eSpeed Reports Fourth Quarter and Full Year 2006 Results

eSpeed, Inc. (NASDAQ: ESPD), a leading developer of electronic marketplaces and related trading technology for the global capital markets, today reported results for the fourth quarter and full year ended December 31, 2006. Fourth Quarter Earnings eSpeed reported net income of $3.3 million, or $0.06 per diluted share, for the fourth 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 $3.1 million, or $0.06 per diluted share. The difference between non-GAAP net operating income and GAAP net income for the quarter occurred primarily due to a September 11th-related government grant of $1.9 million partially offset by a $1.2 million charge for the impairment of fixed assets and capitalized software costs, $0.5 million in patent litigation costs, and a $0.1 million charge related to an office relocation. All of these differences were net of tax. For comparative purposes, eSpeed reported GAAP net income of $0.3 million, or $0.01 per diluted share, for the fourth quarter of 2005. For the same period, eSpeed reported non-GAAP net operating income of $0.9 million, or $0.02 per diluted share. The difference between non-GAAP net operating income and GAAP net income for the fourth quarter of 2005 was due to a gain from insurance proceeds of $1.1 million and a gain of $0.5 million due to the reversal of previously accrued acquisition costs, offset by a $1.6 million charge for the impairment of fixed assets and capitalized software costs, and $0.6 million in costs related to patent litigation, all net of tax. Full Year Earnings eSpeed reported GAAP net income of $4.4 million, or $0.09 per diluted share, for the full year 2006. For the same timeframe, eSpeed reported non-GAAP net operating income of $7.5 million, or $0.15 per diluted share. The difference between non-GAAP net operating income and GAAP net income for the full year 2006 was primarily due to insurance proceeds of $2.1 million, a September 11th-related government grant of $1.9 million, a payment to eSpeed of $0.5 million relating to a litigation settlement, and a $0.2 million net gain related to tax settlements, partially offset by $2.5 million in expenses relating to the relocation of the Company’s London offices, $2.0 million in patent litigation costs, $1.3 million in acquisition-related costs, a $1.2 million charge for the impairment of fixed assets and capitalized software costs, $0.7 million in accelerated amortization of capitalized software, and a $0.2 million charitable contribution to the Cantor Fitzgerald Relief Fund, all net of tax. For comparative purposes, eSpeed reported GAAP net income of $2.0 million, or $0.04 per diluted share for the full year 2005. For the same period, the Company reported non-GAAP net operating income of $7.4 million, or $0.14 per diluted share. The difference between non-GAAP net operating income and GAAP net income for the full year 2005 included a gain from insurance proceeds of $1.1 million and a gain on investment of $0.6 million, partially offset by litigation costs of $3.0 million, $2.1 million in costs associated with the Company’s attempt to acquire MTS, $1.6 million in charges related to fixed asset and capitalized software, a charitable contribution of $0.3 million, and $0.2 million in amortization of business partner securities, all net of tax. The increases in quarterly and annual GAAP net income were due primarily to higher GAAP revenues more than offsetting higher GAAP expenses. Fourth Quarter Revenues eSpeed reported GAAP revenues of $44.7 million and non-GAAP operating revenues of $41.6 million for the fourth quarter of 2006. The difference between GAAP and non-GAAP revenues for the fourth quarter of 2006 was a September 11th-related government grant of $3.1 million. In comparison, the Company's GAAP revenues for the fourth quarter of 2005 were $37.8 million and its non-GAAP revenues were $36.1 million. The difference between GAAP and non-GAAP revenues for the fourth quarter of 2005 was a $1.7 million gain from insurance proceeds. Fully electronic revenues were $18.2 million in the fourth quarter of 2006 compared to $16.5 million for the fourth quarter of 2005. Revenues from software solutions in the fourth quarter of 2006 were $13.3 million versus $10.8 million in the year ago period. Voice- assisted and screen-assisted revenues totaled $7.4 million in the fourth quarter of 2006 compared with $7.0 million in the fourth quarter of 2005. Non-GAAP pre-tax operating margin was 11.7 percent in the fourth quarter of 2006. The year over year increase in quarterly GAAP revenues was due primarily to higher revenues from Software Solutions and fully electronic transactions as well as the previously mentioned government grant. Full Year Revenues eSpeed reported GAAP revenues of $164.3 million and non-GAAP operating revenues of $157.3 million for the full year 2006. The difference between GAAP and non-GAAP revenues for the full year 2006 was a gain from insurance proceeds of $3.5 million, a September 11th-related government grant of $3.1 million, and $0.4 million in interest income related to the settlement of a tax-related matter. In comparison, the Company reported GAAP revenues of $152.9 million and non-GAAP operating revenues of $150.2 million for the full year 2005. The difference between GAAP and non-GAAP revenues for 2005 was a $1.7 million gain from insurance proceeds and a gain on investment of $1.0 million. Fully electronic revenues were $69.0 million in the full year 2006 compared to $74.7 million for the full year 2005. Revenues from software solutions in the full year 2006 were $47.4 million versus $41.4 million in the year ago period. Voice- assisted and screen-assisted revenues totaled $31.7 million in the full year 2006 compared with $28.1 million in the full year 2005. Non-GAAP pre-tax operating margin was 7.6 percent for the full year 2006. The increase in annual GAAP revenues was due primarily to higher revenues from Software Solutions, interest income, and screen-assisted transactions, as well as the previously mentioned government grant and higher insurance proceeds more than offsetting lower revenues from fully electronic transactions and the gain on investment. See "Non-GAAP Financial Measures" below for a detailed description of the Company’s non-GAAP financial measures. Cash Flow & Cash eSpeed generated cash flow from operations of $6.7 million during the fourth quarter of 2006, and $36.8 million for the full year 2006. This compares with $2.0 million during the fourth quarter of 2005 and $27.7 million for the full year 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 ($3.6) million for the fourth quarter of 2006 and $8.6 million for the full year 2006. In comparison, the Company reported free cash flow of ($5.6) million in the fourth quarter of 2005 and ($2.5) million for the full year 2005. Excluding related party receivables and payables, free cash flow was ($3.9) million for the fourth quarter of 2006 and $14.7 million for the full year 2006, compared with ($10.7) million for the fourth quarter of 2005 and ($0.3) million for the full year 2005. eSpeed reported year over year improvements in the above cash flow metrics primarily due to higher revenues. The Company traditionally has lower cash flow during the fourth quarter due to the payment of annual employee bonuses. During the fourth quarter of 2006, eSpeed repurchased approximately 52.2 thousand shares of the Company's stock for approximately $0.5 million, at an average price per share of $8.92. As of December 31, 2006, eSpeed's cash and cash equivalents were approximately $187.8 million. Fourth Quarter Volume and Transactions on the eSpeed System Fully electronic volume on the eSpeed system, excluding new products, was $9.8 trillion for the fourth quarter of 2006, up 30.8 percent from $7.5 trillion in the fourth quarter of 2005. eSpeed's combined voice-assisted and screen-assisted volume for the fourth quarter of 2006 was $14.0 trillion, an increase of 19.4 percent from $11.8 trillion in the fourth 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 $1.3 trillion for the fourth quarter of 2006, up 147.7 percent against the $540 billion reported in the fourth quarter of 2005. Full Year Volume and Transactions on the eSpeed System Fully electronic volume on the eSpeed system, excluding new products, was $38.4 trillion for the full year 2006, up 32.3 percent from $29.0 trillion in 2005. eSpeed's combined voice-assisted and screen-assisted volume for the full year 2006 was $55.7 trillion, an increase of 44.1 percent from $38.7 trillion in 2005. Fully electronic volume on the eSpeed system for new products was $3.8 trillion for the full year 2006, up 103.6 percent against the $1.9 trillion reported in the prior year. "I am pleased by the performance of our U.S. Treasury business in the fourth quarter in terms of its strong volume growth and improved competitive market position, both sequentially and year-on-year,” said Paul Saltzman, Chief Operating Officer of eSpeed. "This demonstrated that our fixed pricing model along with our commitment to innovative technology and excellence in customer service continues to pay off.” Outlook For the first quarter of 2007, eSpeed expects to generate non-GAAP operating revenues in excess of $40 million and expects non-GAAP net operating income to be in the range of $0.03 to $0.04 per diluted share. For the full year 2007, eSpeed expects to generate non-GAAP operating revenues of approximately $152 million. The Company expects non-GAAP operating expenses to be in the range of $146 million to $148 million. eSpeed expects full year 2007 non-GAAP net operating income to be in the range of $0.05 to $0.07 per diluted share. eSpeed expects lower revenue and net income for 2007 primarily due to the expiration of the Wagner patent on February 20, 2007. After this date, the Company will no longer receive revenue from this source. eSpeed recognized $17.9 million in revenue and $8.2 million in non-GAAP net operating income related to the patent in 2006. "We continue to make discretionary investments in technology and staff to support the expected strong growth in revenues from our affiliated voice brokers like BGC as well as growth from our foreign exchange and futures products,” added Howard W. Lutnick, Chairman, CEO, and President of eSpeed. "In the long run, we expect these investments will allow us to make up for the expired Patent-related revenue.” The Company will host a conference call on Wednesday, February 14, 2007 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 fourth quarter of 2006, the difference between GAAP net income and non-GAAP net operating income was $0.2 million, net of tax. For the full year 2006, the difference between GAAP net income and non-GAAP net operating income was ($3.1) 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 a trusted source for electronic trading at the world's largest fixed income and foreign exchange trading firms and major exchanges. For more information, 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 position, 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, 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 data)   December 31, 2006 December 31, 2005 (Unaudited)   Assets Cash and cash equivalents $ 21,838  $ 37,070  Reverse repurchase agreements with related parties   166,009    141,365  Total cash and cash equivalents 187,847  178,435  Fixed assets, net 57,207  58,291  Investments 7,780  7,742  Goodwill 12,184  12,184  Intangible assets, net 6,949  11,356  Receivable from related parties 7,145  4,345  Other assets   13,725    8,581  Total assets $ 292,837  $ 280,934    Liabilities and Stockholders' Equity Current liabilities: Payable to related parties 7,751  7,588  Accounts payable and accrued liabilities   25,836    19,649  Total current liabilities 33,587  27,237    Deferred income   4,075    7,593  Total liabilities   37,662    34,830      Stockholders' Equity: Preferred stock, par value $0.01 per share; 50,000,000 shares authorized, none outstanding at December 31, 2006 and December 31, 2005 -  -  Class A common stock, par value $.01 per share; 200,000,000 shares authorized; 36,407,138 and 34,387,380 shares issued at December 31, 2006 and December 31, 2005, respectively 364  343  Class B common stock, par value $.01 per share; 100,000,000 shares authorized; 20,497,800 and 22,139,270 shares outstanding at December 31, 2006 and December 31, 2005, respectively 205  221      Additional paid-in capital 306,869  294,987  Unearned stock based compensation (7,186) (1,592) Treasury stock, at cost; 6,502,230 and 6,488,047 shares of Class A common stock at December 31, 2006 and December 31, 2005, respectively (62,597) (62,486) Retained earnings 17,520  14,631      Total stockholders' equity   255,175    246,104    Total Liabilities and Stockholders' Equity $ 292,837  $ 280,934  eSpeed, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME IN ACCORDANCE WITH GAAP (unaudited) (In thousands, except per share data)     Three MonthsEnded Twelve MonthsEnded December 31, December 31, December 31, December 31,   2006    2005    2006    2005  Revenues: Transaction revenues Fully electronic transactions with related parties $ 16,101  $ 16,495  $ 62,084  $ 74,669  Fully electronic transactions with unrelated parties   2,144    -    6,937    -  Total fully electronic transactions 18,245  16,495  69,021  74,669  Voice-assisted brokerage transactions with related parties 6,015  6,063  26,043  25,192  Screen-assisted open outcry transactions with related parties   1,413    933    5,675    2,863  Total transaction revenues   25,673    23,491    100,739    102,724  Software Solutions fees from related parties 7,640  6,957  30,445  25,818  Software Solutions and licensing fees from unrelated parties 5,696  3,822  16,981  15,534  Insurance recovery -  1,692  3,500  1,692  Grant income 3,100  -  3,100  -  Gain on sale of investments -  -  -  1,015  Interest income   2,616    1,849    9,541    6,160  Total revenues   44,725    37,811    164,306    152,943    Expenses: Compensation and employee benefits 12,919  11,644  52,765  50,633  Amortization of software development costs and other intangibles 5,792  5,758  24,047  20,134  Other occupancy and equipment 8,871  8,022  37,280  30,678  Professional and consulting fees 2,690  1,700  9,464  8,788  Impairment of long lived assets 1,861  2,386  1,861  2,386  Communications and client networks 1,986  2,588  8,101  8,157  Marketing 110  345  852  1,596  Administrative fees to related parties 2,885  3,422  12,598  13,938  Amortization of business partner and non-employee securities -  8  19  318  Acquisition related costs -  (797) 2,026  3,327  Other   2,441    2,051    8,289    9,896  Total operating expenses   39,555    37,127    157,302    149,851          Income before income taxes   5,170    684    7,004    3,092    Income tax provision 1,920  394  2,614  1,048          Net income $ 3,250  $ 290  $ 4,390  $ 2,044    Per share data:     Basic earnings per share $ 0.06  $ 0.01  $ 0.09  $ 0.04      Diluted earnings per share $ 0.06  $ 0.01  $ 0.09  $ 0.04      Basic weighted average shares of common stock outstanding   50,327    50,041    50,214    51,349    Diluted weighted average shares of common stock outstanding   51,453    50,653    51,258    52,066  eSpeed, Inc. and Subsidiaries NON-GAAP CONSOLIDATED STATEMENTS OF INCOME (unaudited) (In thousands, except per share data)     Three MonthsEnded Twelve MonthsEnded December 31, December 31, December 31, December 31,   2006    2005    2006    2005  Revenues: Transaction revenues Fully electronic transactions with related parties $ 16,101  $ 16,495  $ 62,084  $ 74,669  Fully electronic transactions with unrelated parties   2,144    -    6,937    -  Total fully electronic transactions 18,245  16,495  69,021  74,669  Voice-assisted brokerage transactions with related parties 6,015  6,063  26,043  25,192  Screen-assisted open outcry transactions with related parties   1,413    933    5,675    2,863  Total transaction revenues   25,673    23,491    100,739    102,724  Software Solutions fees from related parties 7,640  6,957  30,445  25,818  Software Solutions and licensing fees from unrelated parties 5,696  3,822  16,981  15,534  Interest income   2,616    1,849    9,106    6,160  Total non-GAAP revenues   41,625    36,119    157,271    150,236    Expenses: Compensation and employee benefits 12,919  11,644  52,729  50,633  Amortization of software development costs and other intangibles 5,792  5,758  22,884  20,134  Other occupancy and equipment 8,663  8,022  33,166  30,678  Professional and consulting fees 1,965  1,045  6,352  4,412  Communications and client networks 1,986  2,588  8,101  8,157  Marketing 110  345  852  1,596  Administrative fees to related parties 2,885  3,422  12,598  13,938  Other   2,441    2,051    8,600    9,518  Total non-GAAP operating expenses   36,761    34,875    145,282    139,066          Non-GAAP income before income taxes   4,864    1,244    11,989    11,170    Non-GAAP income tax provision 1,780  347  4,475  3,726          Non-GAAP net operating income   3,084    897    7,514    7,444    Non-operating income (loss): Charitable contribution Re: 9/11, net of tax -  -  (242) (262) Amortization of business partner and non-employee securities, net of tax -  (8) (11) (208) Litigation costs, net of tax (467) (603) (1,952) (2,955) Acquisition related costs, net of tax -  518  (1,260) (2,080) Legal settlement, net of tax -  -  458  -  Gain on sale of investment, net of tax -  -  -  619  Accelerated depreciation, net of tax -  -  (689) -  Office relocation cost, net of tax (126) -  (2,486) -  Tax settlement, net of tax -  -  226  -  Grant income, net of tax 1,927  -  1,927  Insurance recovery, net of tax -  1,134  2,073  1,134  Impairment of long lived assets, net of tax   (1,168)   (1,648)   (1,168)   (1,648) Total non-operating income (loss)   166    (607)   (3,124)   (5,400)   Net income $ 3,250  $ 290  $ 4,390  $ 2,044      Per share data:   Basic non-GAAP income before income taxes per share $ 0.10  $ 0.03  $ 0.24  $ 0.22    Basic non-GAAP tax provision per share $ 0.04  $ 0.01  $ 0.09  $ 0.08    Basic non-GAAP net operating income per share $ 0.06  $ 0.02  $ 0.15  $ 0.14    Basic non-operating income (loss) per share $ 0.00  $ (0.01) $ (0.06) $ (0.10)   Basic GAAP earnings per share $ 0.06  $ 0.01  $ 0.09  $ 0.04      Diluted non-GAAP income before income taxes per share $ 0.09  $ 0.03  $ 0.23  $ 0.21    Diluted non-GAAP tax provision per share $ 0.03  $ 0.01  $ 0.08  $ 0.07    Diluted non-GAAP net operating income per share $ 0.06  $ 0.02  $ 0.15  $ 0.14    Diluted non-operating income (loss) per share $ 0.00  $ (0.01) $ (0.06) $ (0.10)   Diluted GAAP earnings per share $ 0.06  $ 0.01  $ 0.09  $ 0.04      Basic weighted average shares of common stock outstanding   50,327    50,041    50,214    51,349    Diluted weighted average shares of common stock outstanding   51,453    50,653    51,258    52,066    Additional data:   Non-GAAP pre-tax operating margin   11.7%   3.4%   7.6%   7.4% eSpeed, Inc. & Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)   Three Months Ended Three Months Ended Twelve Months Ended Twelve Months Ended December 31, December 31, December 31, December 31,   2006    2005    2006    2005  Cash flows from operating activities: Net income $ 3,250  $ 290  $ 4,390  $ 2,044  Adjustments to reconcile net income to net cash provided by operating activities:   Depreciation and amortization 8,960  9,035  36,701  31,085  Gain on insurance recovery from related parties -  -  (3,500) -  Impairment of long lived assets 1,861  2,386  1,861  2,386  Loss on disposal of property 127  -  127  -  Equity in net (income) loss of unconsolidated investments (5) 137  (39) 142  Gain on sale of investments -  -  -  (1,015) Deferred income tax expense 442  294  (383) 592  Stock based compensation 701  301  2,418  2,219  Tax benefit from employee stock option exercises 196  7  302  116  Excess tax benefits from stock based comp 36  -  (11) -  Issuance of securities under employee benefit plan -  64  -  250    Changes in operating assets and liabilities: Receivable from related parties (2,029) 3,481  (2,773) (2,706) Other assets (567) (1,616) (5,140) (1,126) Payable to related parties 2,278  1,531  163  475  Accounts payable and accrued expenses (5,392) (13,830) 6,197  (6,361) Deferred income   (3,205)   (105)   (3,518)   (418) Net cash provided by operating activities   6,653    1,975    36,795    27,683    Cash flows from investing activities: Insurance proceeds from related parties -  -  3,500  -  Purchase of fixed assets (4,486) (4,030) (13,241) (15,360) Capitalization of software development costs (5,555) (3,441) (17,213) (18,840) Capitalization of patents and related defense costs (259) (149) (1,270) (1,837) Proceeds from sale of investments   -    -    -    5,840  Net cash used in investing activities   (10,300)   (7,620)   (28,224)   (30,197)   Cash flows from financing activities: Purchase of Class A common stock (93) (256) (93) (29,197) Proceeds from exercises of stock options and warrants 925  25  1,346  458  Cash settlement of share based compensation (423) -  (423) -  Excess tax benefits from stock based comp   (36)   -    11    -  Net cash provided by (used in) financing activities   373    (231)   841    (28,739)   Net (decrease) increase in cash and cash equivalents   (3,274)   (5,876)   9,412    (31,253)   Cash and cash equivalents at beginning of period 94,149  12,291  37,070  19,884  Reverse repurchase agreements with related parties at beginning of period   96,972    172,020    141,365    189,804  Total cash and cash equivalents at beginning of period   191,121    184,311    178,435    209,688    Cash and cash equivalents at end of period 21,838  37,070  21,838  37,070  Reverse repurchase agreements with related parties at end of period   166,009    141,365    166,009    141,365  Total cash and cash equivalents at end of period $ 187,847  $ 178,435  $ 187,847  $ 178,435    Supplemental cash information: Cash paid for income taxes $ 1,986  $ -  $ 2,131  $ 206  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 Twelve Months Ended December 31, December 31,   2006    2005    2006    2005    Non-GAAP income before income taxes $ 4,864  $ 1,244  $ 11,989  $ 11,170    Depreciation and amortization 8,960  9,035  36,701  31,085  Other non-cash and non-operating items   3,025    2,581    (240)   (3,464) Non-GAAP income before income taxes adjusted for depreciation, amortization and other   16,849    12,860    48,450    38,791      Income tax (provision) on non-GAAP operating income (1,780) (347) (4,475) (3,726) Income tax (provision) benefit on non-operating (loss) income (140) (47) 1,861  2,678  Deferred income tax expense 442  294  (383) 592  Tax benefit from stock option exercises 196  7  302  116  Income taxes paid   1,986    -    2,131    206  Decrease (increase) in current income tax payable 704  (93) (564) (134)   Changes in related party receivable and payable, net 249  5,012  (6,110) (2,231) Changes in other operating assets and liabilities, net (11,149) (15,804) (4,592) (8,365) Charitable contribution Re: 9/11   -    -    (389)   (378) Net cash provided by operating activities   6,653    1,975    36,795    27,683    Insurance proceeds from related parties -  -  3,500  -  Purchases of fixed assets (4,486) (4,030) (13,241) (15,360) Capitalization of software development costs (5,555) (3,441) (17,213) (18,840) Capitalization of patents and related defense costs (259) (149) (1,270) (1,837) Proceeds from sale of investments   -    -    -    5,840  Free cash flows   (3,647)   (5,645)   8,571    (2,514)   Related party receivable and payable, net   (249)   (5,012)   6,110    2,231  Free cash flows, net of related party activity $ (3,896) $ (10,657) $ 14,681  $ (283)   eSpeed, Inc. and Subsidiaries RECONCILIATION of NON-GAAP FINANCIAL MEASURES TO GAAP (unaudited) (in thousands)   Three Months Ended Twelve Months Ended December 31, December 31,   2006    2005    2006    2005    Total non-GAAP revenues $ 41,625  36,119  $ 157,271  $ 150,236  Insurance recovery [a] -  1,692  3,500  1,692  Grant income [b] 3,100  -  3,100  -  Tax settlement [c] -  -  399  -  Legal settlement [d] -  -  36  -  Gain on sale of investments [e]   -    -    -    1,015  Total GAAP revenues $ 44,725  $ 37,811  $ 164,306  $ 152,943    Total non-GAAP operating expenses $ 36,761  $ 34,875  $ 145,282  $ 139,066  Amortization of business partner and non-employee securities [f] -  8  19  318  Litigation costs [g] 725  655  3,112  4,376  Tax settlement [h] -  -  36  -  Legal settlement [i] -  -  (700) -  Accelerated amortization [j] -  -  1,162  -  Office relocation costs [k] 208  -  4,115  -  Acquisition related costs [l] -  (797) 2,026  3,327  Charitable contribution Re: 9/11[m] -  -  389  378  Impairment of long lived assets [n]   1,861    2,386    1,861    2,386  Total GAAP operating expenses $ 39,555  $ 37,127  $ 157,302  $ 149,851    Non-GAAP income before income taxes $ 4,864  $ 1,244  $ 11,989  $ 11,170  Sum of reconciling items = [a] + [b] + [c] + [d] + [e] - [f] - [g] - [h] - [i] - [j] - [k] - [l] - [m] - [n]   306    (560)   (4,985)   (8,078) GAAP income before income taxes $ 5,170  $ 684  $ 7,004  $ 3,092    Non-GAAP income tax provision $ 1,780  $ 347  $ 4,475  $ 3,726  Income tax expense on non-operating income [o]   140    47    (1,861)   (2,678) GAAP income tax provision $ 1,920  $ 394  $ 2,614  $ 1,048    Non-GAAP net operating income $ 3,084  $ 897  $ 7,514  $ 7,444  Sum of reconciling items = [a] + [b] + [c] + [d] + [e] - [f] - [g] - [h] - [i] - [j] - [k] - [l] - [m] - [n] - [o]   166    (607)   (3,124)   (5,400) GAAP net income $ 3,250  $ 290  $ 4,390  $ 2,044  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      % Change  4Q05 1Q06 2Q06 3Q06 4Q06 4Q06 vs 3Q06 4Q06 vs 4Q05 2005  2006  2006 vs 2005 Volume (in billions) Fully Electronic Volume - Excluding New Products 7,500  8,957  10,235  9,381  9,813  4.6% 30.8% 29,009  38,385  32.3% Fully Electronic Volume - New Products* 539  524  744  1,179  1,335  13.2% 147.7% 1,858  3,783  103.6% Total Fully Electronic Volume 8,039  9,481  10,979  10,560  11,148  5.6% 38.7% 30,867  42,168  36.6%   Voice-Assisted Volume 7,608  8,093  8,618  8,217  7,933  (3.5%) 4.3% 28,311  32,860  16.1% Screen-Assisted Volume 4,154  5,295  5,583  5,898  6,111  3.6% 47.1% 10,366  22,887  120.8% Total Voice/Screen-Assisted Volume 11,763  13,388  14,201  14,115  14,044  (0.5%) 19.4% 38,677  55,748  44.1%                     Total Volume 19,802  22,869  25,180  24,675  25,192  2.1% 27.2% 69,544  97,916  40.8%     Transaction Count Fully Electronic Transactions - Excluding New Products 1,640,167  1,971,347  2,035,458  1,687,779  1,764,930  4.6% 7.6% 5,642,628  7,459,514  32.2% Fully Electronic Transactions - New Products* 111,801  131,700  138,421  140,539  142,239  1.2% 27.2% 390,001  552,899  41.8% Total Fully Electronic Transactions 1,751,968  2,103,047  2,173,879  1,828,318  1,907,169  4.3% 8.9% 6,032,629  8,012,413  32.8%   Voice-Assisted Transactions 193,742  228,124  202,600  183,646  177,789  (3.2%) (8.2%) 822,391  792,159  (3.7%) Screen-Assisted Transactions 46,242  70,698  68,768  66,451  62,977  (5.2%) 36.2% 112,123  268,894  139.8% Total Voice/Screen-Assisted Volume 239,984  298,822  271,368  250,097  240,766  (3.7%) 0.3% 934,514  1,061,053  13.5%                     Total Transactions 1,991,952  2,401,869  2,445,247  2,078,415  2,147,935  3.3% 7.8% 6,967,143  9,073,466  30.2%                       eSpeed Equities Direct Access (Number of Shares Traded In Millions) 147  203  171  212  184  (13.3%) 25.4% 648  770  18.9%   Trading Days 61  62  63  63  62  250  250    * 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.             % Change  % Change      % Change  4Q05 1Q06 2Q06 3Q06 4Q06 4Q06 vs 3Q06 4Q06 vs 4Q05 2005  2006  2006 vs 2005 Global Interest Rate Futures Volume (1) CBOT - US Treasury Contracts 101,854,952  127,606,543  128,443,758  126,285,125  129,828,448  2.8% 27.5% 445,169,057  512,163,874  15.0% CME - Euro $ Contracts 97,306,869  117,284,097  127,350,219  127,101,116  130,341,959  2.5% 33.9% 410,355,384  502,077,391  22.4% EUREX - Bund Contracts 68,817,862  85,217,459  88,078,646  72,591,730  74,001,534  1.9% 7.5% 299,287,916  319,889,369  6.9%   Fed UST Primary Dealer Volume (in billions) (2) UST Volume 32,820  34,810  33,688  32,171  30,742  (4.4%) (6.3%) 138,694  131,410  (5.3%) Average Daily UST Volume 538  561  535  511  496  (2.9%) (7.8%) 555  526  (5.3%)     NYSE - Volume (shares traded) - in millions (3) 105,879  108,447  121,582  108,825  114,434  5.2% 8.1% 403,764  453,289  12.3% Transaction Value - in millions 3,738,882  4,072,426  4,627,787  3,941,583  4,316,756  9.5% 15.5% 14,125,294  16,958,552  20.1%   Nasdaq - Volume (shares traded) - in millions (4) 110,647  128,566  134,155  116,510  121,477  4.3% 9.8% 449,226  500,708  11.5% Transaction Value - in millions 2,584,578  3,070,980  3,031,230  2,587,538  2,945,401  13.8% 14.0% 9,990,270  11,635,149  16.5% 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