Charles Schwab 2015 Annual Report Download - page 55

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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)
- 35 -
Depreciation and amortization expense increased in 2015 compared to 2014 primarily due to increased amortization of
internally-developed software associated with the Company’s investment in software and technology enhancements and
increased depreciation related to new buildings and equipment associated with the Company’s expanded geographic
footprint. Depreciation and amortization expense remained relatively flat in 2014 compared to 2013.
The Company’s capital expenditures were $285 million (5% of net revenues), $405 million (7% of net revenues), and
$270 million (5% of net revenues) in 2015, 2014 and 2013, respectively. The decrease in capital expenditures in 2015 from
2014 was primarily due to lower investment in buildings and land relating to the change in the Company’s geographic
footprint. Capitalized costs for developing internal-use software were $107 million, $81 million and $74 million in 2015,
2014 and 2013.
Management currently anticipates that 2016 capital expenditures will be approximately 46% higher than 2015 primarily due
to spending on land, leasehold improvements, information technology equipment and capitalized costs for internal use
software.
Other expense increased in 2015 from 2014 primarily due to increases in FDIC insurance assessments due to higher bank
deposits, legal expenses and miscellaneous items. Other expense increased in 2014 from 2013 primarily due to higher travel
costs as a result of increased employee headcount and travel.
Taxes on Income
The Company’s effective income tax rate on income before taxes was 36.5% in 2015, 37.5% in 2014, and 37.2% in 2013.
The decrease in 2015 from 2014 was primarily due to the recognition of net tax benefits relating to certain current and prior-
year matters. The increase in 2014 from 2013 was primarily due to the impact of a non-recurring state tax benefit in 2013.
Segment Information
The Company provides financial services to individuals and institutional clients through two segments – Investor Services
and Advisor Services. The Investor Services segment provides retail brokerage and banking services, retirement plan
services, and other corporate brokerage services. The Advisor Services segment provides custodial, trading, and support
services as well as retirement business services. Revenues and expenses are allocated to the Company’s two segments based
on which segment services the client. The Company evaluates the performance of its segments on a pre-tax basis, excluding
items such as restructuring and other charges. Segment assets and liabilities are not used for evaluating segment performance
or in deciding how to allocate resources to segments.
For additional information on the products and services offered by each segment, please see “Item 1 – Business.”