Charles Schwab 2008 Annual Report Download - page 71

THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
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The aggregate principal amount of Senior Medium-Term Notes, Series A (Medium-Term Notes) outstanding at December 31,
2008 had maturities ranging from 2009 to 2017. At both December 31, 2008 and 2007, the aggregate principal amount of
Medium-Term Notes outstanding had fixed interest rates ranging from 6.375% to 8.05%. At December 31, 2008 and 2007,
the Medium-Term Notes carried a weighted-average interest rate of 7.13% and 7.11%, respectively. A portion of the
Medium-Term Notes are subject to fair value hedging instruments as described in note “14 – Financial Instruments Subject to
Off-Balance Sheet Risk, Credit Risk, or Market Risk.”
In October 2007, CSC and Schwab Capital Trust I, a statutory trust formed under the laws of the State of Delaware (Trust),
closed a public offering of $300 million of the Trust's fixed to floating rate trust preferred securities. The proceeds from the
sale of the trust preferred securities were invested by the Trust in fixed to floating rate junior subordinated notes issued by
CSC (Subordinated Debt). The Subordinated Debt has a fixed interest rate of 7.50% until November 15, 2017, and a floating
rate thereafter. The Subordinated Debt may be redeemed at a redemption price of principal plus accrued but unpaid interest on
November 15, 2017, on or after November 15, 2037, or following the occurrence of certain events, and at a make-whole
redemption price at any other time. CSC has contractually agreed, pursuant to a replacement capital covenant, for the benefit
of certain holders of the Company’s long-term indebtedness ranking senior to the Subordinated Debt, not to redeem, repay or
purchase the Subordinated Debt or the trust preferred securities prior to November 15, 2047, unless it has received proceeds
of the issuance of certain replacement capital securities, among other conditions. At December 31, 2008, the Company’s
6.375% Senior Medium-Term Notes due 2017 is the series of long-term indebtedness whose holders are entitled to the
benefits of the replacement capital covenant.
In 2004, the Company sold an office building for proceeds of $136 million and leased the property back for a 20-year term.
This transaction was accounted for as a financing lease. The remaining finance lease obligation of $116 million at
December 31, 2008 is being reduced by a portion of the lease payments over the remaining lease term of approximately
16 years.
Annual maturities on long-term debt outstanding at December 31, 2008 are as follows:
2009 $ 13
2010 205
2011 6
2012 6
2013 6
Thereafter 639
Total maturities 875
Fair value adjustment 9
Unamortized discount (1)
Total long-term debt $ 883
CSC has authorization from its Board of Directors to issue unsecured commercial paper notes (Commercial Paper Notes) not
to exceed $1.5 billion. Management has set a current limit for the commercial paper program of $800 million. The maturities
of the Commercial Paper Notes may vary, but are not to exceed 270 days from the date of issue. The commercial paper is not
redeemable prior to maturity and is not subject to voluntary prepayment. The proceeds of the commercial paper program are
to be used for general corporate purposes. CSC commenced issuing Commercial Paper Notes in April 2008. There were no
Commercial Paper Notes outstanding at December 31, 2008.
CSC maintains an $800 million committed, unsecured credit facility with a group of fourteen banks which is scheduled to
expire in June 2009. This facility replaced a facility that expired in June 2008. Any issuances under CSC’s commercial
program will reduce the amount available under this facility. The funds under this facility are available for general corporate
purposes, including repayment of Commercial Paper Notes discussed above. The financial covenants in this facility require
Schwab to maintain a minimum net capital ratio, as defined, Schwab Bank to be well capitalized, as defined, and CSC to
maintain a minimum level of stockholders’ equity. At December 31, 2008, the minimum level of stockholders’ equity
required under this facility was $2.6 billion. These facilities were unused at December 31, 2008 and 2007.