Charles Schwab 2008 Annual Report Download - page 24

THE CHARLES SCHWAB CORPORATION
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to continue to compete effectively will depend upon its ability to attract new employees and retain existing employees while
managing compensation costs.
Technology and operational failures could subject the Company to losses, litigation, and regulatory actions.
The Company faces technology and operating risk which is the potential for loss due to deficiencies in control processes or
technology systems of the Company or its vendors that constrain the Company’s ability to gather, process, and communicate
information and process client transactions efficiently and securely, without interruptions. This risk also includes the risk of
human error, employee misconduct, external fraud, computer viruses, terrorist attacks, and natural disaster. The Company’s
business and operations could be negatively impacted by any significant technology and operational failures. Moreover,
instances of fraud or other misconduct, including improper use or disclosure of confidential client, employee, or company
information, might also negatively impact the Company's reputation and client confidence in the Company, in addition to any
direct losses that might result from such instances. Despite the Company’s efforts to identify areas of risk, oversee operational
areas involving risk, and implement policies and procedures designed to manage risk, there can be no assurance that the
Company will not suffer unexpected losses, reputational damage or regulatory action due to technology or other operational
failures, including those of its vendors.
The Company also faces risk related to its security guarantee which covers client losses from unauthorized account activity,
such as those caused by external fraud involving the compromise of clients’ login and password information. Losses
reimbursed under the guarantee could have a negative impact on the Company’s results of operations.
The Company relies on outsourced service providers to perform key functions.
The Company relies on service providers to perform certain key technology, processing, and support functions. These service
providers also face technology and operating risk and any significant failures by them, including the improper use or
disclosure of the Company’s confidential client, employee, or company information, could cause the Company to incur losses
and could harm the Company’s reputation. The Company also faces the risk that a service provider could, without adequate
notice, cease to provide services, which could disrupt the Company’s operations. Switching to an alternative service provider
may also require a transition period and result in less efficient operations.
Potential strategic transactions could have a negative impact on the Company’s financial position.
The Company evaluates potential strategic transactions, including business combinations, acquisitions, and dispositions. Any
such transaction could have a material impact on the Company's financial position, results of operations, or cash flows. The
process of evaluating, negotiating, and effecting any such strategic transaction may divert management’s attention from other
business concerns, and might cause the loss of key clients, employees, and business partners. Moreover, integrating
businesses and systems may result in unforeseen expenditures as well as numerous risks and uncertainties, including the need
to integrate operational, financial, and management information systems and management controls, integrate relationships
with clients and business partners, and manage facilities and employees in different geographic areas. In addition, an
acquisition may cause the Company to assume liabilities or become subject to litigation. Further, the Company may not
realize the anticipated benefits from an acquisition, and any future acquisition could be dilutive to the Company’s current
stockholders' percentage ownership or to earnings per share (EPS).
The Company’s acquisitions and dispositions are typically subject to closing conditions, including regulatory approvals and
the absence of material adverse changes in the business, operations or financial condition of the entity being acquired or sold.
To the extent the Company enters into an agreement to buy or sell an entity, there can be no guarantee that the transaction will
close when expected, or at all. If a material transaction does not close, the Company’s stock price could decline.
The Company's stock price has fluctuated historically, and may continue to fluctuate.
The Company's stock price can be volatile. Among the factors that may affect the Company's stock price are the following:
 speculation in the investment community or the press about, or actual changes in, the Company's competitive
position, organizational structure, executive team, operations, financial condition, financial reporting and results,
effectiveness of cost reduction initiatives, or strategic transactions;