Charles Schwab 2010 Annual Report Download - page 49

Download and view the complete annual report

Please find page 49 of the 2010 Charles Schwab annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 135

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135

THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)
CSC provides Schwab Bank with a $100 million short-term credit facility, which is scheduled to expire in December 2011.
Borrowings under this facility do not qualify as regulatory capital for Schwab Bank. There were no funds drawn under this facility
during 2010.
Capital Resources
The Company monitors both the relative composition and absolute level of its capital structure. Management is focused on limiting
the Company’s use of capital and currently targets a long-term debt to total financial capital ratio not to exceed 30%. The Company’s
total financial capital (long-term debt plus stockholders’ equity) at December 31, 2010, was $8.2 billion, up $1.6 billion, or 25%,
from December 31, 2009.
At December 31, 2010, the Company had long-term debt of $2.0 billion, or 24% of total financial capital, that bears interest at a
weighted-average rate of 5.24%. At December 31, 2009, the Company had long-term debt of $1.5 billion, or 23% of total financial
capital. In the third quarter of 2010, the Company issued $700 million of additional Senior Notes that mature in 2020 and have a fixed
interest rate of 4.45%. The Company repaid $205 million of long-term debt in 2010, which included the maturity of $200 million of
Medium-Term Notes. In 2009, the Company issued $750 million of Senior Notes that mature in 2014 and have a fixed interest rate of
4.950%. The Company repaid $13 million of long-term debt in 2009. In addition, the Company repurchased $98 million of trust
preferred securities related to its Junior Subordinated Notes for a cash payment of $67 million in 2009, which resulted in a gain of
$31 million.
The Company’s cash position (reported as cash and cash equivalents on its consolidated balance sheet) and cash flows are affected by
changes in brokerage client cash balances and the associated amounts required to be segregated under regulatory guidelines. Timing
differences between cash and investments actually segregated on a given date and the amount required to be segregated for that date
may arise in the ordinary course of business and are addressed by the Company in accordance with applicable regulations. Other
factors which affect the Company’s cash position and cash flows include investment activity in securities, levels of capital
expenditures, acquisition and divestiture activity, banking client deposit activity, brokerage and banking client loan activity, financing
activity in long-term debt, payments of dividends, and repurchases and issuances of CSC’s common stock. The combination of these
factors can cause significant fluctuations in the cash position during specific time periods.
Capital Expenditures
The Company’s capital expenditures were $127 million in 2010 and $139 million in 2009. Capital expenditures as a percentage of net
revenues were 3% in 2010 and 2009. Capital expenditures in 2010 were primarily for software and equipment relating to the
Company’s information technology systems, leasehold improvements, and capitalized costs for developing internal-use software.
Capital expenditures in 2009 were primarily for leasehold improvements, software and equipment relating to the Company’s
information technology systems, and building improvements.
Management currently anticipates that 2011 capital expenditures will be approximately 35% higher than 2010 spending primarily due
to increased spending on software and equipment relating to the Company’s information systems and furniture and equipment. As has
been the case in recent years, the Company may adjust its capital expenditures periodically as business conditions change.
Management believes that funds generated by its operations will continue to be the primary funding source of its capital expenditures.
E
quity Offering
On January 26, 2010, the Company completed the sale of 29,670,300 shares of its common stock, $.01 par value, at a public offering
price of $19.00 per share. Net proceeds received from the offering were $543 million and were used to support the Company’s
balance sheet growth, including expansion of its deposit base and migration of certain client balances from money market funds into
deposit accounts at Schwab Bank.
-32 -