Charles Schwab 2008 Annual Report Download - page 29

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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)
- 15 -
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
OVERVIEW
Management of the Company focuses on several key financial and non-financial metrics in evaluating the Company’s
financial position and operating performance. All information contained in this Annual Report on Form 10-K is presented on
a continuing operations basis unless otherwise noted. Results for the years ended December 31, 2008, 2007, and 2006 are
shown in the following table:
Growth Rate
1-year
2007-2008 2008 2007 2006
Client Activity Metrics:
Net new client assets (in billions) (1, 2) (29%) $ 113.4 $ 160.2 $ 83.3
Client assets (in billions, at year end) (21%) $ 1,137.0 $ 1,445.5 $ 1,239.2
Clients’ daily average trades (in thousands) 22% 346.6 284.9 270.0
Company Financial Metrics:
Net revenues 3% $ 5,150 $ 4,994 $ 4,309
Expenses excluding interest (1%) 3,122 3,141 2,833
Income from continuing operations before taxes on income 9% 2,028 1,853 1,476
Taxes on income 9% (798) (733) (585)
Income from continuing operations 10% 1,230 1,120 891
(Loss) income from discontinued operations, net of tax N/M (18) 1,287 336
Net income N/M $ 1,212 $ 2,407 $ 1,227
Earnings per share from continuing operations – diluted 15% $ 1.06 $ .92 $ .69
Earnings per share – diluted N/M $ 1.05 $ 1.97 $ .95
Net revenue growth from prior year 3% 16% 19%
Pre-tax profit margin from continuing operations 39.4% 37.1% 34.3%
Return on stockholders' equity 31% 55% 26%
Net revenue per average full-time equivalent employee
(in thousands) (1%) $ 383 $ 387 $ 362
(1) Net new client assets in 2007 includes $23.0 billion related to the acquisition of The 401(k) Company and $3.3 billion
related to a mutual fund clearing services client.
(2) Effective in 2007, amounts include the Company’s mutual fund clearing services business’ daily net settlements. All
prior period amounts have been recast to reflect this change.
N/M Not meaningful.
Net new client assets is defined as the total inflows of client cash and securities to the firm less client outflows.
Management believes that this metric depicts how well the Company’s products and services appeal to new and
existing clients.
Client assets is the market value of all client assets housed at the Company. Management considers client assets to be
indicative of the Company’s appeal in the marketplace. Additionally, fluctuations in certain components of client
assets (e.g., Mutual Fund OneSource funds) directly impacts asset management and administration fee revenues.
Clients’ daily average trades is an indicator of client engagement with securities markets and the most prominent
driver of trading revenues.
Management believes that net revenue growth, pre-tax profit margin from continuing operations, and return on
stockholders’ equity provide broad indicators of the Company's overall financial health, operating efficiency, and
ability to generate acceptable returns.