Attached files
file | filename |
---|---|
EX-31.2 - EX-31.2 - optionsXpress Holdings, Inc. | c18358exv31w2.htm |
EX-31.1 - EX-31.1 - optionsXpress Holdings, Inc. | c18358exv31w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - optionsXpress Holdings, Inc. | Financial_Report.xls |
EX-32.1 - EX-32.1 - optionsXpress Holdings, Inc. | c18358exv32w1.htm |
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 June 30, 2011 |
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
60606
(Address of principal executive offices)
(Zip Code)
(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 August 1, 2011, there were 57,534,943 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)
Condensed Consolidated Statements of Financial Condition
(Unaudited)
(In thousands, except per share data)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 50,153 | $ | 100,875 | ||||
Cash and investments segregated in compliance with federal regulations |
1,127,398 | 945,870 | ||||||
Receivables from brokerage customers, net |
252,241 | 235,589 | ||||||
Receivables from brokers, dealers and clearing organizations |
13,441 | 25,686 | ||||||
Investments in securities |
10,562 | 11,442 | ||||||
Deposits with clearing organizations |
20,712 | 20,480 | ||||||
Fixed assets, (net of accumulated depreciation and amortization of
$30,373 and $26,904 at June 30, 2011 and December 31, 2010, respectively) |
11,062 | 11,345 | ||||||
Goodwill |
87,489 | 85,360 | ||||||
Other intangible assets, net |
3,691 | 4,837 | ||||||
Other assets |
39,968 | 31,434 | ||||||
Total assets |
$ | 1,616,717 | $ | 1,472,918 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Payables to brokerage customers |
$ | 1,322,206 | $ | 1,193,479 | ||||
Payables to brokers, dealers and clearing organizations |
4,551 | 1,711 | ||||||
Accrued liabilities and accounts payable |
23,907 | 19,471 | ||||||
Current and deferred income taxes |
562 | 651 | ||||||
Other liabilities |
25,812 | 32,521 | ||||||
Long-term debt |
110,400 | 120,000 | ||||||
Total liabilities |
1,487,438 | 1,367,833 | ||||||
Stockholders equity |
||||||||
Common stock, $0.0001 par value (250,000 shares authorized; 57,531 and
57,475 shares issued and outstanding at June 30, 2011 and December 31,
2010, respectively) |
6 | 6 | ||||||
Preferred stock, $0.0001 par value (75,000 shares authorized; none issued) |
| | ||||||
Additional paid-in capital |
16,706 | 15,642 | ||||||
Accumulated other comprehensive loss |
(839 | ) | (859 | ) | ||||
Non-controlling interests |
225 | 185 | ||||||
Retained earnings |
113,181 | 90,111 | ||||||
Total stockholders equity |
129,279 | 105,085 | ||||||
Total liabilities and stockholders equity |
$ | 1,616,717 | $ | 1,472,918 | ||||
See accompanying notes.
3
Table of Contents
optionsXpress Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Commissions |
$ | 41,764 | $ | 44,713 | $ | 87,160 | $ | 84,311 | ||||||||
Other brokerage-related revenue |
4,730 | 5,243 | 10,581 | 9,741 | ||||||||||||
Interest revenue and fees |
3,857 | 4,826 | 8,140 | 9,593 | ||||||||||||
Interest expense |
(58 | ) | (56 | ) | (128 | ) | (107 | ) | ||||||||
Net interest revenue and fees |
3,799 | 4,770 | 8,012 | 9,486 | ||||||||||||
Education revenue |
5,524 | 7,707 | 10,907 | 15,237 | ||||||||||||
Other income |
3,374 | 3,067 | 8,428 | 3,756 | ||||||||||||
Net revenues |
59,191 | 65,500 | 125,088 | 122,531 | ||||||||||||
Expenses: |
||||||||||||||||
Compensation and benefits |
12,046 | 11,854 | 24,367 | 23,502 | ||||||||||||
Brokerage, clearing and other related expenses |
10,407 | 10,250 | 20,151 | 19,268 | ||||||||||||
Brokerage advertising |
4,600 | 5,747 | 9,983 | 10,116 | ||||||||||||
Education marketing and fulfillment |
3,849 | 4,986 | 6,892 | 10,281 | ||||||||||||
Depreciation and amortization |
2,180 | 2,277 | 4,346 | 4,568 | ||||||||||||
Loan interest and fees |
1,001 | | 2,014 | | ||||||||||||
Other general and administrative |
10,117 | 5,772 | 20,099 | 11,331 | ||||||||||||
Total expenses |
44,200 | 40,886 | 87,852 | 79,066 | ||||||||||||
Income before income taxes of consolidated companies |
14,991 | 24,614 | 37,236 | 43,465 | ||||||||||||
Income taxes |
6,133 | 9,005 | 14,126 | 15,951 | ||||||||||||
Net income of consolidated companies |
8,858 | 15,609 | 23,110 | 27,514 | ||||||||||||
Net income attributable to non-controlling interests |
16 | 22 | 40 | 39 | ||||||||||||
Net income |
$ | 8,842 | $ | 15,587 | $ | 23,070 | $ | 27,475 | ||||||||
Earnings per common share: |
||||||||||||||||
Basic |
$ | 0.15 | $ | 0.27 | $ | 0.40 | $ | 0.48 | ||||||||
Diluted |
$ | 0.15 | $ | 0.27 | $ | 0.40 | $ | 0.48 | ||||||||
Weighted-average number of common shares: |
||||||||||||||||
Basic |
57,497 | 57,403 | 57,477 | 57,434 | ||||||||||||
Diluted |
57,861 | 57,611 | 57,845 | 57,643 | ||||||||||||
Dividends declared per share |
$ | | $ | | $ | | $ | |
See accompanying notes.
4
Table of Contents
optionsXpress Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands, except per share data)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands, except per share data)
Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2011 | 2010 | |||||||
Operating activities |
||||||||
Net income |
$ | 23,070 | $ | 27,475 | ||||
Adjustments to reconcile net income to cash used in operating activities: |
||||||||
Depreciation and amortization |
4,346 | 4,568 | ||||||
Stock-based compensation |
2,132 | 2,352 | ||||||
(Reduction) excess of tax benefit for stock-based compensation |
(280 | ) | 18 | |||||
Deferred income taxes |
865 | 1,078 | ||||||
(Decrease) increase in contingent liability |
(6,275 | ) | 112 | |||||
Unrealized (gain) loss, deferred rent and other |
(332 | ) | (231 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in: |
||||||||
Cash and investments segregated in compliance with federal regulations |
(181,528 | ) | (10,034 | ) | ||||
Receivables from brokerage customers, net |
(16,652 | ) | (45,535 | ) | ||||
Receivables from brokers, dealers and clearing organizations |
12,245 | 87,381 | ||||||
Investments in securities |
| 27,750 | ||||||
Deposits with clearing organizations |
(232 | ) | 10,208 | |||||
Other assets |
(7,282 | ) | (6,765 | ) | ||||
Increase (decrease) in: |
||||||||
Payables to brokerage customers |
128,727 | (104,255 | ) | |||||
Payables to brokers, dealers and clearing organizations |
2,840 | 4,820 | ||||||
Accrued liabilities and accounts payable |
2,089 | 761 | ||||||
Current income taxes |
(2,211 | ) | (914 | ) | ||||
Other liabilities |
310 | (478 | ) | |||||
Net cash used in operating activities |
(38,168 | ) | (1,689 | ) | ||||
Investing activities |
||||||||
Proceeds from sales and maturities of investments in securities |
700 | 3,200 | ||||||
Purchases and development of computer software |
(1,380 | ) | (2,103 | ) | ||||
Purchases of fixed assets |
(1,708 | ) | (817 | ) | ||||
Net cash (used in) provided by investing activities |
(2,388 | ) | 280 | |||||
Financing activities |
||||||||
Payment of long-term debt |
(9,600 | ) | | |||||
Exercise of stock options |
605 | 81 | ||||||
Excess tax benefit for stock-based compensation |
280 | (18 | ) | |||||
Purchases through employee stock purchase plan |
24 | 24 | ||||||
Stock repurchases |
(1,560 | ) | (2,874 | ) | ||||
Net cash used in financing activities |
(10,251 | ) | (2,787 | ) | ||||
Effect of exchange rates on cash and cash equivalents |
85 | (94 | ) | |||||
Net decrease in cash and cash equivalents |
(50,722 | ) | (4,290 | ) | ||||
Cash and cash equivalents, beginning of period |
100,875 | 178,989 | ||||||
Cash and cash equivalents, end of period |
$ | 50,153 | $ | 174,699 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Income taxes paid |
$ | 15,293 | $ | 15,830 | ||||
Interest paid |
1,893 | 107 | ||||||
Supplemental disclosure of non-cash activity: |
||||||||
Non-cash foreign currency translation gain |
134 | 88 | ||||||
Non-cash change in unrealized (loss) gain on available for sale investments in securities |
51 | 340 | ||||||
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)
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, 2010.
In the opinion of management, all adjustments necessary to present fairly the Companys
consolidated financial position at June 30, 2011 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 principal business segments include broker services and education services.
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, the NASDAQ Options Market, the NYSE Arca Exchange, and the
NASDAQ OMX PHLX Exchange. brokersXpress LLC is a broker-dealer registered with the SEC and a
member of FINRA and SIPC. In addition, optionsXpress, Inc., brokersXpress LLC 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. Xpresstrade, LLC became a registered Retail Foreign Exchange Dealer (RFED)
with the National Futures Association in July 2011.
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 education services business is
conducted through Optionetics, Inc., a subsidiary of the Company and its affiliates
(collectively, Optionetics).
2. Summary of Significant Accounting Policies
Except as described in the following paragraph, 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, 2010.
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. As a supplement to the
additional required fair value measurement disclosures regarding assets and liabilities that
were 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 did not have a material impact on the Companys condensed consolidated financial
statements.
6
Table of Contents
3. The Charles Schwab Corporation Merger
On March 18, 2011, optionsXpress Holdings, Inc. (optionsXpress) entered into an Agreement
and Plan of Merger (the Merger Agreement) by and among optionsXpress, The Charles Schwab
Corporation, a Delaware corporation (Schwab), and Neon Acquisition Corp., a Delaware
corporation and wholly-owned direct subsidiary of Schwab (Merger Sub). Pursuant to the
Merger Agreement, Merger Sub will be merged with and into optionsXpress, and as a result,
optionsXpress will continue as the surviving corporation and as a wholly-owned subsidiary of
Schwab (the Schwab Merger).
Pursuant to the Merger Agreement, at the effective time of the Schwab Merger, each issued
and outstanding share of common stock of optionsXpress, other than shares owned by
optionsXpress, Schwab, or any subsidiary of optionsXpress or Schwab, will be cancelled and
retired and automatically converted into the right to receive 1.02 fully paid and
nonassessable shares of common stock of Schwab.
As part of the Schwab Merger, Schwab has entered into retention agreements with certain
members of optionsXpress management. Consummation of the Schwab Merger is subject to
certain conditions, including, among others, the approval of the Merger Agreement by
optionsXpress stockholders and the receipt of required regulatory and antitrust approvals.
The Merger Agreement contains customary representations, warranties and covenants of
optionsXpress, Schwab and Merger Sub, including, among others things, optionsXpress
covenants (i) to have its board of directors (the Board) recommend approval of the Merger
Agreement by optionsXpress stockholders, subject to a fiduciary-out provision that allows
optionsXpress under certain circumstances to provide information and participate in
discussions with respect to unsolicited alternative acquisition proposals, (ii) not to
solicit alternate transactions and (iii) to conduct its business in the ordinary course
during the period between the date of the Merger Agreement and the effectiveness of the
Schwab Merger and refrain from taking various non-ordinary course actions during that
period.
The Merger Agreement contains certain termination rights for both optionsXpress and Schwab
and, further provides that, upon the termination of the Merger Agreement under specified
circumstances, generally including an alternative business combination transaction,
optionsXpress will owe Schwab a cash termination fee of $41,900.
Transaction costs of approximately $5.5 million were incurred related to the pending Schwab
Merger for the six months ended June 30, 2011.
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, 2011 |
$ | 85,360 | ||
Contingent consideration for OEC acquisition |
2,129 | |||
Balance, June 30, 2011 |
$ | 87,489 | ||
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 six months ended June 30, 2011. 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 June 30, 2011, the Company had 250,000 shares of $0.0001 par value common stock
authorized. Of the authorized common stock, 57,531 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).
7
Table of Contents
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 six months ended June 30, 2011, the Company has repurchased 100 shares of its common
stock in aggregate under these programs at a total cost of $1,560, or an average cost of
$15.60 per share. Since inception, the Company has repurchased 6,350 shares of its common
stock in aggregate under these programs at a total cost of $111,350, or an average cost of
$17.53 per share. The repurchased shares were retired to authorized, but unissued shares.
The Company does not plan on repurchasing any additional shares pending the consummation of
the Schwab Merger.
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.
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 $5,212 of money market funds included in
cash and cash and equivalents that are pledged as collateral for a letter of credit, and
financial instruments sold but not yet purchased at fair value as of June 30, 2011 and
December 31, 2010:
June 30, 2011 | Level 1(1) | Level 2(2) | Level 3(3) | Total | ||||||||||||
Financial assets, at fair value: |
||||||||||||||||
Money market funds included in cash
and cash equivalents |
$ | 10,413 | $ | | $ | | $ | 10,413 | ||||||||
U.S. treasury securities included in
deposits with clearing organizations |
11,000 | | | 11,000 | ||||||||||||
Corporate equities and derivatives
included in other assets |
27,926 | | | 27,926 | ||||||||||||
Investments in securities |
| | 10,562 | 10,562 | ||||||||||||
$ | 49,339 | $ | | $ | 10,562 | $ | 59,901 | |||||||||
Financial liabilities, at fair value: |
||||||||||||||||
Corporate equities and derivatives
included in other liabilities |
$ | 17,046 | $ | | $ | | $ | 17,046 | ||||||||
$ | 17,046 | $ | | $ | | $ | 17,046 | |||||||||
8
Table of Contents
December 31, 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 |
$ | 9,674 | $ | | $ | | $ | 9,674 | ||||||||
U.S. treasury securities included in
deposits with clearing organizations |
11,960 | | | 11,960 | ||||||||||||
Corporate equities and derivatives
included in other assets |
20,143 | 823 | | 20,966 | ||||||||||||
Investments in securities |
| | 11,442 | 11,442 | ||||||||||||
$ | 41,777 | $ | 823 | $ | 11,442 | $ | 54,042 | |||||||||
Financial liabilities, at fair value: |
||||||||||||||||
Corporate equities and derivatives
included in other liabilities |
$ | 17,661 | $ | | $ | | $ | 17,661 | ||||||||
$ | 17,661 | $ | | $ | | $ | 17,661 | |||||||||
(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 17.6% and 21.2% of all financial assets
measured at fair value at June 30, 2011 and December 31, 2010,
respectively (see below for further information). |
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, 2011 |
$ | 11,442 | ||
Total gains/(losses), realized and unrealized |
(180 | ) | ||
Redemptions |
(700 | ) | ||
Balance, June 30, 2011 |
$ | 10,562 | ||
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
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 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 that 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, $96,275 of the Companys ARS securities have been redeemed by
issuers or the Companys brokers at par.
At June 30, 2011, 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.
9
Table of Contents
The Company has classified the remaining $11,300 in par value ARS as available-for-sale
securities. At June 30, 2011, the Companys calculation of fair value of the ARS implied an
impairment of fair value of approximately $738, which has been recorded through accumulated
other comprehensive loss on the condensed consolidated statement of financial condition, and
the carrying fair value of the ARS was approximately $10,562.
Non-Financial Assets and Liabilities
Non-financial assets and liabilities subject to fair value measurements include customer
relationships included in other intangible assets and a contingent liability included in
other liabilities. At June 30, 2011 and December 31, 2010, 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 assets 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 $3,569 at December 31, 2010 and $2,517 at June 30, 2011. For the six months ended June
30, 2011, the Company determined that one of its customer relationships intangible assets
was deemed to be non-recoverable. The Company used the market approach to determine the fair
value of this intangible asset and, as a result, recorded $337 of impairment charges in
other general and administrative expenses. For the six months ended June 30, 2010, 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 $8,876 at December 31, 2010 and
$2,601 at June 30, 2011.
7. Derivative Instruments
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 six months ended June 30, 2011 and 2010, the total gains from the
Companys proprietary trading activities were $1,890 and $1,603, 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 June 30, 2011 and December 31, 2010, the Company had $245,074 and
$231,170, 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.
10
Table of Contents
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 June 30, 2011, at the
fair values of the related securities, and will incur losses if the fair values of these
securities increase subsequent to June 30, 2011.
Legal Contingencies
In the ordinary course of business, the Company is subject to lawsuits, arbitrations,
claims, administrative or regulatory examinations and other legal or regulatory proceedings.
Management cannot predict with certainty the outcome of pending legal and regulatory
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.
As previously disclosed in the Companys Quarterly Report on Form 10Q filed with the SEC on
May 10, 2011, a number of purported class action lawsuits were filed by optionsXpress
stockholders challenging Schwabs proposed acquisition of optionsXpress. These suits name as
defendants optionsXpress, members of optionsXpress board of directors, Schwab and Neon
Acquisition Corp. (collectively referred to as defendants).
On July 29, 2011, the parties entered into a settlement agreement to resolve all
claims related to the merger. Per the terms of the Memorandum of Understanding entered into
by the parties on June 22, 2011, the parties agreed that,
in exchange for full releases of all claims related to the Schwab Merger, defendants would
provide supplemental disclosures to the amended Registration Statement on Form S-4, which
was filed by Schwab with the SEC on July 22, 2011. Defendants have also agreed not to oppose
any fee application by plaintiffs counsel that does not exceed $650. The settlement is
subject to final documentation and court approval and is conditioned on consummation of the
Schwab Merger. Defendants deny any wrongdoing in connection with the Schwab Merger and
believe the claims lack merit. In the event the settlement is not finalized, the remaining
defendants will continue to defend the claims vigorously.
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
and foreign exchange transactions on an omnibus account basis through several futures
commission merchants and a third-party RFED. The Company has agreed to indemnify its
third-party clearing broker, all of its clearing futures commission merchants and its
clearing RFED 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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income |
$ | 8,842 | $ | 15,587 | $ | 23,070 | $ | 27,475 | ||||||||
Weighted-average number of common shares outstanding basic |
57,497 | 57,403 | 57,477 | 57,434 | ||||||||||||
Effect of dilutive securities |
364 | 208 | 368 | 209 | ||||||||||||
Weighted-average number of common shares outstanding
diluted |
57,861 | 57,611 | 57,845 | 57,643 | ||||||||||||
Basic EPS |
$ | 0.15 | $ | 0.27 | $ | 0.40 | $ | 0.48 | ||||||||
Diluted EPS |
$ | 0.15 | $ | 0.27 | $ | 0.40 | $ | 0.48 |
11
Table of Contents
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, or collectively, the equity
incentive plans. All of the options outstanding pursuant to the stock compensation plans at
June 30, 2011 are options to buy common stock of the Company granted to employees or
directors of the Company.
Stock-based compensation for the six months ended June 30, 2011 and June 30, 2010 was $2,435
and $2,352, respectively. As of June 30, 2011, the total compensation cost related to stock
options and deferred shares not yet vested and recognized was estimated to be $6,016. 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 3.74 years, respectively. As of June 30,
2011, the aggregate intrinsic value of the total outstanding stock options and deferred
shares was $5,875 and $8,529, respectively, and the aggregate intrinsic value of the total
exercisable stock options was $3,537. During the six months ended June 30, 2011, 155 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 ($20,000), 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.
As of June 30, 2011, optionsXpress, Inc. had net capital requirements of $20,000 and net
capital of $84,325. As of June 30, 2010, optionsXpress, Inc. had net capital requirements of
$14,392 and net capital of $103,993. 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 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.
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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Net Revenues | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Brokerage Services |
$ | 53,859 | $ | 57,797 | $ | 114,550 | $ | 107,288 | ||||||||
Education Services |
6,003 | 8,186 | 11,867 | 16,200 | ||||||||||||
Eliminations |
(671 | ) | (483 | ) | (1,329 | ) | (957 | ) | ||||||||
Total |
$ | 59,191 | $ | 65,500 | $ | 125,088 | $ | 122,531 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Income (Loss) before Income Taxes | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Brokerage Services |
$ | 16,776 | $ | 25,637 | $ | 40,352 | $ | 45,973 | ||||||||
Education Services |
(1,801 | ) | (1,045 | ) | (3,156 | ) | (2,547 | ) | ||||||||
Non-controlling interests |
16 | 22 | 40 | 39 | ||||||||||||
Total |
$ | 14,991 | $ | 24,614 | $ | 37,236 | $ | 43,465 | ||||||||
12
Table of Contents
As of | As of | |||||||
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Brokerage Services |
$ | 1,607,790 | $ | 1,465,944 | ||||
Education Services |
12,963 | 10,008 | ||||||
Eliminations |
(4,036 | ) | (3,034 | ) | ||||
Total |
$ | 1,616,717 | $ | 1,472,918 | ||||
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, 2010, 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, 2010.
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); |
|
| the statements concerning the number of students receiving education services and our
ability to convert those students into brokerage customers; and, |
|
| the statements about the pending Schwab Merger. |
13
Table of Contents
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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Results of Operations |
||||||||||||||||
Net revenues (in thousands) |
$ | 59,191 | $ | 65,500 | $ | 125,088 | $ | 122,531 | ||||||||
Compensation and benefits |
20.3 | % | 18.1 | % | 19.5 | % | 19.2 | % | ||||||||
Brokerage, clearing, and other related expenses |
17.6 | 15.6 | 16.1 | 15.7 | ||||||||||||
Brokerage advertising |
7.8 | 8.8 | 8.0 | 8.3 | ||||||||||||
Education marketing and fulfillment |
6.5 | 7.6 | 5.5 | 8.4 | ||||||||||||
Depreciation and amortization |
3.7 | 3.5 | 3.5 | 3.7 | ||||||||||||
Loan interest and fees |
1.7 | | 1.6 | | ||||||||||||
Other general and administrative |
17.1 | 8.8 | 16.1 | 9.3 | ||||||||||||
Income before income taxes |
25.3 | 37.6 | 29.7 | 35.4 | ||||||||||||
Income taxes |
10.4 | 13.8 | 11.3 | 13.0 | ||||||||||||
Net income |
14.9 | 23.8 | 18.4 | 22.4 |
Statistical Data
The following table sets forth our statistical data for the periods presented below:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Statistical Data |
||||||||||||||||
Number of customer accounts (at
period end) (1) |
397,400 | 365,500 | 397,400 | 365,500 | ||||||||||||
Daily average revenue trades
(DARTs) (2) Retail DARTs |
32,200 | 32,700 | 34,400 | 31,500 | ||||||||||||
Institutional DARTs |
15,300 | 17,100 | 14,700 | 15,700 | ||||||||||||
Total DARTs |
47,500 | 49,800 | 49,100 | 47,200 | ||||||||||||
Customer trades per account (3) |
30 | 35 | 32 | 33 | ||||||||||||
Average commission per trade |
$ | 13.94 | $ | 14.26 | $ | 14.23 | $ | 14.40 | ||||||||
Option trades as a % of total trades |
43 | % | 40 | % | 44 | % | 41 | % | ||||||||
Brokerage advertising expense per
net new customer account (4) |
$ | 568 | $ | 737 | $ | 556 | $ | 707 | ||||||||
Total client assets (000s) |
$ | 8,403,112 | $ | 7,030,199 | $ | 8,403,112 | $ | 7,030,199 | ||||||||
Client margin balances (000s) |
$ | 227,595 | $ | 204,194 | $ | 227,595 | $ | 204,194 |
(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. |
14
Table of Contents
Three Months Ended June 30, 2011 versus Three Months Ended June 30, 2010
Overview
Our results for the period reflect the following principal factors:
| total customer accounts increased by 31,900 to 397,400, or 8.7%; |
|
| total trades decreased by 140,200 to 2,995,200, or 4.5% and |
|
| average commission per trade decreased by $0.32 to $13.94, or 2.2%. |
Commissions
Commissions decreased $2.9 million, or 6.6%, for the three months ended June 30, 2011 to
$41.8 million compared to $44.7 million for the three months ended June 30, 2010. The
decrease in commissions was primarily the result of the 4.5% decrease in the total number of
trades and the 2.2% decrease of the average commission per trade.
Other brokerage-related revenue
Other brokerage-related revenue decreased $0.5 million, or 9.8%, to $4.7 million for the
three months ended June 30, 2011 compared to $5.2 million for the three months ended June
30, 2010. The decrease in other brokerage-related revenue was due to a decrease in the
payment for order flow rate per contract captured for our option order flow and a decrease
in the number of option contracts traded.
Net interest revenue and fees
Net interest revenue and fees decreased $1.0 million, or 20.4%, to $3.8 million for the
three months ended June 30, 2011 compared to $4.8 million for the three months ended June
30, 2010. The decrease in net interest revenue and fees was primarily the result of a
decline in short-term interest rates.
Education revenue
Education revenue decreased $2.2 million, or 28.3%, to $5.5 million for the three months
ended June 30, 2011 compared to $7.7 million for the three months ended June 30, 2010. The
decrease in education revenue was primarily due to lower revenue from seminar sales.
Other income
Other income increased $0.3 million, or 10.0%, to $3.4 million for the three months ended
June 30, 2011 compared to $3.1 million for the three months ended June 30, 2010. The
increase in other income is due primarily to the reduction in fair value of the contingent
liability from the Optionetics acquisition which was largely offset by the gain recognized
from the CBOE initial public offering in June 2010.
Compensation and benefits
Compensation and benefits expenses increased $0.1 million, or 1.6%, to $12.0 million for the
three months ended June 30, 2011 from $11.9 million for the three months ended June 30,
2010. The increase in compensation and benefits expenses was largely due to an increased
bonus accrual.
Brokerage, clearing, and other related expenses
Brokerage, clearing and other related expenses increased $0.1 million, or 1.5%, to $10.4
million for the three months ended June 30, 2011 from $10.3 million for the three months
ended June 30, 2010. Brokerage, clearing and other related expenses increased primarily due
to higher payouts to the independent registered representatives and advisors of our OEC
subsidiary.
Brokerage advertising
Brokerage advertising expenses decreased $1.1 million, or 20.0%, to $4.6 million for the
three months ended June 30, 2011 from $5.7 million for the three months ended June 30, 2010.
Brokerage advertising expenses decreased due to reduced spending across all marketing
channels. Brokerage advertising expenses per net new customer account decreased to $568 for
the three months ended June 30, 2011 from $737 for the three months ended June 30, 2010.
15
Table of Contents
Education marketing and fulfillment
Education marketing and fulfillment expenses decreased $1.2 million, or 22.8%, to $3.8
million for the three months ended June 30, 2011 compared to $5.0 million for the three
months ended June 30, 2010. Education marketing and fulfillment expenses decreased primarily
due to lower marketing expenses incurred for preview events.
Depreciation and amortization
Depreciation and amortization expenses decreased $0.1 million, or 4.3%, to $2.2 million for
the three months ended June 30, 2011 from $2.3 million for the three months ended June 30,
2010. Lower depreciation and amortization expenses were due to a reduced level of fixed
assets being depreciated and amortized.
Loan interest and fees
Loan interest and fees was $1.0 million for the three months ended June 30, 2011. Prior to
the long-term debt we acquired on November 22, 2010, we did not have any expenses related to
loan interest and fees.
Other general and administrative
Other general and administrative expenses increased $4.3 million, or 75.3%, to $10.1 million
for the three months ended June 30, 2011 from $5.8 million for the three months ended June
30, 2010 primarily due to one-time costs to resolve a legal matter related to a customer of
approximately $2.6 million and costs pertaining to the pending merger with The Charles
Schwab Corporation.
Income taxes
Income taxes decreased $2.9 million, or 31.9%, to $6.1 million for the three months ended
June 30, 2011 from $9.0 million for the three months ended June 30, 2010. Lower income taxes
were primarily due to the 39.1% decrease in income before income taxes.
Net income
As a result of the foregoing, we reported $8.8 million in net income for the three months
ended June 30, 2011, compared to $15.6 million in net income for the three months ended June
30, 2010, a decrease of $6.8 million, or 43.3%.
Segment information
Brokerage Services
Brokerage services net revenues decreased $3.9 million, or 6.8% to $53.9 million for the
three months ended June 30, 2011 compared to the $57.8 million for the three months ended
June 30, 2010 due to the decrease in commissions, other brokerage-related revenue and net
interest revenue and fees. Income before income taxes decreased $8.8 million, or 34.6%, to
$16.8 million for the three months ended June 30, 2011 compared to the $25.6 million for the
three months ended June 30, 2010 primarily due to the overall decrease in net revenues and
the increase in other general and administrative expenses.
Education Services
Education services net revenues decreased $2.2 million, or 26.7% to $6.0 million for the
three months ended June 30, 2011 compared to the $8.2 million for the three months ended
June 30, 2010 primarily due to lower seminar sales. The loss before income taxes increased
$0.8 million, or 72.3%, to $(1.8) million for the three months ended June 30, 2011 compared
to the $(1.0) million for the three months ended June 30, 2010 due to lower revenues from
seminar sales, which were partially offset by lower marketing expenses for preview events.
Six Months Ended June 30, 2011 versus Six Months Ended June 30, 2010
Overview
Our results for the period reflect the following principal factors:
| total customer accounts increased by 31,900 to 397,400, or 8.7%; |
|
| total trades increased by 270,200 to 6,126,800, or 4.6% and |
|
| average commission per trade decreased by $0.17 to $14.23, or 1.2%. |
16
Table of Contents
Commissions
Commissions increased $2.9 million, or 3.4%, for the six months ended June 30, 2011 to $87.2
million compared to $84.3 million for the six months ended June 30, 2010. The increase in
commissions was primarily the result of the 4.6% increase in the total number of trades
which was partially offset by the 1.2% decrease of the average commission per trade.
Other brokerage-related revenue
Other brokerage-related revenue increased $0.9 million, or 8.6%, to $10.6 million for the
six months ended June 30, 2011 compared to $9.7 million for the six months ended June 30,
2010. The increase in other brokerage-related revenue was due to an increase in the payment
for order flow rate per contract captured for our option order flow and an increase in the
number of option contracts traded.
Net interest revenue and fees
Net interest revenue and fees decreased $1.5 million, or 15.5%, to $8.0 million for the six
months ended June 30, 2011 compared to $9.5 million for the six months ended June 30, 2010.
The decrease in net interest revenue and fees was primarily the result of a decline in
short-term interest rates.
Education revenue
Education revenue decreased $4.3 million, or 28.4%, to $10.9 million for the six months
ended June 30, 2011 compared to $15.2 million for the six months ended June 30, 2010. The
decrease in education revenue was primarily due to lower revenue from seminar sales.
Other income
Other income increased $4.6 million, or 124.4%, to $8.4 million for the six months ended
June 30, 2011 compared to $3.8 million for the six months ended June 30, 2010. 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 increased $0.9 million, or 3.7%, to $24.4 million for the
six months ended June 30, 2011 from $23.5 million for the six months ended June 30, 2010.
The increase in compensation and benefits expenses was largely due to an increased bonus
accrual.
Brokerage, clearing, and other related expenses
Brokerage, clearing and other related expenses increased $0.9 million, or 4.6%, to $20.2
million for the six months ended June 30, 2011 from $19.3 million for the six months ended
June 30, 2010. Brokerage, clearing and other related expenses increased primarily due to
higher payouts to the independent registered representatives and advisors of our
brokersXpress subsidiary.
Brokerage advertising
Brokerage advertising expenses decreased $0.1 million, or 1.3%, to $10.0 million for the six
months ended June 30, 2011 from $10.1 million for the six months ended June 30, 2010.
Brokerage advertising expenses decreased due to reduced spending across all marketing
channels. Brokerage advertising expenses per net new customer account decreased to $556 for
the six months ended June 30, 2011 from $707 for the six months ended June 30, 2010.
Education marketing and fulfillment
Education marketing and fulfillment expenses decreased $3.4 million, or 33.0%, to $6.9
million for the six months ended June 30, 2011 compared to $10.3 million for the six months
ended June 30, 2010. Education marketing and fulfillment expenses decreased primarily due to
lower marketing expenses incurred for preview events.
Depreciation and amortization
Depreciation and amortization expenses decreased $0.3 million, or 4.9%, to $4.3 million for
the six months ended June 30, 2011 from $4.6 million for the six months ended June 30, 2010.
Lower depreciation and amortization expenses were due to a reduced level of fixed assets
being depreciated and amortized.
Loan interest and fees
Loan interest and fees was $2.0 million for the six months ended June 30, 2011. Prior to the
long-term debt we acquired on November 22, 2010, we did not have any expenses related to
loan interest and fees.
17
Table of Contents
Other general and administrative
Other general and administrative expenses increased $8.8 million, or 77.4%, to $20.1 million
for the six months ended June 30, 2011 from $11.3 million for the six months ended June 30,
2010 primarily due to the transaction costs pertaining to the pending merger with The
Charles Schwab Corporation and one-time costs to resolve a legal matter related to a
customer of approximately $2.6 million.
Income taxes
Income taxes decreased $1.9 million, or 11.4%, to $14.1 million for the six months ended
June 30, 2011 from $16.0 million for the six months ended June 30, 2010. Lower income taxes
were primarily due to the 14.3% decrease in income before income taxes.
Net income
As a result of the foregoing, we reported $23.1 million in net income for the six months
ended June 30, 2011, compared to $27.5 million in net income for the six months ended June
30, 2010, a decrease of $4.4 million, or 16.0%.
Segment information
Brokerage Services
Brokerage services net revenues increased $7.3 million, or 6.8% to $114.6 million for the
six months ended June 30, 2011 compared to the $107.3 million for the six months ended June
30, 2010 due to the increase in commissions and other income. Income before income taxes
decreased $5.6 million, or 12.2%, to $40.4 million for the six months ended June 30, 2011
compared to the $46.0 million for the six months ended June 30, 2010 primarily due to the
overall increase in net revenues from trading activity and the increase in other general and
administrative expenses.
Education Services
Education services net revenues decreased $4.3 million, or 26.7% to $11.9 million for the
six months ended June 30, 2011 compared to the $16.2 million for the six months ended June
30, 2010 primarily due to lower seminar sales. The loss before income taxes increased $0.7
million, or 23.9%, to $(3.2) million for the six months ended June 30, 2011 compared to the
$(2.5) million for the six months ended June 30, 2010 due to lower revenues from seminar
sales, which were partially offset by marketing expenses for preview events.
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. 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. 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, $96.3 million of
our ARS securities have been redeemed by issuers or our 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 ($20.0 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.
18
Table of Contents
As of June 30, 2011, optionsXpress, Inc. had net capital requirements of $20.0 million and
net capital of $84.3 million. As of June 30, 2010, optionsXpress, Inc. had net capital
requirements of $14.4 million and net capital of $104.0 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 June
30, 2011, we had interest-bearing security deposits and short-term treasury bills totaling
$20.7 million deposited with clearing organizations for the self-clearing of equities and
option trades.
At June 30, 2011, we had $1,127.4 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 $1,322.2 million as of June 30, 2011.
We generally finance our operating liquidity and capital needs through the use of funds
generated from operations and the issuance of common stock.
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 used in operating activities was $38.2 million for the six months ended June 30, 2011,
compared to cash used in operating activities of $1.7 million for the six months ended June
30, 2010. The primary reason for the increase of cash used in our operating activities was
due to the increase of cash and investments segregated in compliance with federal
regulations, which was largely offset by the increase of payables to brokerage customers.
Cash used in investing activities was $2.4 million for the six months ended June 30, 2011,
compared to cash provided by investing activities of $0.3 million for the six months ended
June 30, 2010. The primary reason for the increase of cash used in operating activities was
due to the reduction of proceeds received from sales and maturities of investments in
securities.
Cash used in financing activities was $10.3 million for the six months ended June 30, 2011,
compared to cash used in financing activities of $2.8 million for the six months ended June
30, 2010. Cash used in financing activities increased primarily due to the principal
payments on our long-term debt, which we acquired on November 22, 2010, which was partially
offset by the reduction of cash used to repurchase our outstanding common stock during the
current period.
Capital Expenditures
Capital expenditures were $1.7 million for the three months ended June 30, 2011, compared to
$1.5 million for the three months ended June 30, 2010. The increase in capital expenditures
was related to an increase in purchases of technology resources. Capital expenditures for
the periods ended June 30, 2011 and 2010 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.
The Charles Schwab Corporation Merger
On March 18, 2011, optionsXpress Holdings, Inc. entered into an Agreement and Plan of Merger
by and among optionsXpress, The Charles Schwab Corporation, a Delaware corporation, and Neon
Acquisition Corp., a Delaware corporation and wholly-owned direct subsidiary of Schwab.
Pursuant to the Merger Agreement, Merger Sub will be merged with and into optionsXpress, and
as a result, optionsXpress will continue as the surviving corporation and as a wholly-owned
subsidiary of Schwab.
Pursuant to the Merger Agreement, at the effective time of the Merger, each issued and
outstanding share of common stock of optionsXpress, other than shares owned by
optionsXpress, Schwab, or any subsidiary of optionsXpress or Schwab, will be cancelled and
retired and automatically converted into the right to receive 1.02 fully paid and
nonassessable shares of common stock of Schwab.
As part of the Schwab Merger, Schwab has entered into retention agreements with certain
members of optionsXpress management.
Consummation of the Schwab Merger is subject to certain conditions, including, among others,
the approval of the Merger Agreement by optionsXpress stockholders and the receipt of
required regulatory and antitrust approvals. The Merger Agreement contains customary
representations, warranties and covenants of optionsXpress, Schwab and Merger Sub,
including, among others things, optionsXpress covenants (i) to have its board of directors
recommend approval of the Merger Agreement by optionsXpress stockholders, subject to a
fiduciary-out provision that allows optionsXpress under certain circumstances to provide
information and participate in discussions with respect to unsolicited alternative
acquisition proposals, (ii) not to solicit alternate transactions and (iii) to conduct its
business in the ordinary course during the period between the date of the Merger Agreement
and the effectiveness of the Schwab Merger and refrain from taking various non-ordinary
course actions during that period.
The Merger Agreement contains certain termination rights for both optionsXpress and Schwab
and, further provides that, upon the termination of the Merger Agreement under specified
circumstances, generally including an alternative business combination transaction,
optionsXpress will owe Schwab a cash termination fee of $41.9 million.
19
Table of Contents
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 June 30,
2011, we had $245.1 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.
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 six months
ended June 30, 2011 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.
20
Table of Contents
Schwab Merger Litigation
As previously disclosed in the Companys Quarterly Report on Form 10Q filed with the SEC on
May 10, 2011, a number of purported class action lawsuits were filed by optionsXpress
stockholders challenging Schwabs proposed acquisition of optionsXpress. These suits name as
defendants optionsXpress, members of optionsXpress board of directors (whom we refer to as
the individual defendants), Schwab and Neon Acquisition Corp. (collectively referred to as
defendants).
Seven lawsuits were filed in the Circuit Court of Cook County, Illinois. By orders dated
April 6, 2011 and April 27, 2011, the Illinois lawsuits were consolidated under the caption
Kolton v. Gray, et al. (Civ. Action No. 11CH10657) (which we refer to as the Consolidated
Illinois Action). On May 9, 2011, the Illinois plaintiffs filed a consolidated amended
complaint (which we refer to as the Illinois Amended Complaint).
Three lawsuits were filed in the Court of Chancery of the State of Delaware. By order dated
April 25, 2011, the Delaware lawsuits were consolidated under the caption In re
optionsXpress Holdings, Inc. Shareholder Litigation, Consolidated C.A. No. 6314-VCL (which
we refer to as the Consolidated Delaware Action). The Delaware plaintiffs filed a
consolidated amended complaint on April 25, 2011. On April 28, 2011, the Delaware court
stayed the Consolidated Delaware Action in favor of the Consolidated Illinois Action.
The complaints generally allege that (i) the individual defendants breached fiduciary duties
owed to optionsXpress stockholders by allegedly approving the merger agreement at an unfair
price and through an unfair process and by agreeing to certain deal protection devices; and
(ii) the transaction unfairly benefits certain members of optionsXpress board of directors,
including the chief executive officer, to the disadvantage of other optionsXpress
stockholders. The complaints also allege that Schwab and Neon Acquisition Corp. aided and
abetted the alleged fiduciary breaches by the individual defendants. The complaints seek,
among other relief, to enjoin the transaction, rescission in the event the transaction is
consummated, an order directing defendants to account to plaintiff and other members of the
putative class for all damages caused by their breaches, and an award of costs and
disbursements, including reasonable attorneys and expert fees.
On May 20, 2011, defendants moved to dismiss the Illinois Amended Complaint. On June 16,
2011, the Illinois court dismissed with prejudice all claims against Schwab and Neon
Acquisition Corp. in the Consolidated Illinois Action.
On July 29, 2011, the parties entered into a settlement agreement to resolve all
claims related to the Schwab Merger. Per the terms of the Memorandum of Understanding entered into by the parties
on June 22, 2011, the parties agreed
that, in exchange for full releases of all claims related to the Schwab Merger, defendants
would provide supplemental disclosures to the amended Registration Statement on Form S-4, which
was filed by Schwab with the SEC on July 22, 2011. Defendants have also agreed not to oppose
any fee application by plaintiffs counsel that does not exceed
$0.7 million. The settlement is
subject to final documentation and court approval and is conditioned on consummation of the
Schwab Merger. Defendants deny any wrongdoing in connection with the Schwab Merger and
believe the claims lack merit. In the event the settlement is not finalized, the remaining
defendants will continue to defend the claims vigorously.
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 lists in more
detail various important risk factors facing our business in Part I, Item 1A under the
heading Risk Factors. Except as set forth below, 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.
Uncertainty about the Schwab Merger and diversions of management could harm us, whether or
not the Schwab Merger is completed.
In response to the announcement of the Schwab Merger, existing or prospective customers
and counterparties of ours may delay or defer decisions concerning us or they may seek to
change their existing business relationships with us. In addition, as a result of the Schwab
Merger, current and prospective employees could experience uncertainty about their future
with us or the combined company. These uncertainties may impair our ability to retain,
recruit or motivate key personnel. Completion of the Schwab Merger will also require a
significant amount of time and attention from management. The diversion of management
attention away from ongoing operations could adversely affect our business relationships. If
the Schwab Merger is not completed as anticipated, the adverse effects of these
uncertainties and the diversion of management could be exacerbated by the delay.
Failure to complete the Schwab Merger for regulatory or other reasons could adversely affect
our stock price and our future business and financial results.
Completion of the Schwab Merger is conditioned upon, among other things, the receipt of
certain regulatory approvals and approval of our stockholders. There
is no assurance that we will receive the necessary approvals or satisfy the other conditions
necessary for completion of the Schwab Merger. If we fail to complete the Schwab Merger, we
will remain liable for
significant transaction costs, including legal and accounting fees, and may be
required, in certain circumstances, to pay a termination fee of $41.9 million. In addition,
the current market price of our common stock may reflect a market assumption that the Schwab
Merger will occur, and a failure to complete the Schwab Merger could result in a negative
perception by the market of us generally and a resulting decline in the market price of our
common stock.
21
Table of Contents
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Issuer
We did not repurchase any of our common stock during the three months ended June 30, 2011.
22
Table of Contents
Item 6. Exhibits
Exhibit | Description | |||
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 |
23
Table of Contents
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: August 9, 2011 | optionsXpress Holdings, Inc. (Registrant) |
|||
By: | /s/ DAVID A. FISHER | |||
David A. Fisher | ||||
Chief Executive Officer (Principal Executive Officer) |
||||
By: | /s/ ADAM J. DEWITT | |||
Adam J. DeWitt | ||||
Chief Financial Officer (Principal Financial and Accounting Officer) |
24
Table of Contents
Exhibit Index
Exhibit | Description | |||
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 |
25