ESPD Espeed (MM)

eSpeed, Inc. (NASDAQ: ESPD), a leading developer of electronic marketplaces and related trading technology for the global capital markets, today reported results for the third quarter ended September 30, 2006. Third Quarter 2006 Earnings eSpeed reported a net loss of $0.5 million, or $0.01 per diluted share, for the third quarter of 2006 based on Generally Accepted Accounting Principles (GAAP). To reflect earnings generated from the Company's operations, eSpeed also reported non-GAAP net operating income of $1.2 million, or $0.02 per diluted share. The difference between non-GAAP net operating income and the GAAP net loss for the quarter occurred primarily due to $1.3 million in acquisition-related costs, $0.5 million in patent litigation costs, a $0.2 million charitable contribution to the Cantor Fitzgerald Relief Fund, and a $0.1 million expense related to a tax settlement, partially offset by a payment of $0.5 million relating to a litigation settlement. All of these differences were net of tax. For comparative purposes, eSpeed reported GAAP net income of $1.9 million, or $0.04 per diluted share, for the third quarter 2005. For the same period, the Company reported non-GAAP net operating income of $2.0 million, or $0.04 per diluted share. The difference between non-GAAP net operating income and GAAP net income for the third quarter 2005 was due to $0.5 million for patent litigation costs, a $0.3 million charitable contribution to the Cantor Fitzgerald Relief Fund, a non-cash charge of $0.03 million related to business partner securities, and $0.6 million gain on investment, all net of tax. Third Quarter 2006 Revenues eSpeed's total GAAP and non-GAAP operating revenues for the third quarter of 2006 were $38.1 million. The Company reported GAAP revenues of $38.8 million for the third quarter 2005 and non-GAAP revenues of $37.8 million. The difference between GAAP and non-GAAP revenues for the third quarter of 2005 was due to a $1.0 million gain on the sale of an investment. All of these differences were net of tax. Fully electronic revenues were $16.8 million in the third quarter of 2006 compared to $18.9 million for the third quarter of 2005. Revenues from Software Solutions in the third quarter of 2006 were $11.3 million versus $9.9 million in the year ago period. Voice assisted and screen assisted revenues totaled $7.5 million in the third quarter of 2006 compared with $7.3 million in the third quarter of 2005. Non-GAAP pre-tax operating margin was 5.1 percent in the third quarter of 2006. See "Non-GAAP Financial Measures" below for a detailed description of the Company�s non-GAAP financial measures. Third Quarter 2006 Volume and Transactions on the eSpeed System Fully electronic volume on the eSpeed system, excluding new products, was $9.4 trillion for the third quarter of 2006, up 17.1 percent from $8.0 trillion in the third quarter of 2005. eSpeed's combined voice-assisted and screen-assisted volume for the third quarter of 2006 was $14.1 trillion, an increase of 12.8 percent from $12.5 trillion in the third quarter of 2005. Fully electronic volume on the eSpeed system for new products, which the Company defines as foreign exchange, interest rate swaps, futures and repos, was $1.2 trillion for the third quarter of 2006, up 213.6 percent against the $376 billion reported in the third quarter of 2005. Cash Flow & Cash eSpeed generated cash flow from operations of $20.8 million during the third quarter of 2006, compared with $16.0 million during the third quarter of 2005. The Company also reports free cash flow, which it defines as cash from operations less net cash used in investing activities, including capital expenditures. eSpeed�s free cash flow was $12.9 million for the third quarter of 2006 and $11.5 million in the year-earlier period. Excluding related party receivables and payables, free cash flow for the third quarter of 2006 was $7.6 million compared with $11.7 million in the year-ago quarter. As of September 30, 2006, eSpeed's cash and cash equivalents were approximately $191.1 million. Outlook For the fourth quarter of 2006, eSpeed expects to generate non-GAAP operating revenues in excess of $39 million and expects non-GAAP net operating income to be in the range of $0.03 to $0.04 per diluted share. For full year 2006, eSpeed expects to generate non-GAAP operating revenues of approximately $155 million, up from the previous outlook of $154 million. The Company expects non-GAAP operating expenses to be in the range of $144 million to $145 million, an improvement from the previously stated range of $144 million to $147 million. eSpeed currently expects full year 2006 non-GAAP net operating income to be in the range of $0.12 to $0.13 per diluted share, which is an increase from the prior range of $0.10 to $0.12 per diluted share. The Company will host a conference call on Tuesday, November 7, 2006 at 8:30 a.m EST, to discuss the above results. To listen to the call via audio webcast, please visit www.espeed.com. Please note: listeners must have a Real Media or Windows Media plug in and headphones or speakers to listen to the webcast. Non-GAAP Financial Measures To supplement eSpeed's consolidated financial statements presented in accordance with GAAP and to better reflect the Company's quarter-over-quarter and comparative year-over-year operating performance, eSpeed uses non-GAAP financial measures of revenues, net income and earnings per share, which are adjusted to exclude certain expenses and gains. In addition, the Company provides a computation of free cash flow. These non-GAAP financial measurements do not replace the presentation of eSpeed's GAAP financial results but are provided to improve overall understanding of the Company's current financial performance and its prospects for the future. Specifically, eSpeed believes the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to the Company's financial condition and results from operations. In addition, eSpeed's management uses these measures for reviewing the Company's financial results and evaluating eSpeed's financial performance. For the third quarter of 2006, the difference between GAAP net income and non-GAAP net operating income was ($1.7) million, net of tax. eSpeed considers "non-GAAP net operating income" to be after-tax income generated from the Company's continuing operations excluding certain non-recurring or non-core items such as, but not limited to, asset impairments, litigation judgments, costs or settlements, restructuring charges, costs related to potential acquisitions, charitable contributions, insurance proceeds, business partner securities, gains or losses on investments and similar events. The amortization of patent costs and associated licensing fees (including those made in settlement of litigation) from such patents are generally treated as operating items. Material judgments or settlement amounts paid or received and impairments to all or a portion of such assets are generally treated as non-operating items. Management does not provide guidance of GAAP net income because certain items identified as excluded from non-GAAP net operating income are difficult to forecast. About eSpeed, Inc. eSpeed, Inc. (NASDAQ: ESPD) is a leader in developing and deploying electronic marketplaces and related trading technology that offers traders access to the most liquid, efficient and neutral financial markets in the world. eSpeed operates multiple buyer, multiple seller real-time electronic marketplaces for the global capital markets, including the world's largest government bond markets and other fixed income and foreign exchange marketplaces. eSpeed's suite of marketplace tools provides end-to-end transaction solutions for the purchase and sale of financial products over eSpeed's global private network or via the Internet. eSpeed's neutral platform, reliable network, straight-through processing and superior products make it the trusted source for electronic trading at the world's largest fixed income and foreign exchange trading firms and major exchanges. To learn more, please visit www.espeed.com. Discussion of Forward-Looking Statements by eSpeed, Inc. The information in this press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, our relationship with Cantor Fitzgerald and its affiliates, the costs and expenses of developing, maintaining and protecting our intellectual property, including judgments or settlements paid or received and their related costs, the possibility of future losses and negative cash flow from operations, the effect of market conditions, including trading volume and volatility, our pricing strategy and that of our competitors, our ability to develop new products and services, to enter new markets, to secure and maintain market share, to enter into marketing and strategic alliances, to hire new personnel, to expand the use of our electronic system, to induce clients to use our marketplaces and services and to effectively manage any growth we achieve, the effects of the attacks on the World Trade Center on September 11, 2001, and other factors that are discussed under "Risk Factors" in eSpeed�s Annual Report on Form 10-K filed with the Securities and Exchange Commission. We believe that all forward-looking statements are based upon reasonable assumptions when made; however, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made, and we undertake no obligation to update these statements in light of subsequent events or developments. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in forward-looking statements. eSpeed, Inc and Subsidiaries CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, except share and per share data) � September 30, 2006 �December 31, 2005 (Unaudited) � Assets Cash and cash equivalents $ 94,149� $ 37,070� Reverse repurchase agreements with related parties � 96,972� � 141,365� Total cash and cash equivalents 191,121� 178,435� Fixed assets, net 56,732� 58,291� Investments 7,776� 7,742� Goodwill 12,184� 12,184� Other intangible assets, net 8,479� 11,356� Receivables from related parties 4,633� 4,345� Other assets � 13,231� � 8,581� Total assets $ 294,156� $ 280,934� � Liabilities and Stockholders' Equity Current liabilities: Payables to related parties 5,472� 7,588� Accounts payable and accrued liabilities � 30,473� � 19,649� Total current liabilities 35,945� 27,237� � Deferred income � 7,280� � 7,593� Total liabilities � 43,225� � 34,830� � Commitments and contingencies -� -� � Stockholders' Equity: Class A common stock, par value $.01 per share; 200,000,000 shares authorized; 36,201,187 and 34,387,380 shares issued at September 30, 2006 and December 31, 2005, respectively 362� 343� Class B common stock, par value $.01 per share; 100,000,000 shares authorized; 20,497,800 and 22,139,270 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively, convertible to Class A common stock 205� 221� Additional paid-in capital 299,943� 294,987� Unearned stock-based compensation (1,720) (1,592) Treasury stock, at cost; 6,449,991 and 6,488,047 shares of Class A common stock at September 30, 2006 and December 31, 2005, respectively (62,132) (62,486) Retained earnings 14,273� 14,631� � � Total stockholders' equity � 250,931� � 246,104� � Total liabilities and stockholders' equity $ 294,156� $ 280,934� eSpeed, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME IN ACCORDANCE WITH GAAP (unaudited) (in thousands, except per share data) � Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, � 2006� � 2005� � 2006� � 2005� Revenues: Transaction revenues Fully electronic transactions with related parties $ 14,598� $ 18,933� $ 45,983� $ 58,174� Fully electronic transactions with unrelated parties � 2,154� � -� � 4,793� � -� Total fully electronic transactions 16,752� 18,933� 50,776� 58,174� Voice-assisted brokerage transactions with related parties 6,125� 6,190� 20,028� 19,128� Screen-assisted open outcry transactions with related parties � 1,398� � 1,121� � 4,262� � 1,931� Total transaction revenues � 24,275� � 26,244� � 75,066� � 79,233� Software Solutions fees from related parties 7,417� 6,099� 22,805� 18,860� Software Solutions and licensing fees from unrelated parties 3,914� 3,770� 11,285� 11,712� Insurance recovery from related parties -� -� 3,500� -� Gain on sale of investments -� 1,015� -� 1,015� Interest income � 2,470� � 1,644� � 6,925� � 4,311� Total revenues � 38,076� � 38,772� � 119,581� � 115,131� � Expenses: Compensation and employee benefits 13,616� 13,048� 39,846� 38,989� Amortization of software development costs and other intangibles 5,738� 5,206� 18,255� 14,376� Other occupancy and equipment 8,130� 7,712� 28,409� 22,657� Professional and consulting fees 2,639� 2,018� 6,774� 7,088� Communications and client networks 2,088� 1,931� 6,115� 5,569� Marketing 145� 390� 742� 1,252� Administrative fees to related parties 2,616� 3,216� 9,713� 10,515� Amortization of business partner and non-employee securities -� 50� 19� 310� Acquisition related costs 2,026� -� 2,026� 4,124� Other expenses � 1,888� � 2,491� � 5,848� � 7,845� Total operating expenses � 38,886� � 36,062� � 117,747� � 112,725� � � � � (Loss) income before income taxes � (810) � 2,710� � 1,834� � 2,406� � (Benefit) provision for income taxes (306) 837� 694� 652� � � � � Net (loss) income $ (504) $ 1,873� $ 1,140� $ 1,754� � Per share data: � � Basic (loss) earnings per share $ (0.01) $ 0.04� $ 0.02� $ 0.03� � � Diluted (loss) earnings per share $ (0.01) $ 0.04� $ 0.02� $ 0.03� � � Basic weighted average shares of common stock outstanding � 50,176� � 50,998� � 50,243� � 51,805� � Diluted weighted average shares of common stock outstanding � 50,176� � 51,697� � 51,206� � 52,586� eSpeed, Inc. and Subsidiaries NON-GAAP CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share data) � Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, � 2006� � 2005� � 2006� � 2005� Revenues: Transaction revenues Fully electronic transactions with related parties $ 14,598� $ 18,933� $ 45,983� $ 58,174� Fully electronic transactions with unrelated parties � 2,154� � -� � 4,793� � -� Total fully electronic transactions 16,752� 18,933� 50,776� 58,174� Voice-assisted brokerage transactions with related parties 6,125� 6,190� 20,028� 19,128� Screen-assisted open outcry transactions with related parties � 1,398� � 1,121� � 4,262� � 1,931� Total transaction revenues � 24,275� � 26,244� � 75,066� � 79,233� Software Solutions fees from related parties 7,417� 6,099� 22,805� 18,860� Software Solutions and licensing fees from unrelated parties 3,914� 3,770� 11,285� 11,712� Interest income � 2,434� � 1,644� � 6,490� � 4,311� Total non-GAAP revenues � 38,040� � 37,757� � 115,646� � 114,116� � Expenses: Compensation and employee benefits 13,379� 13,048� 39,810� 38,989� Amortization of software development costs and other intangibles 5,738� 5,206� 17,092� 14,376� Other occupancy and equipment 8,131� 7,712� 24,503� 22,657� Professional and consulting fees 1,789� 1,314� 4,387� 3,366� Communications and client networks 2,088� 1,931� 6,115� 5,569� Marketing 145� 390� 742� 1,252� Administrative fees to related parties 2,616� 3,216� 9,713� 10,515� Other expenses � 2,198� � 2,113� � 6,159� � 7,467� Total non-GAAP operating expenses � 36,084� � 34,930� � 108,521� � 104,191� � � � � Non-GAAP income before income taxes � 1,956� � 2,827� � 7,125� � 9,925� � Non-GAAP income tax provision 739� 827� 2,695� 3,379� � � � � Non-GAAP net operating income � 1,217� � 2,000� � 4,430� � 6,546� � Non-operating (loss) income: Charitable contribution Re: 9/11, net of tax (242) (262) (242) (262) Amortization of business partner and non-employee securities, net of tax -� (34) (11) (200) Litigation costs, net of tax (530) (450) (1,485) (2,351) Acquisition related costs, net of tax (1,260) -� (1,260) (2,598) Legal settlement, net of tax 458� 458� -� Gain on sale of investment, net of tax -� 619� -� 619� Accelerated depreciation, net of tax -� -� (689) -� Office relocation cost, net of tax -� -� (2,360) -� Tax settlement, net of tax (147) -� 226� -� Insurance recovery from related parties, net of tax � -� � -� � 2,073� � -� Total non-operating loss � (1,721) � (127) � (3,290) � (4,792) � Net (loss) income $ (504) $ 1,873� $ 1,140� $ 1,754� � � Per share data: � Basic non-GAAP income before income taxes per share $ 0.04� $ 0.06� $ 0.14� $ 0.19� � Basic non-GAAP tax provision per share $ 0.02� $ 0.02� $ 0.05� $ 0.07� � Basic non-GAAP net operating income per share $ 0.02� $ 0.04� $ 0.09� $ 0.12� � Basic non-operating (loss) income per share $ (0.03) $ (0.00) $ (0.07) $ (0.09) � Basic GAAP (loss) earnings per share $ (0.01) $ 0.04� $ 0.02� $ 0.03� � � Diluted non-GAAP income before income taxes per share $ 0.04� $ 0.06� $ 0.14� $ 0.19� � Diluted non-GAAP tax provision per share $ 0.02� $ 0.02� $ 0.05� $ 0.07� � Diluted non-GAAP net operating income per share $ 0.02� $ 0.04� $ 0.09� $ 0.12� � Diluted non-operating (loss) income per share $ (0.03) $ (0.00) $ (0.07) $ (0.09) � Diluted GAAP (loss) earnings per share $ (0.01) $ 0.04� $ 0.02� $ 0.03� � � Basic weighted average shares of common stock outstanding � 50,176� � 50,998� � 50,243� � 51,805� � Diluted weighted average shares of common stock outstanding � 50,176� � 51,697� � 51,206� � 52,586� � Additional data: � Non-GAAP pre-tax operating margin � 5.1% � 7.5% � 6.2% � 8.7% eSpeed, Inc. & Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) � Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, � 2006� � 2005� � 2006� � 2005� Cash flows from operating activities: Net (loss) income $ (504) $ 1,873� $ 1,140� $ 1,754� Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,888� 8,190� 27,741� 22,050� Insurance recovery from related parties -� -� (3,500) -� Equity in net (income) loss of unconsolidated investments 11� (10) (34) 5� Gain on sale of investments -� (1,015) -� (1,015) Deferred income tax (benefit) expense (223) 741� (825) 298� Stock-based compensation 635� 276� 1,717� 1,918� Tax benefit from stock-based compensation 13� 25� 106� 109� Excess tax benefit from stock based-comp (8) -� (47) -� Issuance of securities under employee benefit plan -� 61� -� 186� � Changes in operating assets and liabilities: Receivable from related parties 3,932� (1,757) (744) (6,187) Other assets 2,657� 988� (4,573) 490� Payable to related parties 1,374� 1,611� (2,115) (1,056) Accounts payable and accrued expenses 4,110� 5,145� 11,589� 7,469� Deferred income � (104) � (104) � (313) � (313) Net cash provided by operating activities � 20,781� � 16,024� � 30,142� � 25,708� � Cash flows from investing activities: Insurance proceeds from related parties -� -� 3,500� -� Purchase of fixed assets (4,087) (3,864) (8,755) (11,330) Capitalization of software development costs (3,358) (5,876) (11,658) (15,399) Capitalization of patents and related defense costs (436) (589) (1,011) (1,688) Proceeds from sale of investments � -� � 5,840� � -� � 5,840� Net cash used in investing activities � (7,881) � (4,489) � (17,924) � (22,577) � Cash flows from financing activities: Purchase of Class A common stock -� (9,504) -� (28,941) Proceeds from exercises of stock options and warrants 52� 121� 421� 433� Excess tax benefit from stock based-comp 8� -� 47� -� Receivable from broker on stock option exercises � -� � -� � -� � -� Net cash provided by (used in) financing activities � 60� � (9,383) � 468� � (28,508) � Net increase (decrease) in cash and cash equivalents � 12,960� � 2,152� � 12,686� � (25,377) � Cash and cash equivalents at beginning of period 37,495� 20,567� 37,070� 19,884� Reverse repurchase agreements with related parties at beginning of period � 140,666� � 161,592� � 141,365� � 189,804� Total cash and cash equivalents at beginning of period � 178,161� � 182,159� � 178,435� � 209,688� � Cash and cash equivalents at end of period 94,149� 12,291� 94,149� 12,291� Reverse repurchase agreements with related parties at end of period � 96,972� � 172,020� � 96,972� � 172,020� Total cash and cash equivalents at end of period $ 191,121� $ 184,311� $ 191,121� $ 184,311� � Supplemental cash information: Cash paid for income taxes $ 46� -� $ 145� -� Dividend distribution to Cantor -� -� 1,500� -� Contribution of license from Cantor -� -� 1,500� -� eSpeed, Inc. & Subsidiaries CONSOLIDATED STATEMENTS OF FREE CASH FLOWS (unaudited) (in thousands) � Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, � 2006� � 2005� � 2006� � 2005� � Non-GAAP income before income taxes $ 1,956� $ 2,827� $ 7,125� $ 9,925� � Depreciation and amortization 8,888� 7,880� 27,741� 22,050� Other non-cash and non-operating items � (1,738) � (496) � (3,265) � (6,425) Non-GAAP income before income taxes adjusted for depreciation, amortization and other � 9,106� � 10,211� � 31,601� � 25,550� � � Income tax (provision) benefit on non-GAAP operating income (739) (827) (2,695) (3,379) Income tax benefit (provision) on non-operating income (loss) 1,045� 367� 2,001� 3,105� Deferred income tax expense (223) 741� (825) 298� Tax benefit from stock option exercises 13� 25� 106� 109� Income taxes paid � 46� � -� � 145� � -� Decrease (Increase) in current income tax payable 142� 306� (1,268) 133� � Changes in related party receivable and payable, net 5,306� (145) (6,359) (7,243) Changes in other operating assets and liabilities, net 6,617� 6,030� 6,558� 7,646� Charitable contribution Re: 9/11 � (389) � (378) � (389) � (378) Net cash provided by operating activities � 20,782� � 16,024� � 30,143� � 25,708� � Insurance proceeds from related parties -� -� 3,500� -� Purchases of fixed assets (4,087) (3,864) (8,755) (11,330) Capitalization of software development costs (3,358) (5,876) (11,658) (15,399) Capitalization of patents and related defense costs (436) (589) (1,011) (1,688) Proceeds from sale of investments � -� � 5,840� � -� � 5,840� Free cash flows � 12,901� � 11,535� � 12,219� � 3,131� � Related party receivable and payable, net � (5,306) � 145� � 6,359� � 7,243� Free cash flows, net of related party activity $ 7,595� $ 11,680� $ 18,578� $ 10,374� eSpeed, Inc. and Subsidiaries RECONCILIATION of NON-GAAP FINANCIAL MEASURES TO GAAP (unaudited) (in thousands) � Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, � 2006� � 2005� � 2006� � 2005� � Total non-GAAP revenues $ 38,040� $ 37,757� $ 115,646� $ 114,116� Insurance proceeds [a] -� -� 3,500� -� Tax settlement [b] -� -� 399� -� Legal settlement [c] 36� -� 36� -� Gain on sale of investments [d] � -� � 1,015� � -� � 1,015� Total GAAP revenues $ 38,076� $ 38,772� $ 119,581� $ 115,131� � Total non-GAAP operating expenses $ 36,084� $ 34,930� $ 108,521� $ 104,191� Amortization of business partner and non-employee securities [e] -� 50� 19� 310� Litigation costs [f] 850� 704� 2,387� 3,722� Tax settlement [g] 237� -� 36� -� Legal settlement [h] (700) -� (700) -� Accelerated amortization [i] -� -� 1,162� -� Office relocation costs [j] -� -� 3,907� -� Acquisition related costs [k] 2,026� -� 2,026� 4,124� Charitable contribution Re: 9/11[l] � 389� � 378� � 389� � 378� Total GAAP operating expenses $ 38,886� $ 36,062� $ 117,747� $ 112,725� � Non-GAAP income before income taxes $ 1,956� $ 2,827� $ 7,125� $ 9,925� Sum of reconciling items = [a] + [b] + [c] + [d] - [e] - [f] - [g] - [h] - [I] - [j] - [k] -[l] � (2,766) � (117) � (5,291) � (7,519) GAAP (loss) income before income taxes $ (810) $ 2,710� $ 1,834� $ 2,406� � Non-GAAP income tax provision $ 739� $ 827� $ 2,695� $ 3,379� Income tax expense on non-operating income [m] � (1,045) � 10� � (2,001) � (2,727) GAAP income tax provision $ (306) $ 837� $ 694� $ 652� � Non-GAAP net operating income $ 1,217� $ 2,000� $ 4,430� $ 6,546� Sum of reconciling items = [a] + [b] + [c] + [d] - [e] - [f] - [g] - [h] - [I] - [j] - [k] -[l] -[m] � (1,721) � (127) � (3,290) � (4,792) GAAP net (loss) income $ (504) $ 1,873� $ 1,140� $ 1,754� eSpeed, Inc. and Subsidiaries Quarterly Market Activity Report � The following table provides certain volume and transaction count information on the eSpeed system for the periods indicated. � � � � � � % Change� % Change� 3Q05 4Q05 1Q06 2Q06 3Q06 3Q06 vs 2Q06 3Q06 vs 3Q05 Volume (in billions) Fully Electronic Volume - Excluding New Products 8,014� 7,500� 8,957� 10,235� 9,381� (8.3%) 17.1% Fully Electronic Volume - New Products* 376� 539� 524� 744� 1,179� 58.4% 213.6% Total Fully Electronic Volume 8,390� 8,039� 9,481� 10,979� 10,560� (3.8%) 25.9% � Voice/Screen-Assisted Volume 12,517� 11,763� 13,388� 14,201� 14,115� (0.6%) 12.8% � � � � � � � Total Volume 20,907� 19,802� 22,869� 25,180� 24,675� (2.0%) 18.0% � � Transaction Count Fully Electronic Transactions - Excluding New Products 1,642,579� 1,640,167� 1,971,347� 2,035,458� 1,687,779� (17.1%) 2.8% Fully Electronic Transactions - New Products* 115,483� 111,801� 131,700� 138,421� 140,539� 1.5% 21.7% Total Fully Electronic Transactions 1,758,062� 1,751,968� 2,103,047� 2,173,879� 1,828,318� (15.9%) 4.0% � Voice/Screen-Assisted Transactions 270,494� 239,984� 298,822� 271,368� 250,097� (7.8%) (7.5%) � � � � � � � Total Transactions 2,028,556� 1,991,952� 2,401,869� 2,445,247� 2,078,415� (15.0%) 2.5% � � � � � � � � eSpeed Equities Direct Access (Number of Shares Traded In Millions) 154� 147� 203� 171� 212� 24.3% 37.5% � Trading Days 64� 61� 62� 63� 63� � * New Products defined as Foreign Exchange, Interest Rate Swaps, Repos and Futures. CBOT Futures volume calculated based on per contract notional value of $200,000 for the two year contract and $100,000 for all others. � Global Interest Rate Futures Volume (1) CBOT - US Treasury Contracts 109,470,625� 101,854,952� 127,606,543� 128,443,758� 126,285,125� (1.7%) 15.4% CME - Euro $ Contracts 105,199,005� 97,306,869� 117,284,097� 127,350,219� 127,101,116� (0.2%) 20.8% EUREX - Bund Contracts 66,780,116� 68,817,862� 85,217,459� 88,078,646� 72,591,730� (17.6%) 8.7% � Fed UST Primary Dealer Volume (in billions) (2) UST Volume 34,554� 32,820� 34,810� 33,688� 32,171� (4.5%) (6.9%) Average Daily UST Volume 540� 538� 561� 535� 511� (4.5%) (5.4%) � � NYSE - Volume (shares traded) - in millions (3) 98,074� 105,879� 108,447� 121,582� 108,825� (10.5%) 11.0% Transaction Value - in millions 3,513,352� 3,738,882� 4,072,426� 4,627,787� 3,941,583� (14.8%) 12.2% � NASDAQ - Volume (shares traded) - in millions (4) 104,927� 110,647� 128,566� 134,155� 116,510� (13.2%) 11.0% Transaction Value - in millions 2,353,027� 2,584,578� 3,070,980� 3,031,230� 2,587,538� (14.6%) 10.0% � Sources: (1) Futures Industry Association - Monthly Volume Report - (www.cbot.com, www.cme.com, www.eurexchange.com) (2) www.ny.frb.org/pihome/statistics/dealer - Federal Reserve Bank (3) NYSE - www.nyse.com (4) NASDAQ - www.marketdata.nasdaq.com Trading Days 2007� � Q1� Q2� Q3� Q4� 62� 63� 63� 62� � 2006� � Q1� Q2� Q3� Q4� 62� 63� 63� 62� 2005� � Q1� Q2� Q3� Q4� 61� 64� 64� 61� eSpeed, Inc. (NASDAQ: ESPD), a leading developer of electronic marketplaces and related trading technology for the global capital markets, today reported results for the third quarter ended September 30, 2006. Third Quarter 2006 Earnings eSpeed reported a net loss of $0.5 million, or $0.01 per diluted share, for the third quarter of 2006 based on Generally Accepted Accounting Principles (GAAP). To reflect earnings generated from the Company's operations, eSpeed also reported non-GAAP net operating income of $1.2 million, or $0.02 per diluted share. The difference between non-GAAP net operating income and the GAAP net loss for the quarter occurred primarily due to $1.3 million in acquisition-related costs, $0.5 million in patent litigation costs, a $0.2 million charitable contribution to the Cantor Fitzgerald Relief Fund, and a $0.1 million expense related to a tax settlement, partially offset by a payment of $0.5 million relating to a litigation settlement. All of these differences were net of tax. For comparative purposes, eSpeed reported GAAP net income of $1.9 million, or $0.04 per diluted share, for the third quarter 2005. For the same period, the Company reported non-GAAP net operating income of $2.0 million, or $0.04 per diluted share. The difference between non-GAAP net operating income and GAAP net income for the third quarter 2005 was due to $0.5 million for patent litigation costs, a $0.3 million charitable contribution to the Cantor Fitzgerald Relief Fund, a non-cash charge of $0.03 million related to business partner securities, and $0.6 million gain on investment, all net of tax. Third Quarter 2006 Revenues eSpeed's total GAAP and non-GAAP operating revenues for the third quarter of 2006 were $38.1 million. The Company reported GAAP revenues of $38.8 million for the third quarter 2005 and non-GAAP revenues of $37.8 million. The difference between GAAP and non-GAAP revenues for the third quarter of 2005 was due to a $1.0 million gain on the sale of an investment. All of these differences were net of tax. Fully electronic revenues were $16.8 million in the third quarter of 2006 compared to $18.9 million for the third quarter of 2005. Revenues from Software Solutions in the third quarter of 2006 were $11.3 million versus $9.9 million in the year ago period. Voice assisted and screen assisted revenues totaled $7.5 million in the third quarter of 2006 compared with $7.3 million in the third quarter of 2005. Non-GAAP pre-tax operating margin was 5.1 percent in the third quarter of 2006. See "Non-GAAP Financial Measures" below for a detailed description of the Company's non-GAAP financial measures. Third Quarter 2006 Volume and Transactions on the eSpeed System Fully electronic volume on the eSpeed system, excluding new products, was $9.4 trillion for the third quarter of 2006, up 17.1 percent from $8.0 trillion in the third quarter of 2005. eSpeed's combined voice-assisted and screen-assisted volume for the third quarter of 2006 was $14.1 trillion, an increase of 12.8 percent from $12.5 trillion in the third quarter of 2005. Fully electronic volume on the eSpeed system for new products, which the Company defines as foreign exchange, interest rate swaps, futures and repos, was $1.2 trillion for the third quarter of 2006, up 213.6 percent against the $376 billion reported in the third quarter of 2005. Cash Flow & Cash eSpeed generated cash flow from operations of $20.8 million during the third quarter of 2006, compared with $16.0 million during the third quarter of 2005. The Company also reports free cash flow, which it defines as cash from operations less net cash used in investing activities, including capital expenditures. eSpeed's free cash flow was $12.9 million for the third quarter of 2006 and $11.5 million in the year-earlier period. Excluding related party receivables and payables, free cash flow for the third quarter of 2006 was $7.6 million compared with $11.7 million in the year-ago quarter. As of September 30, 2006, eSpeed's cash and cash equivalents were approximately $191.1 million. Outlook For the fourth quarter of 2006, eSpeed expects to generate non-GAAP operating revenues in excess of $39 million and expects non-GAAP net operating income to be in the range of $0.03 to $0.04 per diluted share. For full year 2006, eSpeed expects to generate non-GAAP operating revenues of approximately $155 million, up from the previous outlook of $154 million. The Company expects non-GAAP operating expenses to be in the range of $144 million to $145 million, an improvement from the previously stated range of $144 million to $147 million. eSpeed currently expects full year 2006 non-GAAP net operating income to be in the range of $0.12 to $0.13 per diluted share, which is an increase from the prior range of $0.10 to $0.12 per diluted share. The Company will host a conference call on Tuesday, November 7, 2006 at 8:30 a.m EST, to discuss the above results. To listen to the call via audio webcast, please visit www.espeed.com. Please note: listeners must have a Real Media or Windows Media plug in and headphones or speakers to listen to the webcast. Non-GAAP Financial Measures To supplement eSpeed's consolidated financial statements presented in accordance with GAAP and to better reflect the Company's quarter-over-quarter and comparative year-over-year operating performance, eSpeed uses non-GAAP financial measures of revenues, net income and earnings per share, which are adjusted to exclude certain expenses and gains. In addition, the Company provides a computation of free cash flow. These non-GAAP financial measurements do not replace the presentation of eSpeed's GAAP financial results but are provided to improve overall understanding of the Company's current financial performance and its prospects for the future. Specifically, eSpeed believes the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to the Company's financial condition and results from operations. In addition, eSpeed's management uses these measures for reviewing the Company's financial results and evaluating eSpeed's financial performance. For the third quarter of 2006, the difference between GAAP net income and non-GAAP net operating income was ($1.7) million, net of tax. eSpeed considers "non-GAAP net operating income" to be after-tax income generated from the Company's continuing operations excluding certain non-recurring or non-core items such as, but not limited to, asset impairments, litigation judgments, costs or settlements, restructuring charges, costs related to potential acquisitions, charitable contributions, insurance proceeds, business partner securities, gains or losses on investments and similar events. The amortization of patent costs and associated licensing fees (including those made in settlement of litigation) from such patents are generally treated as operating items. Material judgments or settlement amounts paid or received and impairments to all or a portion of such assets are generally treated as non-operating items. Management does not provide guidance of GAAP net income because certain items identified as excluded from non-GAAP net operating income are difficult to forecast. About eSpeed, Inc. eSpeed, Inc. (NASDAQ: ESPD) is a leader in developing and deploying electronic marketplaces and related trading technology that offers traders access to the most liquid, efficient and neutral financial markets in the world. eSpeed operates multiple buyer, multiple seller real-time electronic marketplaces for the global capital markets, including the world's largest government bond markets and other fixed income and foreign exchange marketplaces. eSpeed's suite of marketplace tools provides end-to-end transaction solutions for the purchase and sale of financial products over eSpeed's global private network or via the Internet. eSpeed's neutral platform, reliable network, straight-through processing and superior products make it the trusted source for electronic trading at the world's largest fixed income and foreign exchange trading firms and major exchanges. To learn more, please visit www.espeed.com. Discussion of Forward-Looking Statements by eSpeed, Inc. The information in this press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, our relationship with Cantor Fitzgerald and its affiliates, the costs and expenses of developing, maintaining and protecting our intellectual property, including judgments or settlements paid or received and their related costs, the possibility of future losses and negative cash flow from operations, the effect of market conditions, including trading volume and volatility, our pricing strategy and that of our competitors, our ability to develop new products and services, to enter new markets, to secure and maintain market share, to enter into marketing and strategic alliances, to hire new personnel, to expand the use of our electronic system, to induce clients to use our marketplaces and services and to effectively manage any growth we achieve, the effects of the attacks on the World Trade Center on September 11, 2001, and other factors that are discussed under "Risk Factors" in eSpeed's Annual Report on Form 10-K filed with the Securities and Exchange Commission. We believe that all forward-looking statements are based upon reasonable assumptions when made; however, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made, and we undertake no obligation to update these statements in light of subsequent events or developments. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in forward-looking statements. -0- *T eSpeed, Inc and Subsidiaries CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, except share and per share data) September 30, December 31, 2006 2005 ---------------------------- (Unaudited) Assets Cash and cash equivalents $ 94,149 $ 37,070 Reverse repurchase agreements with related parties 96,972 141,365 ---------------------------- Total cash and cash equivalents 191,121 178,435 Fixed assets, net 56,732 58,291 Investments 7,776 7,742 Goodwill 12,184 12,184 Other intangible assets, net 8,479 11,356 Receivables from related parties 4,633 4,345 Other assets 13,231 8,581 ---------------------------- Total assets $ 294,156 $ 280,934 ============================ Liabilities and Stockholders' Equity Current liabilities: Payables to related parties 5,472 7,588 Accounts payable and accrued liabilities 30,473 19,649 ---------------------------- Total current liabilities 35,945 27,237 Deferred income 7,280 7,593 ---------------------------- Total liabilities 43,225 34,830 ---------------------------- Commitments and contingencies - - Stockholders' Equity: Class A common stock, par value $.01 per share; 200,000,000 shares authorized; 36,201,187 and 34,387,380 shares issued at September 30, 2006 and December 31, 2005, respectively 362 343 Class B common stock, par value $.01 per share; 100,000,000 shares authorized; 20,497,800 and 22,139,270 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively, convertible to Class A common stock 205 221 Additional paid-in capital 299,943 294,987 Unearned stock-based compensation (1,720) (1,592) Treasury stock, at cost; 6,449,991 and 6,488,047 shares of Class A common stock at September 30, 2006 and December 31, 2005, respectively (62,132) (62,486) Retained earnings 14,273 14,631 ---------------------------- Total stockholders' equity 250,931 246,104 ---------------------------- Total liabilities and stockholders' equity $ 294,156 $ 280,934 ============================ *T -0- *T eSpeed, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME IN ACCORDANCE WITH GAAP (unaudited) (in thousands, except per share data) Three Months Ended Nine Months Ended ------------------- ------------------- September September September September 30, 30, 30, 30, 2006 2005 2006 2005 --------- --------- --------- --------- Revenues: Transaction revenues Fully electronic transactions with related parties $ 14,598 $ 18,933 $ 45,983 $ 58,174 Fully electronic transactions with unrelated parties 2,154 - 4,793 - --------- --------- --------- --------- Total fully electronic transactions 16,752 18,933 50,776 58,174 Voice-assisted brokerage transactions with related parties 6,125 6,190 20,028 19,128 Screen-assisted open outcry transactions with related parties 1,398 1,121 4,262 1,931 --------- --------- --------- --------- Total transaction revenues 24,275 26,244 75,066 79,233 --------- --------- --------- --------- Software Solutions fees from related parties 7,417 6,099 22,805 18,860 Software Solutions and licensing fees from unrelated parties 3,914 3,770 11,285 11,712 Insurance recovery from related parties - - 3,500 - Gain on sale of investments - 1,015 - 1,015 Interest income 2,470 1,644 6,925 4,311 --------- --------- --------- --------- Total revenues 38,076 38,772 119,581 115,131 --------- --------- --------- --------- Expenses: Compensation and employee benefits 13,616 13,048 39,846 38,989 Amortization of software development costs and other intangibles 5,738 5,206 18,255 14,376 Other occupancy and equipment 8,130 7,712 28,409 22,657 Professional and consulting fees 2,639 2,018 6,774 7,088 Communications and client networks 2,088 1,931 6,115 5,569 Marketing 145 390 742 1,252 Administrative fees to related parties 2,616 3,216 9,713 10,515 Amortization of business partner and non-employee securities - 50 19 310 Acquisition related costs 2,026 - 2,026 4,124 Other expenses 1,888 2,491 5,848 7,845 --------- --------- --------- --------- Total operating expenses 38,886 36,062 117,747 112,725 --------- --------- --------- --------- --------- --------- --------- --------- (Loss) income before income taxes (810) 2,710 1,834 2,406 --------- --------- --------- --------- (Benefit) provision for income taxes (306) 837 694 652 --------- --------- --------- --------- Net (loss) income $ (504) $ 1,873 $ 1,140 $ 1,754 ========= ========= ========= ========= Per share data: Basic (loss) earnings per share $ (0.01) $ 0.04 $ 0.02 $ 0.03 ========= ========= ========= ========= Diluted (loss) earnings per share $ (0.01) $ 0.04 $ 0.02 $ 0.03 ========= ========= ========= ========= Basic weighted average shares of common stock outstanding 50,176 50,998 50,243 51,805 ========= ========= ========= ========= Diluted weighted average shares of common stock outstanding 50,176 51,697 51,206 52,586 ========= ========= ========= ========= *T -0- *T eSpeed, Inc. and Subsidiaries NON-GAAP CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share data) Three Months Ended Nine Months Ended ------------------- ------------------- September September September September 30, 30, 30, 30, 2006 2005 2006 2005 --------- --------- --------- --------- Revenues: Transaction revenues Fully electronic transactions with related parties $ 14,598 $ 18,933 $ 45,983 $ 58,174 Fully electronic transactions with unrelated parties 2,154 - 4,793 - --------- --------- --------- --------- Total fully electronic transactions 16,752 18,933 50,776 58,174 Voice-assisted brokerage transactions with related parties 6,125 6,190 20,028 19,128 Screen-assisted open outcry transactions with related parties 1,398 1,121 4,262 1,931 --------- --------- --------- --------- Total transaction revenues 24,275 26,244 75,066 79,233 --------- --------- --------- --------- Software Solutions fees from related parties 7,417 6,099 22,805 18,860 Software Solutions and licensing fees from unrelated parties 3,914 3,770 11,285 11,712 Interest income 2,434 1,644 6,490 4,311 --------- --------- --------- --------- Total non-GAAP revenues 38,040 37,757 115,646 114,116 --------- --------- --------- --------- Expenses: Compensation and employee benefits 13,379 13,048 39,810 38,989 Amortization of software development costs and other intangibles 5,738 5,206 17,092 14,376 Other occupancy and equipment 8,131 7,712 24,503 22,657 Professional and consulting fees 1,789 1,314 4,387 3,366 Communications and client networks 2,088 1,931 6,115 5,569 Marketing 145 390 742 1,252 Administrative fees to related parties 2,616 3,216 9,713 10,515 Other expenses 2,198 2,113 6,159 7,467 --------- --------- --------- --------- Total non-GAAP operating expenses 36,084 34,930 108,521 104,191 --------- --------- --------- --------- --------- --------- --------- --------- Non-GAAP income before income taxes 1,956 2,827 7,125 9,925 --------- --------- --------- --------- Non-GAAP income tax provision 739 827 2,695 3,379 --------- --------- --------- --------- Non-GAAP net operating income 1,217 2,000 4,430 6,546 ========= ========= ========= ========= Non-operating (loss) income: Charitable contribution Re: 9/11, net of tax (242) (262) (242) (262) Amortization of business partner and non-employee securities, net of tax - (34) (11) (200) Litigation costs, net of tax (530) (450) (1,485) (2,351) Acquisition related costs, net of tax (1,260) - (1,260) (2,598) Legal settlement, net of tax 458 458 - Gain on sale of investment, net of tax - 619 - 619 Accelerated depreciation, net of tax - - (689) - Office relocation cost, net of tax - - (2,360) - Tax settlement, net of tax (147) - 226 - Insurance recovery from related parties, net of tax - - 2,073 - --------- --------- --------- --------- Total non-operating loss (1,721) (127) (3,290) (4,792) --------- --------- --------- --------- Net (loss) income $ (504) $ 1,873 $ 1,140 $ 1,754 ========= ========= ========= ========= Per share data: Basic non-GAAP income before income taxes per share $ 0.04 $ 0.06 $ 0.14 $ 0.19 Basic non-GAAP tax provision per share $ 0.02 $ 0.02 $ 0.05 $ 0.07 --------- --------- --------- --------- Basic non-GAAP net operating income per share $ 0.02 $ 0.04 $ 0.09 $ 0.12 Basic non-operating (loss) income per share $ (0.03) $ (0.00) $ (0.07) $ (0.09) --------- --------- --------- --------- Basic GAAP (loss) earnings per share $ (0.01) $ 0.04 $ 0.02 $ 0.03 ========= ========= ========= ========= Diluted non-GAAP income before income taxes per share $ 0.04 $ 0.06 $ 0.14 $ 0.19 Diluted non-GAAP tax provision per share $ 0.02 $ 0.02 $ 0.05 $ 0.07 --------- --------- --------- --------- Diluted non-GAAP net operating income per share $ 0.02 $ 0.04 $ 0.09 $ 0.12 Diluted non-operating (loss) income per share $ (0.03) $ (0.00) $ (0.07) $ (0.09) --------- --------- --------- --------- Diluted GAAP (loss) earnings per share $ (0.01) $ 0.04 $ 0.02 $ 0.03 ========= ========= ========= ========= Basic weighted average shares of common stock outstanding 50,176 50,998 50,243 51,805 ========= ========= ========= ========= Diluted weighted average shares of common stock outstanding 50,176 51,697 51,206 52,586 ========= ========= ========= ========= Additional data: Non-GAAP pre-tax operating margin 5.1% 7.5% 6.2% 8.7% ========= ========= ========= ========= *T -0- *T eSpeed, Inc. & Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three Months Ended Nine Months Ended ------------------- ------------------- September September September September 30, 30, 30, 30, 2006 2005 2006 2005 --------- --------- --------- --------- Cash flows from operating activities: Net (loss) income $ (504) $ 1,873 $ 1,140 $ 1,754 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,888 8,190 27,741 22,050 Insurance recovery from related parties - - (3,500) - Equity in net (income) loss of unconsolidated investments 11 (10) (34) 5 Gain on sale of investments - (1,015) - (1,015) Deferred income tax (benefit) expense (223) 741 (825) 298 Stock-based compensation 635 276 1,717 1,918 Tax benefit from stock- based compensation 13 25 106 109 Excess tax benefit from stock based-comp (8) - (47) - Issuance of securities under employee benefit plan - 61 - 186 Changes in operating assets and liabilities: Receivable from related parties 3,932 (1,757) (744) (6,187) Other assets 2,657 988 (4,573) 490 Payable to related parties 1,374 1,611 (2,115) (1,056) Accounts payable and accrued expenses 4,110 5,145 11,589 7,469 Deferred income (104) (104) (313) (313) --------- --------- --------- --------- Net cash provided by operating activities 20,781 16,024 30,142 25,708 --------- --------- --------- --------- Cash flows from investing activities: Insurance proceeds from related parties - - 3,500 - Purchase of fixed assets (4,087) (3,864) (8,755) (11,330) Capitalization of software development costs (3,358) (5,876) (11,658) (15,399) Capitalization of patents and related defense costs (436) (589) (1,011) (1,688) Proceeds from sale of investments - 5,840 - 5,840 --------- --------- --------- --------- Net cash used in investing activities (7,881) (4,489) (17,924) (22,577) --------- --------- --------- --------- Cash flows from financing activities: Purchase of Class A common stock - (9,504) - (28,941) Proceeds from exercises of stock options and warrants 52 121 421 433 Excess tax benefit from stock based-comp 8 - 47 - Receivable from broker on stock option exercises - - - - --------- --------- --------- --------- Net cash provided by (used in) financing activities 60 (9,383) 468 (28,508) --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 12,960 2,152 12,686 (25,377) --------- --------- --------- --------- Cash and cash equivalents at beginning of period 37,495 20,567 37,070 19,884 Reverse repurchase agreements with related parties at beginning of period 140,666 161,592 141,365 189,804 --------- --------- --------- --------- Total cash and cash equivalents at beginning of period 178,161 182,159 178,435 209,688 --------- --------- --------- --------- Cash and cash equivalents at end of period 94,149 12,291 94,149 12,291 Reverse repurchase agreements with related parties at end of period 96,972 172,020 96,972 172,020 --------- --------- --------- --------- Total cash and cash equivalents at end of period $191,121 $184,311 $191,121 $184,311 ========= ========= ========= ========= Supplemental cash information: Cash paid for income taxes $ 46 - $ 145 - Dividend distribution to Cantor - - 1,500 - Contribution of license from Cantor - - 1,500 - *T -0- *T eSpeed, Inc. & Subsidiaries CONSOLIDATED STATEMENTS OF FREE CASH FLOWS (unaudited) (in thousands) Three Months Ended Nine Months Ended ------------------- ------------------- September September September September 30, 30, 30, 30, 2006 2005 2006 2005 --------- --------- --------- --------- Non-GAAP income before income taxes $ 1,956 $ 2,827 $ 7,125 $ 9,925 Depreciation and amortization 8,888 7,880 27,741 22,050 Other non-cash and non- operating items (1,738) (496) (3,265) (6,425) --------- --------- --------- --------- Non-GAAP income before income taxes adjusted for depreciation, amortization and other 9,106 10,211 31,601 25,550 --------- --------- --------- --------- Income tax (provision) benefit on non-GAAP operating income (739) (827) (2,695) (3,379) Income tax benefit (provision) on non-operating income (loss) 1,045 367 2,001 3,105 Deferred income tax expense (223) 741 (825) 298 Tax benefit from stock option exercises 13 25 106 109 Income taxes paid 46 - 145 - --------- --------- --------- --------- Decrease (Increase) in current income tax payable 142 306 (1,268) 133 Changes in related party receivable and payable, net 5,306 (145) (6,359) (7,243) Changes in other operating assets and liabilities, net 6,617 6,030 6,558 7,646 Charitable contribution Re: 9/11 (389) (378) (389) (378) --------- --------- --------- --------- Net cash provided by operating activities 20,782 16,024 30,143 25,708 --------- --------- --------- --------- Insurance proceeds from related parties - - 3,500 - Purchases of fixed assets (4,087) (3,864) (8,755) (11,330) Capitalization of software development costs (3,358) (5,876) (11,658) (15,399) Capitalization of patents and related defense costs (436) (589) (1,011) (1,688) Proceeds from sale of investments - 5,840 - 5,840 --------- --------- --------- --------- Free cash flows 12,901 11,535 12,219 3,131 --------- --------- --------- --------- Related party receivable and payable, net (5,306) 145 6,359 7,243 --------- --------- --------- --------- Free cash flows, net of related party activity $ 7,595 $ 11,680 $ 18,578 $ 10,374 ========= ========= ========= ========= *T -0- *T eSpeed, Inc. and Subsidiaries RECONCILIATION of NON-GAAP FINANCIAL MEASURES TO GAAP (unaudited) (in thousands) Three Months Ended Nine Months Ended ------------------- ------------------- September September September September 30, 30, 30, 30, 2006 2005 2006 2005 --------- --------- --------- --------- Total non-GAAP revenues $ 38,040 $ 37,757 $115,646 $114,116 Insurance proceeds (a) - - 3,500 - Tax settlement (b) - - 399 - Legal settlement (c) 36 - 36 - Gain on sale of investments (d) - 1,015 - 1,015 --------- --------- --------- --------- Total GAAP revenues $ 38,076 $ 38,772 $119,581 $115,131 --------- --------- --------- --------- Total non-GAAP operating expenses $ 36,084 $ 34,930 $108,521 $104,191 Amortization of business partner and non-employee securities (e) - 50 19 310 Litigation costs (f) 850 704 2,387 3,722 Tax settlement (g) 237 - 36 - Legal settlement (h) (700) - (700) - Accelerated amortization (i) - - 1,162 - Office relocation costs (j) - - 3,907 - Acquisition related costs (k) 2,026 - 2,026 4,124 Charitable contribution Re: 9/11(l) 389 378 389 378 --------- --------- --------- --------- Total GAAP operating expenses $ 38,886 $ 36,062 $117,747 $112,725 --------- --------- --------- --------- Non-GAAP income before income taxes $ 1,956 $ 2,827 $ 7,125 $ 9,925 Sum of reconciling items = (a) + (b) + (c) + (d) - (e) - (f) - (g) - (h) - (I) - (j) - (k) -(l) (2,766) (117) (5,291) (7,519) --------- --------- --------- --------- GAAP (loss) income before income taxes $ (810) $ 2,710 $ 1,834 $ 2,406 --------- --------- --------- --------- Non-GAAP income tax provision $ 739 $ 827 $ 2,695 $ 3,379 Income tax expense on non- operating income (m) (1,045) 10 (2,001) (2,727) --------- --------- --------- --------- GAAP income tax provision $ (306) $ 837 $ 694 $ 652 --------- --------- --------- --------- Non-GAAP net operating income $ 1,217 $ 2,000 $ 4,430 $ 6,546 Sum of reconciling items = (a) + (b) + (c) + (d) - (e) - (f) - (g) - (h) - (I) - (j) - (k) -(l) -(m) (1,721) (127) (3,290) (4,792) --------- --------- --------- --------- GAAP net (loss) income $ (504) $ 1,873 $ 1,140 $ 1,754 --------- --------- --------- --------- *T -0- *T eSpeed, Inc. and Subsidiaries Quarterly Market Activity Report The following table provides certain volume and transaction count information on the eSpeed system for the periods indicated. ------------------------------------- 3Q05 4Q05 1Q06 ------------------------------------- Volume (in billions) --------------------------------- Fully Electronic Volume - Excluding New Products 8,014 7,500 8,957 Fully Electronic Volume - New Products* 376 539 524 ------------------------------------- Total Fully Electronic Volume 8,390 8,039 9,481 ------------------------------------- Voice/Screen-Assisted Volume 12,517 11,763 13,388 ------------------------------------- Total Volume 20,907 19,802 22,869 ===================================== Transaction Count --------------------------------- Fully Electronic Transactions - Excluding New Products 1,642,579 1,640,167 1,971,347 Fully Electronic Transactions - New Products* 115,483 111,801 131,700 ------------------------------------- Total Fully Electronic Transactions 1,758,062 1,751,968 2,103,047 ------------------------------------- Voice/Screen-Assisted Transactions 270,494 239,984 298,822 ------------------------------------- Total Transactions 2,028,556 1,991,952 2,401,869 ===================================== ------------------------------------- eSpeed Equities Direct Access (Number of Shares Traded In Millions) 154 147 203 ===================================== Trading Days 64 61 62 * New Products defined as Foreign Exchange, Interest Rate Swaps, Repos and Futures. CBOT Futures volume calculated based on per contract notional value of $200,000 for the two year contract and $100,000 for all others. Global Interest Rate Futures Volume (1) CBOT - US Treasury Contracts 109,470,625 101,854,952 127,606,543 CME - Euro $ Contracts 105,199,005 97,306,869 117,284,097 EUREX - Bund Contracts 66,780,116 68,817,862 85,217,459 Fed UST Primary Dealer Volume (in billions) (2) UST Volume 34,554 32,820 34,810 Average Daily UST Volume 540 538 561 NYSE - Volume (shares traded) - in millions (3) 98,074 105,879 108,447 Transaction Value - in millions 3,513,352 3,738,882 4,072,426 NASDAQ - Volume (shares traded) - in millions (4) 104,927 110,647 128,566 Transaction Value - in millions 2,353,027 2,584,578 3,070,980 % Change % Change ------------------------------------------- 3Q06 vs 3Q06 vs 2Q06 3Q06 2Q06 3Q05 ------------------------- Volume (in billions) --------------------------- Fully Electronic Volume - Excluding New Products 10,235 9,381 (8.3%) 17.1% Fully Electronic Volume - New Products* 744 1,179 58.4% 213.6% ------------------------------------------- Total Fully Electronic Volume 10,979 10,560 (3.8%) 25.9% ------------------------------------------- Voice/Screen-Assisted Volume 14,201 14,115 (0.6%) 12.8% ------------------------------------------- Total Volume 25,180 24,675 (2.0%) 18.0% =========================================== Transaction Count --------------------------- Fully Electronic Transactions - Excluding New Products 2,035,458 1,687,779 (17.1%) 2.8% Fully Electronic Transactions - New Products* 138,421 140,539 1.5% 21.7% ------------------------------------------- Total Fully Electronic Transactions 2,173,879 1,828,318 (15.9%) 4.0% ------------------------------------------- Voice/Screen-Assisted Transactions 271,368 250,097 (7.8%) (7.5%) ------------------------------------------- Total Transactions 2,445,247 2,078,415 (15.0%) 2.5% =========================================== ------------------------------------------- eSpeed Equities Direct Access (Number of Shares Traded In Millions) 171 212 24.3% 37.5% =========================================== Trading Days 63 63 * New Products defined as Foreign Exchange, Interest Rate Swaps, Repos and Futures. CBOT Futures volume calculated based on per contract notional value of $200,000 for the two year contract and $100,000 for all others. Global Interest Rate Futures Volume (1) CBOT - US Treasury Contracts 128,443,758 126,285,125 (1.7%) 15.4% CME - Euro $ Contracts 127,350,219 127,101,116 (0.2%) 20.8% EUREX - Bund Contracts 88,078,646 72,591,730 (17.6%) 8.7% Fed UST Primary Dealer Volume (in billions) (2) UST Volume 33,688 32,171 (4.5%) (6.9%) Average Daily UST Volume 535 511 (4.5%) (5.4%) NYSE - Volume (shares traded) - in millions (3) 121,582 108,825 (10.5%) 11.0% Transaction Value - in millions 4,627,787 3,941,583 (14.8%) 12.2% NASDAQ - Volume (shares traded) - in millions (4) 134,155 116,510 (13.2%) 11.0% Transaction Value - in millions 3,031,230 2,587,538 (14.6%) 10.0% Sources: (1) Futures Industry Association - Monthly Volume Report - (www.cbot.com, www.cme.com, www.eurexchange.com) (2) www.ny.frb.org/pihome/statistics/dealer - Federal Reserve Bank (3) NYSE - www.nyse.com (4) NASDAQ - www.marketdata.nasdaq.com *T -0- *T Trading Days ---------------------------------------------------------------------- 2007 ------ Q1 Q2 Q3 Q4 ---- ---- ---- ---- 62 63 63 62 2006 ------ Q1 Q2 Q3 Q4 ---- ---- ---- ---- 62 63 63 62 2005 ------ Q1 Q2 Q3 Q4 ---- ---- ---- ---- 61 64 64 61 *T