##### 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, 2008
 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
    
    20-1444525(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 311 W. Monroe, Suite 1000, Chicago, Illinois
60606    (312) 630-3300
 þ o
  Large accelerated filer þ

    

    Accelerated filer o

    

    Non-accelerated filer   o
(Do not check if a smaller reporting company)

    

    Smaller reporting company o
 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
    
    
    11Item 3.  Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4.  Controls and Procedures
    
    
    15Part II  OTHER INFORMATION
    
    
    15Item 1.  Legal Proceedings
    
    
    15Item 1A  Risk Factors
    
    
    16Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 6.  Exhibits
    
    
    17Signatures
    
    
    17EX-31.1 Section 302 Certification of the CEOEX-31.2 Section 302 Certification of the CFOEX-32.1 Section 906 Certification of the CEO and the CFO
  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 31,2008
    
    
    2007ASSETSCash and cash equivalents
    
    $
    67,646
    
    
    $
    70,492Investments in securities
    
    
    107,575
    
    
    
    158,175Cash and investments segregated in compliance with federal regulations
    
    
    518,031
    
    
    
    599,059Receivables from brokerage customers, net
    
    
    203,079
    
    
    
    207,417Receivables from brokers, dealers and clearing organizations
    
    
    16,173
    
    
    
    37,044Deposits with clearing organizations
    
    
    24,298
    
    
    
    28,334Fixed assets, net
    
    
    13,131
    
    
    
    12,878Goodwill
    
    
    29,022
    
    
    
    28,616Other intangible assets, net
    
    
    3,675
    
    
    
    3,900Other assets
    
    
    17,263
    
    
    
    9,596Total assets
    
    $
    999,893
    
    
    $
    1,155,511LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesPayables to brokerage customers
    
    $
    718,488
    
    
    $
    851,130Payables to brokers, dealers and clearing organizations
    
    
    9,679
    
    
    
    8,002Accounts payable and accrued liabilities
    
    
    18,905
    
    
    
    15,734Current and deferred income taxes
    
    
    12,647
    
    
    
    2,937Total liabilities
    
    
    759,719
    
    
    
    877,803Stockholders equityCommon stock, $0.0001 par value (250,000 shares authorized; 60,413 and
63,026 shares issued and outstanding at March 31, 2008 and December 31,
2007, respectively)
    
    
    6
    
    
    
    6Preferred stock, $0.0001 par value (75,000 shares authorized; none issued)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    51,640
    
    
    
    108,064Accumulated other comprehensive income
    
    
    69
    
    
    
    49Retained earnings
    
    
    188,459
    
    
    
    169,589Total stockholders equity
    
    
    240,174
    
    
    
    277,708Total liabilities and stockholders equity
    
    $
    999,893
    
    
    $
    1,155,511
 See accompanying notes. 3




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optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007RevenuesCommissions
    
    $
    38,929
    
    
    $
    33,756Interest revenue and fees
    
    
    14,373
    
    
    
    14,135Interest expense
    
    
    (784
    )
    
    
    (1,576
    )Net interest revenue and fees
    
    
    13,589
    
    
    
    12,559Other brokerage-related revenue
    
    
    7,478
    
    
    
    8,090Other income
    
    
    769
    
    
    
    323Net revenues
    
    
    60,765
    
    
    
    54,728ExpensesCompensation and benefits
    
    
    6,659
    
    
    
    6,201Brokerage, clearing and other related expenses
    
    
    5,018
    
    
    
    4,830Advertising
    
    
    4,874
    
    
    
    3,561Quotation services
    
    
    1,907
    
    
    
    1,714Depreciation and amortization
    
    
    1,678
    
    
    
    1,266Technology and telecommunications
    
    
    906
    
    
    
    848Other
    
    
    2,224
    
    
    
    1,524Total expenses
    
    
    23,266
    
    
    
    19,944Income before income taxes
    
    
    37,499
    
    
    
    34,784Income taxes
    
    
    13,710
    
    
    
    13,503Net income
    
    $
    23,789
    
    
    $
    21,281Earnings per common share:Basic
    
    $
    0.38
    
    
    $
    0.34Diluted
    
    $
    0.38
    
    
    $
    0.34Weighted-average number of common shares:Basic
    
    
    62,581
    
    
    
    62,780Diluted
    
    
    62,769
    
    
    
    62,985Dividends declared per share
    
    $
    0.0800
    
    
    $
    0.0625
 See accompanying notes. 4




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optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Operating activitiesNet income
    
    $
    23,789
    
    
    $
    21,281Adjustments to reconcile net income to cash provided by operating activities:Depreciation and amortization
    
    
    1,678
    
    
    
    1,266Stock-based compensation
    
    
    524
    
    
    
    521Net deferred income taxes
    
    
    179
    
    
    
    364Gain on investment in non-consolidated affiliate
    
    
    (122
    )
    
    
    (52
    )Unrealized (gains)/losses, deferred rent and other
    
    
    (216
    )
    
    
    Changes in operating assets and liabilities:(Increase) decrease in:Cash segregated in compliance with federal regulations
    
    
    81,028
    
    
    
    5,021Receivables from brokerage customers, net
    
    
    4,338
    
    
    
    (1,601
    )Receivables from brokers, dealers and clearing organizations
    
    
    20,871
    
    
    
    (2,193
    )Deposits with clearing organizations
    
    
    4,036
    
    
    
    (22,279
    )Other assets
    
    
    (6,730
    )
    
    
    (1,988
    )Increase (decrease) in:Payables to brokerage customers
    
    
    (132,642
    )
    
    
    29,336Payables to brokers, dealers and clearing organizations
    
    
    1,677
    
    
    
    (6,614
    )Accounts payable and accrued liabilities
    
    
    3,186
    
    
    
    1,410Current income taxes payable
    
    
    9,531
    
    
    
    8,384Net cash provided by operating activities
    
    
    11,127
    
    
    
    32,856Investing activitiesPurchases of investments in securities
    
    
    (20,600
    )
    
    
    (12,900
    )Proceeds from maturities/sales of investments in securities
    
    
    71,200
    
    
    
    12,225Purchases and development of computer software
    
    
    (1,171
    )
    
    
    (619
    )Purchases of fixed assets
    
    
    (535
    )
    
    
    (1,459
    )Loans to affiliates and non-affiliates
    
    
    (1,000
    )
    
    
    Cash used in business acquisition
    
    
    
    
    
    
    (24,135
    )Net cash provided by (used in) investing activities
    
    
    47,894
    
    
    
    (26,888
    )Financing activitiesStock repurchases
    
    
    (57,142
    )
    
    
    Exercise of stock options
    
    
    60
    
    
    
    188Excess tax benefit for stock-based compensation
    
    
    134
    
    
    
    46Dividends paid
    
    
    (4,919
    )
    
    
    (3,933
    )Net cash used in financing activities
    
    
    (61,867
    )
    
    
    (3,699
    )Net (decrease) increase in cash and cash equivalents
    
    
    (2,846
    )
    
    
    2,269Cash and cash equivalents, beginning of period
    
    
    70,492
    
    
    
    76,590Cash and cash equivalents, end of period
    
    $
    67,646
    
    
    $
    78,859Supplemental cash flow information:Income taxes paid
    
    $
    3,874
    
    
    $
    4,725Interest paid
    
    
    784
    
    
    
    1,576Supplemental disclosure of non-cash activity:Non-cash foreign currency translation
    
    $
    20
    
    
    $
    11Issuance of common stock in acquisition
    
    
    
    
    
    
    11,150
 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. Recently Issued Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 Non-controlling Interests in Consolidated Financial
Statements, an amendment of Accounting Research Bulletin No. 51
 Business Combinations
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133
 6




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3. Summary of Significant Accounting Policies
  Investments in Securities 
 Financial Instruments  Fair Value Measurements Financial Instruments
 Effective Date of FASB
Statement No. 157
 Earnings Per Share 
 4. Business Acquisition
    5. Stock-Based Compensation
   6. Financial Instruments
 Fair Value Measurements
 7




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March 31,
    
    
    December 31,2008
    
    
    2007Financial instruments owned, at fair value:Investments in securities
    
    $
    107,575
    
    
    $
    158,175Money market funds included in cash and cash equivalents
    
    
    51,074
    
    
    
    5,868U.S. treasuries included in deposits with clearing organizations
    
    
    14,694
    
    
    
    18,508Corporate equities and derivatives included in other assets
    
    
    6,610
    
    
    
    1,057$
    179,953
    
    
    $
    183,608Financial instruments sold but not yet purchased, at fair value:Corporate equities and derivatives included in accrued payables and other liabilities
    
    $
    4,337
    
    
    $
    578$
    4,337
    
    
    $
    578
  
  Level 1(1)
    
    
    Level 2
    
    
    Level 3(2)
    
    
    TotalFinancial instruments owned, at fair value:Investments in securities
    
    $
    
    
    
    $
    
    
    
    $
    107,575
    
    
    $
    107,575Money market funds included in cash and cash equivalents
    
    
    51,074
    
    
    
    
    
    
    
    
    
    
    
    51,074U.S. treasuries included in deposits with clearing organizations
    
    
    14,694
    
    
    
    
    
    
    
    
    
    
    
    14,694Corporate equities and derivatives included in other assets
    
    
    6,610
    
    
    
    
    
    
    
    
    
    
    
    6,610$
    72,378
    
    
    $
    
    
    
    $
    107,575
    
    
    $
    179,953Financial instruments sold but not yet purchased, at fair value:Corporate equities and derivatives included in accrued payables
and other liabilities
    
    $
    4,337
    
    
    $
    
    
    
    $
    
    
    
    $
    4,337$
    4,337
    
    
    $
    
    
    
    $
    
    
    
    $
    4,337
 
 (1)
    
    All of the Companys assets and liabilities included in Level 1 of the fair value hierarchy are exchange traded securities.(2)
    
    Level 3 assets represent 60% of all assets measured at fair value.
  Investments inSecurities- AssetsBalance, January 1, 2008
    
    $
    Total gains/(losses), realized and unrealized
    
    
    Purchases, issuances, sales and settlements
    
    
    Transfers in/(out) of Level 3
    
    
    107,575Balance, March 31, 2008
    
    $
    107,575
 8




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7. Guarantees and Contingencies
 Guarantees
   General Contingencies
   9




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Legal Contingencies
  8. Capitalization
 Common Stock
   Preferred Stock
  Dividend
  9. Regulatory Requirements
    10. Earnings Per Share
  Three Months EndedMarch 31,2008
    
    
    2007Net income
    
    $
    23,789
    
    
    $
    21,281Weighted-average number of common shares outstanding  basic
    
    
    62,581
    
    
    
    62,780Effect of dilutive securities
    
    
    188
    
    
    
    205Weighted-average number of common shares outstanding  diluted
    
    
    62,769
    
    
    
    62,985Basic EPS
    
    $
    0.38
    
    
    $
    0.34Diluted EPS
    
    $
    0.38
    
    
    $
    0.34
 10




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Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
    
    
    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 and brokersXpress;
    
    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; and
    
    the statements concerning uncertainties and deteriorations in the credit and capital markets and the credit quality of our
auction rate securities.
 Results of Operations
  Three Months EndedMarch 31,2008
    
    2007Results of OperationsNet revenues (in thousands)
    
    $
    60,765
    
    
    $
    54,728Compensation and benefits
    
    
    11.0
    %
    
    
    11.3
    %Brokerage, clearing, and other related expenses
    
    
    8.3
    
    
    
    8.8Advertising
    
    
    8.0
    
    
    
    6.5Quotation services
    
    
    3.1
    
    
    
    3.1Depreciation and amortization
    
    
    2.8
    
    
    
    2.3
 11




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Three Months EndedMarch 31,2008
    
    2007Technology and telecommunication
    
    
    1.5
    
    
    
    1.6Other
    
    
    3.6
    
    
    
    2.8Income before income taxes
    
    
    61.7
    
    
    
    63.6Income taxes
    
    
    22.6
    
    
    
    24.7Net income
    
    
    39.1
    
    
    
    38.9
 Statistical Data
  Three Months EndedMarch 31,2008
    
    2007Statistical DataNumber of customer accounts (1)
    
    
    277,100
    
    
    
    223,800Daily average revenue trades (DARTs) (2)
    
    
    38,000
    
    
    
    30,700Customer trades per account (3)
    
    
    34
    
    
    
    35Average commission per trade
    
    $
    16.81
    
    
    $
    18.02Option trades as a % of total trades
    
    
    65
    %
    
    
    66
    %Advertising expense per net new
customer account (4)
    
    $
    332
    
    
    $
    349Total client assets (000s)
    
    $
    5,428,964
    
    
    $
    4,993,358Client margin balances (000s)
    
    $
    197,760
    
    
    $
    134,902
 
 (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 customer accounts during the
period. Customer trades are annualized.(4)
    
    Calculated based on net new customer accounts opened during the period. Three Months Ended March 31, 2008 versus Three Months Ended March 31, 2007
 Overview
  
    
    total customer accounts increased by 53,300 to 277,100, or 23.8%;
    
    total trades increased by 0.4 million to 2.3 million, or 23.6%; and
    
    average commission per trade decreased by $1.21 to $16.81, or 6.7%.
 Commissions
  Net interest revenue and fees
  Other brokerage-related revenue
  12




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Other income
  Compensation and benefits
  Brokerage, clearing, and other related expenses
  Advertising
  Quotation services
  Depreciation and amortization
  Technology and telecommunication
  Other
  Income taxes
  Net income
  Liquidity and Capital Resources
  13




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Credit Facility
   Cash Flow
    14




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Capital Expenditures
  
 Item 3.  Quantitative and Qualitative Disclosures about Market Risk
     
 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
  15




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Item 1A.  Risk Factors
 Risk
Factors.
 Our investments in auction rate securities are subject to risks that may cause losses and affect
the liquidity of these investments.
   
 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases
of Equity Securities by the Issuer
  ApproximateDollar Value ofTotal Number of
    
    Shares that MayShares Purchased
    
    Yet Be PurchasedTotal Number of
    
    
    
    
    
    as Part of Publicly
    
    Under the PlansShares Purchased
    
    Average Price
    
    Announced Plans
    
    or ProgramsPeriod
    
    (1)
    
    Paid per Share
    
    or Programs (1)
    
    (1)(3)January 1, 2008 through January 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    $100,000,000February 1, 2008 through February 29, 2008
    
    
    421,000
    
    
    
    24.30
    
    
    
    421,000
    
    
    
    89,770,783March 1, 2008 through March 31, 2008
    
    
    2,216,543
    
    
    
    21.16
    
    
    
    2,216,543
    
    
    
    42,857,7552,637,543
    (3)
    
    $
    21.66
    
    
    
    2,637,543
    
    
    
    $  42,857,755
 
 (1)
    
    Represents (a) 2,537,543 shares purchased on the open market pursuant to a
stock repurchase program approved by our Board of Directors on February 13,
2008 that authorizes us to repurchase up to $100 million of our outstanding
common stock (the Repurchase Program) and (b) 100,000 shares repurchased
from Ned. W. Bennett, our Executive Vice Chairman and founder, on March 3,
2008, pursuant to a stock purchase agreement we entered into with him on
February 14, 2008 (the Bennett Stock Purchase Agreement). The Repurchase
Program has no expiration date and may be terminated at any time by the
Board of Directors. The Bennett Stock Purchase Agreement does not have an
expiration date and does not create an obligation for us to buy, or Mr.
Bennett to sell to us, any of his shares of our common stock. The number of
shares we may purchase under the Bennett Stock Purchase Agreement is limited
only by the number of shares of our common stock that Mr. Bennett may hold
from time to time.(2)
    
    Represents repurchased shares which were retired to authorized, but unissued.(3)
    
    Does not include shares that may yet be repurchased by us under the Bennett
Stock Purchase Agreement because, according to its terms, there is no
maximum number of shares that may be repurchased. See note (1) above. 16




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Item 6.  Exhibits
 Exhibit
    
    Description10.1
    
    Stock Purchase Agreement, dated February 13, 2008, by and among Ned. W. Bennett and optionsXpress Holdings, Inc.
(incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on February 14, 2008)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
 
 Signatures
 Pursuant to the
requirements of the
Securities Exchange
Act of 1934, the
registrant has duly
caused this report
to be signed on its
behalf by the
undersigned
thereunto duly
authorized.Dated: May 12, 2008
    
    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)
 17