Charles Schwab 2008 Annual Report Download - page 43

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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)
- 29 -
CSC provides Schwab Bank with a $100 million short-term credit facility which is scheduled to expire in December 2009.
Borrowings under this facility do not qualify as regulatory capital for Schwab Bank. No funds were drawn under this facility
during 2008.
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 of less than 30%.
The Company’s total financial capital (long-term debt plus stockholders’ equity) at December 31, 2008 was $4.9 billion, up
$313 million, or 7%, from December 31, 2007.
At December 31, 2008, the Company had long-term debt of $883 million, or 18% of total financial capital, that bears interest
at a weighted-average rate of 7.03%. At December 31, 2007, the Company had long-term debt of $899 million, or 19% of
total financial capital. The Company repaid $20 million and $43 million of long-term debt in 2008 and 2007, respectively.
The Company’s cash position (reported as cash and cash equivalents on the Company’s 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 of CSC’s common stock. The combination of these factors can cause significant fluctuations in the levels of cash
and cash equivalents during specific time periods.
Capital Expenditures
The Company’s capital expenditures were $196 million in 2008 and $168 million in 2007. Capital expenditures as a
percentage of net revenues were 4% and 3% in 2008 and 2007, respectively. Capital expenditures in 2008 included software
and equipment relating to the Company’s information technology systems, buildings, and leasehold improvements. Capital
expenditures in 2007 were primarily for software and equipment relating to the Company's information technology systems.
Capital expenditures include capitalized costs for developing internal-use software of $46 million in 2008 and $57 million in
2007.
Management currently anticipates that 2009 capital expenditures will be approximately 25% lower than 2008 spending,
primarily due to decreased spending on software relating to the Company’s information technology systems, as well as
decreased spending on buildings. As has been the case in recent years, the Company may adjust its capital expenditures from
period to period as business conditions change. Management believes that funds generated by its operations will continue to
be the primary funding source of its capital expenditures.
Dividends
CSC paid common stock cash dividends of $253 million in 2008. CSC paid common stock cash dividends of $1.5 billion in
2007, which included a special cash dividend of $1.2 billion. Since the initial dividend in 1989, CSC has paid 79 consecutive
quarterly dividends and has increased the quarterly dividend 19 times, including a 20% increase in the third quarter of 2008.
Since 1989, dividends have increased by a 28% compounded annual growth rate, excluding the special cash dividend of $1.00
per common share in 2007. CSC paid common stock dividends of $.220, $1.200, and $.135 per share in 2008, 2007, and
2006, respectively. While the payment and amount of dividends are at the discretion of the Board, subject to certain
regulatory and other restrictions, the Company currently targets its cash dividend at approximately 20% to 30% of net income.