Charles Schwab 2010 Annual Report Download - page 51

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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)
Contractual Obligations
The Company’s principal contractual obligations as of December 31, 2010, are shown in the following table. Management believes
that funds generated by its continuing operations, as well as cash provided by external financing, will continue to be the primary
funding sources in meeting these obligations. Excluded from this table are liabilities recorded on the consolidated balance sheet that
are generally short-term in nature (e.g., payables to brokers, dealers, and clearing organizations) or without contractual payment terms
(e.g., deposits from banking clients, payables to brokerage clients, and deferred compensation).
RISK MANAGEMENT
Less than
1 Year
1-3
Years
3-5
Years
More than
5 Years Total
Credit-related financial instruments
$1,241
$ 405
$ 1,195
$3,246
$6,087
Lon
g
-term debt
99
199
893
1,371
2,562
Leases
111
139
101
195
546
Purchase obli
g
ations
132
8
0
43
—
255
Re
g
ulator
y
reserve
18
—
—
—
18
Total
$1,601
$ 823
$ 2,232
$ 4,812
$9,468
Re
p
resents Schwab Ban
k
’s firm commitments to extend credit to bankin
g
clients.
Includes estimated future interest payments through 2020 for Senior Notes and through 2017 for Medium-Term Notes and
Junior Subordinated Notes. The Junior Subordinated Notes have a fixed interest rate of 7.50% until 2017 and a floating rate
from 2018 to 2067. Based on the current interest rate of 7.50% and no repayments of principal, the estimated future interest
payments on the Junior Subordinated Notes in 2018 to 2067 would be $15 million per year. Amounts exclude maturities under a
finance lease obli
g
ation and unamortized discounts and
p
remiums.
Represents minimum rental commitments, net of sublease commitments, and includes facilities under the Company’s past
restructurin
g
initiatives and rental commitments under a finance lease obli
g
ation.
Consists of purchase obligations for services such as advertising and marketing, telecommunications, professional services, and
hardware- and software-related agreements. Includes purchase obligations, which can be canceled by the Company without
p
enalt
y
.
Re
p
resents a future
p
a
y
ment for a re
g
ulator
y
settlement relatin
g
to the Schwab YieldPlus Fund.
Overview
The Company’s business activities expose it to a variety of risks including technology, operations, credit, market, liquidity, legal, and
reputational risk. Identification and management of these risks are essential to the success and financial soundness of the Company.
Senior management takes an active role in the Company’s risk management process and has developed policies and procedures under
which specific business and control units are responsible for identifying, measuring, and controlling various risks. Oversight of risk
management has been delegated to the Global Risk Committee, which is comprised of senior managers of major business and control
functions. The Global Risk Committee is responsible for reviewing and monitoring the Company’s risk exposures and leading the
continued development of the Company’s risk management policies and practices.
Functional risk sub-committees focusing on specific areas of risk report into the Global Risk Committee. These sub-committees
include the:
•
Corporate Asset-Liability Management and Pricing Committee, which focuses on the Company’s liquidity, capital
resources, interest rate risk, and investments;
-34 -
•
Credit and Market Risk Oversight Committee, which focuses on the credit exposures resulting from client activity (e.g.,
margin lending activities and loans to banking clients), the investing activities of certain of the Company’s proprietary
funds, corporate credit activities (e.g., counterparty and corporate investing activities), and market risk resulting from the
Com
p
an
y
takin
g
p
ositions in certain securities to facilitate client tradin
g
activit
y
;
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