-----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, IdCGGGNRPgsfV52RoKj6plZ3VPeyuIHanIbYuh/bv9zMPsvP/2nS+zZN6S6v1e+3 cUEO7WZ5Onl4RE+ThlIP4w== 0000316709-05-000002.txt : 20050118 0000316709-05-000002.hdr.sgml : 20050117 20050118120005 ACCESSION NUMBER: 0000316709-05-000002 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20041231 ITEM INFORMATION: Results of Operations and Financial Condition FILED AS OF DATE: 20050118 DATE AS OF CHANGE: 20050118 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: 05532778 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 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 January 18, 2005 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 January 18, 2005, The Charles Schwab Corporation issued a press release announcing its financial results for the quarter and year ended December 31, 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: January 18, 2005 /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 January 18, 2005 ("Schwab Reports Fourth Quarter and Full Year Results") - 3 - EX-99 2 exhibit99_1.txt JANUARY 18, 2005 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 REPORTS FOURTH QUARTER AND FULL YEAR RESULTS SAN FRANCISCO, January 18, 2005 - The Charles Schwab Corporation announced today that its net income for the quarter ended December 31, 2004 was $53 million. In comparison, the Company reported a net loss of $41 million for the third quarter of 2004 and net income of $148 million for the fourth quarter of 2003. Excluding $62 million in after-tax charges relating to its ongoing cost reduction effort and $49 million in after-tax charges related to the Company's exit from the capital markets business, Schwab's fourth quarter 2004 adjusted operating income was $164 million - up 53% from the $107 million adjusted operating income generated in the prior quarter, and up 12% from the year-ago quarter's $147 million. For the year ended December 31, 2004, the Company's net income was $286 million, down 39% from 2003. Adjusted operating income for 2004 was $538 million, 10% higher than the 2003 level. A table that reconciles net income to adjusted operating income is attached.
Three Months Ended Twelve Months Ended --December 31,-- % --December 31,-- % Financial Highlights 2004 2003 Change 2004 2003 Change - ------------------------------------------------------------------------------------------------------------ Reported Results: Revenues (in millions) $1,060 $1,062 - % $4,202 $3,896 8% Net income (in millions) $53 $148 (64)% $286 $472 (39)% Diluted earnings per share $.04 $.11 (64)% $.21 $.35 (40)% After-tax profit margin 5.0% 13.9% 6.8% 12.1% Return on stockholders' equity 5% 13% 6% 11% Adjusted Operating Results(1): Revenues (in millions) $1,060 $1,045 1% $4,188 $3,879 8% Income (in millions) $164 $147 12% $538 $491 10% Diluted earnings per share $.12 $.11 9% $.39 $.36 8% After-tax profit margin 15.5% 14.1% 12.8% 12.7% 1. Non-GAAP income measures which exclude gains or losses from discontinued operations, non-recurring gains on sales of investments, restructuring charges, impairment charges, and a non-recurring tax benefit. - ------------------------------------------------------------------------------------------------------------
In reviewing the Company's performance, Chairman and CEO Charles Schwab commented, "The last six months have been a period of extensive change at Schwab, as we have refocused on our core strategy of meeting the needs of individual investors and the independent advisors who serve them, exited the capital markets business, and launched a firm-wide cost reduction initiative. Throughout all of these corporate actions, however, we have remained focused on building stronger relationships with our clients by reducing our commission rates and enhancing our services - and our progress here is reflected in our fourth quarter client fundamentals. Clients brought a total of $16.8 billion in net new assets to the firm in the fourth quarter, our highest level, excluding asset inflows relating to acquisitions, in 13 quarters. Total client assets were a record $1.081 trillion at year end, up 12% from December 2003. In December, clients opened 56,000 new accounts, 37% higher than November and our best month since April 2004. We believe that providing great service at a great value will enable us to continue to attract investors of all types - independent investors, active traders, and those who want advice." CFO Christopher Dodds noted, "The securities markets improved and client activity picked up during the fourth quarter of 2004, helping the Company to achieve its seventh consecutive quarter of growth in non-trading revenues - asset management and administration fees, net interest income and other revenues reached a new record of $842 million, up 15% from the fourth quarter of 2003. This increase more than offset the impact of our reduced trading commissions and yielded 8% overall revenue growth for 2004. While $261 million in after-tax charges associated with our cost reduction initiative and our exit from the capital markets business contributed to net income of $286 million for the year, those actions have enabled us to dramatically reduce our cost base and improve our margins. Our 15.5% after-tax operating profit margin for the fourth quarter is the highest level since the first quarter of 2000 and reflects our emphasis on improving returns to stockholders. We are entering the new year with a leaner, more focused organization that can continue to rely on a strong balance sheet with $4.4 billion of stockholders' equity. That financial strength enabled us to reduce our long-term debt by $187 million, increase our dividend by 43%, and repurchase $383 million of common stock during the course of 2004." Business highlights for the fourth quarter (data as of quarter-end unless otherwise noted): Advised Investing 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 = $11 billion. o Total assets = a record $515 billion, up 18% year-over-year. o Total number of accounts = 1.5 million. Individual Investor Business o Number of clients enrolled in Schwab Private Client and Schwab Advised Investing = 43,300, up 22% from the prior quarter. o Announced a new branch strategy that revolves around one-on-one relationships with a Schwab consultant for clients with more complex needs. The new strategy also includes the use of satellite branch offices staffed with one or two consultants to provide a cost-efficient way of serving certain markets. o Streamlined the range of offers and enhanced software functionality for active traders. o Improved our options trading offering to include reduced pricing, enhanced tools and expanded education. o Introduced the Individual 401(k) plan for owner-only businesses and the self-employed. Schwab Institutional Business o Total client assets associated with Schwab Institutional = $348 billion, up 21% year-over-year. o Client assets new to the Schwab Advisor Network(R) program during the quarter = $1.8 billion. o Client referrals to IAs through Schwab Advisor Network(R) program during the quarter = 3,500, down 9% from the prior quarter. o Client assets at Schwab associated with IA referral programs = $25 billion, up 29% year-over-year and up approximately $2.4 billion during the quarter. o Hosted the 14th annual IMPACT(R) conference, where over 1,000 IAs attended the 4-day conference which included more than 30 educational sessions, forums and workshops. o Debuted a new section in the Schwab Institutional website that provides IAs with tools and services to help them understand and comply with ongoing compliance issues and the latest regulatory changes affecting the industry. Corporate Services Business o Net new assets at Corporate Services during the quarter = $1.8 billion. o Total client assets in employer-sponsored retirement plans at Schwab = $131 billion, up 14% year-over-year. U.S. Trust Business o Total referrals from Schwab to U.S. Trust were over 280, compared with over 330 in the prior quarter. o Client assets at U.S. Trust associated with the referral program = $4.7 billion, up 48% year-over-year and up $470 million during the quarter. o Total client assets at U.S. Trust = $141 billion, up 3% year-over-year. Products o Total client assets held in third-party Mutual Fund OneSource(R) funds = $128 billion. o Total client assets held in proprietary funds (SchwabFunds(R), Excelsior(R) and other) = $155 billion. o Total client assets held in fixed income securities = $141 billion, up 8% year-over-year. o Launched the Schwab Tax-Free YieldPlus Fund(TM) and the Schwab California Tax-Free YieldPlus Fund(TM) - two new ultra short tax-free bond funds for investors seeking a higher yield than a money fund but with less risk than a short-term bond fund. o For Charles Schwab Bank, N.A.: o Balance sheet assets = $4.4 billion, up 8% from the prior quarter. o Outstanding mortgage and home equity loans = $1.2 billion. o First mortgage originations during the quarter = $247 million. o Launched the Charles Schwab Bank Visa(R) credit card with WorldPoints(TM) Rewards. o Introduced the Pledged Asset Mortgage, a home financing option that allows investors to use eligible securities in their investment portfolio as additional collateral for a home mortgage loan. The Charles Schwab Corporation (NYSE / Nasdaq: SCH), through its operating subsidiaries, provides securities brokerage and financial services to individual investors and the independent investment advisors who work with them. With over 7 million individual investor accounts and more than $1 trillion in client assets, The Charles Schwab Corporation is one of the nation's largest financial services firms. Its subsidiary Charles Schwab & Co., Inc. (member SIPC) provides a complete range of investment services and products, including an extensive selection of mutual funds; financial planning and investment advice; retirement plans; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent fee-based investment advisors. Its subsidiary Charles Schwab Bank, N.A. (member FDIC) provides banking and mortgage services and products. The corporation's other operating subsidiaries include U.S. Trust Corporation (member FDIC) and CyberTrader(R), Inc. (member SIPC). These companies' Web sites can be reached at www.schwab.com, www.schwabbank.com, www.ustrust.com, and www.cybertrader.com. ###
THE CHARLES SCHWAB CORPORATION Consolidated Statement of Income (In millions, except per share amounts) (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Three Months Year Ended Ended December 31, December 31, 2004 2003 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Asset management and administration fees $ 544 $ 487 $2,091 $1,832 Commissions 198 304 936 1,097 Interest revenue 358 251 1,213 968 Interest expense (100) (58) (277) (240) ------- ------- ------- ------- Net interest revenue 258 193 936 728 Principal transactions 20 23 89 93 Other 40 55 150 146 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,060 1,062 4,202 3,896 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses Excluding Interest Compensation and benefits 447 435 1,877 1,665 Occupancy and equipment 90 108 389 430 Professional services 64 52 245 175 Depreciation and amortization 59 65 226 277 Communications 53 59 223 228 Advertising and market development 33 39 184 139 Commissions, clearance and floor brokerage 10 11 39 40 Restructuring charges 100 17 214 76 Impairment charges - - - 5 Other 44 43 160 144 - ------------------------------------------------------------------------------------------------------------------------------------ Total 900 829 3,557 3,179 - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations before taxes on income 160 233 645 717 Taxes on income (58) (87) (231) (241) - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations 102 146 414 476 Gain (loss) from discontinued operations, net of tax (49) 2 (128) (4) - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 53 $ 148 $ 286 $ 472 ==================================================================================================================================== Weighted-Average Common Shares Outstanding - Diluted 1,348 1,371 1,365 1,364 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share - Basic Income from continuing operations $ .08 $ .11 $ .31 $ .35 Gain (loss) from discontinued operations, net of tax $ (.04) - $ (.10) - Net income $ .04 $ .11 $ .21 $ .35 Earnings Per Share - Diluted Income from continuing operations $ .08 $ .11 $ .30 $ .35 Gain (loss) from discontinued operations, net of tax $ (.04) - $ (.09) - Net income $ .04 $ .11 $ .21 $ .35 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends Declared Per Common Share $ .020 $ .014 $ .074 $ .050 - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Statement of Income and Financial and Operating Highlights.
THE CHARLES SCHWAB CORPORATION Financial and Operating Highlights (Unaudited) | 2004 | 2003 | 2002 | - ------------------------------------------------------------------------------------------------------------------------------------ Fourth Third Second First Fourth Third Second First Fourth (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 $ 544 $ 523 $ 517 $ 507 $ 487 $ 468 $ 448 $ 429 $ 434 Commissions 198 163 239 336 304 290 285 218 275 Interest revenue, net of interest expense 258 245 224 209 193 181 179 175 189 Principal transactions 20 22 22 25 23 22 25 23 23 Other 40 47 32 31 55 36 34 21 27 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,060 1,000 1,034 1,108 1,062 997 971 866 948 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses Excluding Interest (1) Compensation and benefits 447 455 493 482 435 418 421 391 410 Occupancy and equipment 90 97 100 102 108 106 108 108 116 Professional services 64 62 61 58 52 44 43 36 38 Depreciation and amortization 59 58 53 56 65 69 69 74 75 Communications 53 53 56 61 59 59 54 56 58 Advertising and market development 33 43 46 62 39 31 22 47 54 Commissions, clearance and floor brokerage 10 9 11 9 11 10 11 8 11 Restructuring charges (2) 100 112 2 - 17 35 24 - 157 Impairment charges - - - - - - - 5 37 Other 44 39 43 34 43 29 36 36 47 - ------------------------------------------------------------------------------------------------------------------------------------ Total 900 928 865 864 829 801 788 761 1,003 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before taxes on income (loss) 160 72 169 244 233 196 183 105 (55) Tax (expense) benefit on income (loss) (1) (58) (26) (62) (85) (87) (72) (57) (25) 13 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations 102 46 107 159 146 124 126 80 (42) Gain (loss) from discontinued operations, net of tax (49) (87) 6 2 2 3 - (9) (37) - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (loss) $ 53 $ (41) $ 113 $ 161 $ 148 $ 127 $ 126 $ 71 $ (79) ==================================================================================================================================== Basic earnings (loss) per share $ .04 $ (.03) $ .08 $ .12 $ .11 $ .09 $ .10 $ .05 $ (.06) Diluted earnings (loss) per share $ .04 $ (.03) $ .08 $ .12 $ .11 $ .09 $ .09 $ .05 $ (.06) Dividends declared per common share $ .020 $ .020 $ .020 $ .014 $ .014 $ .014 $ .011 $ .011 $ .011 Weighted-average common shares outstanding - diluted 1,348 1,364 1,373 1,375 1,371 1,366 1,360 1,357 1,340 - ------------------------------------------------------------------------------------------------------------------------------------ Performance Measures Adjusted operating income (3) $ 164 $ 107 $ 108 $ 159 $ 147 $ 144 $ 131 $ 69 $ 90 After-tax profit margin - reported 5.0% (4.1%) 10.9% 14.5% 13.9% 12.7% 13.0% 8.2% (8.3%) After-tax profit margin - operating (3) 15.5% 10.9% 10.4% 14.4% 14.1% 14.4% 13.5% 8.0% 9.5% Return on stockholders' equity (4) 5% (3%) 10% 14% 13% 12% 12% 7% (8%) - ------------------------------------------------------------------------------------------------------------------------------------ Financial Condition (at quarter end) Cash and investments segregated (in billions) $ 19.0 $ 19.6 $ 20.5 $ 20.8 $ 21.3 $ 22.4 $ 22.6 $ 22.3 $ 21.0 Receivables from brokerage clients (in billions) $ 9.8 $ 9.2 $ 9.3 $ 9.3 $ 8.6 $ 7.7 $ 7.0 $ 6.3 $ 6.8 Total assets (in billions) $ 47.1 $ 45.9 $ 47.3 $ 46.3 $ 45.9 $ 43.8 $ 41.8 $ 40.4 $ 39.7 Payables to brokerage clients (in billions) $ 27.2 $ 25.9 $ 26.9 $ 26.5 $ 27.2 $ 26.1 $ 26.2 $ 25.8 $ 26.4 Long-term debt (in millions) $ 585 $ 611 $ 645 $ 779 $ 772 $ 776 $ 811 $ 856 $ 642 Stockholders' equity (in millions) $4,386 $4,555 $4,732 $4,662 $4,461 $4,312 $4,179 $4,056 $4,011 - ------------------------------------------------------------------------------------------------------------------------------------ Other (5) Full-time equivalent employees (at quarter end, in thousands) 14.2 14.8 16.3 16.5 16.0 15.7 15.7 16.1 16.4 Capital expenditures - cash purchases of equipment, office facilities, property, and internal-use software development costs, net (in millions) $ 43 $ 66 $ 51 $ 34 $ 50 $ 36 $ 31 $ 30 $ 43 - ------------------------------------------------------------------------------------------------------------------------------------ Clients' Daily Average Trading Volume (in thousands) (6) Daily average revenue trades (7) 177.7 128.1 142.2 178.0 161.7 145.1 141.0 114.6 131.6 Mutual Fund OneSource(R) and other asset-based trades 69.6 62.3 67.4 72.3 62.3 58.0 57.1 54.3 51.9 - ------------------------------------------------------------------------------------------------------------------------------------ Active Trader Daily Average Revenue Trades (in thousands) (6,7,8) 98.0 66.1 72.5 91.5 80.8 72.9 69.5 54.5 61.1 - ------------------------------------------------------------------------------------------------------------------------------------ Average Revenue Per Revenue Trade (5,7) $19.32 $22.96 $30.06 $33.16 $32.60 $34.11 $35.12 $34.78 $35.38 - ------------------------------------------------------------------------------------------------------------------------------------ (1) All amounts 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 amounts 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 | - ------------------------------------------------------------------------------------------------------------------------------------ Fourth Third Second First Fourth Third Second First Fourth (In millions) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Revenues $1,060 $1,000 $1,034 $1,108 $1,062 $ 997 $ 971 $ 866 $ 948 Non-operating revenue (1) - (14) - - (17) - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues $1,060 $ 986 $1,034 $1,108 $1,045 $ 997 $ 971 $ 866 $ 948 ==================================================================================================================================== Net income (loss) $ 53 $ (41) $ 113 $ 161 $ 148 $ 127 $ 126 $ 71 $ (79) Adjustments to reconcile net income (loss) to adjusted operating income: Other income (1) - (14) - - (17) - - - - Restructuring charges (2,3) 100 112 2 - 17 35 24 - 157 Impairment charges (3) - - - - - - - 5 37 Loss (gain) from discontinued operations (4) 81 131 (10) (3) (2) (6) 1 13 56 - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items 181 229 (8) (3) (2) 29 25 18 250 Tax benefit (expense) (5) (70) (81) 3 1 1 (12) (20) (20) (81) - ------------------------------------------------------------------------------------------------------------------------------------ Total adjusted items, net of tax 111 148 (5) (2) (1) 17 5 (2) 169 - ------------------------------------------------------------------------------------------------------------------------------------ Adjusted operating income, after tax (6) $ 164 $ 107 $ 108 $ 159 $ 147 $ 144 $ 131 $ 69 $ 90 ==================================================================================================================================== (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 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 the Company'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, June 30, and September 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 | - ------------------------------------------------------------------------------------------------------------------------------------ Fourth Third Second First Fourth Third Second First Fourth (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 $ 37.2 $ 35.7 $ 36.5 $ 35.4 $ 34.2 $ 31.8 $ 30.2 $ 31.1 $ 31.1 Proprietary funds (SchwabFunds(R), Excelsior(R) and other): Money market funds 111.8 114.0 115.0 116.3 119.2 124.4 126.8 132.4 129.7 Equity and bond funds 43.1 38.4 37.5 36.8 34.2 30.7 31.2 27.4 27.7 - ------------------------------------------------------------------------------------------------------------------------------------ Total proprietary funds 154.9 152.4 152.5 153.1 153.4 155.1 158.0 159.8 157.4 - ------------------------------------------------------------------------------------------------------------------------------------ Mutual Fund Marketplace(R) (1): Mutual Fund OneSource(R) 127.8 114.5 115.2 115.1 101.5 90.1 85.0 71.8 73.6 Mutual fund clearing services 44.2 38.1 33.9 37.5 33.5 28.4 24.5 21.4 21.2 All other 114.4 103.6 101.7 100.5 98.4 88.3 84.6 71.6 71.6 - ------------------------------------------------------------------------------------------------------------------------------------ Total Mutual Fund Marketplace 286.4 256.2 250.8 253.1 233.4 206.8 194.1 164.8 166.4 - ------------------------------------------------------------------------------------------------------------------------------------ Total mutual fund assets 441.3 408.6 403.3 406.2 386.8 361.9 352.1 324.6 323.8 - ------------------------------------------------------------------------------------------------------------------------------------ Equity and other securities (1,2) 472.0 429.2 437.0 431.7 424.0 368.3 349.1 296.4 302.9 Fixed income securities (2) 140.5 136.5 130.6 132.1 130.2 122.2 120.2 116.7 113.6 Margin loans outstanding (9.8) (9.1) (9.1) (9.1) (8.5) (7.5) (6.9) (6.2) (6.6) - ------------------------------------------------------------------------------------------------------------------------------------ Total client assets $1,081.2 $1,000.9 $ 998.3 $ 996.3 $ 966.7 $ 876.7 $ 844.7 $ 762.6 $ 764.8 ==================================================================================================================================== Net growth in assets in client accounts (for the quarter ended) Net new client assets (3) $ 16.8 $ 13.0 $ 6.7 $ 13.8 $ 24.9 $ 10.6 $ 6.5 $ 14.2 $ 10.1 Net market gains (losses) 63.5 (10.4) (4.7) 15.8 65.1 21.4 75.6 (16.4) 27.9 - ------------------------------------------------------------------------------------------------------------------------------------ Net growth (decline) $ 80.3 $ 2.6 $ 2.0 $ 29.6 $ 90.0 $ 32.0 $ 82.1 $ (2.2) $ 38.0 ==================================================================================================================================== U.S. Trust client assets (4) $ 141.1 $ 137.3 $ 137.0 $ 135.8 $ 137.2 $ 116.1 $ 114.0 $ 106.7 $ 108.0 - ------------------------------------------------------------------------------------------------------------------------------------ New client accounts (in thousands, for the quarter ended) 133.6 114.2 139.1 159.8 145.5 123.9 151.9 171.0 154.5 Active client accounts (in millions) (5) 7.3 7.4 7.5 7.5 7.5 7.6 7.7 8.0 8.0 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Excludes all proprietary money market, equity, and bond funds. (2) All amounts have been adjusted to reclassify exchange-traded unit investment trusts from fixed income securities to equity and other securities. (3) Includes a one-time special dividend from Microsoft Corporation of $1.2 billion in the fourth quarter of 2004. 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 December 2004 Investor activity for 7.3 million active client accounts (1) Clients opened 56,200 new accounts during December 2004. 2003 2004 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov - ------------------------------------------------------------------------------------------------------------------------------------ Change in Client Assets (in billions of dollars) Net New Assets (2) 5.4 5.9 3.3 4.6 2.1 4.4 .2 3.4 3.7 5.9 3.9 4.6 Net Market Gains (Losses) 23.1 16.3 8.5 (9.0) (24.7) 6.8 13.2 (26.1) 3.2 12.5 10.3 32.0 - ------------------------------------------------------------------------------------------------------------------------------------ Total Client Assets (at month end, in billions of dollars) 966.7 988.9 1,000.7 996.3 973.7 984.9 998.3 975.6 982.5 1,000.9 1,015.1 1,051.7 ==================================================================================================================================== Market Indices (at month end) Dow Jones Industrial Average 10,454 10,488 10,584 10,358 10,226 10,189 10,436 10,140 10,174 10,080 10,028 10,428 Nasdaq Composite 2,003 2,066 2,030 1,994 1,920 1,987 2,048 1,887 1,838 1,897 1,975 2,097 Standard & Poor's 500 1,112 1,131 1,145 1,126 1,107 1,121 1,141 1,102 1,104 1,115 1,130 1,174 Schwab 1000 3,572 3,633 3,681 3,629 3,560 3,605 3,665 3,533 3,543 3,584 3,637 3,783 Clients' Daily Average Revenue Trades (in thousands) (3) 168.4 215.1 166.9 155.0 164.6 135.1 126.6 133.7 118.6 132.5 153.7 192.1 Clients' Daily Average Asset-Based Trades: OneSource(R) and Other(4) 66.0 65.0 54.9 54.6 56.5 51.7 48.5 46.0 45.1 47.8 47.3 53.9 Schwab Institutional (5) N/A 9.4 8.0 8.3 8.2 8.7 8.2 8.8 7.7 8.2 8.6 8.6 Schwab Private Client (6) N/A 5.5 5.6 5.8 7.2 6.4 6.7 8.1 7.3 8.0 8.3 9.9 - ------------------------------------------------------------------------------------------------------------------------------------ Total Asset-Based Trades (in thousands) 66.0 79.9 68.5 68.7 71.9 66.8 63.4 62.9 60.1 64.0 64.2 72.4 ==================================================================================================================================== Daily Average Market Share Volume (in millions) NYSE 1,276 1,663 1,481 1,477 1,525 1,500 1,371 1,418 1,244 1,322 1,543 1,494 Nasdaq 1,637 2,332 1,917 1,881 1,951 1,664 1,623 1,735 1,431 1,511 1,731 1,828 - ------------------------------------------------------------------------------------------------------------------------------------ Total 2,913 3,995 3,398 3,358 3,476 3,164 2,994 3,153 2,675 2,833 3,274 3,322 ==================================================================================================================================== Mutual Fund Net Buys (Sells) (7) (in millions of dollars) Domestic Growth 745.7 2,030.7 1,065.2 421.0 662.0 (126.6) 801.5 100.8 (72.6) 437.0 381.0 891.5 International Growth 534.6 1,020.4 769.4 685.1 579.3 118.1 513.8 242.4 227.9 451.6 451.6 906.5 Balanced (stock and bond) 501.8 1,141.4 702.6 768.2 535.0 108.1 416.8 190.8 216.6 416.7 440.1 446.2 Bond - Taxable 96.0 535.2 563.9 1,151.4 (117.9) (301.2) 311.9 400.4 654.0 870.5 707.1 502.7 Bond - Tax Advantaged (24.5) 19.0 85.7 102.5 (172.0) (245.5) (148.8) (34.1) 28.8 51.5 48.2 6.5 % change Dec Mo. Yr.* - -------------------------------------------------------------- Change in Client Assets (in billions of dollars) Net New Assets (2) 8.3 80% 54% Net Market Gains (Losses) 21.2 - -------------------------------------------------------------- Total Client Assets (at month end, in billions of dollars) 1,081.2 3% 12% ============================================================== Market Indices (at month end) Dow Jones Industrial Average 10,783 3% 3% Nasdaq Composite 2,175 4% 9% Standard & Poor's 500 1,212 3% 9% Schwab 1000 3,911 3% 9% Clients' Daily Average Revenue Trades (in thousands) (3) 187.3 (2%) 11% Clients' Daily Average Asset-Based Trades: OneSource(R) and Other(4) 53.1 (1%) (20%) Schwab Institutional (5) 8.7 1% N/A Schwab Private Client (6) 10.1 2% N/A - -------------------------------------------------------------- Total Asset-Based Trades (in thousands) 71.9 (1%) 9% ============================================================== Daily Average Market Share Volume (in millions) NYSE 1,463 (2%) 15% Nasdaq 2,042 12% 25% - -------------------------------------------------------------- Total 3,505 6% 20% ============================================================== Mutual Fund Net Buys (Sells) (7) (in millions of dollars) Domestic Growth 285.8 International Growth 862.2 Balanced (stock and bond) 351.6 Bond - Taxable 317.7 Bond - Tax Advantaged 309.8 (1) Active client accounts are defined as accounts with balances or activity within the preceding eight months. (2) December 2004 data includes a one-time special dividend from Microsoft Corporation of $1.2 billion. September 2004 and June 2004 data includes individual inflows (outflows) of $2.1 billion and ($6.0) billion, respectively, related to mutual fund clearing clients. August 2004, March 2004, and January 2004 data includes 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 $3.7 billion and $1.1 billion in December 2004 and December 2003, respectively. (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) Reflects trades executed on Schwab's no-transaction fee Mutual Fund OneSource (R) platform, including mutual fund clearing. (5) Includes trades placed by investment advisors enrolled in an asset-based pricing program. Trading activity is included in the program fees. These trades are reflected in OneSource and Other until January 2004. (6) Includes eligible trades placed by individual investors enrolled in Schwab Private Client (SPC). Specified levels of trading activity are included in SPC fees. These trades are reflected in OneSource and Other until January 2004. (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), Excelsior (R) Funds and other proprietary funds. Includes institutional funds available only to Investment Managers. Excludes money market funds. * December 2004 vs. December 2003 The Charles Schwab Corporation N/A - not available
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