- Net income up 15.9% to $15.9 million
- GAAP diluted earnings per share of $0.39
- Proforma diluted earnings per share of $0.45, excluding costs related to the pending merger with Eurex
- Average daily trading volume up 20.7% to 2.9 million equity and index options contracts
- Revenues up 13.4% to $58.0 million and gross margin up 22.4% to $55.2 million for the options exchange
- GAAP pre-tax margin of 53.8% and proforma pre-tax margin of 57.7% for the options exchange
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(TM) 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(TM), 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(R), 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
June 30, 2007
Options Stock ISE
Exchange Exchange Elimination Holdings
-------- -------- ----------- --------
Revenues:
Transaction fees $ 46,421 $ 1,137 $ - $ 47,558
Member fees and other 7,114 77 (304) 6,887
Market data 4,427 292 - 4,719
-------- -------- ----------- --------
Total revenues 57,962 1,506 (304) 59,164
Cost of revenues:
Activity remittance fees 2,268 265 - 2,533
License fees, liquidity
rebates, and brokerage fees 498 343 - 841
-------- -------- ----------- --------
Total cost of revenues 2,766 608 - 3,374
Gross margin 55,196 898 (304) 55,790
Expenses:
Compensation and benefits 13,743 2,816 (258) 16,301
Technology and communications 4,329 233 (4) 4,558
Occupancy 1,299 308 (28) 1,579
Professional fees 1,847 294 - 2,141
Marketing and business
development 621 142 - 763
Depreciation and amortization 2,692 149 (10) 2,831
Other 1,868 101 (4) 1,965
-------- -------- ----------- --------
Total direct expenses 26,399 4,043 (304) 30,138
Merger related costs 2,149 - - 2,149
Reorganization - - - -
-------- -------- ----------- --------
Total expenses 28,548 4,043 (304) 32,287
Operating income 26,648 (3,145) - 23,503
Interest and investment income 3,063 431 - 3,494
Minority interest - 2,714 - 2,714
-------- -------- ----------- --------
Income before provision for
income taxes 29,711 - - 29,711
Provision for income taxes 13,828 - - 13,828
-------- -------- ----------- --------
Net income $ 15,883 $ - $ - $ 15,883
======== ======== =========== ========
Six Months Ended
June 30, 2007
Options Stock ISE
Exchange Exchange Elimination Holdings
-------- -------- ----------- --------
Revenues:
Transaction fees $ 90,307 $ 1,729 $ - $ 92,036
Member fees and other 14,424 151 (571) 14,004
Market data 9,170 358 - 9,528
-------- -------- ----------- --------
Total revenues 113,901 2,238 (571) 115,568
Cost of revenues:
Activity remittance fees 6,164 448 - 6,612
License fees, liquidity
rebates, and brokerage fees 2,155 515 - 2,670
-------- -------- ----------- --------
Total cost of revenues 8,319 963 - 9,282
Gross margin 105,582 1,275 (571) 106,286
Expenses:
Compensation and benefits 26,542 5,318 (488) 31,372
Technology and communications 8,600 529 (8) 9,121
Occupancy 2,559 529 (48) 3,040
Professional fees 3,544 677 - 4,221
Marketing and business
development 1,158 389 - 1,547
Depreciation and amortization 4,420 296 (19) 4,697
Other 3,204 186 (8) 3,382
-------- -------- ----------- --------
Total direct expenses 50,027 7,924 (571) 57,380
Merger related costs 2,149 - - 2,149
Reorganization - - - -
-------- -------- ----------- --------
Total expenses 52,176 7,924 (571) 59,529
Operating income 53,406 (6,649) - 46,757
Interest and investment income 5,832 895 - 6,727
Minority interest - 5,754 - 5,754
-------- -------- ----------- --------
Income before provision for
income taxes 59,238 - - 59,238
Provision for income taxes 26,671 - - 26,671
-------- -------- ----------- --------
Net income $ 32,567 $ - $ - $ 32,567
======== ======== =========== ========
Three Months Ended
June 30, 2006
Options Stock ISE
Exchange Exchange Elimination Holdings
-------- -------- ----------- --------
Revenues:
Transaction fees $40,682 $ - $ - $40,682
Member fees and other 6,330 - - 6,330
Market data 4,095 - - 4,095
-------- -------- ----------- --------
Total revenues 51,107 - - 51,107
Cost of revenues:
Activity remittance fees 3,706 - - 3,706
License fees, liquidity
rebates, and brokerage fees 2,321 - - 2,321
-------- -------- ----------- --------
Total cost of revenues 6,027 - - 6,027
Gross margin 45,080 - - 45,080
Expenses:
Compensation and benefits 11,403 1,092 (1,019) 11,476
Technology and communications 3,729 100 (90) 3,739
Occupancy 1,390 91 (85) 1,396
Professional fees 1,416 86 (59) 1,443
Marketing and business
development 816 37 (37) 816
Depreciation and amortization 1,838 10 (9) 1,839
Other 1,537 60 (59) 1,538
-------- -------- ----------- --------
Total direct expenses 22,129 1,476 (1,358) 22,247
Merger related costs - - - -
Reorganization 105 - - 105
-------- -------- ----------- --------
Total expenses 22,234 1,476 (1,358) 22,352
Operating income 22,846 (1,476) 1,358 22,728
Interest and investment income 1,535 71 (71) 1,535
Minority interest 272 - - 272
-------- -------- ----------- --------
Income before provision for
income taxes 24,653 (1,405) 1,287 24,535
Provision for income taxes 10,884 (52) - 10,832
-------- -------- ----------- --------
Net income $13,769 $(1,353) $ 1,287 $13,703
======== ======== =========== ========
Six Months Ended
June 30, 2006
Options Stock ISE
Exchange Exchange Elimination Holdings
-------- -------- ----------- --------
Revenues:
Transaction fees $77,549 $ - $ - $77,549
Member fees and other 11,952 - - 11,952
Market data 9,150 - - 9,150
-------- -------- ----------- --------
Total revenues 98,651 - - 98,651
Cost of revenues:
Activity remittance fees 8,051 - - 8,051
License fees, liquidity
rebates, and brokerage fees 3,946 - - 3,946
-------- -------- ----------- --------
Total cost of revenues 11,997 - - 11,997
Gross margin 86,654 - - 86,654
Expenses:
Compensation and benefits 22,336 1,530 (1,022) 22,844
Technology and communications 7,189 158 (90) 7,257
Occupancy 2,667 130 (83) 2,714
Professional fees 2,694 436 (59) 3,071
Marketing and business
development 1,438 37 (37) 1,438
Depreciation and amortization 3,347 17 (8) 3,356
Other 2,562 68 (59) 2,571
-------- -------- ----------- --------
Total direct expenses 42,233 2,376 (1,358) 43,251
Merger related costs - - - -
Reorganization 129 - - 129
-------- -------- ----------- --------
Total expenses 42,362 2,376 (1,358) 43,380
Operating income 44,292 (2,376) 1,358 43,274
Interest and investment income 3,146 71 (71) 3,146
Minority interest 272 - - 272
-------- -------- ----------- --------
Income before provision for
income taxes 47,710 (2,305) 1,287 46,692
Provision for income taxes 21,029 (458) - 20,571
-------- -------- ----------- --------
Net income $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 Options(SM) 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 Match(SM), 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.
