Intntl Sec Exchange (NYSE:ISE)
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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.