-----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, R2bxPteOkMs//NxoZwDeFOgFJhUod9O6zJjUTbSrzHJtJJXDgk3TFJh/ivQ8bm6Z ssrGytxE2jadzkJgI/Ufcg== 0000316709-04-000033.txt : 20041015 0000316709-04-000033.hdr.sgml : 20041015 20041015120312 ACCESSION NUMBER: 0000316709-04-000033 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040930 ITEM INFORMATION: Results of Operations and Financial Condition FILED AS OF DATE: 20041015 DATE AS OF CHANGE: 20041015 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: 041080309 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 15, 2004 EARNINGS RELEASE UNITED STATES 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 15, 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 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) THE CHARLES SCHWAB CORPORATION Item 2.02 Results of Operations and Financial Condition On October 15, 2004, The Charles Schwab Corporation issued a press release announcing its financial results for the quarter ended September 30, 2004. A copy of the press release is furnished as Exhibit 99.1 to this report. - 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: October 15, 2004 /s/ Christopher V. Dodds ----------------- ------------------------------ Christopher V. Dodds Executive Vice President and Chief Financial Officer - 2 - THE CHARLES SCHWAB CORPORATION Exhibit Index 99.1 Press Release dated October 15, 2004 ("Schwab Reports Quarterly Results") - 3 - EX-99 2 exhibit99_1.txt EXHIBIT 99.1, OCTOBER 15, 2004 EARNINGS RELEASE Exhibit 99.1 FOR IMMEDIATE RELEASE CONTACTS: Media (San Francisco) Greg Gable (415) 636-5847 Investors/Analysts Rich Fowler (415) 636-9869 SCHWAB REPORTS QUARTERLY RESULTS SAN FRANCISCO, October 15, 2004 - The Charles Schwab Corporation announced today that $70 million in after-tax charges relating to its ongoing cost reduction effort and $87 million in after-tax losses from discontinued operations, virtually all of which relates to the sale of its capital markets business, led to a net loss of $41 million, or $.03 per share, for the quarter ended September 30, 2004. Excluding these items and a $9 million after-tax gain on the sale of an investment, the Company's adjusted operating income was $107 million, or $.08 per share, for the third quarter of 2004. For the nine months ended September 30, 2004, the Company's net income and adjusted operating income were $233 million and $374 million, respectively. A table that reconciles net income to adjusted operating income is attached.
Three Months Ended Nine Months Ended --September 30,-- % --September 30,-- % Financial Highlights 2004 2003 Change 2004 2003 Change - ----------------------------------------------------------------------------------------------------------- Reported Results: Revenues (in millions) $1,000 $997 - % $3,142 $2,834 11 % Net income (loss) (in millions) $(41) $127 n/m $233 $324 (28)% Diluted earnings per share $(.03) $.09 n/m $.17 $.24 (29)% After-tax profit margin (4.1)% 12.7% 7.4% 11.4% Return on stockholders' equity (3)% 12% 7% 10% Adjusted Operating Results(1): Revenues (in millions) $986 $997 (1)% $3,128 $2,834 10% Income (in millions) $107 $144 (26)% $374 $344 9% Diluted earnings per share $.08 $.11 (27)% $.27 $.25 8% After-tax profit margin 10.9% 14.4% 12.0% 12.1% 1. Non-GAAP income measures which exclude gains or losses from discontinued operations, a non-recurring gain on the sale of an investment, restructuring charges, impairment charges, and a non-recurring tax benefit. n/m - not meaningful - -----------------------------------------------------------------------------------------------------------
Note: The Company's revenues and expenses for the third quarter of 2004 and prior quarters have been adjusted to summarize the impact of its capital markets business in the Discontinued Operations line on the Consolidated Statement of Income. The Discontinued Operations line now reflects both the past earnings and the pending sale of the capital markets business. In reviewing the third quarter, Chairman and CEO Charles Schwab commented, "As we transition the Company and intensify our focus on serving individual investors and the advisors who work with them, we took several important steps over the last few months. The first of these steps was our previously announced exit from the capital markets business, which we expect to complete during the fourth quarter. Additionally, in early October we announced a set of price reductions, which follows an initial round of reductions that took effect in June. Together, these reductions provide a lower price to every Schwab client who trades stocks online, reducing their trading costs by an average of about 20%." Mr. Schwab continued, "While our decision to exit the capital markets business and our ongoing cost reduction initiative led to after-tax charges in excess of $150 million and a net loss for the third quarter, clients continued to build relationships with Schwab. Excluding a $2.1 billion non-recurring inflow in September relating to our mutual fund clearing business, new and existing clients brought $10.9 billion in net new assets to the Company during the quarter. We are more committed than ever to providing great value and great service to both new clients and those who have already entrusted us with $1.0 trillion of their assets." CFO Christopher Dodds noted, "Our continued success in building relationships is also evident in our growing non-trading revenues - excluding a non-recurring gain on the sale of an investment, our non-trading revenues grew by 4% sequentially to reach a new record of $801 million in the third quarter of 2004. Our trading revenues, however, declined by 29% due to the reduced online equity commission rates and lower client activity levels. Our ongoing focus on simplifying and streamlining the Company resulted in a 5% sequential decline in operating expenses, resulting in adjusted operating income that was consistent with the prior quarter. The Company's solid financial foundation continues to support our ability to drive down our costs and deliver greater value to our clients as we move Schwab forward. This foundation, which includes a strong balance sheet with over $4.5 billion of stockholder equity, has also enabled us to increase our dividend by 43% this year, as well as pay down approximately $160 million in maturing long-term debt and repurchase approximately $150 million of our common stock." Mr. Dodds concluded, "While continuing geopolitical and energy market uncertainties, a close presidential race, and vacation season all pressured trading volumes during the third quarter, we have seen client activity start to pick up in October - daily average revenue trades averaged 148,000 for the first nine trading days of the month." As previously reported, the Company estimates that it will recognize approximately $75 million in after-tax charges associated with its withdrawal from the capital markets business during the fourth quarter of 2004. In addition, management expects that fourth quarter restructuring charges associated with its cost reduction effort will be approximately $40 million after-tax. The Company estimates that its cost reduction effort will result in approximately $275 million in annualized cost savings by the end of 2004, with the expectation that the full benefit of these savings will be realized in 2005. Additional savings from cost reduction efforts to be implemented during 2005 have not been finalized. Business highlights for the third quarter (data as of quarter-end unless otherwise noted): o For accounts at the Company with an ongoing advisory component (includes accounts enrolled in Schwab Private Client and Schwab Advised Investing(TM), accounts managed by independent investment advisors (IAs), and U.S. Trust(R) accounts): o Net new client assets during the quarter = $9 billion. o Total assets = $475 billion, up 22% year-over-year. o Total number of accounts = 1.4 million. Individual Investor Business o Number of clients enrolled in Schwab Private Client and Schwab Advised Investing = 35,400, up 27% from the prior quarter. o Introduced Instant Enrollment, a new streamlined process for enrolling Schwab clients in an offer. Schwab Institutional Business o Client referrals to IAs through Schwab Advisor Network(R) program during the quarter = 3,900, down 16% from the prior quarter. o Client assets at Schwab associated with IA referral programs = $23 billion, up 35% year-over-year and up approximately $650 million during the quarter. o Total client assets associated with Schwab Institutional = $316 billion, up 22% year-over-year. o Launched PortfolioCenter(TM), a desktop portfolio management system that provides custom analysis and reporting, streamlined processing for daily downloads, new security features and improved performance. o Debuted a new portfolio accounting system which enables IAs to track the cost basis for mutual funds, options and equities; also introduced the Custom Statement, which allows IAs to provide cost basis and realized and unrealized gain/loss data on their client statements. Corporate Services Business o Net new assets at Corporate Services during the third quarter = $701 million. o Total client assets in employer-sponsored retirement plans at Schwab = $122 billion, up 16% year-over-year. U.S. Trust Business o Total referrals from Schwab to U.S. Trust were over 330, compared with over 450 in the prior quarter. o Client assets at U.S. Trust associated with the referral program = $4.3 billion, up 60% year-over-year and up $290 million during the quarter. o Total client assets at U.S. Trust = $137 billion, up 18% year-over-year. Products o Total client assets held in third-party Mutual Fund OneSource(R) funds = $115 billion. o Total client assets held in proprietary funds (SchwabFunds(R), Excelsior(R) and other) = $152 billion. o Total client assets held in fixed income securities = $156 billion, up 16% year-over-year. o For Schwab Bank, N.A.: o Balance sheet assets = $4.1 billion, up 8% from the prior quarter. o Outstanding mortgage and home equity loans = $914 million. o First mortgage originations during the third quarter = $227 million. This earnings release contains forward-looking statements that reflect management's current expectations. These statements relate to expected cost reductions and charges for severance and excess real estate. Achievement of these expectations is subject to risks and uncertainties that could cause actual results to differ materially from the expressed expectations. Important factors that may cause such differences include, but are not limited to, the extent of the workforce reduction associated with exiting the capital markets business, the impact of evolving real estate market conditions on sublease rates for the Company's excess office space, and the Company's ability to identify and implement the staffing reductions and other operating efficiencies necessary to achieve its cost reduction goals. The Charles Schwab Corporation (NYSE / Nasdaq:SCH), through Charles Schwab & Co., Inc. (member SIPC), U.S. Trust Corporation, CyberTrader(R), Inc. and its other operating subsidiaries, is one of the nation's largest financial services firms in terms of client assets. 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, 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Asset management and administration fees $ 523 $ 468 $1,547 $1,345 Commissions 163 290 738 793 Interest revenue 317 235 855 717 Interest expense (72) (54) (177) (182) ------- ------- ------- ------- Net interest revenue 245 181 678 535 Principal transactions 22 22 69 70 Other 47 36 110 91 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,000 997 3,142 2,834 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses Excluding Interest Compensation and benefits 455 418 1,430 1,230 Occupancy and equipment 97 106 299 322 Depreciation and amortization 58 69 167 212 Communications 53 59 170 169 Professional services 62 44 181 123 Advertising and market development 43 31 151 100 Commissions, clearance and floor brokerage 9 10 29 29 Restructuring charges 112 35 114 59 Impairment charges - - - 5 Other 39 29 116 101 - ------------------------------------------------------------------------------------------------------------------------------------ Total 928 801 2,657 2,350 - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations before taxes on income 72 196 485 484 Taxes on income (26) (72) (173) (154) - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations 46 124 312 330 Gain (loss) from discontinued operations, net of tax (87) 3 (79) (6) - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) $ (41) $ 127 $ 233 $ 324 ==================================================================================================================================== Weighted-Average Common Shares Outstanding - Diluted 1,364 1,366 1,370 1,361 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share - Basic Income from continuing operations $ .03 $ .09 $ .23 $ .24 Gain (loss) from discontinued operations, net of tax $ (.06) - $ (.06) - Net income (loss) $ (.03) $ .09 $ .17 $ .24 Earnings Per Share - Diluted Income from continuing operations $ .03 $ .09 $ .23 $ .24 Gain (loss) from discontinued operations, net of tax $ (.06) - $ (.06) - Net income (loss) $ (.03) $ .09 $ .17 $ .24 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends Declared Per Common Share $ .020 $ .014 $ .054 $ .036 - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Statement of Income and Financial and Operating Highlights.
THE CHARLES SCHWAB CORPORATION Financial and Operating Highlights (Unaudited) | 2004 | 2003 | 2002 | - ------------------------------------------------------------------------------------------------------------------------------------ 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 $ 523 $ 517 $ 507 $ 487 $ 468 $ 448 $ 429 $ 434 $ 432 Commissions 163 239 336 304 290 285 218 275 289 Interest revenue, net of interest expense 245 224 209 193 181 179 175 189 204 Principal transactions 22 22 25 23 22 25 23 23 27 Other 47 32 31 55 36 34 21 27 31 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,000 1,034 1,108 1,062 997 971 866 948 983 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses Excluding Interest (1) Compensation and benefits 455 493 482 435 418 421 391 410 439 Occupancy and equipment 97 100 102 108 106 108 108 116 106 Depreciation and amortization 58 53 56 65 69 69 74 75 77 Communications 53 56 61 59 59 54 56 58 59 Professional services 62 61 58 52 44 43 36 38 39 Advertising and market development 43 46 62 39 31 22 47 54 50 Commissions, clearance and floor brokerage 9 11 9 11 10 11 8 11 12 Restructuring charges (2) 112 2 - 17 35 24 - 157 158 Impairment charges - - - - - - 5 37 - Other 39 43 34 43 29 36 36 47 38 - ------------------------------------------------------------------------------------------------------------------------------------ Total 928 865 864 829 801 788 761 1,003 978 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before taxes on income (loss) 72 169 244 233 196 183 105 (55) 5 Tax (expense) benefit on income (loss) (1) (26) (62) (85) (87) (72) (57) (25) 13 (2) - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations 46 107 159 146 124 126 80 (42) 3 Gain (loss) from discontinued operations, net of tax (87) 6 2 2 3 - (9) (37) (7) - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) $ (41) $ 113 $ 161 $ 148 $ 127 $ 126 $ 71 $ (79) $ (4) =================================================================================================================================== Basic earnings (loss) per share $ (.03) $ .08 $ .12 $ .11 $ .09 $ .10 $ .05 $ (.06) $ - Diluted earnings (loss) per share $ (.03) $ .08 $ .12 $ .11 $ .09 $ .09 $ .05 $ (.06) $ - Dividends declared per common share $ .020 $ .020 $ .014 $ .014 $ .014 $ .011 $ .011 $ .011 $ .011 Weighted-average common shares outstanding - diluted 1,364 1,373 1,375 1,371 1,366 1,360 1,357 1,340 1,358 - ------------------------------------------------------------------------------------------------------------------------------------ Performance Measures Adjusted operating income (3) $ 107 $ 108 $ 159 $ 147 $ 144 $ 131 $ 69 $ 90 $ 102 After-tax profit margin - reported (4.1%) 10.9% 14.5% 13.9% 12.7% 13.0% 8.2% (8.3%) (.4%) After-tax profit margin - operating (3) 10.9% 10.4% 14.4% 14.1% 14.4% 13.5% 8.0% 9.5% 10.4% Return on stockholders' equity (4) (3%) 10% 14% 13% 12% 12% 7% (8%) - - ------------------------------------------------------------------------------------------------------------------------------------ Financial Condition (at quarter end) Cash and investments segregated (in billions) $ 19.6 $ 20.5 $ 20.8 $ 21.3 $ 22.4 $ 22.6 $ 22.3 $ 21.0 $ 19.2 Receivables from brokerage clients (in billions) $ 9.2 $ 9.3 $ 9.3 $ 8.6 $ 7.7 $ 7.0 $ 6.3 $ 6.8 $ 7.1 Total assets (in billions) $ 45.9 $ 47.3 $ 46.3 $ 45.9 $ 43.8 $ 41.8 $ 40.4 $ 39.7 $ 37.6 Payables to brokerage clients (in billions) $ 25.9 $ 26.9 $ 26.5 $ 27.2 $ 26.1 $ 26.2 $ 25.8 $ 26.4 $ 24.8 Long-term debt (in millions) $ 611 $ 645 $ 779 $ 772 $ 776 $ 811 $ 856 $ 642 $ 652 Stockholders' equity (in millions) $4,555 $4,732 $4,662 $4,461 $4,312 $4,179 $4,056 $4,011 $4,143 - ------------------------------------------------------------------------------------------------------------------------------------ Other (5) Full-time equivalent employees (at quarter end, in thousands) 14.8 16.3 16.5 16.0 15.7 15.7 16.1 16.4 18.3 Capital expenditures - cash purchases of equipment, office facilities, property, and internal-use software development costs, net (in millions) $ 66 $ 51 $ 34 $ 50 $ 36 $ 31 $ 30 $ 43 $ 40 - ------------------------------------------------------------------------------------------------------------------------------------ Clients' Daily Average Trading Volume (in thousands) (6) Daily average revenue trades (7) 128.1 142.2 178.0 161.7 145.1 141.0 114.6 131.6 129.1 Mutual Fund OneSource(R) and other asset-based trades 62.3 67.4 72.3 62.3 58.0 57.1 54.3 51.9 56.5 - ------------------------------------------------------------------------------------------------------------------------------------ Active Trader Daily Average Revenue Trades (in thousands) (6,7,8) 66.1 72.5 91.5 80.8 72.9 69.5 54.5 61.1 58.2 - ------------------------------------------------------------------------------------------------------------------------------------ Average Revenue Per Revenue Trade (7) $26.09 $34.87 $37.59 $35.20 $36.96 $37.73 $37.30 $37.48 $39.71 - ------------------------------------------------------------------------------------------------------------------------------------ (1) All periods have been adjusted to summarize the impact of The Charles Schwab Corporation's (the Company's) sales of its capital markets business, Schwab Soundview Capital Markets, and its United Kingdom (U.K.) 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 a non-GAAP income measure which excludes non-operating revenue, restructuring charges, impairment charges, and gain (loss) from discontinued operations, net of taxes, as well as a non-recurring tax benefit. See attached reconciliation of net income to adjusted operating income. (4) Calculated based on annualized quarterly net income (loss) and average stockholders' equity for the quarter. (5) All periods have been adjusted to reflect the sale of Schwab Soundview Capital Markets. (6) Effective in the third quarter of 2003, the Company considers reduced exchange trading sessions as half days in calculating daily average trades. (7) 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. (8) Active Trader includes all CyberTrader clients and Schwab clients enrolled in one of Schwab's three Active Trader offers. 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 (Unaudited) | 2004 | 2003 | 2002 | - ------------------------------------------------------------------------------------------------------------------------------------ Third Second First Fourth Third Second First Fourth Third (In millions) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Revenues $1,000 $1,034 $1,108 $1,062 $ 997 $ 971 $ 866 $ 948 $ 983 Non-operating revenue (1) (14) - - (17) - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues $ 986 $1,034 $1,108 $1,045 $ 997 $ 971 $ 866 $ 948 $ 983 ==================================================================================================================================== Net income (loss) $ (41) $ 113 $ 161 $ 148 $ 127 $ 126 $ 71 $ (79) $ (4) Adjustments to reconcile net income (loss) to adjusted operating income: Other income (1) (14) - - (17) - - - - - Restructuring charges (2, 3) 112 2 - 17 35 24 - 157 158 Impairment charges (3) - - - - - - 5 37 - Loss (gain) from discontinued operations (4) 131 (10) (3) (2) (6) 1 13 56 12 - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items 229 (8) (3) (2) 29 25 18 250 170 Tax benefit (expense) (5) (81) 3 1 1 (12) (20) (20) (81) (64) - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items, net of tax 148 (5) (2) (1) 17 5 (2) 169 106 - ------------------------------------------------------------------------------------------------------------------------------------ Adjusted operating income, after tax (6) $ 107 $ 108 $ 159 $ 147 $ 144 $ 131 $ 69 $ 90 $ 102 ==================================================================================================================================== (1) Primarily consists of pre-tax gains recorded on sales of investments. (2) Restructuring charges reflect The Charles Schwab Corporation's (the Company's) 2004 cost reduction effort and previous restructuring initiatives under 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. (3) Adjusted operating expenses equal total expenses excluding interest less total restructuring and impairment charges. (4) Represents the summarized impact of the Company's sales of its capital markets business and its U.K. brokerage subsidiary. (5) Includes an $11 million non-recurring tax benefit in the second quarter of 2003 and a $16 million tax benefit associated with the Company's sale of its U.K. market-making operation in the first quarter of 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 (CSC) and its majority-owned subsidiaries (collectively referred to as the Company), including Charles Schwab & Co., Inc., U.S. Trust Corporation, and CyberTrader, Inc. All periods have been adjusted to summarize the impact of CSC's sales of its capital markets business, Schwab Soundview Capital Markets, and its U.K. brokerage subsidiary, Charles Schwab Europe, in gain (loss) from discontinued operations. 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 2003 Annual Report to Stockholders and the Company's Quarterly Reports on Form 10-Q for the periods ended March 31 and June 30, 2004. 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) | 2004 | 2003 | 2002 | - ------------------------------------------------------------------------------------------------------------------------------------ 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 $ 35.7 $ 36.5 $ 35.4 $ 34.2 $ 31.8 $ 30.2 $ 31.1 $ 31.1 $ 29.0 Proprietary funds (SchwabFunds(R), Excelsior(R) and other): Money market funds 114.0 115.0 116.3 119.2 124.4 126.8 132.4 129.7 129.2 Equity and bond funds 38.4 37.5 36.8 34.2 30.7 31.2 27.4 27.7 26.8 - ------------------------------------------------------------------------------------------------------------------------------------ Total proprietary funds 152.4 152.5 153.1 153.4 155.1 158.0 159.8 157.4 156.0 - ------------------------------------------------------------------------------------------------------------------------------------ Mutual Fund Marketplace(R) (1): Mutual Fund OneSource(R) 114.5 115.2 115.1 101.5 90.1 85.0 71.8 73.6 70.0 Mutual fund clearing services 38.1 33.9 37.5 33.5 28.4 24.5 21.4 21.2 19.8 All other 103.6 101.7 100.5 98.4 88.3 84.6 71.6 71.6 68.5 - ------------------------------------------------------------------------------------------------------------------------------------ Total Mutual Fund Marketplace 256.2 250.8 253.1 233.4 206.8 194.1 164.8 166.4 158.3 - ------------------------------------------------------------------------------------------------------------------------------------ Total mutual fund assets 408.6 403.3 406.2 386.8 361.9 352.1 324.6 323.8 314.3 - ------------------------------------------------------------------------------------------------------------------------------------ Equity and other securities (1) 410.0 418.2 414.0 408.5 355.9 338.2 287.9 294.7 272.9 Fixed income securities (2) 155.7 149.4 149.8 145.7 134.6 131.1 125.2 121.8 117.5 Margin loans outstanding (9.1) (9.1) (9.1) (8.5) (7.5) (6.9) (6.2) (6.6) (6.9) - ------------------------------------------------------------------------------------------------------------------------------------ Total client assets $1,000.9 $ 998.3 $ 996.3 $ 966.7 $ 876.7 $ 844.7 $ 762.6 $ 764.8 $ 726.8 ==================================================================================================================================== Net growth in assets in client accounts (for the quarter ended) Net new client assets (3) $ 13.0 $ 6.7 $ 13.8 $ 24.9 $ 10.6 $ 6.5 $ 14.2 $ 10.1 $ 10.6 Net market gains (losses) (10.4) (4.7) 15.8 65.1 21.4 75.6 (16.4) 27.9 (80.8) - ------------------------------------------------------------------------------------------------------------------------------------ Net growth (decline) $ 2.6 $ 2.0 $ 29.6 $ 90.0 $ 32.0 $ 82.1 $ (2.2) $ 38.0 $ (70.2) ==================================================================================================================================== U.S. Trust client assets (4) $ 137.3 $ 137.0 $ 135.8 $ 137.2 $ 116.1 $ 114.0 $ 106.7 $ 108.0 $ 106.1 - ------------------------------------------------------------------------------------------------------------------------------------ New client accounts (in thousands, for the quarter ended) 114.2 139.1 159.8 145.5 123.9 151.9 171.0 154.5 159.6 Active client accounts (in millions) (5) 7.4 7.5 7.5 7.5 7.6 7.7 8.0 8.0 8.0 - ------------------------------------------------------------------------------------------------------------------------------------ (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) Includes individual inflows (outflows) of $2.1 billion and ($6.0) billion in the third and second quarters of 2004, respectively, related to mutual fund clearing clients. Includes inflows of $12.1 billion in the fourth quarter of 2003 at U.S. Trust related to the acquisition of State Street Corporation's Private Asset Management group. (4) Included in total client assets above. (5) 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.
The Charles Schwab Corporation Monthly Market Activity Report For September 2004 Investor activity for 7.4 million active client accounts (1) Clients opened 37,800 new accounts during September 2004. 2003 2004 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug - ------------------------------------------------------------------------------------------------------------------------------------ Change in Client Assets (in billions of dollars) Net New Assets (2) 3.0 3.1 16.4 5.4 5.9 3.3 4.6 2.1 4.4 .2 3.4 3.7 Net Market Gains (Losses) (2.2) 33.1 8.9 23.1 16.3 8.5 (9.0) (24.7) 6.8 13.2 (26.1) 3.2 - ------------------------------------------------------------------------------------------------------------------------------------ Total Client Assets (at month end, in billions of dollars) 876.7 912.9 938.2 966.7 988.9 1,000.7 996.3 973.7 984.9 998.3 975.6 982.5 ==================================================================================================================================== Market Indices (at month end) Dow Jones Industrial Average 9,275 9,801 9,782 10,454 10,488 10,584 10,358 10,226 10,189 10,436 10,140 10,174 Nasdaq Composite 1,787 1,932 1,960 2,003 2,066 2,030 1,994 1,920 1,987 2,048 1,887 1,838 Standard & Poor's 500 996 1,051 1,058 1,112 1,131 1,145 1,126 1,107 1,121 1,141 1,102 1,104 Schwab 1000 3,202 3,384 3,418 3,572 3,633 3,681 3,629 3,560 3,605 3,665 3,533 3,543 Clients' Daily Average Revenue Trades (in thousands) (3) 159.9 156.0 161.4 168.4 215.1 166.9 155.0 164.6 135.1 126.6 133.7 118.6 Clients' Daily Average Mutual Fund OneSource(R) and Other Asset-Based Trades (in thousands) (4) 61.5 59.7 61.3 66.0 79.9 68.5 68.7 71.9 66.8 63.4 62.9 60.1 Daily Average Market Share Volume (in millions) NYSE 1,437 1,430 1,293 1,276 1,663 1,481 1,477 1,525 1,500 1,371 1,418 1,244 Nasdaq 1,943 1,827 1,821 1,637 2,332 1,917 1,881 1,951 1,664 1,623 1,735 1,431 - ------------------------------------------------------------------------------------------------------------------------------------ Total 3,380 3,257 3,114 2,913 3,995 3,398 3,358 3,476 3,164 2,994 3,153 2,675 ==================================================================================================================================== Mutual Fund Net Buys (Sells) (5) (in millions of dollars) Domestic Growth 913.0 1,086.5 848.1 745.7 2,030.7 1,065.2 421.0 662.0 (126.6) 801.5 100.8 (72.6) International Growth 142.8 698.1 405.8 534.6 1,020.4 769.4 685.1 579.3 118.1 513.8 242.4 227.9 Balanced (stock and bond) 562.1 560.7 478.9 501.8 1,141.4 702.6 768.2 535.0 108.1 416.8 190.8 216.6 Bond - Taxable 83.3 358.6 191.1 96.0 535.2 563.9 1,151.4 (117.9) (301.2) 311.9 400.4 654.0 Bond - Tax Advantaged (63.6) (58.0) (56.3) (24.5) 19.0 85.7 102.5 (172.0) (245.5) (148.8) (34.1) 28.8 % change Sep Mo. Yr.* - -------------------------------------------------------------- Change in Client Assets (in billions of dollars) Net New Assets (2) 5.9 59% 97% Net Market Gains (Losses) 12.5 - -------------------------------------------------------------- Total Client Assets (at month end, in billions of dollars) 1,000.9 2% 14% ============================================================== Market Indices (at month end) Dow Jones Industrial Average 10,080 (1%) 9% Nasdaq Composite 1,897 3% 6% Standard & Poor's 500 1,115 1% 12% Schwab 1000 3,584 1% 12% Clients' Daily Average Revenue Trades (in thousands) (3) 132.5 12% (17%) Clients' Daily Average Mutual Fund OneSource(R) and Other Asset-Based Trades (in thousands) (4) 64.0 6% 4% Daily Average Market Share Volume (in millions) NYSE 1,322 6% (8%) Nasdaq 1,511 6% (22%) - -------------------------------------------------------------- Total 2,833 6% (16%) ============================================================== Mutual Fund Net Buys (Sells) (5) (in millions of dollars) Domestic Growth 437.0 International Growth 451.6 Balanced (stock and bond) 416.7 Bond - Taxable 870.5 Bond - Tax Advantaged 51.5 (1) Active client accounts are defined as accounts with balances or activity within the preceding eight months. (2) September 2004, June 2004, and August 2003 data include individual inflows (outflows) of $2.1 billion, ($6.0) billion, and $0.6 billion, respectively, related to mutual fund clearing clients. August 2004, March 2004, and January 2004 data include individual inflows (outflows) of $0.5 billion, ($0.8) billion, and ($0.5) billion, respectively, at U.S. Trust related to Special Fiduciary business clients. February 2004 data includes an individual outflow of $1.8 billion at U.S. Trust related to a custody relationship. January 2004 data includes inflows of $1.3 billion related to the Company's adoption of AXA Rosenberg LLC's U.S. family of mutual funds, known as the Laudus Funds(TM). Data excludes mutual fund capital gains reinvestments, which were $1.1 billion in December 2003. November 2003 data includes inflows of $12.1 billion at U.S. Trust related to the acquisition of State Street Corporation's Private Asset Management group. (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 trades executed on Schwab's no-transaction fee Mutual Fund OneSource(R) platform, trades placed through Schwab's mutual fund clearing service, and trades placed by investment advisors and individual investors enrolled in an asset-based pricing program or offer. (5) 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), Excelsior(R) Funds and other proprietary funds. Includes institutional funds available only to Investment Managers. Excludes money market funds. * September 2004 vs. September 2003 The Charles Schwab Corporation
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