Attached files
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EX-32.1 - EXHIBIT 32.1 - optionsXpress Holdings, Inc. | c06097exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - optionsXpress Holdings, Inc. | c06097exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - optionsXpress Holdings, Inc. | c06097exv31w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - optionsXpress Holdings, Inc. | Financial_Report.xls |
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the Quarterly Period Ended September 30, 2010
OR
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from to
Commission file number: 001-32419
optionsXpress Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 20-1444525 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) |
311 W. Monroe, Suite 1000, Chicago, Illinois
60606
(Address of principal executive offices)
(Zip Code)
60606
(Address of principal executive offices)
(Zip Code)
(312) 630-3300
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
twelve months, and (2) has been subject to such filing requirements for the past ninety
days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuit to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding twelve months (or for such shorter period that the registrant was required to
submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
As of November 1, 2010, there were 57,441,979 outstanding shares of the registrants
Common Stock.
TABLE OF CONTENTS
2
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
optionsXpress Holdings, Inc.
Condensed Consolidated Statements of Financial Condition
(Unaudited)
(In thousands, except per share data)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 230,522 | $ | 178,989 | ||||
Cash and investments segregated in compliance with federal regulations |
905,621 | 881,210 | ||||||
Receivables from brokerage customers, net |
173,294 | 149,871 | ||||||
Receivables from brokers, dealers and clearing organizations |
30,255 | 110,779 | ||||||
Investments in securities |
12,125 | 70,850 | ||||||
Deposits with clearing organizations |
24,395 | 30,245 | ||||||
Fixed assets, (net of accumulated depreciation and amortization of
$25,196 and $19,758 at September 30, 2010 and December 31, 2009,
respectively) |
12,019 | 13,263 | ||||||
Goodwill |
85,386 | 81,590 | ||||||
Other intangible assets, net |
5,250 | 6,525 | ||||||
Other assets |
27,275 | 22,999 | ||||||
Total assets |
$ | 1,506,142 | $ | 1,546,321 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Payables to brokerage customers |
$ | 1,106,082 | $ | 1,179,204 | ||||
Payables to brokers, dealers and clearing organizations |
2,375 | 144 | ||||||
Accrued liabilities and accounts payable |
19,619 | 19,027 | ||||||
Current and deferred income taxes |
14 | 193 | ||||||
Other liabilities |
26,492 | 36,878 | ||||||
Total liabilities |
1,154,582 | 1,235,446 | ||||||
Stockholders equity |
||||||||
Common stock, $0.0001 par value (250,000 shares authorized; 57,436 and
57,525 shares issued and outstanding at September 30, 2010 and
December 31, 2009, respectively) |
6 | 6 | ||||||
Preferred stock, $0.0001 par value (75,000 shares authorized; none issued) |
| | ||||||
Additional paid-in capital |
15,286 | 15,131 | ||||||
Accumulated other comprehensive loss |
(1,033 | ) | (1,179 | ) | ||||
Non-controlling interests |
174 | 120 | ||||||
Retained earnings |
337,127 | 296,797 | ||||||
Total stockholders equity |
351,560 | 310,875 | ||||||
Total liabilities and stockholders equity |
$ | 1,506,142 | $ | 1,546,321 | ||||
See accompanying notes.
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Table of Contents
optionsXpress Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Commissions |
$ | 35,229 | $ | 40,501 | $ | 119,540 | $ | 120,598 | ||||||||
Other brokerage-related revenue |
3,533 | 7,357 | 13,274 | 20,762 | ||||||||||||
Interest revenue and fees |
4,539 | 4,241 | 14,132 | 13,110 | ||||||||||||
Interest expense |
(39 | ) | (55 | ) | (146 | ) | (178 | ) | ||||||||
Net interest revenue and fees |
4,500 | 4,186 | 13,986 | 12,932 | ||||||||||||
Education revenue |
6,111 | 9,156 | 21,348 | 16,390 | ||||||||||||
Other income |
4,002 | 1,087 | 7,758 | 2,614 | ||||||||||||
Net revenues |
53,375 | 62,287 | 175,906 | 173,296 | ||||||||||||
Expenses: |
||||||||||||||||
Compensation and benefits |
11,451 | 11,885 | 34,953 | 30,693 | ||||||||||||
Brokerage, clearing and other related expenses |
8,399 | 7,795 | 27,667 | 23,032 | ||||||||||||
Brokerage advertising |
3,300 | 3,207 | 13,416 | 14,001 | ||||||||||||
Education marketing and fulfillment |
3,815 | 6,006 | 14,096 | 10,798 | ||||||||||||
Depreciation and amortization |
2,148 | 2,350 | 6,716 | 6,640 | ||||||||||||
Other general and administrative |
5,908 | 5,748 | 17,239 | 16,373 | ||||||||||||
Total expenses |
35,021 | 36,991 | 114,087 | 101,537 | ||||||||||||
Income before income taxes of consolidated companies |
18,354 | 25,296 | 61,819 | 71,759 | ||||||||||||
Income taxes |
5,484 | 9,007 | 21,435 | 25,811 | ||||||||||||
Net income of consolidated companies |
12,870 | 16,289 | 40,384 | 45,948 | ||||||||||||
Net income attributable to non-controlling interests |
15 | 21 | 54 | 51 | ||||||||||||
Net income |
$ | 12,855 | $ | 16,268 | $ | 40,330 | $ | 45,897 | ||||||||
Earnings per common share: |
||||||||||||||||
Basic |
$ | 0.22 | $ | 0.28 | $ | 0.70 | $ | 0.79 | ||||||||
Diluted |
$ | 0.22 | $ | 0.28 | $ | 0.70 | $ | 0.79 | ||||||||
Weighted-average number of common shares: |
||||||||||||||||
Basic |
57,461 | 57,743 | 57,441 | 58,011 | ||||||||||||
Diluted |
57,635 | 57,936 | 57,649 | 58,154 | ||||||||||||
Dividends declared per share |
$ | | $ | | $ | | $ | 0.0800 |
See accompanying notes.
4
Table of Contents
optionsXpress Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands, except per share data)
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Operating activities |
||||||||
Net income |
$ | 40,330 | $ | 45,897 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Depreciation and amortization |
6,716 | 6,640 | ||||||
Stock-based compensation |
3,291 | 2,634 | ||||||
Excess tax benefit for stock-based compensation |
24 | 165 | ||||||
Deferred income taxes |
854 | 793 | ||||||
Decrease in contingent liability |
(3,177 | ) | (340 | ) | ||||
Unrealized loss (gain), deferred rent and other |
635 | (812 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in: |
||||||||
Cash and investments segregated in compliance with federal regulations |
(24,411 | ) | (370,820 | ) | ||||
Receivables from brokerage customers, net |
(23,423 | ) | 4,844 | |||||
Receivables from brokers, dealers and clearing organizations |
80,524 | (47,036 | ) | |||||
Investments in securities |
48,700 | 6,825 | ||||||
Deposits with clearing organizations |
5,850 | (24,226 | ) | |||||
Other assets |
(4,890 | ) | (2,650 | ) | ||||
Increase (decrease) in: |
||||||||
Payables to brokerage customers |
(73,122 | ) | 404,313 | |||||
Payables to brokers, dealers and clearing organizations |
2,231 | 524 | ||||||
Accrued liabilities and accounts payable |
628 | (13,353 | ) | |||||
Current income taxes |
(1,761 | ) | (748 | ) | ||||
Other liabilities |
(7,655 | ) | 10,851 | |||||
Net cash provided by operating activities |
51,344 | 23,501 | ||||||
Investing activities |
||||||||
Proceeds from sales and maturities of investments in securities |
11,200 | 3,200 | ||||||
Purchases and development of computer software |
(2,988 | ) | (2,591 | ) | ||||
Purchases of fixed assets |
(1,206 | ) | (385 | ) | ||||
Payment of contingent consideration |
(2,330 | ) | (2,151 | ) | ||||
Cash used in acquisition (net of cash received of $3,761) |
| (14,697 | ) | |||||
Net cash provided by (used in) investing activities |
4,676 | (16,624 | ) | |||||
Financing activities |
||||||||
Exercise of stock options |
95 | 38 | ||||||
Excess tax benefit for stock-based compensation |
(24 | ) | (165 | ) | ||||
Purchases through employee stock purchase plan |
24 | 19 | ||||||
Purchase of non-controlling equity interest |
| (1,021 | ) | |||||
Stock repurchases |
(4,447 | ) | (14,381 | ) | ||||
Dividends paid |
| (4,638 | ) | |||||
Net cash used in financing activities |
(4,352 | ) | (20,148 | ) | ||||
Effect of exchange rates on cash and cash equivalents |
(135 | ) | (362 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
51,533 | (13,633 | ) | |||||
Cash and cash equivalents, beginning of period |
178,989 | 114,450 | ||||||
Cash and cash equivalents, end of period |
$ | 230,522 | $ | 100,817 | ||||
Supplemental cash flow information: |
||||||||
Income taxes paid |
$ | 22,062 | $ | 26,199 | ||||
Interest paid |
146 | 178 | ||||||
Supplemental disclosure of non-cash activity: |
||||||||
Non-cash foreign currency translation gain (loss) |
372 | (72 | ) | |||||
Intangible assets acquired in lieu of debt repayment |
| 2,500 | ||||||
Issuance of common stock in acquisition |
1,466 | 1,370 | ||||||
Non-cash change in unrealized gain on available for sale investments in securities |
335 | 642 | ||||||
Non-cash gain from CBOE seat exchanged for initial public offering stock |
2,053 | |
See accompanying notes.
5
Table of Contents
optionsXpress Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data)
1. Basis of Presentation and Nature of Operations
Basis of Presentation
The condensed consolidated financial statements include the accounts of optionsXpress
Holdings, Inc. and its subsidiaries (collectively, the Company). All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company follows United States generally accepted accounting principles (GAAP)
including certain accounting guidance used by the brokerage industry. Certain notes and
other information normally included in financial statements prepared in accordance with
United States GAAP have been condensed or omitted. The accompanying condensed
consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements included in the
Annual Report on Form 10-K of the Company for the year ended December 31, 2009.
In the opinion of management, all adjustments necessary to present fairly the Companys
consolidated financial position at September 30, 2010 and the consolidated results of
operations and cash flows for each of the periods presented have been recorded. The
results of operations and cash flows for an interim period are not necessarily indicative
of the results of operations or cash flows that may be reported for the year or any
subsequent period.
Nature of Operations
The Companys Brokerage Services segment provides internet-based options, stock, bond,
mutual fund and futures brokerage services to retail customers located throughout the
United States and certain foreign countries. Except for trades placed by its Canadian
customers, all securities trades are cleared through the Companys internal self-clearing
operations. The Company clears its futures accounts transactions as a non-clearing
futures commission merchant through an omnibus account arrangement with several futures
commission merchants.
optionsXpress, Inc. is a broker-dealer registered with the Securities and Exchange
Commission (SEC) and is a member of the Financial Industry Regulatory Authority Inc.
(FINRA), the Securities Investor Protection Corporation (SIPC), the National
Securities Clearing Corporation and the Depository Trust Company (together, the
Depository Trust & Clearing Corporation or DTCC), and the Options Clearing Corporation
(OCC). optionsXpress, Inc. is also a member of various exchanges, including the Chicago
Board Options Exchange (CBOE), the International Securities Exchange, the BATS
exchange, the NYSE Amex Options Exchange, NASDAQ Options Market, the NYSE Arca Exchange,
and the NASDAQ OMX PHLX Exchange. brokersXpress LLC (brokersXpress) is a broker-dealer
registered with the SEC and a member of FINRA and SIPC. In addition, optionsXpress, Inc.,
brokersXpress and Open E Cry, LLC (OEC, formerly known as Open E Cry) are registered
with the Commodity Futures Trading Commission (CFTC) and are members of the National
Futures Association (NFA). optionsXpress Canada Corp. is provincially registered and
registered with the Investment Industry Regulatory Organization of Canada. optionsXpress
Singapore Pte. Ltd. is registered with and licensed by the Monetary Authority of
Singapore. optionsXpress Europe, B.V. is registered with and licensed by the Netherlands
Authority for the Financial Markets and has obtained passport licensure in various
European Union countries. optionsXpress Australia Pty Limited is registered with and
licensed by the Australian Securities & Investments Commission.
The Companys Education Services segment offers a full range of education products and
services which cover a broad range of financial products including stock, market
analysis, options, foreign exchange and financial planning. The Company entered the
education business on May 4, 2009 through the acquisition of Optionetics, Inc. and its
affiliates (collectively, Optionetics).
2. Summary of Significant Accounting Policies
Except as described in the following paragraphs, there have been no changes in the
significant accounting policies from those included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2009.
Education Revenue Education revenue within its education services segment is not
recognized until it is realized or realizable and earned. The criteria to meet this
guideline are: (i) persuasive evidence of an arrangement exists; (ii) delivery has
occurred or services have been rendered; (iii) the price to the buyer is fixed or
determinable; and (iv) collectability is reasonably assured.
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Table of Contents
The Company sells its products separately and in various bundles that contain multiple
deliverables that include seminars and web subscription services, along with its home
study products. Sales arrangements with multiple deliverables are divided into separate
units of accounting if the deliverables in the arrangement meet the following criteria:
(i) the product has value to the customer on a standalone basis; (ii) there is objective
and reliable evidence of the fair value of undelivered items; and (iii) delivery or
performance of any undelivered item is probable and substantially in the Companys
control.
The fair value of each element is generally determined by the price charged when each
element is sold separately. In certain arrangements, the Company offers these products
bundled together at a discount. The discount is then allocated pro rata to each element
based on the retail market price for each element.
Each type of transaction is separated into its specific categories and revenue from each
category is recognized according to the following policies:
Product | Recognition Policy | |
Seminars
|
Recognized when the seminar is provided or the credit expires. | |
Website subscription services
|
Recognized on a straight-line basis over the subscription period. | |
Home study products
|
Recognized upon shipment of home study materials to the customer. |
For the initial two-day seminar, the Companys policy is to refund the cost of
the seminar if the customer requests the refund prior to noon on the first day of the
seminar or within 14 days of enrolling in the seminar, whichever comes first. For other
seminars besides the initial two-day seminar, the Companys policy is to refund the cost of the
seminar within 7 days from the date the seminar was ordered. For website subscription
services, the Companys policy is to refund the cost of the website subscription service
up until the subscription period has commenced. For home study products, the Companys
policy is to refund the cost of these products if the customer returns the product within
30 days of receiving the product.
Fair Value of Financial Instruments In January 2010, the FASB issued Accounting
Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements
(ASU 2010-06). ASU 2010-06 amends ASC 820, Fair Value Measurements and Disclosures
(ASC 820), by requiring additional disclosures regarding fair value measurements.
Specifically, the amendment requires additional disclosures of i) the input and valuation
techniques used to measure fair value for both recurring and nonrecurring fair value
measurements of Level 2 and Level 3 positions, ii) the transfers between all levels
(including Level 1 and Level 2) will be required to be disclosed on a gross basis as well
as the reasons for the transfers and iii) separate disclosures are required for each
class of assets and liabilities rather than each major category of assets and
liabilities. ASU 2010-06 is effective for fiscal years beginning after December 15, 2009.
Therefore, ASU 2010-06 was effective for the Companys fiscal year beginning January 1,
2010. The adoption of ASU 2010-06 did not have a material impact on the Companys
condensed consolidated financial statements.
Subsequent Events Effective February 24, 2010, the FASB issued ASU 2010-09, Subsequent
Events (ASU 2010-09). ASU 2010-09 amends ASC 855, Subsequent Events, by requiring less
disclosure regarding subsequent events. As a result of the amendment, the Company is not
required to disclose the date through which management evaluated subsequent events in the
financial statements. ASU 2010-09 also changes the criteria for determining whether an
entity would evaluate subsequent events through the date that financial statements are
issued or when they are available to be issued. The Company is still required to evaluate
subsequent events through the date that the financial statements are issued. ASU 2010-09
was effective for the Companys interim period ended March 31, 2010. The adoption of ASU
2010-09 did not have a material impact on the Companys condensed consolidated financial
statements.
Other Liabilities Other liabilities include deferred revenue, corporate securities
sold, at fair value, an accrued contingent liability and other miscellaneous liabilities
that were previously reported in accrued liabilities and accounts payable. Prior year
balances have been reclassified to conform to the current year presentation.
3. Recently Issued Accounting Pronouncements
Fair Value of Financial Instruments In January 2010, the FASB issued ASU 2010-06,
amending ASC 820. As a supplement to the additional required fair value measurement
disclosures regarding assets and liabilities that are effective for the Companys fiscal
year beginning January 1, 2010, FASB requires further disclosures effective for fiscal
periods beginning after December 15, 2010. Specifically, the additional amendment
requires the purchases, sales, issuances and settlements of Level 3 assets and
liabilities to be shown on a gross basis in a roll forward table. This amendment to ASU
2010-06 is effective for the Companys fiscal year beginning January 1, 2011. The
adoption of ASU 2010-06 is not expected to have a material impact on the Companys
consolidated financial statements.
7
Table of Contents
4. Goodwill
The Company has recorded goodwill for purchase business combinations to the extent the
purchase price of each completed acquisition exceeded the fair value of the net
identifiable tangible and intangible assets of the acquired company. The following table
summarizes changes in the carrying amount of goodwill:
Balance, January 1, 2010 |
$ | 81,590 | ||
Contingent consideration payment for OEC acquisition |
3,796 | |||
Balance, September 30, 2010 |
$ | 85,386 | ||
In performing the annual impairment test, the Company utilized quoted market prices of
the Companys common stock to estimate the fair value of the Company as a whole. The
estimated fair value was then allocated to the Companys reporting units based on
operating revenues, and was compared to the carrying value of the respective reporting
unit. No impairment of goodwill was determined for the nine months ended September 30,
2010. All of the goodwill has been allocated to the Brokerage Services segment. The
Company amortizes goodwill for income tax purposes on a straight-line basis over a period
of fifteen years with the exception of the goodwill recognized from the Optionetics
acquisition, which is non-deductible for income tax purposes.
5. Capitalization
Common Stock
At September 30, 2010, the Company had 250,000 shares of $0.0001 par value common stock
authorized. Of the authorized common stock, 57,436 shares were issued and outstanding.
On February 24, 2009, the Companys Board of Directors approved a stock repurchase
program that authorized the Company to repurchase up to $20,000 of the Companys
outstanding common stock (the 2009 Repurchase Program). On February 12, 2008, the
Companys Board of Directors approved a stock repurchase program that authorized the
Company to repurchase up to $100,000 of the Companys outstanding common stock (the 2008
Repurchase Program).
In addition, on February 14, 2008, the Company entered into an agreement with Ned W.
Bennett, Executive Vice Chairman and founder of optionsXpress, pursuant to which, the
Company may repurchase up to an additional 200 shares annually from Mr. Bennett (the
Bennett Stock Purchase Agreement). The Bennett Stock Purchase Agreement does not create
an obligation for the Company to buy, or Mr. Bennett to sell to the Company, any of his
shares of our common stock. The number of shares the Company may purchase under the
Bennett Stock Purchase Agreement is limited to 200 shares per year, but the total number
of shares is limited only by the number of shares of our common stock that Mr. Bennett
may hold from time to time.
The repurchase programs have no expiration date and the Companys Board of Directors may
terminate any or all of the stock repurchase programs at any time.
For the nine months ended September 30, 2010, the Company has repurchased 295 shares of
its common stock in aggregate under these programs at a total cost of $4,447, or an
average cost of $15.10 per share. Since inception, the Company has repurchased 6,250
shares of its common stock in aggregate under these programs at a total cost of $109,790,
or an average cost of $17.57 per share. The repurchased shares were retired to
authorized, but unissued shares.
6. Fair Value Measurements
As defined in ASC 820, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction. ASC 820 establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the fair value hierarchy under which assets and
liabilities measured at fair value will be classified are as follows:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated
by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
As required by ASC 820, assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
8
Table of Contents
Financial Assets and Liabilities
The following table sets forth by level within the fair value hierarchy the Companys
assets and liabilities owned, at fair value, including $4,860 of available-for-sale
investments in securities that are pledged as collateral for a letter of credit, and
financial instruments sold but not yet purchased at fair value as of September 30, 2010
and December 31, 2009:
September 30, 2010 | Level 1(1) | Level 2(2) | Level 3(3) | Total | ||||||||||||
Financial assets, at fair value: |
||||||||||||||||
Money market funds included in cash
and cash equivalents |
$ | 97,302 | $ | | $ | | $ | 97,302 | ||||||||
U.S. treasury securities included in
deposits with clearing organizations |
11,295 | | | 11,295 | ||||||||||||
Corporate equities and derivatives
included in other assets |
14,747 | 1,374 | | 16,121 | ||||||||||||
Investments in securities |
| | 12,125 | 12,125 | ||||||||||||
$ | 123,344 | $ | 1,374 | $ | 12,125 | $ | 136,843 | |||||||||
Financial liabilities, at fair value: |
||||||||||||||||
Corporate equities and derivatives
included in other liabilities |
$ | 11,597 | $ | | $ | | $ | 11,597 | ||||||||
$ | 11,597 | $ | | $ | | $ | 11,597 | |||||||||
December 31, 2009 | Level 1(1) | Level 2(2) | Level 3(3) | Total | ||||||||||||
Financial assets, at fair value: |
||||||||||||||||
Money market funds included in cash
and cash equivalents |
$ | 72,094 | $ | | $ | | $ | 72,094 | ||||||||
U.S. treasury securities included in
deposits with clearing organizations |
12,997 | | | 12,997 | ||||||||||||
Corporate equities and derivatives
included in other assets |
12,162 | | | 12,162 | ||||||||||||
Investments in securities |
| | 70,850 | 70,850 | ||||||||||||
$ | 97,253 | $ | | $ | 70,850 | $ | 168,103 | |||||||||
Financial liabilities, at fair value: |
||||||||||||||||
Corporate equities and derivatives
included in other liabilities |
$ | 17,520 | $ | | $ | | $ | 17,520 | ||||||||
$ | 17,520 | $ | | $ | | $ | 17,520 | |||||||||
(1) | All of the Companys assets and liabilities included in Level 1 of the fair value hierarchy are exchange traded securities or have quoted market prices in active markets for identical assets or liabilities. | |
(2) | Level 2 assets represent publicly traded shares that are restricted as part of an initial public offering and are valued based on the quoted market price less any discount for that restriction. | |
(3) | Level 3 assets represent 8.9% and 42.1% of all financial assets measured at fair value at September 30, 2010 and December 31, 2009, respectively (see below for further information). |
9
Table of Contents
The following table provides a reconciliation of the beginning and ending balances for
the major classes of financial assets and liabilities measured at fair value using
significant unobservable inputs (Level 3):
Investments | ||||
in | ||||
Securities | ||||
Assets | ||||
Balance, January 1, 2010 |
$ | 70,850 | ||
Total gains/(losses), realized and unrealized |
1,175 | |||
Redemptions |
(59,900 | ) | ||
Balance, September 30, 2010 |
$ | 12,125 | ||
The Companys Level 3 financial assets are comprised of auction rate securities (ARS).
The Companys ARS are backed by United States Department of Education-guaranteed student
loans issued under the Federal Family Education Loan Program (FFELP). The Companys ARS
are marketable securities with long-term stated maturities (during years 2034-2040) for
which the interest rates are reset through periodic short-term auctions every 7 or
35 days, depending on the issue. As a result of the current liquidity issues in the
global credit and capital markets, all of the auctions for all of the Companys ARS have
failed since February 2008. A failed auction is not a default of the debt instrument and
the ARS holder continues to receive interest payments when the auctions fail. All of the
Companys ARS are current with respect to the receipt of interest payments according to
the stated terms of each ARS indenture. The Company believes it has the ability and
intent, if necessary, to hold its ARS investments until such time as the auctions are
successful, the issuer redeems the securities, or another market for ARS develops. Since
the ARS markets began failing on February 14, 2008, $94,775 of the Companys ARS
securities have been redeemed by issuers or their brokers at par. Issuers or their
brokers have redeemed $59,900 of par value ARS at par during the nine months ended
September 30, 2010.
At September 30, 2010, there was insufficient observable ARS market information available
to determine the market value of the Companys investments in ARS. Therefore, the Company
has continued to designate the ARS as Level 3 financial assets under ASC 820 and
estimated the Level 3 fair values for these securities by using the income method,
incorporating assumptions that market participants would use in their estimates of fair
value. The Company calculated income by developing a discounted cash flow model based on
the expected cash flows from the ARS compared to a market rate. Based on the Companys
analysis, the weighted average economic life was estimated to be approximately four
years. For the fair market interest rates used in its discounted cash flow, the Company
used a current market rate for liquid debt instruments of similar underlying assets and
credit quality, with spreads of approximately 150bps-250bps over the London Interbank
Offered Rate.
In November 2008, the Company accepted an offer from UBS, entitling it to sell at par
value ARS originally purchased from UBS at anytime during a two-year period from June 30,
2010 through July 2, 2012 (the UBS Put Right). The Company has adopted the fair value
option under ASC 825, Financial Instruments, to classify the UBS Put Right and the ARS
sold by UBS as trading securities. On June 30, 2010, the Company exercised the UBS Put
Right and sold the remaining $20,950 par value of ARS originally purchased from UBS at
par value according to the provisions of the UBS Put Right.
The remaining $12,800 in par value ARS were sold by another investment advisor, who has
not made an offer similar to UBS, and therefore, the Company has continued to classify
them as available-for-sale securities. The Companys calculation of fair value of the ARS
not held at UBS at September 30, 2010 implied an impairment of fair value of
approximately $675, which has been recorded through accumulated other comprehensive loss
on the condensed consolidated statement of financial condition, and the carrying fair
value of those ARS was approximately $12,125.
Non-Financial Assets and Liabilities
Non-financial assets and liabilities subject to fair value measurements include customer
relationships that are included in other intangible assets and a contingent liability included in
other liabilities. At September 30, 2010 and December 31, 2009, there was significant
unobservable information used to determine the market value for these non-financial
assets and liabilities. Therefore, the Company has continued to designate the customer
relationships intangible asset and the contingent liability as Level 3 non-financial
assets and liabilities, respectively, under ASC 820.
The Company reviews other intangible assets for impairment on an annual basis and
whenever events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Recoverability of the Companys finite-lived intangible
assets is evaluated by comparing the current and forecasted cash flows associated with
the assets to the assets carrying values. The fair value of the Companys customer
relationships intangible assets were $5,122 at December 31, 2009 and $3,957 at
September 30, 2010. For the nine months ended September 30, 2010 and 2009, no impairment
was recorded against the Companys customer relationships intangible assets.
The Companys non-financial liabilities include a contingent liability for accrued
contingent consideration related to the acquisition of Optionetics. The accrued
contingent consideration is payable for a period of five years following the acquisition
and is based on the profitability of the business acquired and the number of funded
brokerage accounts referred to the Companys Brokerage Services segment in the year the
contingent consideration is paid. Depending on the level of performance, the contingent
consideration can range from zero to $7,000 for each of the first five years following
the acquisition date of
May 4, 2009. The fair value is based on the estimated projected future performance of
Optionetics, the time remaining on the liability and the estimated market debt rate for
the Company. The fair value of the contingent liability was $11,925 at December 31, 2009
and $8,748 at September 30, 2010.
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7. Derivative Instruments
As part of the UBS settlement agreement accepted by the Company in November 2008 (See
Note 6), the Company received a UBS Put Right to sell certain ARS to UBS at par value
beginning on June 30, 2010. The Company adopted the fair value option election under ASC
825 for this instrument in 2008, and accounts for any respective gain/loss as a component
of other income in the condensed consolidated statement of operations. Typically, any
gain/loss in the UBS Put Right is offset by an opposite, but equal gain/loss in the value
of the ARS eligible for the UBS Put Right. After the exercise of the UBS Put Right on
June 30, 2010, the Company recognized a gain of $2,517, offset by a corresponding loss,
on the UBS Put Right for the nine months ended September 30, 2010. The Company recognized
a gain of $2,557, offset by a corresponding loss, on the UBS Put Right for the nine
months ended September 30, 2009. The gains were included as a component of other income
in the condensed consolidated statement of operations.
To help provide customers with improved trade execution, the Company at times enters into
proprietary short-term positions in equity option and equity securities. The Company
attempts to hedge these positions so that changes in market prices do not materially
change the value of its securities. Any gains/losses from this trading activity are
recognized as part of other brokerage-related revenue in the condensed consolidated
statement of operations. For the nine months ended September 30, 2010 and 2009, the total
gains from the Companys proprietary trading activities were $2,186 and $698,
respectively.
8. Contingencies and Guarantees
General Contingencies
The Company extends margin credit and leverage to its customers, which are subject to
various regulatory and clearing firm margin requirements. Cash and securities in
customers accounts collateralize margin credit balances. Leverage involves securing a
large potential future obligation with a lesser amount of cash or securities. The risks
associated with margin credit and leverage increase during periods of fast market
movements, or in cases where leverage or collateral is concentrated and market movements
occur. During such times, customers who utilize margin credit or leverage and who have
collateralized their obligations with securities may find that the securities have a
rapidly depreciating value and may not be sufficient to cover their obligations in the
event of liquidation. The Company is exposed to credit risk when its customers execute
transactions, such as short sales of options, equities or futures transactions that can
expose them to risk beyond their invested capital. As of September 30, 2010 and December
31, 2009, the Company had $170,905 and $148,533, respectively, in credit extended to its
customers. In addition, the Company may be obligated for margin extended to the Companys
customers by its third-party clearing agents on collateralized securities and futures
positions.
The margin and leverage requirements that the Company imposes on its customer accounts
meet or exceed those required by various regulatory requirements and Regulation T of the
Board of Governors of the Federal Reserve. The amount of this risk is not quantifiable
since the risk is dependent upon analysis of a potential significant and undeterminable
rise or fall in stock prices. As a result, the Company is exposed to significant
off-balance sheet credit risk in the event customer collateral is not sufficient to fully
cover losses that customers may incur. In the event customers fail to satisfy their
obligations, the Company may be required to purchase or sell financial instruments at
prevailing market prices to fulfill customers obligations. The Company believes that it
is unlikely that it will have to make any material payments under these arrangements, and
no liabilities related to these guarantees and indemnifications have been recognized in
the accompanying condensed consolidated financial statements.
The Company borrows securities temporarily from other broker-dealers in connection with
its broker-dealer business. The Company deposits cash as collateral for the securities
borrowed. Decreases in securities prices may cause the market value of the securities
borrowed to fall below the amount of cash deposited as collateral. In the event the
counterparty to these transactions does not return the cash deposited, the Company may be
exposed to the risk of selling the securities at prevailing market prices. The Company
seeks to manage this risk by requiring credit approvals for counterparties, by monitoring
the securities value on a daily basis and by requiring additional collateral as needed.
Other assets and other liabilities on the condensed consolidated statement of financial
condition include premiums on unrealized gains and losses for written and purchased
options contracts. These contracts are subject to varying degrees of market risk. In
addition, the Company has sold securities that it does not currently own (see Note 7),
and therefore, will be obligated to purchase such securities at a future date. The
Company has recorded these obligations in the condensed consolidated financial statements
as of September 30, 2010, at the fair values of the related securities, and will incur
losses if the fair values of these securities increase subsequent to September 30, 2010.
Legal Contingencies
In the ordinary course of business, the Company is subject to lawsuits, arbitrations,
claims and other legal proceedings. Management cannot predict with certainty the outcome
of pending legal proceedings. A substantial adverse judgment or other resolution
regarding the proceedings could have a material adverse effect on the Companys financial
condition, results of operations and cash flows. However, in the opinion of management,
after consultation with legal counsel, the outcome of any
pending proceedings is not likely to have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
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Guarantees
The Company introduces its Canadian securities customers accounts to a clearing broker
who clears and carries all customer securities account activity. The Company clears its
futures transactions on an omnibus account basis through several futures commission
merchants. The Company has agreed to indemnify its third-party clearing broker and all of
its clearing futures commission merchants for any losses that they may sustain for the
customer accounts introduced to them by the Company.
The Company provides guarantees to its clearing organizations and exchanges under their
standard membership agreements, which require members to guarantee the performance of
other members. Under the agreements, if another member becomes unable to satisfy its
obligations to the clearing organization or exchange, the other members would be required
to meet any shortfalls. The Companys liability under these arrangements is not
quantifiable and may exceed the cash and securities it has posted as collateral. However,
the Company believes that it is unlikely that it will have to make any material payments
under these arrangements, and no liabilities related to these guarantees have been
recognized in the accompanying condensed consolidated financial statements.
9. Earnings Per Share
The computations of basic and diluted EPS were as follows for the following periods:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income |
$ | 12,855 | $ | 16,268 | $ | 40,330 | $ | 45,897 | ||||||||
Weighted-average number of
common shares outstanding
basic |
57,461 | 57,743 | 57,441 | 58,011 | ||||||||||||
Effect of dilutive securities |
174 | 193 | 208 | 143 | ||||||||||||
Weighted-average number of
common shares outstanding
diluted |
57,635 | 57,936 | 57,649 | 58,154 | ||||||||||||
Basic EPS |
$ | 0.22 | $ | 0.28 | $ | 0.70 | $ | 0.79 | ||||||||
Diluted EPS |
$ | 0.22 | $ | 0.28 | $ | 0.70 | $ | 0.79 |
10. Stock-Based Compensation
The Company maintains three stock compensation plans: the 2001 Equity Incentive Plan, the
2005 Equity Incentive Plan, and the 2008 Equity Incentive Plan. All of the options
outstanding pursuant to the stock compensation plans at September 30, 2010 are options to
buy common stock of the Company granted to employees or directors of the Company.
Stock-based compensation for the nine months ended September 30, 2010 and September 30,
2009 was $3,291 and $2,634, respectively. As of September 30, 2010, the total
compensation cost related to stock options and deferred shares not yet vested and
recognized was estimated to be $5,834. This compensation cost related to stock options
and deferred shares is expected to be recognized over a weighted average period of
2.91 years and 3.48 years, respectively. As of September 30, 2010, the aggregate
intrinsic value of the total outstanding stock options and deferred shares was $2,414 and
$7,193, respectively, and the aggregate intrinsic value of the total exercisable stock
options was $1,404. During the nine months ended September 30, 2010, 126 shares were
issued pursuant to the Companys equity incentive plans.
11. Regulatory Requirements
optionsXpress, Inc. is subject to the Securities and Exchange Commission Uniform Net
Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934, administered by
the SEC and FINRA, which requires the maintenance of minimum net capital. Under Rule
15c3-1, optionsXpress, Inc. is required to maintain net capital of 2% of aggregate
debits or $250, whichever is greater, as these terms are defined.
optionsXpress, Inc. is also subject to the CFTC Regulation 1.17 (Reg. 1.17) under the
Commodity Exchange Act, administered by the CFTC and the NFA, which also requires the
maintenance of minimum net capital. optionsXpress, Inc., as a futures commission
merchant, is required to maintain minimum net capital equal to the greater of its net
capital requirement under Reg. 1.17 ($1,000), or the sum of 8% of the total risk margin
requirements for all positions carried in customer accounts, as defined in Reg. 1.17 and
8% of the total risk margin requirements for all positions carried in non-customer
accounts.
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As of September 30, 2010, optionsXpress, Inc. had net capital requirements of $8,985 and
net capital of $119,335. As of September 30, 2009, optionsXpress, Inc. had net capital
requirements of $11,723 and net capital of $87,870. All of the Companys other
broker-dealers also exceeded the net capital requirements for their respective
jurisdictions. The net capital rules may effectively restrict the payment of cash
distributions or other equity withdrawals.
12. Segment Reporting
The operations of Optionetics have been included in the condensed consolidated financial
statements since the date of the acquisition, May 4, 2009. As a result of the
acquisition, the Company operates in the following two principal business segments:
Brokerage Services segment- Brokerage Services offers a comprehensive suite of services
for option, futures, stock, mutual fund, and fixed-income investors. This business
segment includes almost all of the Companys operations prior to the acquisition of
Optionetics.
Education Services segment- Education Services provides a full range of investor
education products and services that educate customers on stock, market analysis,
options, foreign exchange and financial planning.
Information concerning the Companys operations by reportable segment is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Net Revenues | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Brokerage Services |
$ | 47,548 | $ | 53,138 | $ | 154,836 | $ | 156,909 | ||||||||
Education Services |
6,591 | 9,640 | 22,791 | 16,944 | ||||||||||||
Eliminations |
(764 | ) | (491 | ) | (1,721 | ) | (557 | ) | ||||||||
Total |
$ | 53,375 | $ | 62,287 | $ | 175,906 | $ | 173,296 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Income (Loss) before Income Taxes | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Brokerage Services |
$ | 19,496 | $ | 26,292 | $ | 65,469 | $ | 73,001 | ||||||||
Education Services |
(1,157 | ) | (1,017 | ) | (3,704 | ) | (1,293 | ) | ||||||||
Non-controlling interests |
15 | 21 | 54 | 51 | ||||||||||||
Total |
$ | 18,354 | $ | 25,296 | $ | 61,819 | $ | 71,759 | ||||||||
As of | As of | |||||||
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Brokerage Services |
$ | 1,502,128 | $ | 1,538,379 | ||||
Education Services |
13,473 | 12,112 | ||||||
Eliminations |
(9,459 | ) | (4,170 | ) | ||||
Total |
$ | 1,506,142 | $ | 1,546,321 | ||||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
FORWARD-LOOKING STATEMENTS
The following discussion of the financial condition and results of operations of the
Company should be read in conjunction with the Selected Financial Data and the
Consolidated Financial Statements and Notes thereto included in the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, and the Condensed
Consolidated Financial Statements and Notes thereto contained in this Quarterly Report on
Form 10-Q. This discussion contains forward-looking statements that relate to future
events or our future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these forward-looking
statements. You are urged to carefully consider these risks and factors included in this
Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements
by terminology such as may, will, should, expects, intends, plans,
anticipates, believes, estimates, predicts, potential, continue or the
negative of these terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. The forward-looking
statements made in this Quarterly Report on Form 10-Q relate only to events as of the
date on which the statements are made, and we undertake no ongoing obligation, other than
any imposed by law, to update these statements. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.
Important factors that may cause such differences include, but are not limited to: risks
related to general economic conditions, regulatory developments, the competitive
landscape, the volume of securities trading generally or by our customers specifically,
competition, systems failures and capacity constraints and the other risks and
uncertainties set forth under the heading Risk Factors in Item 1A of the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
Forward-looking statements include, but are not limited to, the following:
| the statements about our intention to pay dividends; | |
| the statements about future growth in online brokerage accounts, options trading, futures trading, online options trading, and online futures trading; | |
| the statement that, on a per trade basis, brokerage, clearing and other related expenses generally decrease as the number of customer trades increase; | |
| the statements about continuing to expand our product offering and our customer base and the costs associated with such expansion; | |
| the statements concerning future growth of our futures business, international operations, brokersXpress and our institutional business; | |
| the statements about the impact of changes in interest rates on our earnings; | |
| the statements concerning continued financing options; | |
| the statements regarding scalability of our systems and the cost of capacity increases; | |
| the statements concerning uncertainties and deteriorations in the credit and capital markets and the credit quality of our auction rate securities (ARS); and, | |
| the statements concerning the number of students receiving education services and our ability to convert those students into brokerage customers. |
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Results of Operations
The following table sets forth our total net revenues and condensed consolidated
statements of operations data for the periods presented as a percentage of total net
revenues:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Results of Operations |
||||||||||||||||
Net revenues (in thousands) |
$ | 53,375 | $ | 62,287 | $ | 175,906 | $ | 173,296 | ||||||||
Compensation and benefits |
21.5 | % | 19.1 | % | 19.9 | % | 17.7 | % | ||||||||
Brokerage, clearing, and other related expenses |
15.7 | 12.5 | 15.8 | 13.3 | ||||||||||||
Brokerage advertising |
6.2 | 5.1 | 7.6 | 8.1 | ||||||||||||
Education marketing and fulfillment |
7.1 | 9.6 | 8.0 | 6.2 | ||||||||||||
Depreciation and amortization |
4.0 | 3.8 | 3.8 | 3.8 | ||||||||||||
Other general and administrative |
11.1 | 9.3 | 9.8 | 9.5 | ||||||||||||
Income before income taxes |
34.4 | 40.6 | 35.1 | 41.4 | ||||||||||||
Income taxes |
10.3 | 14.5 | 12.2 | 14.9 | ||||||||||||
Net income |
24.1 | 26.1 | 22.9 | 26.5 |
Statistical Data
The following table sets forth our statistical data for the periods presented below:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Statistical Data |
||||||||||||||||
Number of customer accounts (at period
end) (1) |
371,100 | 343,900 | 371,100 | 343,900 | ||||||||||||
Daily average revenue trades (DARTs) (2) |
||||||||||||||||
Retail DARTs |
26,300 | 30,600 | 29,800 | 31,800 | ||||||||||||
Institutional DARTs |
12,700 | 11,400 | 14,700 | 12,800 | ||||||||||||
Total DARTs |
39,000 | 42,000 | 44,500 | 44,600 | ||||||||||||
Customer trades per account (3) |
27 | 32 | 31 | 34 | ||||||||||||
Average commission per trade |
$ | 14.11 | $ | 15.07 | $ | 14.31 | $ | 14.38 | ||||||||
Option trades as a % of total trades |
41 | % | 43 | % | 41 | % | 41 | % | ||||||||
Brokerage advertising expense per net new
customer account (4) |
$ | 589 | $ | 486 | $ | 674 | $ | 553 | ||||||||
Total client assets (000s) |
$ | 7,574,541 | $ | 6,349,342 | $ | 7,574,541 | $ | 6,349,342 | ||||||||
Client margin balances (000s) |
$ | 185,868 | $ | 130,283 | $ | 185,868 | $ | 130,283 |
(1) | Customer accounts are open, numbered accounts. | |
(2) | DARTs are total revenue-generating trades for a period divided by the number of trading days in that period. | |
(3) | Customer trades per account are total trades divided by the average number of total customer accounts during the period. Customer trades are annualized. | |
(4) | Calculated based on total net new customer accounts opened during the period. |
Three Months Ended September 30, 2010 versus Three Months Ended September 30, 2009
Overview
Our results for the period reflect the following principal factors:
| total customer accounts increased by 27,200 to 371,100, or 7.9%; | |
| total trades decreased by 191,500 to 2,496,400, or 7.1% and | |
| average commission per trade decreased by $0.96 to $14.11, or 6.4%. |
Commissions
Commissions decreased $5.3 million, or 13.0%, for the three months ended September 30,
2010 to $35.2 million compared to $40.5 million for the three months ended September 30,
2009. The decrease in commissions was primarily the result of the 7.1% decrease in the
total number of trades and the 6.4% decrease in the average commission per trade.
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Other brokerage-related revenue
Other brokerage-related revenue decreased $3.9 million, or 52.0%, for the three months
ended September 30, 2010 to $3.5 million compared to $7.4 million for the three months
ended September 30, 2009. The decrease in other brokerage-related revenue was due to a
reduction in the payment for order flow rate per contract paid by exchanges and liquidity
providers for our option order flow and a reduction in the number of option contracts
traded.
Net interest revenue and fees
Net interest revenue and fees increased $0.3 million, or 7.5%, to $4.5 million for the
three months ended September 30, 2010 compared to $4.2 million for the three months ended
September 30, 2009. The increase in net interest revenue and fees was primarily the
result of an increase in our customer cash and margin balances.
Education revenue
Education revenue decreased $3.1 million, or 33.3%, to $6.1 million for the three months
ended September 30, 2010 compared to $9.2 million for the three months ended
September 30, 2009. The decrease in education revenue was primarily due to lower revenue
from seminar sales.
Other income
Other income increased $2.9 million, or 268.2%, to $4.0 million for the three months
ended September 30, 2010 compared to $1.1 million for the three months ended
September 30, 2009. The increase in other income is due primarily to the reduction in
fair value of the contingent liability from the Optionetics acquisition.
Compensation and benefits
Compensation and benefits expenses decreased $0.4 million, or 3.7%, to $11.5 million for
the three months ended September 30, 2010 from $11.9 million for the three months ended
September 30, 2009. The decrease in compensation and benefits expenses was primarily due
to a decrease in the annual bonus accrual due to lower overall company performance and
the decrease in the number of employees from 433 at September 30, 2009 to 419 at
September 30, 2010.
Brokerage, clearing, and other related expenses
Brokerage, clearing and other related expenses increased $0.6 million, or 7.7%, to $8.4
million for the three months ended September 30, 2010 from $7.8 million for the three
months ended September 30, 2009. Brokerage, clearing and other related expenses increased
primarily due to higher payouts to the independent registered representatives of our
brokersXpress subsidiary, which was partially offset by the decline in overall trade
volume.
Brokerage advertising
Brokerage advertising expenses increased $0.1 million, or 2.9%, to $3.3 million for the
three months ended September 30, 2010 from $3.2 million for the three months ended
September 30, 2009. Brokerage advertising expenses per net new customer account increased
to $589 for the three months ended September 30, 2010 from $486 for the three months
ended September 30, 2009.
Education marketing and fulfillment
Education marketing and fulfillment expenses decreased $2.2 million, or 36.5%, to
$3.8 million for the three months ended September 30, 2010 compared to $6.0 million for
the three months ended September 30, 2009. Education marketing and fulfillment expenses
decreased primarily due to lower marketing expense for preview events.
Depreciation and amortization
Depreciation and amortization expenses decreased $0.3 million, or 8.6%, to $2.1 million
for the three months ended September 30, 2010 from $2.4 million for the three months
ended September 30, 2009. Lower depreciation and amortization expenses were due to a
reduced level of fixed assets being depreciated and amortized.
Other general and administrative
Other general and administrative expenses increased $0.2 million, or 2.8%, to $5.9
million for the three months ended September 30, 2010 from $5.7 million for the three
months ended September 30, 2009.
Income taxes
Income taxes decreased $3.5 million, or 39.1%, to $5.5 million for the three months ended
September 30, 2010 from $9.0 million for the three months ended September 30, 2009. Lower
income taxes were primarily due to the 27.4% reduction of income before income taxes and
the non-taxable reduction in fair value of the contingent liability from the Optionetics
acquisition.
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Net income
As a result of the foregoing, we reported $12.9 million in net income for the three
months ended September 30, 2010, compared to $16.3 million in net income for the three
months ended September 30, 2009, a decrease of $3.4 million, or 21.0%.
Segment information
Brokerage Services
Brokerage Services net revenues decreased $5.6 million, or 10.5% to $47.5 million for the
three months ended September 30, 2010 compared to the $53.1 million for the three months
ended September 30, 2009 due to the decrease in commissions and other brokerage-related
revenue, which was partially offset by the increase in other income. Income before income
taxes decreased $6.8 million, or 25.8%, to $19.5 million for the three months ended
September 30, 2010 compared to the $26.3 million for the three months ended September 30,
2009 primarily due to the overall decline in net revenues and the increase in brokerage,
clearing, and other related expenses.
Education Services
Education Services net revenues decreased $3.0 million, or 31.6% to $6.6 million for the
three months ended September 30, 2010 compared to the $9.6 million for the three months
ended September 30, 2009 due to lower seminar sales. The loss before income taxes
increased $0.2 million, or 13.8%, to $1.2 million for the three months ended
September 30, 2010 compared to the $1.0 million for the three months ended September 30,
2009 due to lower seminar sales, which were largely offset by declines in marketing
expense for preview events.
Nine Months Ended September 30, 2010 versus Nine Months Ended September 30, 2009
Overview
Our results for the period reflect the following principal factors:
| total customer accounts increased by 27,200 to 371,100, or 7.9%; | |
| total trades decreased by 32,100 to 8,353,000, or 0.4%; and | |
| average commission per trade decreased by $0.07 to $14.31, or 0.5%. |
Commissions
Commissions decreased $1.1 million, or 0.9%, for the nine months ended September 30, 2010
to $119.5 million compared to $120.6 million for the nine months ended September 30,
2009. The decrease in commissions was primarily the result of the 0.4% decrease in the
total trades and the 0.5% decrease in the average commission per trade.
Other brokerage-related revenue
Other brokerage-related revenue decreased $7.5 million, or 36.1%, for the nine months
ended September 30, 2010 to $13.3 million compared to $20.8 million for the nine months
ended September 30, 2009. The decrease in other brokerage-related revenue was due to a
reduction in the payment for order flow rate per contract paid by exchanges and liquidity
providers for our option order flow.
Net interest revenue and fees
Net interest revenue and fees increased $1.1 million, or 8.2%, to $14.0 million for the
nine months ended September 30, 2010 compared to $12.9 million for the nine months ended
September 30, 2009. The increase in net interest revenue and fees was primarily the
result of an increase in our customer cash and margin balances.
Education revenue
Education revenue increased $4.9 million, or 30.3%, to $21.3 million for the nine months
ended September 30, 2010 compared to $16.4 million for the nine months ended
September 30, 2009. The increase in education revenue was primarily due to the inclusion
of operations from Optionetics for the full nine month period ended September 30, 2010,
versus the post-acquisition period beginning May 4, 2009 and ending September 30, 2009,
which was partially offset by lower sales volumes. Prior to the acquisition of
Optionetics on May 4, 2009, we did not have any material education revenue.
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Other income
Other income increased $5.2 million, or 196.8%, to $7.8 million for the nine months ended
September 30, 2010 from $2.6 million for the nine months ended September 30, 2009. The
increase in other income is due to the reduction in fair value of the contingent
liability from the Optionetics acquisition and the gain recognized from the shares that
we received as a result of the CBOE initial public offering.
Compensation and benefits
Compensation and benefits expenses increased $4.3 million, or 13.9%, to $35.0 million for
the nine months ended September 30, 2010 from $30.7 million for the nine months ended
September 30, 2009. The increase in compensation and benefits expenses was primarily due
to the incorporation of operations from the acquisition of Optionetics on May 4, 2009,
for the full nine month period ended September 30, 2010, versus the post-acquisition
period beginning May 4, 2009 and ending September 30, 2009.
Brokerage, clearing, and other related expenses
Brokerage, clearing, and other related expenses increased $4.7 million, or 20.1%, to
$27.7 million for the nine months ended September 30, 2010 from $23.0 million for the
nine months ended September 30, 2009. Brokerage, clearing and other related expenses
increased primarily due to higher payouts to the independent registered representatives
of our brokersXpress subsidiary, higher payouts to introducing brokers in our OEC
subsidiary and higher overall option contracts traded.
Brokerage advertising
Brokerage advertising expenses decreased $0.6 million, or 4.2%, to $13.4 million for the
nine months ended September 30, 2010 from $14.0 million for the nine months ended
September 30, 2009. The decline in brokerage advertising expense was due to a decline in
spending in response to a weaker market for new accounts. Brokerage advertising expenses
per net new customer account increased to $674 for the nine months ended September 30,
2010 from $553 for the nine months ended September 30, 2009.
Education marketing and fulfillment
Education marketing and fulfillment expenses increased $3.3 million, or 30.5%, to
$14.1 million for the nine months ended September 30, 2010 compared to $10.8 million for
the nine months ended September 30, 2009. Education marketing and fulfillment expenses
increased primarily due to the inclusion of operations from Optionetics for the full nine
month period ended September 30, 2010, versus the post-acquisition period beginning
May 4, 2009 and ending September 30, 2009, which was partially offset by lower marketing
expense for preview events. Prior to the acquisition of Optionetics on May 4, 2009, we
did not have any material education marketing and fulfillment expenses.
Depreciation and amortization
Depreciation and amortization expenses increased $0.1 million, or 1.1%, to $6.7 million
for the nine months ended September 30, 2010 from $6.6 million for the nine months ended
September 30, 2009.
Other general and administrative
Other general and administrative expenses increased $0.8 million, or 5.3%, to
$17.2 million for the nine months ended September 30, 2010 from $16.4 million for the
nine months ended September 30, 2009. Increased other general and administrative expenses
were primarily due to the incorporation of other general and administrative expenses from
our acquisition of Optionetics on May 4, 2009.
Income taxes
Income taxes decreased $4.4 million, or 17.0%, to $21.4 million for the nine months ended
September 30, 2010 from $25.8 million for the nine months ended September 30, 2009. Lower
income taxes were primarily due to the 13.9% reduction of income before taxes and the
non-taxable reduction in fair value of the contingent liability from the Optionetics
acquisition in the third quarter of 2010.
Net income
As a result of the foregoing, we reported $40.3 million in net income for the nine months
ended September 30, 2010, compared to $45.9 million in net income for the nine months
ended September 30, 2009, a decrease of $5.6 million, or 12.1%.
Segment information
Brokerage services
Brokerage Services net revenues decreased $2.1 million, or 1.3%, to $154.8 million for
the nine months ended September 30, 2010 compared to the $156.9 million for the nine
months ended September 30, 2009 primarily due to the decrease in other brokerage-related
revenue, which was partially offset by the increase in other income. Income before income taxes
decreased $7.5 million or 10.3%, $65.5 million for the nine months ended September 30,
2010 compared to the $73.0 million for the nine
months ended September 30, 2009 primarily due to the overall decline in net revenues and
the increase in brokerage, clearing, and other related expenses.
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Education Services
Education Services net revenues increased $5.9 million, or 34.5%, to $22.8 million for
the nine months ended September 30, 2010 compared to the $16.9 million for the nine
months ended September 30, 2009 due to the inclusion of operations from the acquisition
of Optionetics on May 4, 2009, for the full nine month period ended September 30, 2010,
versus the post-acquisition period beginning May 4, 2009 and ending September 30, 2009,
which was partially offset by lower sales volumes. The loss before income taxes increased
$2.4 million, or 186.5%, to $3.7 million for the nine months ended September 30, 2010
compared to the $1.3 million for the nine months ended September 30, 2009 due to the
inclusion of operations for the full nine month period ended September 30, 2010, versus
the post-acquisition period beginning May 4, 2009 and ending September 30, 2009, and due
to lower seminar sales.
Liquidity and Capital Resources
As a holding company, almost all of our funds generated from operations are earned by our
operating subsidiaries. We access these funds through receipt of dividends from these
subsidiaries. Some of our subsidiaries are subject to requirements of various regulatory
bodies, including the SEC, FINRA, the CBOE, the CFTC and the NFA, relating to liquidity
and capital standards, which limit the funds available for the payment of dividends to
us.
We invest company cash in a variety of high credit quality investment vehicles including
U.S. Government Treasury Bills, bank-issued commercial paper, AAA-rated institutional
money market funds and tax-free ARS backed by United States Department of
Education-guaranteed student loans issued under the FFELP. Our ARS are securities with
long-term stated maturities (during years 2034-2040) for which the interest rates are
reset through periodic short-term auctions every 7 or 35 days, depending on the issue. As
a result of the liquidity issues in the global credit and capital markets, all of the
auctions for all our ARS have failed since February 2008. Failed auctions limit liquidity
for ARS holders until there is a successful auction, the issuer redeems the security, or
another market for ARS develops. Our ARS portfolio consists entirely of securities backed
by student loans issued under the FFELP program, which are individually guaranteed by the
United States Department of Education. All of our ARS are AAA-rated and current with
respect to receipt of interest payments according to the stated terms of each ARS
indenture. As of the date of this report, we have no reason to believe that any of the
underlying issuers of our ARS will be unable to satisfy the terms of the indentures or
that the underlying credit quality of the assets backing our ARS investments has
deteriorated. Since the ARS markets began failing on February 14, 2008, $94.8 million of
our ARS securities have been redeemed by issuers or their brokers at par. We believe we
have the ability and intent, if necessary, to hold our remaining ARS investments until
such time as the auctions are successful, the issuer redeems the securities, or another
market for ARS develops.
optionsXpress, Inc. is subject to the Securities and Exchange Commission Uniform Net
Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934, administered by
the SEC and FINRA, which requires the maintenance of minimum net capital. Under Rule
15c3-1, optionsXpress, Inc. is required to maintain net capital of 2% of aggregate
debits or $0.25 million, whichever is greater, as these terms are defined.
optionsXpress, Inc. is also subject to the CFTC Regulation 1.17 (Reg. 1.17) under the
Commodity Exchange Act, administered by the CFTC and the NFA, which also requires the
maintenance of minimum net capital. optionsXpress, Inc., as a futures commission
merchant, is required to maintain minimum net capital equal to the greater of its net
capital requirement under Reg. 1.17 ($1.0 million), or the sum of 8% of the total risk
margin requirements for all positions carried in customer accounts and 8% of the total
risk margin requirements for all positions carried in non-customer accounts, as defined
in Reg. 1.17.
As of September 30, 2010, optionsXpress, Inc. had net capital requirements of
$9.0 million and net capital of $119.3 million. As of September 30, 2009, optionsXpress,
Inc. had net capital requirements of $11.7 million and net capital of $87.9 million. All
of our other broker-dealers also exceeded the net capital requirements for their
respective jurisdictions. We believe that we currently have sufficient capital to satisfy
these ongoing requirements.
In addition to net capital requirements, as a self-clearing broker-dealer, optionsXpress,
Inc. is subject to Depository Trust & Clearing Corporation (DTCC), Options Clearing
Corporation (OCC), and other cash deposit requirements, which may fluctuate
significantly from time to time based upon the nature and size of our customers trading
activity. At September 30, 2010, we had interest-bearing security deposits and short-term
treasury bills totaling $24.4 million deposited with clearing organizations for the
self-clearing of equities and option trades.
At September 30, 2010, we had $905.6 million of cash segregated in compliance with
federal regulations in special reserve bank accounts for the exclusive benefit of
customers under Rule 15c3-3 of the Securities Exchange Act of 1934 and other regulations.
Liquidity needs relating to client trading and margin borrowing activities are met
primarily through cash balances in customer brokerage accounts, which were
$1,106.1 million as of September 30, 2010.
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Credit Facility
We generally finance our operating liquidity and capital needs through the use of funds
generated from operations and the issuance of common stock.
To support our self-clearing activities, we have an unsecured, uncommitted credit
facility with JPMorgan Chase Bank, NA that is callable on demand. We anticipate that the
credit facility will only be used occasionally, addressing potential timing issues with
the flow of customer funds, and will only be used to facilitate transactions for which
customers already have sufficient funds in brokerage accounts. As of September 30, 2010,
there was no balance outstanding on this credit facility.
Although we have no current plans to do so, we may issue equity or debt securities or
enter into secured or additional unsecured lines of credit from time to time.
Cash Flow
Cash provided by operating activities was $51.3 million for the nine months ended
September 30, 2010, compared to cash provided by operating activities of $23.5 million
for the nine months ended September 30, 2009. The primary reasons for the increase in
cash provided by operating activities was due to the decrease in securities failed to
deliver and redemptions of ARS, which was partially offset by decrease in payables to
brokerage customers.
Cash provided by investing activities was $4.7 million for the nine months ended
September 30, 2010, compared to cash used in investing activities of $16.6 million for
the nine months ended September 30, 2009. The primary reason for the decrease in cash
used in investing activities was the absence of the net proceeds used to acquire
Optionetics on May 4, 2009 and the increase of proceeds received from the redemption of
ARS.
Cash used in financing activities was $4.4 million for the nine months ended
September 30, 2010, compared to cash used in financing activities of $20.1 million for
the nine months ended September 30, 2009. Cash used in financing activities decreased
primarily due to the reduction of cash used to repurchase our outstanding common stock
and no dividends being paid in the current period.
Capital Expenditures
Capital expenditures were $1.3 million for the three months ended September 30, 2010,
compared to $1.2 million for the three months ended September 30, 2009. The increase in
capital expenditures was related to an increased level of fixed asset additions. Capital
expenditures for the periods ended September 30, 2010 and 2009 included capitalized
software development costs, which we capitalized in accordance with Financial Accounting
Standards Board Accounting Standards Codification tm Topic 350-50,
Website Development Costs, primarily related to the development of our technology.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk generally represents the risk of loss that may result from the potential
change in the value of a financial instrument as a result of fluctuations in interest
rates and market prices. We have established policies, procedures and internal processes
governing our management of market risks in the normal course of our business operations.
We do not have material exposure to commodity price changes, foreign currency
fluctuations or similar market risks other than the effect they may have on trading
volumes. Accordingly, we have not entered into any derivative contracts to mitigate such
risks.
We extend margin credit and leverage to our customers, which are subject to various
regulatory and clearing firm margin requirements. Margin credit balances are
collateralized by cash and securities in our customers accounts. Leverage involves
securing a large potential future obligation with a lesser amount of cash or securities.
The risks associated with margin credit and leverage increase during periods of fast
market movements or in cases where leverage or collateral is concentrated and market
movements occur. During such times, customers who utilize margin credit or leverage and
who have collateralized their obligations with securities may find that the securities
have a rapidly depreciating value and may not be sufficient to cover their obligations in
the event of liquidation. We are exposed to credit risk when our customers execute
transactions, such as short sales of options and equities or futures transactions that
can expose them to risk beyond their invested capital.
We expect this kind of exposure to increase with the growth in our overall business. The
use of margin credit, leverage and short sales may expose us to significant
off-balance-sheet risk in the event that collateral requirements are not sufficient to
fully cover losses that customers may incur and those customers fail to satisfy their
obligations. As of September 30, 2010, we had $170.9 million in credit extended to our
customers either directly or through our clearing firms. The amount of risk to which we
are exposed from the leverage we extend to our customers and from short sale transactions
by our customers is unlimited and not quantifiable as the risk is dependent upon analysis
of a potential significant and undeterminable rise or fall in stock or futures prices.
Our account level margin credit and leverage requirements meet or exceed those required
by Regulation T of the Board of Governors of the Federal Reserve. We have a comprehensive
policy implemented in accordance with SRO standards to assess and monitor the suitability
of investors to engage in various trading activities. To mitigate our risk, we also
continuously monitor customer accounts to detect excessive concentration, large orders or
positions, patterns of day trading and other activities that indicate increased risk to
us.
Please see Item 2. Liquidity and Capital Resources for additional information.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within
the time periods specified in the SECs rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. Our management, including our Chief Executive Officer and Chief Financial
Officer, carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by this
report. Based on the evaluation of these disclosure controls and procedures, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the nine
months ended September 30, 2010 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
We are not, nor are our subsidiaries, currently a party to any litigation that we believe
could have a material adverse effect on our business, financial condition or operating
results. However, many aspects of our business involve substantial risk of liability. In
recent years, there has been an increasing incidence of litigation involving the
securities brokerage industry, including class action suits that generally seek
substantial damages, including punitive damages in some cases. Like other securities and
futures brokerage firms, we have been named as a respondent in arbitrations, and from
time to time we have been threatened with litigation, or named as a defendant in
administrative proceedings. Compliance and trading problems that are reported to federal,
state and provincial securities regulators, securities exchanges or other self-regulatory
organizations by dissatisfied customers are investigated by such regulatory bodies, and,
if pursued by such regulatory body or such customers, may rise to the level of
arbitration or disciplinary action. We are also subject to periodic regulatory audits,
inquiries and inspections, or other regulatory actions. In that
regard, the staff of the Securities and Exchange Commission has
notified our subsidiary, optionsXpress, Inc., and certain employees
of optionsXpress, Inc., that it is considering recommending
enforcement actions against optionsXpress, Inc. and the notified
employees related to certain customers trades that may have
violated Regulation SHO, and other related violations. The
allegations relate solely to the operations of optionsXpress, Inc. as
a broker dealer and contain no inference of any reporting failure by
optionsXpress Holdings, Inc. as a public company.
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 lists in more
detail various important risk factors facing our business in Part I, Item 1A under the
heading Risk Factors. There have been no material changes from the risk factors
disclosed in that section of our Annual Report on Form 10-K. We encourage you to review
that information and to review our other reports filed periodically with the Securities
and Exchange Commission for any further information regarding risks facing our business.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Issuer
The following table provides information about our repurchases of our common stock during
the three months ended September 30, 2010:
Total | ||||||||||||||||
Number of | Approximate | |||||||||||||||
Shares | Dollar Value | |||||||||||||||
Purchased | of Shares that | |||||||||||||||
as Part of | May Yet Be | |||||||||||||||
Publicly | Purchased | |||||||||||||||
Total | Announced | Under the | ||||||||||||||
Number of | Average | Plans or | Plans or | |||||||||||||
Shares | Price Paid | Programs | Programs | |||||||||||||
Period | Purchased | per Share | (3) | (4)(5)(6) | ||||||||||||
July 1, 2010 through July 31, 2010 |
| $ | | | $ | 20,999,540 | ||||||||||
August 1, 2010 through August 31, 2010 |
| | | 20,999,540 | ||||||||||||
September 1, 2010 through September 30, 2010 |
100,000 | (1) | 15.73 | 100,000 | 20,999,540 | |||||||||||
100,000 | (2) | $ | 15.73 | 100,000 | $ | 20,999,540 | ||||||||||
(1) | Shares were repurchased from Ned. W. Bennett, our Executive Vice Chairman pursuant to the Bennett Stock Purchase Agreement. | |
(2) | Represents repurchased shares which were retired to authorized, but unissued. | |
(3) | Please see Part I Item 1. Notes to Condensed Consolidated Financial Statements 4. Capitalization for additional information regarding our repurchase programs. | |
(4) | Does not include shares that may be repurchased from Ned. W. Bennett, our Executive Vice Chairman and founder pursuant to the Bennett Stock Purchase Agreement. | |
(5) | Includes shares that may yet be repurchased by us pursuant to the 2008 Repurchase Program. | |
(6) | Includes shares that may yet be repurchased by us pursuant to the 2009 Repurchase Program. |
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Item 6. Exhibits
Exhibit | Description | |||
10.1 | Employment Agreement with Peter Bottini dated July 20, 2010 (1) |
|||
31.1 | Certification of David A. Fisher, Principal Executive Officer,
as required pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|||
31.2 | Certification of Adam J. DeWitt, Principal Financial Officer,
as required pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|||
32.1 | Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(1) | Incorporated by reference to the same exhibit filed with
optionsXpress Holdings, Inc. Current Report on Form 8-K filed
July 23, 2010. |
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Signatures
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: November 9, 2010 | optionsXpress Holdings, Inc. | |||||
(Registrant) | ||||||
By: | /s/ DAVID A. FISHER
|
|||||
Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
By: | /s/ ADAM J. DEWITT
|
|||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
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Exhibit Index
Exhibit | Description | |||
10.1 | Employment Agreement with Peter Bottini dated July 20, 2010 (1) |
|||
31.1 | Certification of David A. Fisher, Principal Executive Officer,
as required pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|||
31.2 | Certification of Adam J. DeWitt, Principal Financial Officer,
as required pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|||
32.1 | Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(1) | Incorporated by reference to the same exhibit filed with
optionsXpress Holdings, Inc. Current Report on Form 8-K filed
July 23, 2010. |
25