The International Securities Exchange Holdings, Inc. (NYSE:ISE)
today reported that net income for the quarter ended June 30, 2007
increased 15.9% to $15.9 million, or $0.39 per share on a fully
diluted basis. This compares to $13.7 million, or $0.35 per share
on a fully diluted basis, in the same period in 2006. Included in
the results for the quarter are expenses of $2.1 million, or $0.06
per diluted share, related to the pending merger with Eurex.
Excluding these expenses, proforma net income for the quarter
increased to $18.0 million, or $0.45 per share on a fully diluted
basis. Total consolidated revenues for the quarter increased 15.8%
to $59.2 million from $51.1 million in the prior year. Gross
margin, or total revenues less cost of revenues, increased 23.8% to
$55.8 million from $45.1 million in the second quarter of 2006.
Included in our consolidated results are revenues and expenses from
the ISE Stock Exchange, our stock exchange business segment. Total
revenues for the quarter in our options exchange business segment
increased 13.4% to $58.0 million. Gross margin, or total revenues
less cost of revenues, increased 22.4% to $55.2 million. The
average daily volume of equity and index options contracts traded
increased 20.7% to 2.9 million contracts. Our stock exchange
business segment recorded gross margin of $0.9 million, interest
income of $0.4 million, total expenses of $4.0 million and minority
interest of $2.7 million. Our stock exchange currently has no
impact on our net income as losses are allocated solely to the
minority owners. Please refer to the section titled �Segment
Information� for further information. �We are pleased to report our
sixth consecutive quarter of record financial results for our
options exchange business segment,� said David Krell, ISE�s
President and Chief Executive Officer. �Our exceptional growth has
been fueled by the increasing demand for our equity options and
index options products which are integral components of investors�
risk management and profit enhancement strategies. Our successful
track record in developing and launching new and innovative
products, for institutional and retail investors alike, has
strengthened our leadership position in the options industry,� said
Krell. �On July 27, 2007, our stockholders overwhelmingly approved
our merger with Eurex. Once we have secured the remaining
regulatory approvals required to finalize the merger, we will then
join forces and leverage the strengths of both organizations to
develop new and innovative products and expand our global
footprint,� concluded Krell. �The management teams of both
organizations are excited about the growth opportunities that will
result from our pending merger,� said Gary Katz, ISE�s Chief
Operating Officer. �We look forward to jointly building a global
organization that is the industry leader across multiple asset
classes. Our shared values and entrepreneurial cultures bode well
for the future success of our company. We are very anxious to get
started on realizing the opportunities that we have identified as
we begin our partnership with Eurex.� Second Quarter Results �
Options Exchange Income Statement Revenues Transaction fee revenues
increased to $46.4 million from $40.7 million last year due to
continued strong growth in trading volumes. Average daily trading
volume increased to 2.9 million contracts from 2.4 million
contracts last year. Other member fees increased to $7.1 million
from $6.3 million in the same period last year due to an increase
in connectivity fees which are charged to market makers based on
quote capacity usage. Market data revenues increased to $4.4
million from $4.1 million in the prior year quarter due to our
increased pro-rata share of OPRA revenues, based on our higher
market share of trades, as well as increased OPRA profitability.
Cost of Revenues, Gross Margin Cost of revenues for the second
quarter decreased to $2.8 million from $6.0 million in the prior
year quarter due to a decrease in licensing fees. Gross margin
increased to $55.2 million from $45.1 million in the second quarter
of 2006. Expenses Total expenses for the second quarter of 2007
increased to $28.5 million from $22.2 million in the second quarter
of 2006. Included in our options exchange segment are corporate
overhead costs, including merger related advisory expenses of $2.1
million. Total direct expenses increased to $26.4 million from
$22.1 million in the same period last year. Compensation and
benefits expenses increased to $13.7 million from $11.4 million in
the second quarter last year due to higher incentive compensation
expenses resulting from increased profitability and increased
headcount. Technology and communications expenses increased to $4.3
million from $3.7 million due to increased capacity costs
attributable to increased quoting activity and enhancements for our
trading system. Professional fees increased to $1.8 million from
$1.4 million due to higher legal costs. Depreciation and
amortization increased to $2.7 million from $1.8 million primarily
due to a $0.9 million, or $0.01 per diluted share (net of tax),
asset impairment charge related to our decision to suspend
operations of the Longitude trading platform. We suspended
conducting auctions on the Longitude platform in June, and we are
evaluating the prospects of new products that lend themselves to
the pari-mutuel principles that form the core of our Alternative
Markets business. Other expenses increased to $1.9 million from
$1.5 million last year principally due to settlement of a state tax
audit. Income, Margins and Taxes Pre-tax income for the second
quarter of 2007 increased to $29.7 million from $ 24.7 million last
year.�Interest and investment income increased to $3.1 million from
$1.5 million primarily due to interest income from higher cash
balances. Our pre-tax margin for the options exchange segment of
our business in the second quarter was 53.8%. Our proforma pre-tax
margin was 57.7%, after adjusting for expenses related to our
pending merger with Eurex. Our tax rate increased to 46.5% from
44.1% in the second quarter of 2006 due to non-deductible merger
related costs. Net income for the second quarter increased to $15.9
million from $13.8 million in the prior year quarter. Excluding
costs related to the pending merger with Eurex, proforma pre-tax
income in the options segment of our business increased to $31.9
million and net income increased to $18.0 million. Year-to-Date
Results For the first six months of 2007, average daily volume of
equity and index options increased to 2.8 million contracts traded
as compared to 2.4 million equity and index options contracts
traded in the prior year. Revenues in the options segment increased
to $113.9 million from $98.7 million last year. Gross margin
increased to $105.6 million from $86.7 million and year-to-date
pre-tax margin was 56.1%. Net income increased to $32.6 million
from $26.7 million and earnings per share on a fully diluted basis
were $0.81 as compared to $0.68 last year. Excluding costs related
to our pending merger with Eurex, year-to-date proforma pre-tax
income in the options segment of our business increased to $61.4
million and our pre-tax margin increased to 58.1%. Net income
increased to $34.7 million and fully diluted earnings per share
were $0.86. Consolidated Balance Sheet As of June 30, 2007, ISE had
cash and cash equivalents and investments in securities of $301.6
million, total assets of $421.9 million, and stockholders' equity
of $293.1 million. The Company recorded minority interest of $30.6
million as of June 30, 2007, which represents interests of minority
shareholders in the ISE Stock Exchange. Included in cash and cash
equivalents is $32.5 million from the ISE Stock Exchange which is
reserved for its use. There were approximately 38.3 million shares
of common stock outstanding. Second Quarter Business Highlights ISE
was the largest equity options exchange for the second quarter of
2007 based on total equity options trading. On April 2, 2007, ISE
announced that David Krell, President and Chief Executive Officer,
will retire on January 1, 2008. Upon his retirement, Mr. Krell will
remain on ISE's Board of Directors, pending required approvals.
Gary Katz, ISE's Chief Operating Officer, will succeed Mr. Krell as
President and Chief Executive Officer. On April 17, 2007, ISE
successfully launched trading in ISE FX Options� in four currency
pairs: U.S. Dollar/Euro (Symbol: EUI), U.S. Dollar/British Pound
(Symbol: BPX), U.S. Dollar/Japanese Yen (Symbol: YUK), and U.S.
Dollar/Canadian Dollar (Symbol: CDD). On April 30, 2007, Eurex and
ISE announced a definitive agreement under which Eurex will acquire
ISE for approximately $2.8 billion in cash, or $67.50 per share.
Upon regulatory approvals by the U.S. Securities and Exchange
Commission and other customary closing conditions, the transaction
will create the leading transatlantic derivatives marketplace. On
July 27, 2007, ISE�s shareholders voted to adopt the merger
agreement with Eurex. As a result, Eurex will acquire ISE as its
indirect wholly-owned subsidiary. The merger is expected to close
in the fourth quarter of 2007. On May 8, 2007, ISE announced the
addition of four new board members. Joseph Stefanelli and Kenneth
Vecchione joined the Board of Directors of International Securities
Exchange Holdings, Inc. and International Securities Exchange, LLC
(ISE LLC). Leonard Ellis and Randy Frederick joined the ISE LLC
Board as representatives of ISE LLC's Competitive Market Makers
(CMMs) and Electronic Access Members (EAMs), respectively. The new
board members replaced Ivers Riley, Mark Kritzman, James Harkness
and William Porter, who retired from their respective Boards due to
term limits. On May 8, 2007, ISE�s Board of Directors declared a
quarterly dividend of $0.05 per outstanding share of Class A Common
Stock. The dividend was paid on June 29, 2007 to holders of record
as of the close of business on June 22, 2007. On May 18, 2007, ISE
co-sponsored the NYU conference �Derivatives 2007: New Ideas, New
Instruments, New Markets� where leading academics and industry
practitioners examined the links between modern derivatives theory
and market practice. On June 25, 2007, ISE launched the ISE
Electronic Trading Index�, which established a unique benchmark of
the marketplaces deemed to be most closely associated with
electronic trading in the United States. Additionally, ISE listed
cash-settled options based on this new index under the symbol DMA.
Timber Hill LLC serves as the Primary Market Maker. On June 26,
2007, ISE introduced enhancements to PrecISE Trade�, its front-end
trading application for broker-dealers to access ISE's options
market. PrecISE now offers Away Market Routing that enables traders
to access the entire options market through one workstation.
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC. CONSOLIDATED
STATEMENTS OF INCOME (in thousands, except per share amounts)
(unaudited) � Three Months Ended Six Months Ended June 30, June 30,
2007 2006 2007 2006 � Revenues: Transaction fees $ 47,558 $ 40,682
$ 92,036 $ 77,549 Member fees and other 6,887 6,330 14,004 11,952
Market data � 4,719 � 4,095 � 9,528 � 9,150 Total revenues 59,164
51,107 115,568 98,651 � Cost of revenues: Activity remittance fees
2,533 3,706 6,612 8,051 License fees, liquidity rebates, and
brokerage fees � 841 � 2,321 � 2,670 � 3,946 Total cost of revenues
3,374 6,027 9,282 11,997 � Gross margin 55,790 45,080 106,286
86,654 � Expenses: Compensation and benefits 16,301 11,476 31,372
22,844 Technology and communications 4,558 3,739 9,121 7,257
Occupancy 1,579 1,396 3,040 2,714 Professional fees 2,141 1,443
4,221 3,071 Marketing and business development 763 816 1,547 1,438
Depreciation and amortization 2,831 1,839 4,697 3,356 Other � 1,965
� 1,538 � 3,382 � 2,571 Total direct expenses 30,138 22,247 57,380
43,251 Merger related costs 2,149 - 2,149 Reorganization � - � 105
� - � 129 Total expenses 32,287 22,352 59,529 43,380 � Operating
income 23,503 22,728 46,757 43,274 � Interest and investment income
3,494 1,535 6,727 3,146 Minority interest � 2,714 � 272 � 5,754 �
272 Income before provision for income taxes 29,711 24,535 59,238
46,692 � Provision for income taxes � 13,828 � 10,832 � 26,671 �
20,571 Net income $ 15,883 $ 13,703 $ 32,567 $ 26,121 � Earnings
per share: Basic $ 0.41 $ 0.37 $ 0.85 $ 0.70 Diluted $ 0.39 $ 0.35
$ 0.81 $ 0.66 � Weighted average number of shares outstanding:
Basic 38,279 37,380 38,208 37,242 Diluted 40,243 39,477 40,201
39,411 INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands) �
June 30, 2007 December 31, 2006 (unaudited) ASSETS Current assets:
Cash and cash equivalents $ 230,476 $ 200,015 Accounts receivable,
net 44,538 34,815 Income tax receivable 14,043 9,644 Securities
owned 41,558 60,090 Other current assets � 5,007 � 2,415 Total
current assets 335,622 306,979 � Securities owned 29,538 32,724
Fixed assets, net 30,749 29,009 Deferred tax asset, net 21,406
21,932 Other assets � 4,625 � 5,781 Total assets � 421,940 �
396,425 � LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
LIABILITIES Current liabilities: Accounts payable and accrued
expenses 20,511 19,430 Compensation and benefits payable 8,662
12,453 Deferred revenue 5,797 5,129 Payment for order flow payable
� 11,717 � 10,262 Total current liabilities 46,687 47,274 �
Deferred revenue 48,396 50,954 Other liabilities � 3,200 � 3,609
Total liabilities 98,283 101,837 � Minority interest 30,569 36,323
� � STOCKHOLDERS' EQUITY � 293,088 � 258,265 � � Total liabilities,
minority interest and stockholders' equity $ 421,940 $ 396,425
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (In thousands) (unaudited) � Six Months
Ended June 30, 2007 2006 � Cash flows from operating activities:
Net income 32,567 26,121 Adjustments to reconcile net income to
cash provided by operating activities: Depreciation and
amortization 3,748 3,172 Asset impairment 949 184 Minority interest
(5,754 ) 2,610 Stock based compensation 5,487 3,933 Deferred taxes
526 (32 ) Unrealized gain on securities owned and available for
sale securities, net (282 ) (159 ) Excess tax benefits from
share-based payment arrangements (4,076 ) (6,500 ) �
(Increase)/decrease in operating assets: Accounts receivable, net
(9,723 ) (4,209 ) Income tax receivable (323 ) 3,581 Securities
owned 3,779 2,486 Other assets (2,601 ) (787 ) Increase/(decrease)
in operating liabilities: Accounts payable and accrued expenses
1,081 3,612 Compensation and benefits payable (3,791 ) (1,803 )
Income tax payable - (372 ) Deferred revenue (1,890 ) 1,086 Payment
for order flow payable 1,455 (3,033 ) Other liabilities (409 ) (370
) Net cash provided by operating activities 20,743 � 29,520 � �
Cash flows from investing activities: Purchase of fixed assets
(5,272 ) (2,312 ) Purchase of intangible assets - (2,234 )
Investment in ISE Stock Exchange, LLC - (1,760 ) Purchase of
available for sale securities (10,733 ) - Maturities of available
for sale securities 28,938 � 4,973 � Net cash provided by/(used in)
by investing activities 12,933 � (1,333 ) � Cash flows from
financing activities: Dividend (3,886 ) (3,797 ) Proceeds from
options exercised 794 588 Share repurchase (4,199 ) (1,971 ) Excess
tax benefits from share-based payment arrangements 4,076 � 6,500 �
Net cash provided by/(used in) financing activities (3,215 ) 1,320
� � Increase in cash and cash equivalents 30,461 29,507 Cash and
cash equivalents, beginning of period 200,015 � 170,927 � Cash and
cash equivalents, end of period $230,476 � $200,434 � INTERNATIONAL
SECURITIES EXCHANGE HOLDINGS, INC. KEY STATISTICAL INFORMATION -
OPTIONS BUSINESS � Three Months Ended Six Months Ended June 30,
June 30, 2007 2006 2007 2006 Trading Days � 61 � 63 � 124 � 125
Average daily trading volume (1) (2) Equity and Index Options Total
U.S. industry equity and index options traded (in thousands) 10,313
8,290 10,156 8,061 Our equity and index options traded (in
thousands) 2,907 2,408 2,842 2,396 Our market share of equity and
index options traded 28.2 % 29.0 % 28.0 % 29.7 % Equity Options
Total U.S. industry equity options traded (in thousands) 9,310
7,460 9,174 7,332 Our equity options traded (in thousands) 2,858
2,372 2,794 2,364 Our market share of equity options traded 30.7 %
31.8 % 30.5 % 32.2 % Index Options Total U.S. industry index
options traded (in thousands) 1,003 830 980 729 Our index options
traded (in thousands) 49 36 47 32 Our market share of index options
traded � 4.9 % � 4.3 % � 4.8 % � 4.4 % Our member total trading
volume (sides, in thousands): (3) Account type: Customer 152,648
124,486 294,268 251,788 Firm proprietary 53,509 40,365 100,598
72,597 Market maker 160,325 � 138,559 � 310,005 � 274,656 � Total
Sides � 366,482 � � 303,410 � � 704,870 � � 599,041 � Our market
share of total industry trading: (4) Customer 29.4 % 29.2 % 29.4 %
30.6 % Firm proprietary 26.9 % 26.3 % 25.2 % 25.7 % Market maker �
27.5 % � 29.8 % � 27.7 % � 30.2 % Revenue: Average transaction fee
per side (5) $0.127 $0.134 $0.128 $0.129 Average cost of
transaction fee per side (6) ($0.008 ) ($0.020 ) ($0.012 ) ($0.020
) Average net transaction fee per side (6) $0.119 $0.114 $0.116
$0.109 Average transaction fee per revenue side (7) � $0.184 � �
$0.173 � � $0.179 � � $0.175 � Our trades:(8) Average contracts per
trade 17.8 18.2 18.1 17.4 Average trades per day (in thousands)
163.9 128.5 157.1 138.0 Total trades (in thousands) 10,323 8,098
19,480 17,225 Our market share of industry trade volume � 31.9 % �
30.6 % � 31.8 % � 32.2 % Our listed issues: (9) Average number of
issues traded during the period � 1,732 � � 898 � � 1,688 � � 875 �
Our Members (average number trading during period) PMMs 10 10 10 10
CMMs 142 144 144 143 EAMs 108 � 102 � 109 � 102 � Total � 260 � �
256 � � 263 � � 255 � Employees (period average) Full-time
equivalent (10) � 187 � � 180 � � 184 � � 180 � � (1) Represents
single counted contract volume. For example, a transaction of 500
contracts on our exchange is counted as a single 500 contract
transaction for purposes of calculating our volumes, even though we
may receive transaction fees from parties on both sides of the
transaction, one side of a transaction, or in some cases, neither
side of a transaction. � (2) Our market share is calculated based
on the number of contracts executed on our exchange as a percentage
of total industry contract volume. � (3) Represents each side of a
buy or sell transaction. For example, a transaction of 500
contracts on our exchange is counted as two sides of 500 contracts,
representing a buy and a sell transaction. We generally do not
charge our members for executing non-broker-dealer customer orders
on our exchange except for options on our premium products as well
as options for listings in our Second Market. � (4) Represents our
market share of total U.S. industry equity and index trading for
members trading on our exchange based on contract trading volume. �
(5) Average transaction fee per side is calculated by dividing our
transaction fees by the total number of sides executed on our
exchange. We generally do not charge our members for executing
non-broker-dealer customer orders on our exchange except for
options on our premium products as well as options for listings in
our Second Market. Comparing our average transaction fee per side
to our average transaction fee per revenue side reflects the
negative effect of our fee waivers or reductions on our revenues,
on a per side basis. � (6) Average cost of transaction fee per side
is calculated by subtracting cost of revenues from transaction
fees, which we refer to as net transaction fees, and dividing the
result by the total number of sides executed on our exchange. � (7)
Our average transaction fee per revenue side reflects the
transaction fee we charge to our market participants per our
publicly available pricing schedules. These schedules were part of
rule proposals that became effective upon filing pursuant to
Section 19(b)(3)(A) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Securities and Exchange
Commission may abrogate such rule proposals within 60 days of
filing if it determines that such action is necessary or
appropriate in the public interest, for the protection of investors
or otherwise in furtherance of the purposes of the Exchange Act. �
(8) Members can have several contracts per trade. Trades represent
the number of trades cleared through The Option Clearing
Corporation, or the OCC. Market data revenue is generated on a per
trade basis, not on a contract basis. � (9) By "issues" we mean the
number of securities underlying our options. We trade multiple
options series on each underlying security. � (10) Excludes
full-time equivalent employees of ISE Stock Exchange, LLC,
beginning April 2006. Segment Information We operate two segments:
An Options Exchange business segment which includes our options
trading business as well as Alternative Markets platform, corporate
overhead costs related to public company matters and corporate wide
strategic initiatives. A Stock Exchange business segment which
includes trading in equity securities. Pursuant to the terms of our
agreement with the strategic investors of the ISE Stock Exchange
and in accordance with U.S. GAAP, we are the primary beneficiary of
the ISE Stock Exchange and consolidated its financial results. We
exercise a majority of the voting interest of the ISE Stock
Exchange; however, beginning April 2006 all losses have been
allocated solely to the minority owners. Consolidation of the ISE
Stock Exchange does not currently have any effect on our net
results of operations and will not until it generates net profits.
Therefore, consolidation increases our revenues and expenses to
reflect 100% of the ISE Stock Exchange�s results; however, these
revenues and expenses are offset dollar-for-dollar by minority
interest since we are not required to recognize any of its losses.
INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC. STATEMENTS OF
OPERATIONS BY BUSINESS SEGMENT (in thousands) (unaudited) � Three
Months Ended Three Months Ended June 30, 2007 June 30, 2006 �
Options Exchange Stock Exchange Elimination ISE Holdings Options
Exchange Stock Exchange Elimination ISE Holdings � Revenues:
Transaction fees $ 46,421 $ 1,137 $ - $ 47,558 $ 40,682 $ - $ - $
40,682 Member fees and other 7,114 77 (304 ) 6,887 6,330 - - 6,330
Market data � 4,427 � 292 � � - � � 4,719 � 4,095 � - � � - � �
4,095 Total revenues 57,962 1,506 (304 ) 59,164 51,107 - - 51,107 �
Cost of revenues: Activity remittance fees 2,268 265 - 2,533 3,706
- - 3,706 License fees, liquidity rebates, and brokerage fees � 498
� 343 � � - � � 841 � 2,321 � - � � - � � 2,321 Total cost of
revenues 2,766 608 - 3,374 6,027 - - 6,027 � Gross margin 55,196
898 (304 ) 55,790 45,080 - - 45,080 � Expenses: Compensation and
benefits 13,743 2,816 (258 ) 16,301 11,403 1,092 (1,019 ) 11,476
Technology and communications 4,329 233 (4 ) 4,558 3,729 100 (90 )
3,739 Occupancy 1,299 308 (28 ) 1,579 1,390 91 (85 ) 1,396
Professional fees 1,847 294 - 2,141 1,416 86 (59 ) 1,443 Marketing
and business development 621 142 - 763 816 37 (37 ) 816
Depreciation and amortization 2,692 149 (10 ) 2,831 1,838 10 (9 )
1,839 Other � 1,868 � 101 � � (4 ) � 1,965 � 1,537 � 60 � � (59 ) �
1,538 Total direct expenses 26,399 4,043 (304 ) 30,138 22,129 1,476
(1,358 ) 22,247 Merger related costs 2,149 - - 2,149 - - - -
Reorganization � - � - � � - � � - � 105 � - � � - � � 105 Total
expenses 28,548 4,043 (304 ) 32,287 22,234 1,476 (1,358 ) 22,352 �
Operating income 26,648 (3,145 ) - 23,503 22,846 (1,476 ) 1,358
22,728 � Interest and investment income 3,063 431 - 3,494 1,535 71
(71 ) 1,535 Minority interest � - � 2,714 � � - � � 2,714 � 272 � -
� � - � � 272 Income before provision for income taxes 29,711 - -
29,711 24,653 (1,405 ) 1,287 24,535 � Provision for income taxes �
13,828 � - � � - � � 13,828 � 10,884 � (52 ) � - � � 10,832 Net
income $ 15,883 $ - � $ - � $ 15,883 $ 13,769 $ (1,353 ) $ 1,287 �
$ 13,703 � Six Months Ended Six Months Ended June 30, 2007 June 30,
2006 � � Options Exchange Stock Exchange Elimination ISE Holdings
Options Exchange Stock Exchange Elimination ISE Holdings �
Revenues: Transaction fees $ 90,307 $ 1,729 $ - $ 92,036 $ 77,549 $
- $ - $ 77,549 Member fees and other 14,424 151 (571 ) 14,004
11,952 - - 11,952 Market data � 9,170 � 358 � � - � � 9,528 � 9,150
� - � � - � � 9,150 Total revenues 113,901 2,238 (571 ) 115,568
98,651 - - 98,651 � Cost of revenues: Activity remittance fees
6,164 448 - 6,612 8,051 - - 8,051 License fees, liquidity rebates,
and brokerage fees � 2,155 � 515 � � - � � 2,670 � 3,946 � - � � -
� � 3,946 Total cost of revenues 8,319 963 - 9,282 11,997 - -
11,997 � Gross margin 105,582 1,275 (571 ) 106,286 86,654 - -
86,654 � Expenses: Compensation and benefits 26,542 5,318 (488 )
31,372 22,336 1,530 (1,022 ) 22,844 Technology and communications
8,600 529 (8 ) 9,121 7,189 158 (90 ) 7,257 Occupancy 2,559 529 (48
) 3,040 2,667 130 (83 ) 2,714 Professional fees 3,544 677 - 4,221
2,694 436 (59 ) 3,071 Marketing and business development 1,158 389
- 1,547 1,438 37 (37 ) 1,438 Depreciation and amortization 4,420
296 (19 ) 4,697 3,347 17 (8 ) 3,356 Other � 3,204 � 186 � � (8 ) �
3,382 � 2,562 � 68 � � (59 ) � 2,571 Total direct expenses 50,027
7,924 (571 ) 57,380 42,233 2,376 (1,358 ) 43,251 Merger related
costs 2,149 - - 2,149 - - - - Reorganization � - � - � � - � � - �
129 � - � � - � � 129 Total expenses 52,176 7,924 (571 ) 59,529
42,362 2,376 (1,358 ) 43,380 � Operating income 53,406 (6,649 ) -
46,757 44,292 (2,376 ) 1,358 43,274 � Interest and investment
income 5,832 895 - 6,727 3,146 71 (71 ) 3,146 Minority interest � -
� 5,754 � � - � � 5,754 � 272 � - � � - � � 272 Income before
provision for income taxes 59,238 - - 59,238 47,710 (2,305 ) 1,287
46,692 � Provision for income taxes � 26,671 � - � � - � � 26,671 �
21,029 � (458 ) � - � � 20,571 Net income $ 32,567 $ - � $ - � $
32,567 $ 26,681 $ (1,847 ) $ 1,287 � $ 26,121 Non-GAAP
Reconciliation In an effort to provide additional information
regarding our results as determined by GAAP, we also disclose
certain non-GAAP information which we believe provides useful and
meaningful information. Our management reviews this non-GAAP
financial measurement when evaluating our financial performance and
results of operations; therefore, we believe it is useful to
provide information with respect to these non-GAAP measurements so
as to share this perspective of management. Non-GAAP measurements
do not have any standardized meaning and are therefore unlikely to
be comparable to similar measures presented by other companies.
These non-GAAP financial measures should be considered in the
context with our GAAP results. We have disclosed our net income
amounts excluding certain non-operating charges. These
non-operating charges relate to advisory expenses incurred in
connection with our pending merger with Eurex. Management excludes
these costs when measuring our financial performance as they do not
relate to our core business of operating a multi-asset class
exchange. Management believes presenting our results excluding
these costs provides a clearer measure of our results and
performance. INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC. GAAP
TO NON GAAP RECONCILIATION (in thousands, except per share amounts)
(unaudited) � Three Months Ended Six Months Ended June 30, June 30,
2007 2006 2007 2006 � GAAP Income before provision for income
taxes, as reported $ 29,711 $ 24,535 $ 59,238 $ 46,692 Less Merger
related costs 2,149 - 2,149 - Less Reorganization � - � 105 � - �
129 Income before provision for income taxes, proforma $ 31,860 $
24,640 $ 61,387 $ 46,821 � � GAAP Net income, as reported $ 15,883
$ 13,703 $ 32,567 $ 26,121 Less Merger related costs, net of tax
2,117 - 2,117 - Less Reorganization, net of tax � - � 105 � - � 129
Net income, proforma $ 18,000 $ 13,808 $ 34,684 $ 26,250 � � GAAP
Diluted earnings per share, as reported $ 0.39 $ 0.35 $ 0.81 $ 0.66
Less Merger related costs, net of tax 0.06 - 0.05 - Less
Reorganization, net of tax � - � 0.00 � - � 0.01 Diluted earnings
per share, proforma $ 0.45 $ 0.35 $ 0.86 $ 0.67 � Gross Margin
55,790 45,080 106,286 86,654 � GAAP pre-tax margins, as reported
53.3% 54.4% 55.7% 53.9% Pre-tax margins, proforma 57.1% 54.7% 57.8%
54.0% INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC. GAAP TO NON
GAAP RECONCILIATION (in thousands, except per share amounts)
(unaudited) � Three Months Ended Six Months Ended June 30, June 30,
Options Exchange Segment 2007 2006 2007 2006 � GAAP Income before
provision for income taxes, as reported $ 29,711 $ 24,653 $ 59,238
$ 47,710 Less Merger related costs 2,149 - 2,149 - Less
Reorganization � - � 105 � - � 129 Income before provision for
income taxes, proforma $ 31,860 $ 24,758 $ 61,387 $ 47,839 � � GAAP
Net income, as reported $ 15,883 $ 13,769 $ 32,567 $ 26,681 Less
Merger related costs, net of tax 2,117 - 2,117 - Less
Reorganization, net of tax � - � 105 � - � 129 Net income, proforma
$ 18,000 $ 13,874 $ 34,684 $ 26,810 � � GAAP Diluted earnings per
share, as reported $ 0.39 $ 0.35 $ 0.81 $ 0.68 Less Merger related
costs, net of tax 0.06 - 0.05 - Less Reorganization, net of tax � -
� 0.00 � - � 0.00 Diluted earnings per share, proforma $ 0.45 $
0.35 $ 0.86 $ 0.68 � � Gross Margin 55,196 45,080 105,582 86,654 �
GAAP pre-tax margins, as reported 53.8% 54.7% 56.1% 55.1% Pre-tax
margins, proforma 57.7% 54.9% 58.1% 55.2% ISE Background
International Securities Exchange Holdings, Inc. (NYSE: ISE),
through its subsidiaries, operates a family of innovative
securities markets. ISE is founded on the principle that technology
and competition create better, more efficient markets for investors
and consists of an options exchange, a stock exchange and an
alternative markets platform. ISE continually enhances its trading
systems and develops new products to provide investors with the
best marketplace and investment tools to trade smarter. ISE
developed a unique market structure for advanced screen-based
trading systems and in May 2000 launched the first fully electronic
US options exchange. Currently, ISE operates the world�s largest
equity options exchange. ISE offers index options, including a
portfolio of proprietary index products, and enhanced market data
products for sophisticated investors. ISE FX OptionsSM launched in
the second quarter of 2007. ISE Stock Exchange, launched in
September 2006, is a completely electronic marketplace and the only
dual structure platform that integrates a dark pool, MidPoint
MatchSM, with a fully displayed stock market. Midpoint Match is a
proprietary, non-displayed market that trades equity securities at
the midpoint between the National Best Bid and Offer (NBBO). ISE�s
alternative markets business currently consists of an events market
trading platform known as Longitude. Longitude�s patented and
proprietary technology provides a unique parimutuel structure for
derivatives auctions which results in greater trading and pricing
flexibility for market participants. For more information about
ISE, visit www.ise.com. Certain matters discussed in this press
release are �forward looking statements� intended to qualify for
the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. These statements relate
to future events or our future financial performance, and involve
known and unknown risks, uncertainties and other factors that may
cause our actual results, levels of activity, performance or
achievements, to be materially different from those contemplated by
the forward looking statements. We undertake no ongoing obligation,
other than that imposed by law, to update these statements. Factors
that could affect our results, levels of activity, performance or
achievements and cause them to materially differ from those
contained in the forward looking statements can be found in our
filings with the Securities and Exchange Commission, including our
annual report on Form 10-K, current reports on Form 8-K and
quarterly reports on Form 10-Q.
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