##### 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 March 31, 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.
  Delaware
(State or other jurisdiction of
    
    20-1444525
(I.R.S. Employerincorporation or organization)
    
    Identification Number)
 311 W. Monroe, Suite 1000, Chicago, Illinois
60606
 (312) 630-3300
 þ o
 Yes o No o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Part I  FINANCIAL INFORMATION
    
    
    3Item 1.  Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Statements of Financial Condition
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.  Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4.  Controls and Procedures
    
    
    18Part II  OTHER INFORMATION
    
    
    18Item 1.  Legal Proceedings
    
    
    18Item 1A.  Risk Factors
    
    
    18Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 6.  Exhibits
    
    
    19Signatures
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



Part I  FINANCIAL INFORMATION
 
 Item 1.
    
     Condensed Consolidated Financial Statements
 optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Financial Condition
 (Unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCash and cash equivalents
    
    $
    163,706
    
    
    $
    178,989Cash and investments segregated in compliance with federal regulations
    
    
    852,741
    
    
    
    881,210Receivables from brokerage customers, net
    
    
    205,568
    
    
    
    149,871Receivables from brokers, dealers and clearing organizations
    
    
    33,816
    
    
    
    110,779Investments in securities
    
    
    63,962
    
    
    
    70,850Deposits with clearing organizations
    
    
    20,438
    
    
    
    30,245Fixed assets, (net of accumulated depreciation and amortization of
$21,615 and $19,758 at
March 31, 2010 and December 31, 2009, respectively)
    
    
    12,787
    
    
    
    13,263Goodwill
    
    
    81,590
    
    
    
    81,590Other intangible assets, net
    
    
    6,104
    
    
    
    6,525Other assets
    
    
    41,463
    
    
    
    22,999Total assets
    
    $
    1,482,175
    
    
    $
    1,546,321LIABILITIES AND STOCKHOLDERS EQUITYPayables to brokerage customers
    
    $
    1,084,102
    
    
    $
    1,179,204Payables to brokers, dealers and clearing organizations
    
    
    1,974
    
    
    
    144Accrued liabilities and accounts payable
    
    
    17,433
    
    
    
    19,027Current and deferred income taxes
    
    
    4,015
    
    
    
    193Other liabilities
    
    
    53,521
    
    
    
    36,878Total liabilities
    
    
    1,161,045
    
    
    
    1,235,446Stockholders equityCommon stock, $0.0001 par value (250,000 shares authorized; 57,392 and
57,525 shares issued and outstanding at March 31, 2010 and December 31,
2009, respectively)
    
    
    6
    
    
    
    6Preferred stock, $0.0001 par value (75,000 shares authorized; none issued)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    13,429
    
    
    
    15,131Accumulated other comprehensive loss
    
    
    (1,127
    )
    
    
    (1,179
    )Non-controlling interests
    
    
    137
    
    
    
    120Retained earnings
    
    
    308,685
    
    
    
    296,797Total stockholders equity
    
    
    321,130
    
    
    
    310,875Total liabilities and stockholders equity
    
    $
    1,482,175
    
    
    $
    1,546,321
 See accompanying notes.
  3




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optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Revenues:Commissions
    
    $
    39,598
    
    
    $
    38,089Other brokerage-related revenue
    
    
    4,498
    
    
    
    6,297Interest revenue and fees
    
    
    4,767
    
    
    
    4,380Interest expense
    
    
    (51
    )
    
    
    (62
    )Net interest revenue and fees
    
    
    4,716
    
    
    
    4,318Education revenue
    
    
    7,530
    
    
    
    Other income
    
    
    689
    
    
    
    590Net revenues
    
    
    57,031
    
    
    
    49,294Expenses:Compensation and benefits
    
    
    11,648
    
    
    
    8,374Brokerage, clearing and other related expenses
    
    
    9,018
    
    
    
    7,190Brokerage advertising
    
    
    4,369
    
    
    
    5,789Education marketing and fulfillment
    
    
    5,295
    
    
    
    Depreciation and amortization
    
    
    2,291
    
    
    
    1,992Other general and administrative
    
    
    5,559
    
    
    
    4,742Total expenses
    
    
    38,180
    
    
    
    28,087Income before income taxes of consolidated companies
    
    
    18,851
    
    
    
    21,207Income taxes
    
    
    6,946
    
    
    
    7,639Net income of consolidated companies
    
    
    11,905
    
    
    
    13,568Net income attributable to non-controlling interests
    
    
    17
    
    
    
    12Net income
    
    $
    11,888
    
    
    $
    13,556Earnings per common share:Basic
    
    $
    0.21
    
    
    $
    0.23Diluted
    
    $
    0.21
    
    
    $
    0.23Weighted-average number of common shares:Basic
    
    
    57,465
    
    
    
    58,467Diluted
    
    
    57,655
    
    
    
    58,551Dividends declared per share
    
    $
    
    
    
    $
    0.0800
 See accompanying notes.
  4




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optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Three Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009Operating activitiesNet income
    
    $
    11,888
    
    
    $
    13,556Adjustments to reconcile net income to cash (used in) provided by operating activities:Depreciation and amortization
    
    
    2,291
    
    
    
    1,992Stock-based compensation
    
    
    1,341
    
    
    
    900Excess tax benefit for stock-based compensation
    
    
    (4
    )
    
    
    132Deferred income taxes
    
    
    110
    
    
    
    (147
    )Increase in Optionetics contingent consideration
    
    
    203
    
    
    
    Loss on investment in non-consolidated affiliate
    
    
    
    
    
    
    59Unrealized gain, deferred rent and other
    
    
    739
    
    
    
    (712
    )Changes in operating assets and liabilities:(Increase) decrease in:Cash and investments segregated in compliance with federal regulations
    
    
    28,469
    
    
    
    (133,925
    )Receivables from brokerage customers, net
    
    
    (55,697
    )
    
    
    22,190Receivables from brokers, dealers and clearing organizations
    
    
    76,963
    
    
    
    6,032Investments in securities
    
    
    7,000
    
    
    
    1,500Deposits with clearing organizations
    
    
    9,807
    
    
    
    36,480Other assets
    
    
    (22,195
    )
    
    
    1,809Increase (decrease) in:Payables to brokerage customers
    
    
    (95,102
    )
    
    
    114,000Payables to brokers, dealers and clearing organizations
    
    
    1,830
    
    
    
    200Accrued liabilities and accounts payable
    
    
    (1,732
    )
    
    
    877Current income taxes
    
    
    5,879
    
    
    
    6,987Other liabilities
    
    
    17,139
    
    
    
    (3,875
    )Net cash (used in) provided by operating activities
    
    
    (11,071
    )
    
    
    68,055Investing activitiesPurchases and development of computer software
    
    
    (1,006
    )
    
    
    (786
    )Purchases of fixed assets
    
    
    (374
    )
    
    
    (242
    )Net cash used in investing activities
    
    
    (1,380
    )
    
    
    (1,028
    )Financing activitiesExercise of stock options
    
    
    65
    
    
    
    1Excess tax benefit for stock-based compensation
    
    
    4
    
    
    
    (132
    )Purchase of non-controlling equity interest
    
    
    
    
    
    
    (1,021
    )Stock repurchases
    
    
    (2,874
    )
    
    
    (10,436
    )Dividends paid
    
    
    
    
    
    
    (4,639
    )Net cash used in financing activities
    
    
    (2,805
    )
    
    
    (16,227
    )Effect of exchange rates on cash and cash equivalents
    
    
    (27
    )
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (15,283
    )
    
    
    50,800Cash and cash equivalents, beginning of period
    
    
    178,989
    
    
    
    114,450Cash and cash equivalents, end of period
    
    $
    163,706
    
    
    $
    165,250Supplemental cash flow information:Income taxes paid
    
    $
    726
    
    
    $
    931Interest paid
    
    
    51
    
    
    
    62Supplemental disclosure of non-cash activity:Non-cash foreign currency translation gain (loss)
    
    
    142
    
    
    
    (82
    )Intangible assets acquired in lieu of debt repayment
    
    
    
    
    
    
    2,500Non-cash change in unrealized gain on available for sale investments in securities
    
    
    112
    
    
    
    512
 See accompanying notes.
  5




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optionsXpress Holdings, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 1. Basis of Presentation and Nature of Operations
 Basis of Presentation
    Nature of Operations
    2. Summary of Significant Accounting Policies
  Fair Value of Financial Instruments  Improving Disclosures about Fair Value Measurements Fair Value Measurements and Disclosures ,
  6




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Subsequent Events  Subsequent
Events Subsequent Events,
 Other Liabilities 
 3. Recently Issued Accounting Pronouncements
 Fair Value of Financial Instruments 
 4. Capitalization
 Common Stock
      5. Fair Value Measurements
  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.
  7




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Financial Assets and Liabilities
  Level 1(1)
    
    
    Level 2
    
    
    Level 3(2)
    
    
    TotalFinancial assets, at fair value:Money market funds included in cash
and cash equivalents
    
    $
    79,146
    
    
    $
    
    
    
    $
    
    
    
    $
    79,146U.S. treasury securities included in
deposits with clearing organizations
    
    
    13,000
    
    
    
    
    
    
    
    
    
    
    
    13,000Corporate equities and derivatives
included in other assets
    
    
    33,520
    
    
    
    
    
    
    
    
    
    
    
    33,520Investments in securities
    
    
    
    
    
    
    
    
    
    
    63,962
    
    
    
    63,962$
    125,666
    
    
    $
    
    
    
    $
    63,962
    
    
    $
    189,628Financial liabilities, at fair value:Corporate equities and derivatives
included in other liabilities
    
    $
    34,582
    
    
    $
    
    
    
    $
    
    
    
    $
    34,582$
    34,582
    
    
    $
    
    
    
    $
    
    
    
    $
    34,582
 
 (1)
    
    All of the Companys 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 3 assets represent 33.7% of all financial assets measured at fair value.  InvestmentsinSecurities AssetsBalance, January 1, 2010
    
    $
    70,850Total gains/(losses), realized and unrealized
    
    
    112Settlements
    
    
    (7,000
    )Balance, March 31, 2010
    
    $
    63,962
  8




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Financial
Instruments,
  Non-Financial Assets and Liabilities
      9




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##### Table of Contents



6. Derivative Instruments
   7. Contingencies and Guarantees
 General Contingencies
     Legal Contingencies
   10




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##### Table of Contents



Guarantees
   8. Earnings Per Share
  Three Months EndedMarch 31,2010
    
    
    2009Net income
    
    $
    11,888
    
    
    $
    13,556Weighted-average number of common shares
outstanding  basic
    
    
    57,465
    
    
    
    58,467Effect of dilutive securities
    
    
    190
    
    
    
    84Weighted-average number of common shares
outstanding  diluted
    
    
    57,655
    
    
    
    58,551Basic EPS
    
    $
    0.21
    
    
    $
    0.23Diluted EPS
    
    $
    0.21
    
    
    $
    0.23
 9. Stock-Based Compensation
   10. Regulatory Requirements
     11




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11. Segment Reporting
     Three Months EndedMarch 31,2010
    
    
    2009Net RevenuesBrokerage Services
    
    $
    49,491
    
    
    $
    49,294Education Services
    
    
    8,014
    
    
    
    Eliminations
    
    
    (474
    )
    
    
    Total
    
    $
    57,031
    
    
    $
    49,294Income (Loss) before Income TaxesBrokerage Services
    
    $
    20,336
    
    
    $
    21,195Education Services
    
    
    (1,502
    )
    
    
    Non-controlling interests
    
    
    17
    
    
    
    12Total
    
    $
    18,851
    
    
    $
    21,207
 As of
    
    
    As ofMarch 31,
    
    
    December 31,2010
    
    
    2009AssetsBrokerage Services
    
    $
    1,477,811
    
    
    $
    1,538,379Education Services
    
    
    9,938
    
    
    
    12,112Eliminations
    
    
    (5,574
    )
    
    
    (4,170
    )Total
    
    $
    1,482,175
    
    
    $
    1,546,321
 
 Item 2.
    
     Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
   12




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
    
    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.
 Results of Operations
  Three Months EndedMarch 31,2010
    
    
    2009Results of OperationsNet revenues (in thousands)
    
    $
    57,031
    
    
    $
    49,294Compensation and benefits
    
    
    20.4
    %
    
    
    17.0
    %Brokerage, clearing, and other related expenses
    
    
    15.8
    
    
    
    14.6Brokerage advertising
    
    
    7.7
    
    
    
    11.8Education marketing and fulfillment
    
    
    9.3
    
    
    
    Depreciation and amortization
    
    
    4.0
    
    
    
    4.0Other general and administrative
    
    
    9.8
    
    
    
    9.6Income before income taxes
    
    
    33.0
    
    
    
    43.0Income taxes
    
    
    12.2
    
    
    
    15.5Net income
    
    
    20.8
    
    
    
    27.5
  13




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Statistical Data
  Three Months EndedMarch 31,2010
    
    
    2009Statistical DataNumber of customer accounts (at period
end) (1)
    
    
    357,700
    
    
    
    328,300Daily average revenue trades (DARTs) (2) 
Retail DARTs
    
    
    30,300
    
    
    
    31,700Institutional DARTs
    
    
    14,300
    
    
    
    15,100Total DARTs
    
    
    44,600
    
    
    
    46,800Customer trades per account (3)
    
    
    31
    
    
    
    35Average commission per trade
    
    $
    14.55
    
    
    $
    13.33Option trades as a % of total trades
    
    
    42
    %
    
    
    39
    %Brokerage advertising expense per net new
customer account (4)
    
    $
    672
    
    
    $
    597Total client assets (000s)
    
    $
    7,504,799
    
    
    $
    5,097,637Client margin balances (000s)
    
    $
    195,520
    
    
    $
    112,962
 
 (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 March 31, 2010 versus Three Months Ended March 31, 2009
 Overview
  
    
    total customer accounts increased by 29,400 to 357,700, or 9.0%;
    
    total trades decreased by 134,600 to 2,721,200, or 4.7% and
    
    average commission per trade increased by $1.22 to $14.55, or 9.2%.
 Commissions
  Other brokerage-related revenue
  Net interest revenue and fees
   14




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Education revenues
  Other income
  Compensation and benefits
  Brokerage, clearing, and other related expenses
  Brokerage advertising
  Education marketing and fulfillment
  Depreciation and amortization
  Other general and administrative
  Income taxes
  Net income
   15




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Segment information
 Brokerage Services
  Education Services
  Liquidity and Capital Resources
         16




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##### Table of Contents



Credit Facility
    Cash Flow
    Capital Expenditures
 tm Website
Development Costs
 
 Item 3.
    
     Quantitative and Qualitative Disclosures about Market Risk
     17




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Item 4.
    
     Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 Part II  OTHER INFORMATION
 
 Item 1.
    
     Legal Proceedings
  
 Item 1A
    
     Risk Factors
 Risk Factors.
  18




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Item 2.
    
     Unregistered Sales of Equity Securities and Use of Proceeds
 (c) Purchases of Equity Securities by the Issuer
  TotalNumber of
    
    
    ApproximateShares
    
    
    Dollar ValuePurchased
    
    
    of Shares thatas Part of
    
    
    May Yet BePublicly
    
    
    PurchasedTotal
    
    
    
    
    
    
    Announced
    
    
    Under theNumber of
    
    
    Average
    
    
    Plans or
    
    
    Plans orShares
    
    
    Price Paid
    
    
    Programs
    
    
    ProgramsPeriod
    
    Purchased
    
    
    per Share
    
    
    (3)
    
    
    (4)(5)(6)January 1, 2010 through January 31, 2010
    
    
    60,241
    
    
    $
    14.62
    
    
    
    60,241
    
    
    $
    21,491,933February 1, 2010 through February 28, 2010
    
    
    34,337
    
    
    
    14.34
    
    
    
    34,337
    
    
    
    20,999,540March 1, 2010 through March 31, 2010
    
    
    100,000
    (1)
    
    
    15.01
    
    
    
    100,000
    
    
    
    20,999,540194,578
    (2)
    
    $
    14.77
    
    
    
    194,578
    
    
    $
    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. 
 Item 6.
    
     Exhibits
 Exhibit
    
    Description13.1
    
    
    Consolidated Financial Statements as
set forth in the Companys Annual
Report on Form 10-K for the fiscal year
ended December 31, 2009(1)31.1
    
    
    Certification of David A. Fisher,
Principal Executive Officer, as
required pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Adam J. DeWitt,
Principal Financial Officer, as
required pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    
    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 Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2009 filed March 1,
2010.  19




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##### Table of Contents



Signatures
  Dated: May 10, 2010
    optionsXpress Holdings, Inc.
(Registrant)By:
    /s/ DAVID A. FISHERDavid A. FisherChief Executive Officer
(Principal Executive Officer)By:
    /s/ ADAM J. DEWITTAdam J. DeWittChief Financial Officer

(Principal Financial and Accounting Officer)  20




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##### Table of Contents



Exhibit Index
 Exhibit
    
    Description13.1
    
    
    Consolidated Financial Statements as set forth in the
Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2009(1)31.1
    
    
    Certification of David A. Fisher, Principal Executive
Officer, as required pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Adam J. DeWitt, Principal Financial
Officer, as required pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    
    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 Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2009 filed March 1,
2010.  21