TRAD » Topics » Liquidity and Capital Resources

This excerpt taken from the TRAD 10-Q filed May 7, 2009.

Liquidity and Capital Resources

As of March 31, 2009, we had cash and cash equivalents of approximately $109.7 million, of which $956,000 was restricted in support of a facility lease. On April 2, 2009, as a result of TradeStation Securities’ March 31, 2009 month-end calculation under Rule 15c3-1 of the Securities Exchange Act of 1934 (see below), $5.7 million was transferred to cash segregated in compliance with federal regulations from cash and cash equivalents. We had marketable securities of approximately $28.9 million as of March 31, 2009, of which $8.4 million could be tendered for sale upon notice (generally no longer than seven days) to the remarketing agent. The remaining $20.5 million was composed of treasury bills with original maturities greater than three months.

As of March 31, 2009, TradeStation Securities had: $702.4 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; receivables from brokerage customers, net of $23.7 million; and receivables from brokers, dealers, clearing organizations and clearing agents of $15.4 million. Client margin loans are demand loan obligations in customer equities accounts secured in part by cash and/or readily marketable securities. Receivables from and payables to brokers, dealers, clearing organizations and clearing agents represent primarily current open transactions which usually settle, or can be closed out, within a few business days.

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage customer accounts, which were $744.1 million at March 31, 2009. Management believes that brokerage cash balances and operating earnings will continue to be the primary source of liquidity for TradeStation Securities.

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which is administered by the SEC and the Financial Industry Regulatory Authority (FINRA), and the Commodity Futures Trading Commission’s (“CFTC”) financial requirement (Regulation 1.17 under the Commodity Exchange Act), which is administered by the CFTC and the National Futures Association. Under these requirements, TradeStation Securities calculates its net capital requirements using the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $500,000 and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in our net capital requirements. At March 31, 2009, TradeStation Securities had net capital of approximately $94.4 million (195.0% of aggregate debit items), which was approximately $93.4 million in excess of its required net capital of approximately $970,000. At December 31, 2008, TradeStation Securities had net capital of approximately $94.3 million (186% of aggregate debit items), which was approximately $93.3 million in excess of its required net capital of approximately $1.0 million.

 

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In addition to net capital requirements, as a self-clearing broker-dealer TradeStation Securities is subject to DTCC, OCC, and other cash deposit requirements, which are and may continue to be large in relation to the company’s total liquid assets, and which may fluctuate significantly from time to time based upon the nature and size of TradeStation Securities’ active trader clients’ securities trading activity. As of March 31, 2009, we had interest-bearing security deposits and short-term treasury bills totaling $32.1 million with clearing organizations for the self-clearing of equities and standardized equity option trades. Recently, our cash deposits with DTCC and OCC decreased significantly, but may increase significantly in future periods.

As of March 31, 2009, we had no long-term debt obligations or capital lease obligations. A summary of our operating lease obligations and minimum purchase obligations (primarily related to back-office systems and telecommunications services) is as follows (in thousands):

 

     Payments Due By Period
Contractual Obligations    Total    2009    2010 -
2011
   2012 -
2013

Operating lease obligations

   $  9,504    $   3,158    $   4,640    $   1,706

Purchase Obligations

     2,760      1,787      873      100
                           

Total

   $  12,264    $ 4,945    $ 5,513    $ 1,806
                           

We have no operating lease obligations or minimum purchase obligations extending beyond 2012.

In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for additional growth of our brokerage business (there being no assurance additional growth will occur), capital expenditures of approximately $2.6 million for the remainder of 2009. These capital expenditures are primarily for the purchase of computer hardware and to support the growth of our data server farms and back-office systems to help support our business. These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

In October 2006, our board of directors authorized, and we announced, the use of up to $60 million of our available and unrestricted cash, over a four-year period, to repurchase shares of our common stock in the open market or through privately-negotiated transactions. The stock repurchases are authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and ends on November 12, 2010. Pursuant to the buy-back plan, up to $1.25 million of company cash during each full calendar month (and a prorated amount during the first and last months) of the four-year period (i.e., up to $15 million per 12-month period and up to $60 million for the four-year period) has been authorized to be used to purchase company shares at prevailing prices, subject to compliance with applicable securities laws, rules and regulations, including Rules 10b5-1 and 10b-18. The buy-back plan does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended, extended or discontinued at any time without prior notice. For the three months ended March 31, 2009, we used approximately $3.64 million to purchase 646,500 shares of our common stock at an average price of $5.62 per share. Since commencement of this buy-back plan on November 13, 2006, through March 31, 2009, the we used approximately $35.6 million to purchase 3,706,669 shares of our common stock at an average price of $9.61 per share. All shares purchased have been retired. See ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – (c) Share Repurchases in PART II – OTHER INFORMATION of this report.

We anticipate that our available cash resources and cash flows from operations will be sufficient to meet our presently anticipated working capital and capital expenditure requirements through at least the next twelve months.

Net cash provided by operating activities totaled approximately $34.3 million during the three months ended March 31, 2009, as compared to net cash provided by operating activities of $6.1 million during the three months ended March 31, 2008. Net cash

 

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provided by operating activities during the three months ended March 31, 2009 of $34.3 million was due primarily to net income as adjusted for non-cash items, increases in payables to brokerage customers, accounts payable and accrued expenses, and decreases in deposits with clearing organizations, partially offset by increases in cash segregated in compliance with federal regulations, net brokerage customer assets, and other assets. Net cash provided by operating activities during the three months ended March 31, 2008 of $6.1 million was due primarily to net income as adjusted for non-cash items, increases in payables to brokerage customers, accounts payable and accrued expenses, and decreases in receivables from brokers, dealers, clearing organizations and clearing agents, receivables from brokerage customers and other assets, partially offset by an increase in cash segregated in compliance with federal regulations and, to a lesser extent, a decrease in payables to brokers, dealers and clearing organizations.

Investing activities used cash of $21.5 million and $856,000 during the three months ended March 31, 2009 and 2008, respectively. Net cash used in investing activities during the three months ended March 31, 2009 was primarily for the purchase of marketable securities and, to a lesser extent, capital expenditures consisting primarily of computer hardware to support the growth of our data server farms and computer software to support our growing infrastructure. Net cash used in investing activities during the three months ended March 31, 2008 was primarily for capital expenditures consisting of computer hardware to support increased capacity of our data server farms.

Financing activities used cash of $3.4 million during the three months ended March 31, 2009 and used cash of $3.5 million during the three months ended March 31, 2008. Net cash used in financing activities during the three months ended March 31, 2009 of $3.4 million was due primarily to approximately $3.6 million used for the repurchase of company shares, partially offset by $226,000 of proceeds from the issuance of common stock related to the exercise of stock options from our incentive stock plans. Net cash used in financing activities during the three months ended March 31, 2008 of $3.5 million was due primarily to approximately $3.7 million used for the repurchase of company shares, partially offset by $246,000 of proceeds from the issuance of common stock related to the exercise of stock options from our incentive stock plans.

This excerpt taken from the TRAD 10-Q filed Nov 6, 2008.

Liquidity and Capital Resources

As of September 30, 2008, we had cash and cash equivalents of approximately $102.2 million, of which $956,000 was restricted in support of a facility lease. On October 1, 2008, as a result of TradeStation Securities’ September 30, 2008 month-end calculation under Rule 15c3-3 of the Securities Exchange Act of 1934 (see below), $15.4 million was transferred to cash and cash equivalents from cash segregated in compliance with federal regulations. We had marketable securities of approximately $8.7 million at September 30, 2008, all of which can be tendered for sale upon notice (generally no longer than seven days) to the remarketing agent.

As of September 30, 2008, TradeStation Securities had: $590.4 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; receivables from brokerage customers of $75.8 million; and receivables from brokers, dealers, clearing organizations and clearing agents of $14.6 million. Client margin loans are demand loan obligations secured in part by cash and/or readily marketable securities. Receivables from and payables to brokers, dealers, clearing organizations and clearing agents represent primarily current open transactions which usually settle, or can be closed out, within a few business days.

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $664.7 million at September 30, 2008. Management believes that brokerage cash balances and operating earnings will continue to be the primary source of liquidity for TradeStation Securities in the future.

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1) and the CFTC’s financial requirement (Regulation 1.17). TradeStation Securities calculates net capital requirements using the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $250,000 and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in our net capital requirements. At September 30, 2008, TradeStation Securities had net capital of approximately $89.4 million (85.3% of aggregate debit items), which was approximately $87.3 million in excess of its net capital requirement of approximately $2.1 million.

In addition to net capital requirements, as a self-clearing broker-dealer TradeStation Securities is subject to DTCC, OCC, and other cash deposit requirements, which are and may continue to be large in relation to the company’s total liquid assets, and which may fluctuate significantly from time to time based upon the nature and size of TradeStation Securities’ active trader clients’ securities trading activity. Recently, the OCC significantly increased its cash deposit requirement for TradeStation Securities. As of September 30, 2008, we had interest-bearing security deposits and short-term treasury bills totaling $32.2 million with clearing organizations for the self-clearing of equities and standardized equity option trades.

As of September 30, 2008, we owed $485,000 to a third party service provider under a three-year maintenance agreement. We had no capital obligations as of September 30, 2008. A summary of our operating lease obligations and minimum purchase obligations (primarily related to back-office systems and telecommunications services) is as follows:

 

     Payments Due By Period

Contractual Obligations

   Total    2008    2009 - 2010    2011 - 2012

Operating lease obligations

   $ 11,185,672    $ 1,176,033    $ 6,012,824    $ 3,996,815

Purchase obligations

     4,831,180      1,223,310      3,357,870      250,000
                           

Total

   $ 16,016,852    $ 2,399,343    $ 9,370,694    $ 4,246,815
                           

We have no operating lease obligations or minimum purchase obligations extending beyond 2012.

In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for additional growth of our brokerage business (there being no assurance additional growth will occur), capital expenditures of approximately $1.7

 

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million for the remainder of 2008. These capital expenditures are primarily for the purchase of computer hardware and to support the growth of our data server farms and back-office systems to support our business. These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

In October 2006, our board of directors authorized, and we announced, the use of up to $60 million of our available and unrestricted cash, over a four-year period, to repurchase shares of our common stock in the open market or through privately-negotiated transactions. The stock repurchases are authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and ends on November 12, 2010. Pursuant to the buyback plan, $1.25 million of company cash during each full calendar month (and a prorated amount during the first and last months) of the four-year period (i.e., $15 million per 12-month period and $60 million for the four-year period) has been authorized to be used to purchase company shares at prevailing prices, subject to compliance with applicable securities laws, rules and regulations, including Rules 10b5-1 and 10b-18. The buyback plan does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended, extended or discontinued at any time without prior notice. For the three months ended September 30, 2008, we used approximately $3.75 million to purchase 369,555 shares of our common stock at an average price of $10.15 per share. During the nine months ended September 30, 2008, we used approximately $11.2 million to purchase 1,105,840 shares of our common stock at an average price of $10.17 per share. Since commencement of this stock buyback plan on November 13, 2006, through September 30, 2008, we used approximately $28.2 million to purchase 2,482,305 shares of our common stock at an average price of $11.38 per share. All shares purchased have been retired. See ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – (c) Share Repurchases in PART II – OTHER INFORMATION of this report.

We anticipate that our available cash resources and cash flows from operations will be sufficient to meet our presently anticipated working capital and capital expenditure requirements through at least the next twelve months.

Net cash provided by operating activities totaled approximately $10.6 million during the nine months ended September 30, 2008, as compared to net cash provided by operating activities of $19.5 million during the nine months ended September 30, 2007. Net cash provided by operating activities during the nine months ended September 30, 2008 of $10.6 million was due primarily to: net income as adjusted for non-cash items; increases in payables to brokerage customers, accrued expenses and accounts payable; and decreases in receivables from brokerage customers, receivables from brokers, dealers, clearing organizations and clearing agents and other assets. This was partially offset by increases in cash segregated in compliance with federal regulations and deposits with clearing organizations and decreases in payables to brokers, dealers and clearing organizations. Net cash provided by operating activities during the nine months ended September 30, 2007 of $19.5 million was due primarily to net income and adjustments for non-cash items, net increases in brokerage customer payables and increases in accrued expenses, partially offset by timing differences related to funding cash segregated in compliance with federal regulations ($9.3 million and $7.6 million were transferred from cash segregated in compliance with federal regulations to cash and cash equivalents on October 1, 2007, and January 3, 2007, respectively), net increases in brokerage customer receivables, and increases in deposits with clearing organizations and other assets.

Investing activities used cash of $1.9 million and $1.2 million during the nine months ended September 30, 2008 and 2007, respectively. Net cash used in investing activities during the nine months ended September 30, 2008 and 2007 was primarily for capital expenditures of $2.4 million and $1.8 million, respectively, consisting of computer hardware to support the growth of our data server farms.

Financing activities used cash of $10.0 million during the nine months ended September 30, 2008 and used cash of $9.6 million during the nine months ended September 30, 2007. Net cash used in financing activities during the nine months ended September 30, 2008 of $10.0 million was due primarily to approximately $11.2 million used for the repurchase of company shares, partially offset by $1.1 million of proceeds from the issuance of common stock related to the exercise of stock options from our incentive stock plans (and, to a lesser extent, common stock issued at a discount under the company’s employee stock purchase plan) and $244,000 related to excess tax benefits from stock option exercises under our incentive stock plans. Net cash used in financing activities during the

 

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nine months ended September 30, 2007 of $9.6 million was due primarily to $11.2 million used for the repurchase of our shares of common stock, partially offset by $1.0 million of proceeds from the issuance of common stock from the exercise of stock options (and, to a lesser extent, common stock issued at a discount under our employee stock purchase plan), and $617,000 of excess tax benefits from the exercise of stock options under our incentive stock plans.

This excerpt taken from the TRAD 10-Q filed Aug 7, 2008.

Liquidity and Capital Resources

As of June 30, 2008, we had cash and cash equivalents of approximately $126.7 million, of which $1.2 million was restricted in support of a facility lease. On July 2, 2008, as a result of TradeStation Securities’ June 30, 2008 month-end calculation under Rule 15c3-3 of the Securities Exchange Act of 1934 (see below), $14.5 million was transferred from cash and cash equivalents to cash segregated in compliance with federal regulations. We had marketable securities of approximately $8.9 million at June 30, 2008, all of which can be tendered for sale upon notice (generally no longer than seven days) to the remarketing agent.

As of June 30, 2008, TradeStation Securities had: $517.3 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; receivables from brokerage customers of $97.8 million; and receivables from brokers, dealers, clearing organizations and clearing agents of $22.4 million. Client margin loans are demand loan obligations secured in part by cash and/or readily marketable securities. Receivables from and payables to brokers, dealers, clearing organizations and clearing agents represent primarily current open transactions which usually settle, or can be closed out, within a few business days.

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $648.3 million at June 30, 2008. Management believes that brokerage cash balances and operating earnings will continue to be the primary source of liquidity for TradeStation Securities in the future.

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1) and the CFTC’s financial requirement (Regulation 1.17). TradeStation Securities calculates net capital requirements using the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $250,000 and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in our net capital requirements. At June 30, 2008, TradeStation Securities had net capital of approximately $84.7 million (64.6% of aggregate debit items), which was approximately $82.1 million in excess of its net capital requirement of approximately $2.6 million.

In addition to net capital requirements, as a self-clearing broker-dealer TradeStation Securities is subject to DTCC, OCC, and other cash deposit requirements, which are and may continue to be large in relation to the company’s total liquid assets, and which may fluctuate significantly from time to time based upon the nature and size of TradeStation Securities’ active trader clients’ securities trading activity. As of June 30, 2008, we had interest-bearing security deposits and short-term treasury bills totaling $25.0 million with clearing organizations for the self-clearing of equities and standardized equity option trades.

As of June 30, 2008, we have no long-term debt obligations or capital lease obligations. A summary of our operating lease obligations and minimum purchase obligations (primarily related to back-office systems and telecommunications services) is as follows:

 

     Payments Due By Period
     Total    2008    2009 - 2010    2011 - 2012

Contractual Obligations

           

Operating lease obligations

   $ 11,556,167    $ 2,065,669    $ 5,493,683    $ 3,996,815

Purchase obligations

     5,250,543      2,142,247      2,858,296      250,000
                           

Total

   $ 16,806,710    $ 4,207,916    $ 8,351,979    $ 4,246,815
                           

 

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We have no operating lease obligations or minimum purchase obligations extending beyond 2012.

In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for additional growth of our brokerage business (there being no assurance additional growth will occur), capital expenditures of approximately $2.5 million for the remainder of 2008. These capital expenditures are primarily for the purchase of computer hardware and to support the growth of our data server farms and back-office systems to support our business. These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

In October 2006, our board of directors authorized, and we announced, the use of up to $60 million of our available and unrestricted cash, over a four-year period, to repurchase shares of our common stock in the open market or through privately-negotiated transactions. The stock repurchases are authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and ends on November 12, 2010. Pursuant to the buyback plan, $1.25 million of company cash during each full calendar month (and a prorated amount during the first and last months) of the four-year period (i.e., $15 million per 12-month period and $60 million for the four-year period) has been authorized to be used to purchase company shares at prevailing prices, subject to compliance with applicable securities laws, rules and regulations, including Rules 10b5-1 and 10b-18. The buyback plan does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended, extended or discontinued at any time without prior notice. For the three months ended June 30, 2008, we used approximately $3.75 million to purchase 383,660 shares of our common stock at an average price of $9.77 per share. During the six months ended June 30, 2008, we used approximately $7.5 million to purchase 736,285 shares of our common stock at an average price of $10.18 per share. Since commencement of this stock buyback plan on November 13, 2006, through June 30, 2008, we used approximately $24.5 million to purchase 2,112,750 shares of our common stock at an average price of $11.59 per share. All shares purchased have been retired. See ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – (c) Share Repurchases in PART II – OTHER INFORMATION of this report.

We anticipate that our available cash resources and cash flows from operations will be sufficient to meet our presently anticipated working capital and capital expenditure requirements through at least the next twelve months.

Net cash provided by operating activities totaled approximately $31.4 million during the six months ended June 30, 2008, as compared to net cash provided by operating activities of $12.8 million during the six months ended June 30, 2007. Net cash provided by operating activities during the six months ended June 30, 2008 of $31.4 million was due primarily to: net income as adjusted for non-cash items; increases in payables to brokerage customers and in accounts payable; decreases in receivables from brokers, dealers, clearing organizations and clearing agents, and in other assets. This was partially offset by increases in cash segregated in compliance with federal regulations, receivables from brokerage customers, prepaid income taxes, and deposits with clearing organizations, and by decreases in payables to brokers, dealers and clearing organizations and accrued expenses. Net cash provided by operating activities during the six months ended June 30, 2007 of $12.8 million was due primarily to net income and adjustments for non-cash items, partially offset by timing differences related to a net increase in net brokerage customer assets and liabilities including timing differences related to funding cash segregated in compliance with federal regulations ($3.2 million transferred from cash segregated in compliance with federal regulations to cash and cash equivalents on July 2, 2007, as opposed to $7.6 million transferred to cash and cash equivalents from cash segregated in compliance with federal regulations on January 3, 2007), increase in other assets, and a decrease in accrued expenses and accounts payable.

 

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Investing activities used cash of $1.7 million and $1.3 million during the six months ended June 30, 2008 and 2007, respectively. Net cash used in investing activities during the six months ended June 30, 2008 and 2007 was primarily for capital expenditures consisting of computer hardware to support the growth of our data server farms.

Financing activities used cash of $6.8 million during the six months ended June 30, 2008 and used cash of $6.2 million during the six months ended June 30, 2007. Net cash used in financing activities during the six months ended June 30, 2008 of $6.8 million was due primarily to approximately $7.5 million used for the repurchase of company shares, partially offset by $509,000 of proceeds from the issuance of common stock related to the exercise of stock options from our incentive stock plans (and, to a lesser extent, common stock issued at a discount under the company’s employee stock purchase plan) and $171,000 related to excess tax benefits from stock option exercises under our incentive stock plans. Net cash used in financing activities during the six months ended June 30, 2007 of $6.2 million was due primarily to $7.5 million used for the repurchase of our shares of common stock, partially offset by $798,000 of proceeds from the issuance of common stock from the exercise of stock options (and, to a lesser extent, common stock issued at a discount under our employee stock purchase plan), and $468,000 of excess tax benefits from the exercise of stock options under our incentive stock plans.

This excerpt taken from the TRAD 10-Q filed May 9, 2008.

Liquidity and Capital Resources

As of March 31, 2008, we had cash and cash equivalents of approximately $105.5 million, of which $1.2 million was restricted in support of a facility lease. On April 1, 2008, as a result of TradeStation Securities’ March 31, 2008 month-end calculation under Rule 15c3-3 of the Securities Exchange Act of 1934 (see below), $3.5 million was transferred from cash segregated in compliance with federal regulations to cash and cash equivalents. We had marketable securities of approximately $8.9 million at March 31, 2008, the majority of which can be tendered for sale upon notice (generally no longer than seven days) to the remarketing agent.

As of March 31, 2008, TradeStation Securities had: $505.2 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; receivables from brokerage customers of $86.0 million; and receivables from brokers, dealers, clearing organizations and clearing agents of $20.3 million. Client margin loans are demand loan obligations secured in part by cash and/or readily marketable securities. Receivables from and payables to brokers, dealers, clearing organizations and clearing agents represent primarily current open transactions which usually settle, or can be closed out, within a few business days.

 

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Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $599.9 million at March 31, 2008. Management believes that brokerage cash balances and operating earnings will continue to be the primary source of liquidity for TradeStation Securities in the future.

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1) and the CFTC’s financial requirement (Regulation 1.17). TradeStation Securities calculates net capital requirements using the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $250,000 and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in our net capital requirements. At March 31, 2008, TradeStation Securities had net capital of approximately $83.0 million (73.8% of aggregate debit items), which was approximately $80.8 million in excess of its required net capital of approximately $2.2 million.

In addition to net capital requirements, as a self-clearing broker-dealer TradeStation Securities is subject to DTCC, OCC, and other cash deposit requirements, which are and may continue to be large in relation to the company’s total liquid assets, and which may fluctuate significantly from time to time based upon the nature and size of TradeStation Securities’ active trader clients’ securities trading activity. As of March 31, 2008, we had interest-bearing security deposits and short-term treasury bills totaling $24.0 million with clearing organizations for the self-clearing of equities and standardized equity option trades.

As of March 31, 2008, we have no long-term debt obligations or capital lease obligations. A summary of our operating lease obligations and minimum purchase obligations (primarily related to back-office systems and telecommunications services) is as follows:

 

Contractual Obligations

   Payments Due By Period
   Total    2008    2009 - 2010    2011 - 2012

Operating lease obligations

   $ 12,737,538    $ 3,284,300    $ 5,456,423    $ 3,996,815

Purchase obligations

     5,535,841      2,898,100      2,387,741      250,000
                           

Total

   $ 18,273,379    $ 6,182,400    $ 7,844,164    $ 4,246,815
                           

We have no operating lease obligations or minimum purchase obligations extending beyond 2012.

In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for additional growth of our brokerage business (there being no assurance additional growth will occur), capital expenditures of approximately $3.0 million for the remainder of 2008. These capital expenditures are primarily for the purchase of computer hardware and to support the growth of our data server farms and back-office systems to support our business. These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

In October 2006, our board of directors authorized, and we announced, the use of up to $60 million of our available and unrestricted cash, over a four-year period, to repurchase shares of our common stock in the open market or through privately-negotiated transactions. The stock repurchases are authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and ends on November 12, 2010. Pursuant to the buy back plan, $1.25 million of company cash during each full calendar month (and a prorated amount during the first and last months) of the four-year period (i.e., $15 million per 12-month period and $60 million for the four-year period) has been authorized to be used to purchase company shares at prevailing prices, subject to compliance with applicable securities laws, rules and regulations, including Rules 10b5-1 and 10b-18. The buy back plan does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended, extended or discontinued at any time without prior notice. For the three months ended March 31, 2008, we used approximately $3.75 million to purchase 352,625 shares of our common stock at an average price of $10.63 per share. All shares purchased have been retired. See ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – (c) Share Repurchases in PART II – OTHER INFORMATION of this report.

 

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We anticipate that our available cash resources and cash flows from operations will be sufficient to meet our presently anticipated working capital and capital expenditure requirements through at least the next twelve months.

Net cash provided by operating activities totaled approximately $6.1 million during the three months ended March 31, 2008, as compared to net cash provided by operating activities of $23.6 million during the three months ended March 31, 2007. Net cash provided by operating activities during the three months ended March 31, 2008 of $6.1 million was due primarily to net income as adjusted for non-cash items, increases in payables to brokerage customers, accounts payable and accrued expenses, and decreases in receivables from brokers, dealers, clearing organizations and clearing agents, receivables from brokerage customers and other assets, partially offset by an increase in cash segregated in compliance with federal regulations and, to a lesser extent, a decrease in payables to brokers, dealers and clearing organizations. Net cash provided by operating activities during the three months ended March 31, 2007 of $23.6 million was due primarily to timing differences related to a decrease in net brokerage customer assets and liabilities including timing differences related to funding cash segregated in compliance with federal regulations ($1.8 million transferred to cash segregated in compliance with federal regulations from cash and cash equivalents on April 3, 2007, as opposed to $7.6 million transferred to cash and cash equivalents from cash segregated in compliance with federal regulations on January 3, 2007), net income and adjustments for non-cash items, and an increase in accrued expenses, partially offset by an increase in other assets.

Investing activities used cash of $857,000 and $663,000 during the three months ended March 31, 2008 and 2007, respectively. Net cash used in investing activities during the three months ended March 31, 2008 and 2007 was primarily for capital expenditures consisting of computer hardware to support the growth of our data server farms.

Financing activities used cash of $3.5 million during the three months ended March 31, 2008 and used cash of $3.0 million during the three months ended March 31, 2007. Net cash used in financing activities during the three months ended March 31, 2008 of $3.5 million was due primarily to approximately $3.7 million used for the repurchase of company shares, partially offset by $246,000 of proceeds from the issuance of common stock related to the exercise of stock options from our incentive stock plans. Net cash used in financing activities during the three months ended March 31, 2007 of $3.0 million was due primarily to approximately $3.7 million used for the repurchase of company shares, partially offset by proceeds from the issuance of common stock of approximately $444,000 related to the exercise of stock options from our incentive stock plans and excess tax benefits from the exercise of stock options of approximately $344,000.

This excerpt taken from the TRAD 10-Q filed Nov 7, 2007.

Liquidity and Capital Resources

As of September 30, 2007, we had cash and cash equivalents of approximately $83.0 million, of which $1.2 million was restricted in support of a facility lease. On October 1, 2007, as a result of TradeStation Securities’ September 30, 2007 month-end calculation under Rule 15c3-3 of the Securities Exchange Act of 1934 (see below), $9.3 million was transferred from cash segregated in compliance with federal regulations to cash and cash equivalents. We had marketable securities of approximately $9.0 million at September 30, 2007, the majority of which can be tendered for sale upon notice (generally no longer than seven days) to the remarketing agent.

As of September 30, 2007, TradeStation Securities had: $450.9 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; receivables from brokerage customers of $90.4 million; and receivables from brokers, dealers, clearing organizations and clearing agents of $28.6 million. Client margin loans are demand loan obligations secured in part by cash and/or readily marketable securities. Receivables from and payables to brokers, dealers, clearing organizations and clearing agents represent primarily current open transactions which usually settle, or can be closed out, within a few business days.

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $551.7 million at September 30, 2007. Management believes that brokerage cash balances and operating earnings will continue to be the primary source of liquidity for TradeStation Securities in the future.

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1) and the CFTC’s financial requirement (Regulation 1.17). TradeStation Securities calculates net capital requirements using the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $250,000

 

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and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in our net capital requirements. At September 30, 2007, TradeStation Securities had net capital of approximately $72.2 million (58.0% of aggregate debit items), which was approximately $69.7 million in excess of its required net capital of approximately $2.5 million.

In addition to net capital requirements, as a self-clearing broker-dealer TradeStation Securities is subject to DTCC, OCC, and other cash deposit requirements, which are and may continue to be large in relation to the company’s total liquid assets, and which may fluctuate significantly from time to time based upon the nature and size of TradeStation Securities’ active trader clients’ securities trading activity. As of September 30, 2007, we had interest-bearing security deposits and short-term treasury bills totaling $22.3 million with clearing organizations for the self-clearing of equities and standardized equity option trades.

As of September 30, 2007, we have no long-term debt obligations or capital lease obligations. A summary of our operating lease obligations and minimum purchase obligations (primarily related to back-office systems and telecommunications services) is as follows:

 

     Payments Due By Period

Contractual Obligations

   Total    2007    2008 - 2009    2010 - 2011    Thereafter

Operating lease obligations

   $ 12,460,078    $ 1,010,334    $ 5,204,794    $ 4,737,350    $ 1,507,600

Purchase obligations

     6,574,488      1,320,909      4,402,169      751,410      100,000
                                  

Total

   $ 19,034,566    $ 2,331,243    $ 9,606,963    $ 5,488,760    $ 1,607,600
                                  

In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for additional growth of our brokerage business (there being no assurance additional growth will occur), capital expenditures of approximately $1.0 million for the remainder of 2007. These capital expenditures are primarily to support the growth of our data server farms and back-office systems to support our business. These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

In October 2006, our board of directors authorized, and we announced, the use of up to $60 million of our available and unrestricted cash, over a four-year period, to repurchase shares of our common stock in the open market or through privately-negotiated transactions. The stock repurchases are authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and ends on November 12, 2010. Pursuant to the buy back plan, $1.25 million of company cash during each full calendar month (and a prorated amount during the first and last months) of the four-year period (i.e., $15 million per 12-month period and $60 million for the four-year period) has been authorized to be used to purchase company shares at prevailing prices, subject to compliance with applicable securities laws, rules and regulations, including Rules 10b5-1 and 10b-18. The buy back plan does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended, extended or discontinued at any time without prior notice. For the three months ended September 30, 2007, we used approximately $3.75 million to purchase 334,840 shares of our common stock at an average price of $11.20 per share. For the nine months ended September 30, 2007, we used approximately $11.2 million to purchase 934,065 shares of our common stock at an average price of $12.04 per share. All shares purchased have been retired. See ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – (c) Share Repurchases in PART II – OTHER INFORMATION of this report.

We anticipate that our available cash resources and cash flows from operations will be sufficient to meet our presently anticipated working capital and capital expenditure requirements through at least the next twelve months.

 

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Net cash provided by operating activities totaled approximately $19.5 million during the nine months ended September 30, 2007, as compared to net cash provided by operating activities of $5.9 million during the nine months ended September 30, 2006. Net cash provided by operating activities during the nine months ended September 30, 2007 of $19.5 million was due primarily to net income and adjustments for non-cash items, net increases in brokerage customer payables and increases in accrued expenses, partially offset by timing differences related to funding cash segregated in compliance with federal regulations ($9.3 million and $7.6 million were transferred from cash segregated in compliance with federal regulations to cash and cash equivalents on October 1, 2007, and January 3, 2007, respectively), net increases in brokerage customer receivables, and increases in deposits with clearing organizations and other assets. Net cash provided by operating activities during the nine months ended September 30, 2006 of $5.9 million was due primarily to net income and adjustments for non-cash items, net increases in brokerage customer payables and increases in accrued expenses, partially offset by timing differences related to cash segregated in compliance with federal regulations ($11.6 million and $9.5 million were transferred from cash segregated in compliance with federal regulations to cash and cash equivalents on October 3, 2006, and January 4, 2006, respectively), net increases in brokerage customer receivables, increases in prepaid income taxes, deposits with clearing organizations, and other assets, and decreases in accounts payable.

Investing activities used cash of $1.2 million and $15.7 million during the nine months ended September 30, 2007 and 2006, respectively. Net cash used in investing activities during the nine months ended September 30, 2007 of $1.2 million was primarily for capital expenditures of $1.8 million (mostly computer hardware to support the growth of our data server farms). During the nine months ended September 30, 2006, net cash used in investing activities was primarily for the purchase of marketable securities of $9.3 million and for capital expenditures (mostly computer hardware to support the growth of our data server farms and, to a lesser extent, fixed assets and leasehold improvements related to our Chicago office and an upgrade to our telephone and recording systems) of $6.6 million.

Financing activities used cash of $9.6 million during the nine months ended September 30, 2007 and provided cash of $4.6 million during the nine months ended September 30, 2006. Net cash used in financing activities during the nine months ended September 30, 2007 of $9.6 million was due primarily to $11.2 million used for the repurchase of company shares, partially offset by $1.0 million of proceeds from the issuance of common stock from the exercise of stock options (and, to a lesser extent, common stock issued at a discount under the company’s employee stock purchase plan), and $617,000 of excess tax benefits from the exercise of stock options under our incentive stock plans. Net cash provided by financing activities during the nine months ended September 30, 2006 of $4.6 million was due primarily to $2.3 million of proceeds from the issuance of common stock from the exercise of stock options (and, to a lesser extent, common stock issued at a discount under the company’s employee stock purchase plan), and $2.3 million of excess tax benefits from the exercise of stock options under our incentive stock plans.

This excerpt taken from the TRAD 10-Q filed Aug 3, 2007.

Liquidity and Capital Resources

As of June 30, 2007, we had cash and cash equivalents of approximately $79.8 million, of which $1.4 million was restricted in support of a facility lease. On July 2, 2007, as a result of TradeStation Securities’ June 30, 2007 month-end calculation under Rule 15c3-3 of the Securities Exchange Act of 1934 (see below), $3.2 million was transferred from cash segregated in compliance with federal regulations to cash and cash equivalents. We had marketable securities of approximately $9.3 million at June 30, 2007, the majority of which can be tendered for sale upon notice (generally no longer than seven days) to the remarketing agent.

As of June 30, 2007, TradeStation Securities had: $413.4 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; receivables from brokerage customers of $95.4 million; and receivables from brokers, dealers, clearing organizations and clearing agents of $29.8 million. Client margin loans are demand loan obligations secured in part by cash and/or readily marketable securities. Receivables from and payables to brokers, dealers, clearing organizations and clearing agents represent primarily current open transactions which usually settle, or can be closed out, within a few business days.

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $525.2 million at June 30, 2007. Management believes that brokerage cash balances and operating earnings will continue to be the primary source of liquidity for TradeStation Securities in the future.

TradeStation Securities is subject to the net capital requirements of the SEC’s Uniform Net Capital Rule (Rule 15c3-1) and the CFTC’s financial requirement (Regulation 1.17). TradeStation Securities calculates net capital requirements using the “alternative method,” which requires the maintenance of minimum net capital, as defined by the rules, equal to the greater of (i) $250,000 and (ii) 2.0% of aggregate customer debit balances. Customer debit items are a function of customer margin receivables and may fluctuate significantly, resulting in a significant fluctuation in our net capital requirements. At June 30, 2007, TradeStation Securities had net capital of approximately $65.2 million (49.0% of aggregate debit items), which was approximately $62.5 million in excess of its required net capital of approximately $2.7 million.

In addition to net capital requirements, as a self-clearing broker-dealer TradeStation Securities is subject to DTCC, OCC, and other cash deposit requirements, which are and may continue to be large in relation to TradeStation Group’s total liquid assets, and which may fluctuate significantly from time to time based upon the nature and size of TradeStation Securities’ active trader clients’ securities trading activity. As of June 30, 2007, we had interest-bearing security deposits and short-term treasury bills totaling $20.3 million with clearing organizations for the self-clearing of equities and standardized equity option trades.

As of June 30, 2007, we have no long-term debt obligations or capital lease obligations. A summary of our operating lease obligations and minimum purchase obligations (related to back-office systems, telecommunications services and advertising) is as follows:

 

     Payments Due By Period

Contractual Obligations

   Total    2007    2008 - 2009    2010 - 2011    Thereafter

Operating lease obligations

   $ 12,566,454    $ 1,770,376    $ 4,928,129    $ 4,447,135    $ 1,420,814

Purchase obligations

     7,464,178      2,287,479      4,325,289      751,410      100,000
                                  

Total

   $ 20,030,632    $ 4,057,855    $ 9,253,418    $ 5,198,545    $ 1,520,814
                                  

 

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In addition to the purchase obligations set forth in the table above, we currently anticipate, in order to provide for additional growth of our brokerage business (there being no assurance additional growth will occur), capital expenditures of approximately $2.1 million for the remainder of 2007. These capital expenditures are primarily to support the growth of our data server farms and back-office systems to support our business. These expenditures are expected to be funded through operating cash flows, capital leases, or a combination of the two.

In October 2006, our board of directors authorized, and we announced, the use of up to $60 million of our available and unrestricted cash, over a four-year period, to repurchase shares of our common stock in the open market or through privately-negotiated transactions. The stock repurchases are authorized to be made pursuant to a Rule 10b5-1 plan. The four-year period commenced on November 13, 2006 and ends on November 12, 2010. Pursuant to the buy back plan, $1.25 million of Company cash during each full calendar month (and a prorated amount during the first and last months) of the four-year period (i.e., $15 million per 12-month period and $60 million for the four-year period) has been authorized to be used to purchase Company shares at prevailing prices, subject to compliance with applicable securities laws, rules and regulations, including Rules 10b5-1 and 10b-18. The buy back plan does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended, extended or discontinued at any time without prior notice. For the three months ended June 30, 2007, we used approximately $3.75 million to purchase 305,470 shares of our common stock at an average price of $12.27 per share. For the six months ended June 30, 2007, we used approximately $7.5 million to purchase 599,225 shares of our common stock at an average price of $12.51 per share. All shares purchased have been retired. See Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – (c) Share Repurchases in Part II – OTHER INFORMATION of this report.

We anticipate that our available cash resources and cash flows from operations will be sufficient to meet our presently anticipated working capital and capital expenditure requirements through at least the next twelve months.

Net cash provided by operating activities totaled approximately $12.8 million during the six months ended June 30, 2007, as compared to net cash provided by operating activities of $5.1 million during the six months ended June 30, 2006. Net cash provided by operating activities during the six months ended June 30, 2007 of $12.8 million was due primarily to net income and adjustments for non-cash items, partially offset by timing differences related to a net increase in net brokerage customer assets and liabilities including timing differences related to funding cash segregated in compliance with federal regulations ($3.2 million transferred from cash segregated in compliance with federal regulations to cash and cash equivalents on July 2, 2007, as opposed to $7.6 million transferred to cash and cash equivalents from cash segregated in compliance with federal regulations on January 3, 2007), increase in other assets, and a decrease in accrued expenses and accounts payable. Net cash provided by operating activities during the six months ended June 30, 2006 of $5.1 million was due primarily to net income and adjustments for non-cash items, partially offset by timing differences related to an increase in net brokerage customer assets and liabilities, including timing differences related to funding cash segregated in compliance with federal regulations, and, to a lesser extent, increases in deposits with clearing organizations and clearing agents and increases in other assets.

 

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Investing activities used cash of $1.3 million and $2.8 million during the six months ended June 30, 2007 and 2006, respectively. Investing activities in both years were primarily for capital expenditures (mostly computer hardware to support the growth of our data server farms).

Financing activities used cash of $6.2 million during the six months ended June 30, 2007 and provided cash of $3.8 million during the six months ended June 30, 2006. Net cash used in financing activities during the six months ended June 30, 2007 of $6.2 million was due primarily to $7.5 million used for the repurchase of Company shares, partially offset by $798,000 of proceeds from the issuance of common stock from the exercise of stock options (and, to a lesser extent, common stock issued at a discount under the Company’s employee stock purchase plan), and $468,000 of excess tax benefits from the exercise of stock options under our incentive stock plans. Net cash provided by financing activities during the six months ended June 30, 2006 of $3.8 million was due primarily to $1.9 million of proceeds from the issuance of common stock from the exercise of stock options (and, to a lesser extent, common stock issued at a discount under the Company’s employee stock purchase plan), and $1.9 million of excess tax benefits from the exercise of stock options under our incentive stock plans.

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