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, 2009
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 311 W. Monroe, Suite 1000, Chicago, Illinois
60606
 (312) 630-3300
 þ o
 o 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
    
    
    7Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 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
    
    
    18Item 6.  Exhibits
    
    
    20Signatures
    
    
    21
  2




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##### 



Part I  FINANCIAL INFORMATION
 
 Item 1.  Condensed Consolidated Financial Statements
 optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Financial Condition
(Unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    165,250
    
    
    $
    114,450Cash and investments segregated in compliance with federal regulations
    
    
    561,594
    
    
    
    427,669Receivables from brokerage customers, net
    
    
    115,312
    
    
    
    137,502Receivables from brokers, dealers and clearing organizations
    
    
    9,589
    
    
    
    15,621Investments in securities
    
    
    88,949
    
    
    
    89,937Deposits with clearing organizations
    
    
    71,929
    
    
    
    108,409Fixed assets, net
    
    
    12,822
    
    
    
    12,979Goodwill
    
    
    44,234
    
    
    
    44,234Other intangible assets, net
    
    
    6,755
    
    
    
    4,569Other assets
    
    
    13,166
    
    
    
    16,963Total assets
    
    $
    1,089,600
    
    
    $
    972,333LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesPayables to brokerage customers
    
    $
    789,872
    
    
    $
    675,872Payables to brokers, dealers and clearing organizations
    
    
    493
    
    
    
    293Accounts payable and accrued liabilities
    
    
    25,704
    
    
    
    27,848Current and deferred income taxes
    
    
    6,681
    
    
    
    25Total liabilities
    
    
    822,750
    
    
    
    704,038Stockholders equityCommon stock, $0.0001 par value (250,000 shares authorized; 57,850 and
58,780 shares issued and outstanding at March 31, 2009 and December 31,
2008, respectively)
    
    
    6
    
    
    
    6Preferred stock, $0.0001 par value (75,000 shares authorized; none issued)
    
    
    
    
    
    
    Additional paid-in capital
    
    
    18,221
    
    
    
    28,555Accumulated other comprehensive loss
    
    
    (1,019
    )
    
    
    (1,340
    )Non-controlling interests
    
    
    56
    
    
    
    405Retained earnings
    
    
    249,586
    
    
    
    240,669Total stockholders equity
    
    
    266,850
    
    
    
    268,295Total liabilities and stockholders equity
    
    $
    1,089,600
    
    
    $
    972,333
 See accompanying notes
 3




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##### 



optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Revenues:Commissions
    
    $
    38,089
    
    
    $
    38,929Interest revenue and fees
    
    
    4,380
    
    
    
    14,373Interest expense
    
    
    (62
    )
    
    
    (784
    )Net interest revenue and fees
    
    
    4,318
    
    
    
    13,589Other brokerage-related revenue
    
    
    6,297
    
    
    
    7,478Other income
    
    
    590
    
    
    
    769Net revenues
    
    
    49,294
    
    
    
    60,765Expenses:Compensation and benefits
    
    
    8,374
    
    
    
    6,659Brokerage, clearing and other related expenses
    
    
    7,190
    
    
    
    5,018Advertising
    
    
    5,789
    
    
    
    4,874Quotation services
    
    
    1,197
    
    
    
    1,907Depreciation and amortization
    
    
    1,992
    
    
    
    1,678Technology and telecommunications
    
    
    1,243
    
    
    
    906Other
    
    
    2,302
    
    
    
    2,170Total expenses
    
    
    28,087
    
    
    
    23,212Income before income taxes of consolidated companies
    
    
    21,207
    
    
    
    37,553Income taxes
    
    
    7,639
    
    
    
    13,710Net income of consolidated companies
    
    
    13,568
    
    
    
    23,843Net income attributable to non-controlling interests
    
    
    12
    
    
    
    54Net income
    
    $
    13,556
    
    
    $
    23,789Earnings per common share:Basic
    
    $
    0.23
    
    
    $
    0.38Diluted
    
    $
    0.23
    
    
    $
    0.38Weighted-average number of common shares:Basic
    
    
    58,467
    
    
    
    62,581Diluted
    
    
    58,551
    
    
    
    62,769Dividends declared per share
    
    $
    0.0800
    
    
    $
    0.0800
 See accompanying notes.
 4




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##### 



optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Three Months EndedMarch
    
    
    March31, 2009
    
    
    31, 2008Operating activitiesNet income
    
    $
    13,556
    
    
    $
    23,789Adjustments to reconcile net income to cash provided by operating activities:Depreciation and amortization
    
    
    1,992
    
    
    
    1,678Stock-based compensation
    
    
    900
    
    
    
    524Deferred income taxes
    
    
    (147
    )
    
    
    179Loss (gain) on investment in non-consolidated affiliate
    
    
    59
    
    
    
    (122
    )Unrealized loss (gain), deferred rent and other
    
    
    (712
    )
    
    
    (162
    )Changes in operating assets and liabilities:(Increase) decrease in:Cash segregated in compliance with federal regulations
    
    
    (133,925
    )
    
    
    81,028Receivables from brokerage customers, net
    
    
    22,190
    
    
    
    4,338Receivables from brokers, dealers and clearing organizations
    
    
    6,032
    
    
    
    20,871Investments in securities
    
    
    1,500
    
    
    
    Deposits with clearing organizations
    
    
    36,480
    
    
    
    4,036Other assets
    
    
    1,809
    
    
    
    (6,730
    )Increase (decrease) in:Payables to brokerage customers
    
    
    114,000
    
    
    
    (132,642
    )Payables to brokers, dealers and clearing organizations
    
    
    200
    
    
    
    1,677Accounts payable and accrued liabilities
    
    
    (2,998
    )
    
    
    3,132Current income taxes
    
    
    7,119
    
    
    
    9,531Net cash provided by operating activities
    
    
    68,055
    
    
    
    11,127Investing activitiesPurchases of investments in securities
    
    
    
    
    
    
    (20,600
    )Proceeds from sales and maturities of investments in securities
    
    
    
    
    
    
    71,200Purchases and development of computer software
    
    
    (786
    )
    
    
    (1,171
    )Purchases of fixed assets
    
    
    (242
    )
    
    
    (535
    )Loans to non-affiliates
    
    
    
    
    
    
    (1,000
    )Net cash (used in) provided by investing activities
    
    
    (1,028
    )
    
    
    47,894Financing activitiesExercise of stock options
    
    
    1
    
    
    
    60Excess tax benefit for stock-based compensation
    
    
    (132
    )
    
    
    134Purchase of non-controlling equity interest
    
    
    (1,021
    )
    
    
    Stock repurchases
    
    
    (10,436
    )
    
    
    (57,142
    )Dividends paid
    
    
    (4,639
    )
    
    
    (4,919
    )Net cash used in financing activities
    
    
    (16,227
    )
    
    
    (61,867
    )Net increase (decrease) in cash and cash equivalents
    
    
    50,800
    
    
    
    (2,846
    )Cash and cash equivalents, beginning of period
    
    
    114,450
    
    
    
    70,492Cash and cash equivalents, end of period
    
    $
    165,250
    
    
    $
    67,646
 5




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##### 



Three Months EndedMarch
    
    
    March31, 2009
    
    
    31, 2008Supplemental cash flow information:Income taxes paid
    
    $
    931
    
    
    $
    3,874Interest paid
    
    
    62
    
    
    
    784Supplemental disclosure of non-cash activity:Non-cash foreign currency translation gain (loss)
    
    
    (82
    )
    
    
    20Intangible assets acquired in lieu of debt repayment
    
    
    2,500
    
    
    
    Non-cash change in unrealized gain on available for sale investments
in securities
    
    
    512
    
    
    
    
 See accompanying notes.
 6




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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
  Business Combinations Business Combinations
 Fair Value of Financial Instruments  Fair Value Measurements
 Non-controlling Interests  Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research
Bulletin No. 51
 7




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##### 



Derivative instruments  Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB Statement 133
 3. Recent Accounting Pronouncements
 Determining Fair Value when the Volume
and Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly Recognition
and Presentation of Other-Than-Temporary Impairments
 4. Other Intangible Assets, Net
  GrossCarrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    AmountCustomer relationships
    
    $
    8,300
    
    
    $
    (2,235
    )
    
    $
    6,065Trade names
    
    
    690
    
    
    
    
    
    
    
    690$
    8,990
    
    
    $
    (2,235
    )
    
    $
    6,755
    5. Stock-Based Compensation
   6. Derivative Instruments
  8




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##### 



March
    
    
    December31,
    
    
    31,2009
    
    
    2008Derivative instruments owned, at fair value:UBS put right included in investments in securities
    
    $
    2,580
    
    
    $
    4,447Equity options included in other assets
    
    
    5,101
    
    
    
    5,166$
    7,681
    
    
    $
    9,613Derivative instruments sold but not yet purchased, at fair value:Equity options included in accounts payable and accrued liabilities
    
    $
    3,568
    
    
    $
    4,864$
    3,568
    
    
    $
    4,864
  7. Fair Value Measurements
  Level 1
 Level 2
 Level 3
  Non-Financial Assets
   Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    ImpairmentNon-financial assetsGoodwill
    
    $
    
    
    
    $
    
    
    
    $
    44,234
    
    
    $
    Customer relationships included in other intangible assets
    
    $
    
    
    
    $
    
    
    
    $
    6,065
    
    
    $
    Trademarks included in other intangible assets
    
    
    
    
    
    
    
    
    
    
    690
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,989
    
    
    $
    
 9




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##### 



Financial Assets and Liabilities
 Level 1(1)
    
    
    Level 2
    
    
    Level 3(2)
    
    
    TotalFinancial instruments owned, at fair value:Money market funds included in cash and cash equivalents
    
    $
    63,365
    
    
    $
    
    
    
    $
    
    
    
    $
    63,365U.S. treasury securities included in cash and investments
segregated in compliance with federal regulations
    
    
    8,998
    
    
    
    
    
    
    
    
    
    
    
    8,998Investments in securities
    
    
    
    
    
    
    
    
    
    
    88,949
    
    
    
    88,949U.S. treasury securities included in deposits with
clearing organizations
    
    
    12,296
    
    
    
    
    
    
    
    
    
    
    
    12,296Money market funds included in deposits with clearing
organizations
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000Corporate equities and derivatives included in other assets
    
    
    7,830
    
    
    
    
    
    
    
    
    
    
    
    7,830$
    142,489
    
    
    $
    
    
    
    $
    88,949
    
    
    $
    231,438Financial instruments sold but not yet purchased, at fair
value:Corporate equities and derivatives included in accounts
payables and accrued liabilities
    
    $
    7,535
    
    
    $
    
    
    
    $
    
    
    
    $
    7,535$
    7,535
    
    
    $
    
    
    
    $
    
    
    
    $
    7,535
 
 (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 38.4% of all financial assets measured at fair value.  InvestmentsinSecurities- AssetsBalance, January 1, 2009
    
    $
    89,937Total gains/(losses), realized and unrealized
    
    
    512Purchases, issuances, sales and settlements
    
    
    (1,500
    )Transfers in/(out) of Level 3
    
    
    Balance, March 31, 2009
    
    $
    88,949
  10




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8. Contingencies and Guarantees
 General Contingencies
     11




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##### 



Legal Contingencies
  Guarantees
   9. Capitalization
 Common Stock
   Dividends
  10. Regulatory Requirements
    11. Earnings Per Share
  12




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##### 



Three Months EndedMarch 31,2009
    
    
    2008Net income
    
    $
    13,556
    
    
    $
    23,789Weighted-average number of common shares outstanding  basic
    
    
    58,467
    
    
    
    62,581Effect of dilutive securities
    
    
    84
    
    
    
    188Weighted-average number of common shares outstanding 
diluted
    
    
    58,551
    
    
    
    62,769Basic EPS
    
    $
    0.23
    
    
    $
    0.38Diluted EPS
    
    $
    0.23
    
    
    $
    0.38
 12. Subsequent Events
  
 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, 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; and
 13




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##### 




    
    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 31,2009
    
    
    2008Results of OperationsNet revenues (in thousands)
    
    $
    49,294
    
    
    $
    60,765Compensation and benefits
    
    
    17.0
    %
    
    
    11.0
    %Brokerage, clearing, and other related expenses
    
    
    14.6
    
    
    
    8.3Advertising
    
    
    11.8
    
    
    
    8.0Quotation services
    
    
    2.4
    
    
    
    3.1Depreciation and amortization
    
    
    4.0
    
    
    
    2.8Technology and telecommunication
    
    
    2.5
    
    
    
    1.5Other
    
    
    4.7
    
    
    
    3.6Income before income taxes
    
    
    43.0
    
    
    
    61.7Income taxes
    
    
    15.5
    
    
    
    22.6Net income
    
    
    27.5
    
    
    
    39.1
 Statistical Data
  Three Months EndedMarch 31,2009
    
    
    2008Statistical DataNumber of customer accounts (at
period end) (1)
    
    
    328,300
    
    
    
    277,100Daily average revenue trades
(DARTs) (2) Retail DARTs
    
    
    31,700
    
    
    
    38,000Institutional DARTs(3)
    
    
    15,100
    
    
    
    n/aTotal DARTs
    
    
    46,800
    
    
    
    38,000Customer trades per account (4)
    
    
    35
    
    
    
    34Average commission per trade
    
    $
    13.33
    
    
    $
    16.81Option trades as a % of total trades
    
    
    39
    %
    
    
    65
    %Advertising expense per net new
customer account (5)
    
    $
    597
    
    
    $
    332Total client assets (000s)
    
    $
    5,097,637
    
    
    $
    5,428,964Client margin balances (000s)
    
    $
    112,962
    
    
    $
    197,760
 
 (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)
    
    Includes all OEC and other institutional revenue-generating trades beginning in July 2008.(4)
    
    Customer trades per account are total trades divided by the average number of customer accounts during the
period. Customer trades are annualized. 14




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(5)
    
    Calculated based on total net new customer accounts opened during the period. Three Months Ended March 31, 2009 versus Three Months Ended March 31, 2008
 Overview
  
    
    total customer accounts increased by 51,200 to 328,300, or 18.5%;
    
    total trades increased by 541,400 to 2,855,800, or 23.4%; and
    
    average commission per trade decreased by $3.48 to $13.33, or 20.7%.
 Commissions
  Net interest revenue and fees
  Other brokerage-related revenue
  Other income
  Compensation and benefits
  Brokerage, clearing, and other related expenses
  Advertising
  Quotation services
 15




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##### 



Depreciation and amortization
  Technology and telecommunication
  Other
  Income taxes
  Net income
  Liquidity and Capital Resources
      16




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##### 



Credit Facility
    Cash Flow
    Capital Expenditures
  
 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.
 
 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 (c) Purchases of Equity Securities by the Issuer
  18




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##### 



TotalNumber ofShares
    
    
    ApproximatePurchased
    
    
    Dollar Value ofas Part of
    
    
    Shares thatTotal
    
    
    
    
    
    
    Publicly
    
    
    May Yet BeNumber of
    
    
    Average
    
    
    Announced
    
    
    PurchasedShares
    
    
    Price
    
    
    Plans
    
    
    Under the PlansPurchased
    
    
    Paid per
    
    
    or Programs
    
    
    or ProgramsPeriod
    
    (1)
    
    
    Share
    
    
    (1)
    
    
    (3)(4)January 1, 2009 through January 31, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    17,361,696February 1, 2009 through February 28, 2009
    
    
    655,132
    
    
    
    10.84
    
    
    
    655,132
    
    
    
    30,260,065March 1, 2009 through March 31, 2009
    
    
    301,541
    
    
    
    11.06
    
    
    
    301,541
    
    
    
    28,026,022956,673
    (2)
    
    $
    10.91
    
    
    
    956,673
    
    
    $
    28,026,022
 
 (1)
    
    Includes 100,000 shares repurchased from Ned. W. Bennett, our Executive Vice
Chairman and founder, on March 2, 2009, pursuant to a stock purchase
agreement we entered into with him on February 14, 2008 (the Bennett Stock
Purchase Agreement). 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 to 200,000 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.(2)
    
    Represents repurchased shares which were retired to authorized, but unissued.(3)
    
    Includes shares that may yet be repurchased by us 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). The Repurchase Program has no
expiration date and may be terminated at any time by the Board of Directors.(4)
    
    Includes shares that may yet be repurchased by us pursuant to a stock
repurchase program approved by our Board of Directors on February 24, 2009
that authorizes us to repurchase up to $20 million of our outstanding common
stock (the Repurchase Program). The Repurchase Program has no expiration
date and may be terminated at any time by the Board of Directors. 19




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##### 



Item 6.  Exhibits
 Exhibit
    
    Description10.1
    
    Separation Agreement, effective as of March 14, 2009, by and between the Company and Benjamin Morof(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 same exhibit filed with optionsXpress Holdings, Inc. Current
Report on Form 8-K filed March 12, 2009. 20




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##### 



Signatures
  Dated: May 11, 2009
    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) 21