Charles Schwab 2010 Annual Report Download - page 32

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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)
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. Summarized results for the years ended December 31, 2010, 2009, and 2008 are shown in the
following table:
Year Ended December 31,
Growth Rate
1-Year
2009-2010 2010 2009 2008
Client Activity Metrics:
Net new client assets (in billions)
(70%)
$26.6
$87.3
$ 113.4
Client assets (in billions, at
y
ear end)
11%
$ 1,574.5
$ 1,422.6
$ 1,137.0
Clients’ dail
y
avera
g
e trades (in thousands)
(4%)
399.7
414.8
432.1
Company Financial Metrics:
Net revenues
1% $ 4,248 $ 4,193
$ 5,150
Ex
p
enses excludin
g
interest
19%
3,469
2,917
3,122
Income from continuin
g
o
p
erations before taxes on income
(39%) 779 1,276
2,028
Taxes on income
(34%) (325) (489)
(798)
Income from continuin
g
o
p
erations
(42%)
454
787
1,230
Loss from discontinued o
p
erations, net of tax
—
—
—
(18)
Net income
(42%)
$ 454
$ 787
$ 1,212
Earnin
g
s
p
er share from continuin
g
o
p
erations
–
diluted
(44%)
$.38
$.68
$1.06
Earnin
g
s
p
er share
–
diluted
(44%)
$.38
$ .68
$1.05
Net revenue
g
rowth (decline) from
p
rior
y
ear
1% (19%)
3%
Pre-tax
p
rofit mar
g
in from continuin
g
o
p
erations
18.3% 30.4%
39.4%
Return on stockholders’ e
q
uit
y
8%
17%
31%
Net revenue per average full-time equivalent employee (in
thousands)
—
$ 337
$ 338
$ 383
Includes net outflows of $51.5 billion in 2010 related to the
p
lanned deconversion of a mutual fund clearin
g
services client.
Beginning in 2010, amounts include all commission-free trades, including the Company’s Mutual Fund OneSource funds and
ETFs, and other
p
ro
p
rietar
y
p
roducts. Prior
p
eriod amounts have been recast to reflect this chan
g
e.
•
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 in a given
o
p
eratin
g
environment.
•
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) directl
y
im
p
act asset mana
g
ement and administration fees.
•
Clients’ daily average trades is an indicator of client engagement with securities markets and the most prominent driver of
tradin
g
revenue.
•
Management believes that earnings per share, 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
abilit
y
to
g
enerate acce
p
table returns within the context of a
g
iven o
p
eratin
g
environment.
-16 -
•
Net revenue per average full-time equivalent employee is considered by management to be the Company’s broadest measure
of
p
roductivit
y
.
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