financial and Operating Data (In Millions, Except Per Share Amounts, Ratios, Number of Domestic Offices, Average Revenue Per Revenue Trade, and as Noted) - ------------------------------------------------------------------------------------------------------------------------------------ Growth Rates --------------------------------- Compounded Annual ---------- ------ 10-Year 5-Year 1-Year 1993-2003 1998-2003 2002-2003 2003 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Results of Operations Revenues (1) 12% 6% - $ 4,087 $ 4,091 $ 4,292 $ 5,695 Expenses excluding interest (1) 12% 7% (13%) $ 3,377 $ 3,864 $ 4,115 $ 4,433 Income from continuing operations before extraordinary items 11% 3% 250% $ 472 $ 135 $ 106 $ 738 Net income 11% 3% 333% $ 472 $ 109 $ 199 $ 718 Income from continuing operations per share - basic 10% 2% 250% $ .35 $ .10 $ .08 $ .54 Income from continuing operations per share - diluted 10% 2% 250% $ .35 $ .10 $ .08 $ .53 Basic earnings per share (2) 10% 2% 338% $ .35 $ .08 $ .14 $ .53 Diluted earnings per share (2) 11% 2% 338% $ .35 $ .08 $ .14 $ .51 Adjusted operating income (3) 11% 3% 20% $ 490 $ 409 $ 424 $ 869 Dividends declared per common share (4) 19% 7% 14% $ .050 $ .044 $ .044 $ .041 Weighted-average common shares outstanding - diluted 1,364 1,375 1,399 1,404 Non-trading revenues as a percentage of revenues (5) 66% 66% 63% 51% Trading revenues as a percentage of revenues (5) 34% 34% 37% 49% Effective income tax rate 33.5% 42.6% 44.1% 41.7% Capital expenditures - cash purchases of equipment, office facilities, property, and internal-use software development costs, net 4% (5%) (4%) $ 153 $ 160 $ 301 $ 705 Capital expenditures as a percentage of revenues 3.7% 3.9% 7.0% 12.4% ==================================================================================================================================== Performance Measures Revenue growth (decline) - (5%) (25%) 29% Pre-tax profit margin - reported 17.4% 4.6% 8.3% 21.6% After-tax profit margin - reported 11.5% 2.7% 4.6% 12.6% After-tax profit margin - operating (3) 12.0% 10.0% 9.9% 15.3% Return on stockholders' equity 11% 3% 5% 21% ==================================================================================================================================== Financial Condition (at year end) Total assets 16% 12% 16% $45,866 $39,705 $40,464 $38,154 Long-term debt 12% 13% 20% $ 772 $ 642 $ 730 $ 770 Stockholders' equity 22% 22% 11% $ 4,461 $ 4,011 $ 4,163 $ 4,230 Assets to stockholders' equity ratio 10 10 10 9 Long-term debt to total financial capital (long-term debt plus stockholders' equity) 15% 14% 15% 15% ==================================================================================================================================== Client Information (at year end) Active client accounts (6) 12% 6% (6%) 7.5 8.0 7.8 7.5 Client assets (in billions) 22% 10% 26% $ 966.7 $ 764.8 $ 845.9 $ 871.7 Total mutual fund assets (in billions) 24% 12% 19% $ 386.8 $ 323.8 $ 342.8 $ 330.3 Independent investment advisor client accounts (in thousands) (7) 19% 12% 5% 1,238.8 1,182.4 1,081.7 986.5 Independent investment advisor client assets (in billions) (7) 29% 14% 29% $ 287.1 $ 222.4 $ 235.0 $ 231.3 Number of domestic offices 6% 4% (11%) 376 422 429 415 ==================================================================================================================================== Employee Information Full-time equivalent employees (at year end, in thousands) 6% 2% (2%) 16.3 16.7 19.6 26.3 Revenues per average full-time equivalent employee (in thousands) 4% 3% 14% $ 251 $ 220 $ 192 $ 239 Compensation and benefits expense as a percentage of revenues 43.3% 45.1% 44.2% 42.2% ==================================================================================================================================== Clients' Daily Average Trading Volume (in thousands) (8) Daily average revenue trades (9) 17% 8% 5% 140.8 134.1 159.7 242.0 Mutual Fund OneSource and other asset-based trades 23% 8% 3% 57.9 56.1 54.0 58.1 - ------------------------------------------------------------------------------------------------------------------------------------ Daily average trades 19% 8% 4% 198.7 190.2 213.7 300.1 ==================================================================================================================================== Average Revenue Per Revenue Trade (7%) (7%) (3%) $ 36.72 $ 37.78 $ 35.02 $ 37.38 ====================================================================================================================================
11-Year Selected Financial and Operating Data (In Millions, Except Per Share Amounts, Ratios, Number of Domestic Offices, Average Revenue Per Revenue Trade, and as Noted) - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Results of Operations Revenues (1) $ 4,405 $ 3,111 $ 2,619 $ 2,132 $ 1,789 $ 1,483 $ 1,353 Expenses excluding interest (1) $ 3,292 $ 2,428 $ 2,080 $ 1,658 $ 1,600 $ 1,225 $ 1,073 Income from continuing operations before extraordinary items $ 676 $ 413 $ 326 $ 282 $ 127 $ 156 $ 167 Net income $ 666 $ 410 $ 321 $ 275 $ 122 $ 156 $ 160 Income from continuing operations per share - basic $ .52 $ .32 $ .25 $ .22 $ .10 $ .13 $ .13 Income from continuing operations per share - diluted $ .49 $ .31 $ .24 $ .21 $ .10 $ .12 $ .13 Basic earnings per share (2) $ .51 $ .32 $ .25 $ .22 $ .10 $ .13 $ .13 Diluted earnings per share (2) $ .49 $ .31 $ .24 $ .21 $ .09 $ .12 $ .12 Adjusted operating income (3) $ 675 $ 413 $ 350 $ 283 $ 214 $ 184 $ 167 Dividends declared per common share (4) $ .037 $ .036 $ .031 $ .027 $ .021 $ .014 $ .009 Weighted-average common shares outstanding - diluted 1,373 1,343 1,338 1,320 1,304 1,285 1,306 Non-trading revenues as a percentage of revenues (5) 47% 50% 47% 44% 48% 52% 47% Trading revenues as a percentage of revenues (5) 53% 50% 53% 56% 52% 48% 53% Effective income tax rate 39.3% 39.5% 39.5% 40.6% 33.7% 39.6% 40.5% Capital expenditures - cash purchases of equipment, office facilities, property, and internal-use software development costs, $ 370 $ 199 $ 150 $ 173 $ 180 $ 48 $ 99 Capital expenditures as a percentage of revenues 8.4% 6.4% 5.7% 8.1% 10.1% 3.2% 7.3% ==================================================================================================================================== Performance Measures Revenue growth (decline) 42% 19% 23% 19% 21% 10% 23% Pre-tax profit margin - reported 24.9% 21.8% 20.3% 21.7% 10.3% 17.4% 19.9% After-tax profit margin - reported 15.1% 13.2% 12.3% 12.9% 6.8% 10.5% 11.8% After-tax profit margin - operating (3) 15.3% 13.3% 13.4% 13.3% 12.0% 12.4% 12.3% Return on stockholders' equity 31% 27% 26% 29% 16% 24% 30% ==================================================================================================================================== Financial Condition (at year end) Total assets $34,322 $26,407 $20,297 $17,256 $13,125 $11,141 $10,083 Long-term debt $ 518 $ 419 $ 433 $ 310 $ 275 $ 232 $ 250 Stockholders' equity $ 2,576 $ 1,673 $ 1,376 $ 1,069 $ 815 $ 690 $ 608 Assets to stockholders' equity ratio 13 16 15 16 16 16 17 Long-term debt to total financial capital (long-term debt plus stockholders' equity) 17% 20% 24% 22% 25% 25% 29% ==================================================================================================================================== Client Information (at year end) Active client accounts (6) 6.6 5.6 4.8 4.1 3.4 3.0 2.5 Client assets (in billions) $ 846.0 $ 594.3 $ 437.2 $ 324.1 $ 243.7 $ 163.7 $ 134.8 Total mutual fund assets (in billions) $ 294.0 $ 218.1 $ 166.3 $ 122.4 $ 85.4 $ 57.2 $ 43.9 Independent investment advisor client accounts (in thousands) (7) 848.3 689.9 547.2 442.2 390.6 301.1 216.4 Independent investment advisor client assets (in billions) (7) $ 213.1 $ 146.4 $ 105.8 $ 72.9 $ 50.6 $ 32.6 $ 22.9 Number of domestic offices 368 315 291 253 240 222 210 ==================================================================================================================================== Employee Information Full-time equivalent employees (at year end, in thousands) 20.1 15.1 14.3 11.9 10.7 9.4 9.3 Revenues per average full-time equivalent employee (in thousands) $ 249 $ 214 $ 204 $ 195 $ 182 $ 165 $ 166 Compensation and benefits expense as a percentage of revenues 37.0% 43.2% 42.4% 42.0% 43.5% 43.5% 43.0% ==================================================================================================================================== Clients' Daily Average Trading Volume (in thousands) (8) Daily average revenue trades (9) 163.1 97.2 71.8 54.0 40.8 29.5 28.1 Mutual Fund OneSource and other asset-based trades 45.6 40.3 34.2 27.2 17.8 14.3 7.4 - ------------------------------------------------------------------------------------------------------------------------------------ Daily average trades 208.7 137.5 106.0 81.2 58.6 43.8 35.5 ==================================================================================================================================== Average Revenue Per Revenue Trade $ 45.55 $ 53.44 $ 64.27 $ 69.08 $ 73.11 $ 72.68 $ 76.75 ==================================================================================================================================== (1) Periods have been adjusted to summarize the impact of The Charles Schwab Corporation's sale of its U.K. brokerage subsidiary, Charles Schwab Europe, in loss from discontinued operations. (2) Both basic and diluted earnings per share include discontinued operations and extraordinary items. (3) Represents a non-GAAP income measure, which excludes non-operating revenue (which primarily consists of gains on sales of investments), restructuring charges, impairment charges, acquisition- and merger-related charges, other charges, discontinued operations, and extraordinary items. See reconciliation of net income to adjusted operating income at Exhibit 99.4 to this Current Report on Form 8-K. (4) Dividends declared per common share do not include dividends declared by USTC prior to the completion of the merger in 2000. (5) Non-trading revenues include asset management and administration fees, net interest revenue, and other revenues. Trading revenues include commission and principal transaction revenues. (6) Reflects the removal of 192,000 accounts in 2003 related to the Company's withdrawal from the Employee Stock Purchase Plan business and the transfer of those accounts to other providers. Effective in 1998, active accounts are defined as accounts with balances or activity within the preceding eight months instead of twelve months as previously defined. This change in definition had the effect of decreasing the number of active accounts in 1998 by approximately 200,000. Prior years have not been adjusted. (7) Represents amounts related to Schwab's Services for Investment Managers unit. (8) Effective in the third quarter of 2003, the Company considers reduced exchange trading sessions as half days in calculating daily average trades. (9) Effective in 1997, revenue trades have been adjusted for all years presented to 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. This data is reported on a trade date basis for 1995 to 2003, and settlement date basis prior to 1995.
EX-99 6 exh99_4.txt EXHIBIT 99.4
EXHIBIT 99.4 Reconciliation of Net Income to Adjusted Operating Income The Charles Schwab Corporation (In Millions) Year Ended December 31, 2003(9) 2002(10) 2001 2000 1999 1998 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues $4,087 $4,091 $4,292 $5,695 $4,405 $3,111 $2,619 $2,132 $1,789 $1,483 $1,353 Non-operating revenue (1) (17) - (26) - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues $4,070 $4,091 $4,266 $5,695 $4,405 $3,111 $2,619 $2,132 $1,789 $1,483 $1,353 ==================================================================================================================================== Net income $ 472 $ 109 $ 199 $ 718 $ 666 $ 410 $ 321 $ 275 $ 122 $ 156 $ 160 Adjustments to reconcile net income to adjusted operating income: Other income (1) (17) - (26) - - - - - - - - Restructuring charges (2) 81 358 382 - - - - - 156 50 - Impairment charges (3) 5 37 - - - - - - - - - Acquisition- and merger-related charges: Compensation - retention programs - 22 56 39 - - - - - - - Intangible asset amortization - 5 11 9 - - - - - - - Goodwill amortization - - 52 40 - - - - - - - Merger-related - - - 69 - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Total acquisition- and merger-related charges - 27 119 157 - - - - - - - Other charges (4) - - 20 - - - 39 - - - - Loss from discontinued operations (5) - 58 42 31 14 5 8 11 5 - - Extraordinary (gain) charge (6) - (22) (221) - - - - - - - 11 - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items 69 458 316 188 14 5 47 11 161 50 11 Tax benefit (7) (51) (158) (91) (37) (5) (2) (18) (3) (69) (22) (4) - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items, net of tax 18 300 225 151 9 3 29 8 92 28 7 - ------------------------------------------------------------------------------------------------------------------------------------ Adjusted operating income, after tax (8) $ 490 $ 409 $ 424 $ 869 $ 675 $ 413 $ 350 $ 283 $ 214 $ 184 $ 167 ==================================================================================================================================== (1) Primarily consists of pre-tax gains recorded on sales of investments. (2) Restructuring charges in 2003, 2002, and 2001 reflect the Company's plan to reduce operating expenses due to continued economic uncertainties and difficult market conditions. These charges primarily include workforce, facilities, systems hardware, software, and equipment reductions. Restructuring charges in 1995 and 1994 are related to USTC's sale of certain businesses. (3) Represents investment write-downs related to the Company's U.K. market-making operation, the sale of which was completed in 2003. (4) Other pre-tax charges include a regulatory fine assessed to, and professional service fees for operational and risk management remediation at, USTC and U.S. Trust NY in 2001, and a litigation settlement related to the Company's Mayer & Schweitzer, Inc. subsidiary in 1997. (5) Represents the summarized impact of the Company's sale of its U.K. brokerage subsidiary. (6) For 2002 and 2001, represents the gain from the sale of USTC's Corporate Trust business to The Bank of New York Company, Inc., including amounts recognized upon satisfaction of certain client retention requirements. For 1993, represents a charge for the early retirement of debt. (7) 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 2003. (8) 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. (9) For the fourth quarter of 2003, net income was $148 million compared to adjusted operating income after tax of $150 million. Adjustments to reconcile net income to adjusted operating income include $17 million of non-operating revenue, $20 million of restructuring charges, and a $1 million tax benefit. For the first quarter of 2003, net income was $71 million compared to adjusted operating income after tax of $63 million. Adjustments to reconcile net income to adjusted operating income include $5 million of impairment charges, a $5 million loss from discontinued operations, and an $18 million tax benefit, which includes $16 million associated with the Company's sale of its U.K. market-making operation. (10) For the fourth quarter of 2002, the Company had a net loss of $79 million compared to adjusted operating income after tax of $90 million. Adjustments to reconcile net loss to adjusted operating income include $170 million of restructuring charges, $37 million of impairment charges, a $42 million loss from discontinued operations, and an $80 million tax benefit.
EX-99 7 exh99_5.txt EXHIBIT 99.5
EXHIBIT 99.5 Quarterly Financial Information (Unaudited) The Charles Schwab Corporation (In Millions, Except Per Share Data and Ratios) - ------------------------------------------------------------------------------------------------------------------------------------ Weighted- Basic Diluted Dividends Average Earnings Earnings Declared Range Expenses Net Common (Loss) (Loss) Per of Common Range of Excluding Income Shares- Per Per Common Stock Price Price/Earnings Revenues(1) Interest(1) (Loss) Diluted Share(2) Share(2) Share(3) Per Share Ratio (4) - ------------------------------------------------------------------------------------------------------------------------------------ 2003 by Quarter Fourth $ 1,118 $ 884 $ 148 1,371 $ .11 $ .11 $.014 $13.98 - 10.90 40 - 31 Third dividend increase 1,051 854 127 1,366 .09 .09 .014 12.73 - 10.01 75 - 59 Second 1,018 836 126 1,360 .10 .09 .011 11.64 - 7.20 146 - 90 First 900 803 71 1,357 .05 .05 .011 12.46 - 6.25 208 - 104 - ------------------------------------------------------------------------------------------------------------------------------------ 2002 by Quarter Fourth $ 986 $ 1,055 $ (79) 1,340 $(.06) $(.06) $.011 $12.00 - 7.22 150 - 90 Third 1,020 1,021 (4) 1,358 .00 .00 .011 11.89 - 7.51 91 - 58 Second 1,037 876 98 1,385 .07 .07 .011 13.19 - 9.60 94 - 69 First 1,048 912 94 1,389 .07 .07 .011 19.00 - 12.25 136 - 88 - ------------------------------------------------------------------------------------------------------------------------------------ 2001 by Quarter Fourth $ 1,047 $ 1,067 $ (13) 1,362 $(.01) $(.01) $.011 $16.30 - 10.38 116 - 74 Third 1,005 978 13 1,395 .01 .01 .011 16.18 - 8.13 65 - 33 Second 1,057 1,059 102 1,405 .07 .07 .011 23.18 - 13.14 68 - 39 First 1,183 1,011 97 1,410 .07 .07 .011 33.00 - 14.50 92 - 40 - ------------------------------------------------------------------------------------------------------------------------------------ 2000 by Quarter Fourth $ 1,318 $ 1,084 $ 139 1,414 $ .10 $ .10 $.011 $35.88 - 25.69 70 - 50 Third dividend increase 1,304 1,055 142 1,415 .10 .10 .011 40.50 - 30.00 74 - 55 Second stock split 1,382 1,117 137 1,407 .10 .09 .009 40.58 - 24.00 72 - 43 First 1,691 1,177 300 1,390 .23 .22 .009 44.75 - 22.46 76 - 38 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 by Quarter Fourth $ 1,250 $ 933 $ 190 1,374 $ .15 $ .14 $.009 $31.17 - 17.96 64 - 37 Third stock split 999 759 144 1,376 .11 .11 .009 37.67 - 21.33 84 - 47 Second 1,096 810 171 1,377 .13 .12 .009 51.67 - 26.67 123 - 64 First 1,060 790 161 1,366 .12 .12 .009 32.67 - 16.96 88 - 46 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 by Quarter Fourth dividend increase/ stock split $ 889 $ 684 $ 122 1,349 $ .10 $ .10 $.009 $22.83 - 7.03 74 - 23 Third 803 613 114 1,339 .08 .08 .009 10.22 - 6.17 38 - 23 Second 728 578 91 1,338 .08 .07 .009 8.89 - 6.58 36 - 26 First 691 553 83 1,345 .06 .06 .009 9.32 - 7.58 39 - 32 - ------------------------------------------------------------------------------------------------------------------------------------ (1) 1998 through 2002 have been adjusted to summarize the impact of The Charles Schwab Corporation's sale of its U.K. brokerage subsidiary, Charles Schwab Europe, in loss from discontinued operations. (2) Both basic and diluted earnings per share include loss from discontinued operations for all periods presented. The first quarter of 2002 and second quarter of 2001 include an after-tax extraordinary gain of $12 million and $121 million, respectively, or $.01 and $.08 per share, respectively. (3) Dividends declared per common share do not include dividends declared by USTC prior to the completion of the merger in 2000. (4) Price/earnings ratio is computed by dividing the high and low market prices by diluted earnings per share for the 12-month period ended on the last day of the quarter presented.
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