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Table of Contents
Index to Financial Statements
Parent Company Guarantees
Guarantees are contingent commitments issued by the Company for the purpose of guaranteeing the financial obligations of a subsidiary
to a financial institution. The collective obligation of the corporation does not change by the existence of corporate guarantees. Rather, the
guarantees shift ultimate payment responsibility of an existing financial obligation from a subsidiary to the parent company.
In support of the Company’s brokerage business, the Company has provided guarantees on the settlement of its subsidiaries’ financial
obligations with several financial institutions related to its securities lending activities. Terms and conditions of the guarantees, although
typically undefined in the guarantees themselves, are governed by the conditions of the underlying obligation that the guarantee covers. Thus,
the Company’s obligation to pay under these guarantees coincides exactly with the terms and conditions of those underlying obligations. At
December 31, 2003, no claims had been filed with the Company for payment under any guarantees. These guarantees are not collateralized.
In addition to guarantees issued on behalf of subsidiaries participating in securities lending programs, the Company also issues guarantees
for the settlement of foreign exchange transactions. If a subsidiary fails to deliver currency on the settlement date of a foreign exchange
the underlying financial obligation. At December 31, 2003, no claims had been made on the Company under these guarantees and thus, no
obligations had been recorded. These guarantees are not collateralized.
The Company maintains letters of credit totaling $17.0 million at December 31, 2003 primarily related to operating leases held
domestically and to support a clearing and settlement arrangement in Germany. At December 31, 2003, the Company had not recorded any
obligations related to these letters of credit.
The Company also guarantees the capital sufficiency of one of its subsidiaries with the Chicago Stock Exchange. If the subsidiary’s net
capital were to fall below regulatory minimums, the Chicago Stock Exchange could call on the Company to fund the entity, up to a maximum
amount of $20.0 million. The term of this guarantee is indefinite. At December 31, 2003, the Company had no obligation under this guarantee.
NOTE 30—SUBSEQUENT EVENTS
New Expense Format Reporting
Beginning January 1, 2004, the Company began reporting its expenses within its statements of operations in a format comparable to that
used in the financial services industry. Under this new format, historical line items such as Cost of Services are replaced with more descriptive
line items. The following tables show the Company’s expenses excluding interest in the new format for the periods indicated (in thousands):
108
Year Ended December 31,
2003
2002
Compensation and benefits
$
397,443
$
324,889
Occupancy and equipment
87,261
84,545
Communications
82,365
85,748
Professional services
73,668
54,559
Commissions, clearing and floor brokerage
151,322
167,269
Advertising and market development
61,305
70,545
Servicing and other banking expenses
67,110
69,790
Fair value adjustments of financial derivatives
15,338
11,662
Depreciation and amortization
94,683
108,475
Amortization of intangibles
33,023
28,258
Restructuring and other exit charges
134,561
16,519
Acquisition
-
related expenses
1,859
11,473
Executive agreement
—
(
23,485
)
Other
90,892
71,044
Total
$
1,290,830
$
1,081,291