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.