0000950136-04-000328 8-K 3 20040209 12 7 20040210 ESPEED INC 0001094831 7389 134063515 DE 1231 8-K 34 000-28191 04579291 135 E. 57TH STREET 135 E. 57TH STREET NEW YORK NY 10022 2129385000 135 E. 57TH STREET 135 E. 57TH STREET NEW YORK NY 10022 8-K 1 file001.htm FORM 8-K U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): February 9, 2004 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] eSpeed, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware [[Image Removed]] 0-28191 [[Image Removed]] 13-4063515 (State or Other (Commission (I.R.S. Employer Jurisdiction of [[Image Removed]] File [[Image Removed]] Identification Incorporation) Number) No.) 135 East 57th Street, New York, New York [[Image Removed]] 10022 (Address of Principal Executive Offices) [[Image Removed]] (Zip Code) (212) 938-5000 (Registrant's Telephone Number, Including Area Code) Not applicable (Former Name or Address, if Changed Since Last Report) [[Image Removed]] -------------------------------------------------------------------------------- ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS [[Image Removed]] [[Image Removed]] (c) Exhibits. [[Image Removed]] [[Image Removed]] See Exhibit Index attached to this Current Report on Form 8-K. ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION On February 9, 2004, eSpeed, Inc. (the "Registrant") issued a press release announcing its preliminary operating statistics for the quarter and the year ended December 31, 2003. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K. In accordance with the procedural guidance in SEC Release No. 33-8216, the information in this Current Report on Form 8-K and the Exhibit attached to this Current Report on Form 8-K are being furnished under Item 12 of Form 8-K. The information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such filing. In the press release, the Registrant uses non-GAAP financial measures of revenues, income before income tax provision, net income and earnings per share to supplement its consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America, or GAAP, and to better reflect its quarter-over-quarter and comparative year-over-year operating performance. The Registrant also provides a computation of free cash flows. These non-GAAP financial measures do not replace the presentation of GAAP financial results but are provided to enhance overall understanding of the Registrant's current financial performance and prospects for the future. Specifically, the Registrant's management believes that the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to its financial condition and results from operations. In addition, management uses these measures for reviewing the Registrant's financial results and evaluating its financial performance. 2 -------------------------------------------------------------------------------- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] eSpeed, Inc. [[Image Removed]] Date: February 9, 2004 [[Image Removed]] By: /s/ Howard W. Lutnick [[Image Removed]] Howard W. Lutnick Chairman, Chief Executive Officer and President [[Image Removed]] 3 -------------------------------------------------------------------------------- EXHIBIT INDEX Exhibit [[Image Removed]] [[Image Removed]] 99.1 Press release of eSpeed, Inc. dated February 9, 2004 containing preliminary operating statistics for the quarter and the year ended December 31, 2003. -------------------------------------------------------------------------------- EX-99.1 4 file002.htm PRESS RELEASE Exhibit 99.1 eSPEED REPORTS FOURTH QUARTER 2003 GAAP AND FULLY TAXED OPERATING EPS OF $0.15 FOURTH QUARTER PRE-TAX OPERATING EARNINGS PER SHARE OF $0.25 INCREASE 56 PERCENT AND QUARTERLY REVENUES GROW 20 PERCENT TO $39 MILLION YEAR OVER YEAR COMPANY REITERATES STRONG GUIDANCE FOR FULL YEAR 2004 NEW YORK - February 9, 2004 - eSpeed, Inc. (NASDAQ:ESPD), the leading developer of electronic trading technology, today reported results for the fourth quarter and full year ended December 31, 2003. EARNINGS On a Generally Accepted Accounting Principles (GAAP) basis, eSpeed reported net income of $8.6 million, or $0.15 per diluted share, for the fourth quarter 2003. eSpeed also reports operating income, in order to reflect earnings generated from the Company's operations. For the same period, the Company reported fully taxed operating income of $8.8 million which was also $0.15 per diluted share. The difference between fully taxed operating income and GAAP net income was a $0.3 million non-cash charge for business partner securities. For comparative purposes, eSpeed reported pre-tax operating income of $14.5 million, or $0.25 per diluted share, in the fourth quarter 2003, a 56 percent increase over the $0.16 per diluted share reported in the fourth quarter 2002. On a GAAP basis, the Company reported net income of $36.1 million, or $0.63 per diluted share for the full year 2003, compared to $42.0 million, or $0.74 per diluted share for the full year 2002. The primary differences between GAAP results reported in 2003 and 2002 were a $12.8 million gain on insurance proceeds related to September 11th included in 2002 and the fact that the Company started paying taxes in the second quarter of 2003. For the full year ended December 31, 2003, the Company reported net income from operations of $38.1 million, or $0.66 per diluted share, compared to $31.4 million and $0.55 per diluted share for the same period last year. For comparative purposes, the Company's full year 2003 pre-tax operating income of $56.1 million, or $0.98 per diluted share represents a 75 percent increase over the $0.56 per diluted share reported in 2002. REVENUES eSpeed's total revenues for the fourth quarter 2003 were $39.2 million, 20 percent higher than total revenues of $32.8 million for fourth quarter 2002. Fourth quarter 2003 fully electronic revenues were $27.7 million, up 24 percent compared to $22.4 million in the fourth quarter 2002. Total revenues from Software Solutions in the fourth quarter 2003 were $6.2 million versus $5.5 million in the fourth quarter 2002, an increase of 13 percent. eSpeed's total revenues for the year ended December 31, 2003 increased 24 percent to $156.6 million, versus $126.4 million in the full year 2002. Fully electronic revenues grew 25 percent to $110.0 million for the year 2003 compared to $88.0 million in 2002. Total revenues from Software Solutions increased 37 percent to $24.2 million for the full year 2003 compared to $17.7 million for the same period in 2002. Fourth quarter 2003 pre-tax operating margins grew to 36.9 percent versus 28.5 percent in the fourth quarter 2002. Full year 2003 pre-tax operating margins grew to 35.8 percent compared to 25.3 percent in the full year 2002. VOLUME & TRANSACTIONS Fully electronic volume for the fourth quarter 2003 was $7.5 trillion, an 11 percent increase over $6.8 trillion for the fourth quarter 2002. eSpeed's total electronic volume, including fully electronic and voice-assisted transactions, for the fourth quarter 2003 was $10.3 trillion, up 11 percent from $9.3 trillion in the fourth quarter 2002. This growth compares to an 11 percent increase in US Treasury volume as reported by the Federal Reserve over the same period. The Company had anticipated average daily Federal Reserve US Treasury volume for the fourth quarter 2003 in a range of $425 - $435 billion. Actual average daily Federal Reserve US Treasury volume was $422 billion for the fourth quarter. Lee Amaitis, Global Chief Operating Officer of eSpeed, commented, "We are pleased to have reported fourth quarter results at the high end of our expectations despite lower market volumes in the fourth quarter." For the full year 2003, fully electronic volume was $31.7 trillion, a 21 percent increase over $26.2 trillion for the full year 2002. eSpeed's total electronic volume for 2003 was $42.5 trillion, up 21 percent from $35.1 trillion in 2002. This growth compares to a 17 percent increase in US Treasury volume as reported by the Federal Reserve over the same period. FREE CASH FLOW & CASH The Company generated free cash flow of $28.8 million for the full year 2003. Excluding related party receivables and payables, free cash flow for the year was $37.6 million. As of December 31, 2003, eSpeed's cash and cash equivalents was approximately $228.5 million. Howard W. Lutnick, Chairman, CEO & President of eSpeed, Inc., commented, "We are proud of our strong results in 2003, marked by 75 percent growth in our profits. Our incremental margins of 80 percent for the year, along with the generation of free cash flow virtually on par with our income, illustrate the strengths and leverage inherent in our business model." OUTLOOK The Company is maintaining its previously stated guidance for the full year 2004. eSpeed continues to expect to generate revenues in excess of $185 million and expects its pre-tax operating margins to exceed 41 percent for the full year 2004. eSpeed anticipates that its incremental margins will exceed 75 percent for the full year 2004. Operating earnings after tax for 2004 are expected to be in a range of $0.80 to $0.84 per diluted share. This guidance is based on the Company's expectations that average daily Federal Reserve US Treasury volume will be between $490 and $510 billion for the full year 2004. For the first quarter 2004, eSpeed expects operating earnings to be in the range of $0.18 and $0.20 per share diluted and after-tax. This guidance is based on the Company's expectations that the average daily Federal Reserve US Treasury volume will be between $480 and $500 billion for the first quarter 2004. In conclusion, Mr. Lutnick added, "For eSpeed, 2004 will be characterized by the increasing growth in the US Treasury market overall and eSpeed's leadership position in this market, the continued introduction and adoption of enhancements to our software and the initial roll out of new products to be traded and leveraged across the eSpeed platform. We are encouraged by the strong foundation we have built, as we position ourselves for further growth in the future." 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, income before income tax provision, net income and earnings per share, which are adjusted to exclude certain non-operating expenses and gains. In addition, the Company provides a computation of free cash flows. 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. In the fourth quarter 2003, the difference between GAAP net income and non-GAAP net operating income was $0.3 million. For the full year 2003, the difference between GAAP net income and non-GAAP net operating income was $2.0 million. ABOUT eSPEED, INC. eSpeed, Inc., is the 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 financial marketplaces. eSpeed's suite of marketplace tools provides end-to-end transaction solutions for the purchase and sale of financial and non-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, major exchanges and leading natural gas and electricity trading firms. To learn more, please visit www.espeed.com. Statements contained in this Press Release, which are not historical facts, are forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to: the effects of the attacks on the World Trade Center, market volatility, the limited operating history of eSpeed, Inc., and its ability to enter into marketing and strategic alliances, to effectively manage its growth, to expand the use of its electronic systems and to induce clients to use its marketplaces and services, and other factors that are discussed in eSpeed's Annual Report on Form 10-K, filed with the Securities and Exchange Commission. CONTACTS: INVESTORS: Amy Nauiokas 212.610.2421 MEDIA: Tom Ryan 212.610.2425 eSPEED, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Ended December 31, Year Ended December 31, --------------------------- -------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ----------- Revenues: Transaction revenues with related parties Fully electronic transactions $ 27,667 $ 22,430 $ 110,015 $ 88,039 Voice-assisted brokerage transactions 4,546 4,073 19,505 17,552 Screen-assisted open outcry transactions 118 56 538 190 --------- --------- --------- --------- Total transaction revenues with related parties 32,331 26,559 130,058 105,781 Software Solutions fees from related parties 3,773 3,460 15,124 13,207 Software Solutions and licensing fees from unrelated parties 2,463 2,075 9,125 4,512 Interest income 656 683 2,308 2,905 --------- --------- --------- --------- Total revenues 39,223 32,777 156,615 126,405 --------- --------- --------- --------- Expenses: Compensation and employee benefits 8,241 8,751 36,114 36,499 Occupancy and equipment 8,383 6,815 31,322 24,863 Professional and consulting fees 592 1,394 3,519 5,658 Communications and client networks 1,690 1,819 6,714 6,335 Marketing 339 263 1,454 4,778 Administrative fees to related parties 2,695 2,555 10,442 9,134 Other 2,792 1,844 10,960 7,217 --------- --------- --------- --------- Total operating expenses 24,732 23,441 100,525 94,484 --------- --------- --------- --------- Pre-tax operating income 14,491 9,336 56,090 31,921 Income tax provision 5,659 128 17,982 479 --------- --------- --------- --------- Net operating income 8,832 9,208 38,108 31,442 --------- --------- --------- --------- Non-operating (loss) income: Amortization of business partner and non-employee securities, net of tax (275) (705) (1,592) (2,059) Loss on unconsolidated investments -- (950) -- (950) Provision for September 11 Events -- 1,200 -- 1,200 Charitable contribution Re: 9/11, net of tax -- -- (420) (500) Business interruption insurance proceeds from parent -- -- -- 12,833 --------- --------- --------- --------- Total non-operating (loss) income (275) (455) (2,012) 10,524 --------- --------- --------- --------- GAAP net income $ 8,557 $ 8,753 $ 36,096 $ 41,966 ========= ========= ========= ========= Per share data: Basic pre-tax operating income per share $ 0.26 $ 0.17 $ 1.01 $ 0.58 Basic tax provision per share $ (0.10) $ (0.00) $ (0.32) $ (0.01) --------- --------- --------- --------- Basic net operating income per share $ 0.16 $ 0.17 $ 0.69 $ 0.57 Basic non-operating (loss) income per share $ (0.00) $ (0.01) $ (0.04) $ 0.19 --------- --------- --------- --------- Basic GAAP earnings per share $ 0.15 $ 0.16 $ 0.65 $ 0.76 ========= ========= ========= ========= Diluted pre-tax operating income per share $ 0.25 $ 0.16 $ 0.98 $ 0.56 Diluted tax provision per share $ (0.10) $ (0.00) $ (0.31) $ (0.01) --------- --------- --------- --------- Diluted net operating income per share $ 0.15 $ 0.16 $ 0.66 $ 0.55 Diluted non-operating (loss) earnings per share $ (0.00) $ (0.01) $ (0.03) $ 0.19 --------- --------- --------- --------- Diluted GAAP earnings per share $ 0.15 $ 0.15 $ 0.63 $ 0.74 ========= ========= ========= ========= Basic weighted average shares of common stock outstanding 55,759 55,028 55,345 54,991 ========= ========= ========= ========= Diluted weighted average shares of common stock outstanding 58,908 57,309 57,499 56,784 ========= ========= ========= ========= Additional data: Pre-tax operating margin 36.9% 28.5% 35.8% 25.3% ========= ========= ========= ========= eSPEED, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME IN ACCORDANCE WITH GAAP (IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Ended December 31, Year Ended December 31, --------------------- ----------------------- 2003 2002 2003 2002 ---------- --------- ----------- --------- (unaudited) (unaudited) Revenues: Transaction revenues with related parties Fully electronic transactions $ 27,667 $ 22,430 $ 110,015 $ 88,039 Voice-assisted brokerage transactions 4,546 4,073 19,505 17,552 Screen-assisted open outcry transactions 118 56 538 190 --------- --------- --------- --------- Total transaction revenues with related parties 32,331 26,559 130,058 105,781 Software Solutions fees from related parties 3,773 3,460 15,124 13,207 Software Solutions and licensing fees from unrelated parties 2,463 2,075 9,125 4,512 Business interruption insurance proceeds from parent -- -- -- 12,833 Interest income 656 683 2,308 2,905 --------- --------- --------- --------- Total revenues 39,223 32,777 156,615 139,238 --------- --------- --------- --------- Expenses: Compensation and employee benefits 8,241 8,751 36,114 36,499 Occupancy and equipment 8,383 6,815 31,322 24,863 Professional and consulting fees 592 1,394 3,519 5,658 Communications and client networks 1,690 1,819 6,714 6,335 Marketing 339 263 1,454 4,778 Administrative fees to related parties 2,695 2,555 10,442 9,134 Amortization of business partner and non-employee securities 452 705 2,167 2,059 Loss on unconsolidated investments -- 950 -- 950 Provision for September 11 Events -- (1,200) -- (1,200) Other 2,792 1,844 11,647 7,717 --------- --------- --------- --------- Total expenses 25,184 23,896 103,379 96,793 --------- --------- --------- --------- Income before income tax provision 14,039 8,881 53,236 42,445 Income tax provision 5,482 128 17,140 479 --------- --------- --------- --------- Net income $ 8,557 $ 8,753 $ 36,096 $ 41,966 ========= ========= ========= ========= Per share data: Basic earnings per share $ 0.15 $ 0.16 $ 0.65 $ 0.76 ========= ========= ========= ========= Diluted earnings per share $ 0.15 $ 0.15 $ 0.63 $ 0.74 ========= ========= ========= ========= Basic weighted average shares of common stock outstanding 55,759 55,028 55,345 54,991 ========= ========= ========= ========= Diluted weighted average shares of common stock outstanding 58,908 57,309 57,499 56,784 ========= ========= ========= ========= eSPEED, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP (UNAUDITED) (IN THOUSANDS) Three Months Ended December 31, Year Ended December 31, ------------------------- ------------------------ 2003 2002 2003 2002 ----------- ----------- ----------- ---------- Revenues $ 39,223 $ 32,777 $ 156,615 $ 126,405 Business interruption insurance proceeds from parent [a] -- -- -- 12,833 --------- --------- --------- --------- GAAP revenues $ 39,223 $ 32,777 $ 156,615 $ 139,238 --------- --------- --------- --------- Operating expenses $ 24,732 $ 23,441 $ 100,525 $ 94,484 Amortization of business partner and non-employee securities [b] 452 705 2,167 2,059 Loss on unconsolidated investments [c] -- 950 -- 950 Provision for September 11 Events [d] -- (1,200) -- (1,200) Charitable contribution Re: 9/11 [e] -- -- 687 500 --------- --------- --------- --------- GAAP expenses $ 25,184 $ 23,896 $ 103,379 $ 96,793 --------- --------- --------- --------- Pre-tax operating income $ 14,491 $ 9,336 $ 56,090 $ 31,921 Sum of reconciling items = [a] - [b] - [c] - [d] - [e] (452) (455) (2,854) 10,524 --------- --------- --------- --------- GAAP income before income tax provision $ 14,039 $ 8,881 $ 53,236 $ 42,445 --------- --------- --------- --------- Income tax provision $ 5,659 $ 128 $ 17,982 $ 479 Income tax benefit on non-operating loss [f] (177) -- (842) -- --------- --------- --------- --------- GAAP income tax provision $ 5,482 $ 128 $ 17,140 $ 479 --------- --------- --------- --------- Net operating income $ 8,832 $ 9,208 $ 38,108 $ 31,442 Sum of reconciling items = [a] + [b] + [c] + [d] + [e] + [f] (275) (455) (2,012) 10,524 --------- --------- --------- --------- GAAP net income $ 8,557 $ 8,753 $ 36,096 $ 41,966 ========= ========= ========= ========= eSPEED, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS, EXCEPT SHARE DATA) December 31, -------------------------------- 2003 2002 --------------- --------------- (unaudited) Assets Cash and cash equivalents $ 228,500 $ 187,999 Fixed assets, net 34,467 26,383 Investments 11,449 11,175 Intangible assets, net 18,927 19,528 Receivable from related parties 1,518 5,266 Other assets 2,707 2,360 --------- --------- Total assets $ 297,568 $ 252,711 --------- --------- Liabilities and Stockholders' Equity Liabilities: Payable to related parties $ 6,323 $ 18,857 Accounts payable and accrued liabilities 19,560 15,399 --------- --------- Total liabilities 25,883 34,256 --------- --------- Stockholders' Equity: Preferred stock, par value $0.01 per share; 50,000,000 shares authorized, 8,000,750 shares issued and outstanding 80 80 Class A common stock, par value $0.01 per share; 200,000,000 shares authorized; 30,953,867 and 29,783,682 shares issued 310 298 Class B common stock, par value $0.01 per share; 100,000,000 shares authorized; 25,139,270 and 25,388,814 shares issued and outstanding 251 254 Additional paid-in capital 287,593 270,656 Unamortized expense of business partner and non-employee securities (1,192) (3,252) Treasury stock, at cost; 186,399 and 24,600 shares of Class A common stock (2,094) (222) Accumulated deficit (13,263) (49,359) --------- --------- Total stockholders' equity 271,685 218,455 --------- --------- Total liabilities and stockholders' equity $ 297,568 $ 252,711 ========= ========= eSPEED, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Three Months Ended December 31, Year Ended December 31, --------------------------- -------------------------- 2003 2002 2003 2002 ------------ ------------ ----------- ------------ (unaudited) (unaudited) Cash flows from operating activities: Net income $ 8,557 $ 8,753 $ 36,096 $ 41,966 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,000 4,154 18,044 14,191 Amortization of business partner and non-employee securities 452 705 2,167 2,059 Loss on unconsolidated investments -- 950 -- 950 Provision for September 11 Events -- (1,200) -- (1,200) Equity in net (income) loss of unconsolidated investments 105 (12) 185 190 Deferred income tax expense 988 -- 4,469 -- Tax benefit from stock option and warrant exercises 1,760 -- 4,870 -- Issuance of securities under employee benefit plan 96 -- 256 52 Changes in operating assets and liabilities: Receivable from related parties 948 1,327 3,748 3,021 Other assets 945 (46) 215 313 Payable to related parties 2,777 4,565 (12,534) 3,701 Accounts payable and accrued liabilities (8,317) (17,403) (433) (6,495) --------- --------- --------- --------- Net cash provided by operating activities 13,311 1,793 57,083 58,748 --------- --------- --------- --------- Cash flows from investing activities: Purchase of fixed assets (6,472) (3,370) (10,943) (9,770) Sale of fixed assets -- -- 2,752 -- Capitalization of software development costs (3,032) (2,369) (12,628) (8,332) Capitalization of patents and related legal costs (1,039) (3,510) (4,710) (13,741) --------- --------- --------- --------- Net cash used in investing activities (10,543) (9,249) (25,529) (31,843) --------- --------- --------- --------- Cash flows from financing activities: Repurchase of Class A common stock -- -- (1,872) -- Proceeds from exercises of stock options and warrants 5,701 1,161 11,838 1,195 Receivable from broker on stock option exercises 3,046 -- (1,019) -- --------- --------- --------- --------- Net cash provided by financing activities 8,747 1,161 8,947 1,195 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 11,515 (6,295) 40,501 28,100 --------- --------- --------- --------- Cash and cash equivalents, beginning of period 216,985 194,294 187,999 159,899 --------- --------- --------- --------- Cash and cash equivalents, end of period $ 228,500 $ 187,999 $ 228,500 $ 187,999 ========= ========= ========= ========= Note: Certain prior period amounts have been reclassified to conform to the current period presentation. eSPEED, INC. & SUBSIDIARIES COMPUTATION OF CONSOLIDATED FREE CASH FLOWS (UNAUDITED) (IN THOUSANDS) Three Months Ended Year Ended December 31, December 31, --------------------- --------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Pre-tax operating income $ 14,491 $ 9,336 $ 56,090 $ 31,921 Depreciation and amortization 5,000 4,154 18,044 14,191 Other non-cash items 201 (12) 441 242 -------- -------- -------- -------- Pre-tax operating income adjusted for depreciation, amortization and other 19,692 13,478 74,575 46,354 -------- -------- -------- -------- Income tax provision on operating income (5,659) (128) (17,982) (479) Income tax benefit on non-operating loss 177 -- 842 -- Deferred income tax expense 988 -- 4,469 -- Tax benefit from stock option and warrant exercises 1,760 -- 4,870 -- Income taxes paid 3,807 -- 7,167 -- -------- -------- -------- -------- Decrease (increase) in current income tax payable 1,073 (128) (634) (479) Changes in related party receivable and payable, net 3,725 5,892 (8,786) 6,722 Changes in other operating assets and liabilities, net (11,179) (17,449) (7,385) (6,182) Charitable contribution Re: 9/11 -- -- (687) (500) Insurance claim receivable from parent -- -- -- 12,833 -------- -------- -------- -------- Net cash provided by operating activities 13,311 1,793 57,083 58,748 -------- -------- -------- -------- Purchase of fixed assets (6,472) (3,370) (10,943) (9,770) Capitalization of software development costs (3,032) (2,369) (12,628) (8,332) Capitalization of patents and related legal costs (1,039) (3,510) (4,710) (13,741) -------- -------- -------- -------- Free cash flows 2,768 (7,456) 28,802 26,905 -------- -------- -------- -------- Related party receivable and payable, net (3,725) (5,892) 8,786 (6,722) Insurance claim receivable from parent -- -- -- (12,833) -------- -------- -------- -------- Free cash flows, net of related party activity $ (957) $(13,348) $ 37,588 $ 7,350 ======== ======== ======== ======== eSPEED, INC. & SUBSIDIARIES QUARTERLY MARKET ACTIVITY REPORT (UNAUDITED) TREND % Change % Change ------------------------------------------------------------------------------------- 4Q02 1Q03 2Q03 3Q03 4Q03 4Q03 vs 3Q03 4Q03 vs 4Q02 ---------------------------------------------------------- VOLUME (IN BILLIONS) Fully Electronic Volume 6,796 6,778 7,781 9,610 7,537 (21.6%) 10.9% Voice-Assisted Volume 2,495 2,592 2,662 2,825 2,756 (2.4%) 10.5% ----------------------------------------------------------------------------------- Total Electronic Volume 9,291 9,369 10,443 12,435 10,294 (17.2%) 10.8% =================================================================================== ELECTRONIC TRANSACTION COUNT Fully Electronic Transactions 1,060,814 1,079,595 1,194,625 1,465,263 1,209,469 (17.5%) 14.0% Voice-Assisted Transactions 128,648 151,770 148,223 157,901 149,181 (5.5%) 16.0% ----------------------------------------------------------------------------------- Total Transactions 1,189,462 1,231,365 1,342,848 1,623,164 1,358,650 (16.3%) 14.2% =================================================================================== Trading Days 62 61 63 64 62 Global Interest Rate Futures Volume (1) CBOT - US Treasury Contracts 55,710,144 60,743,312 71,290,686 83,851,953 72,558,944 (13.5%) 30.2% CME - Euro $ Contracts 42,085,021 44,124,452 55,958,592 56,273,797 52,414,323 (6.9%) 24.5% EUREX - Bund Contracts 45,319,604 65,864,492 63,455,364 63,377,019 51,717,399 (18.4%) 14.1% Fed UST Volume (in billions) (2) UST Volume 23,637 23,740 28,319 30,590 26,189 (14.4%) 10.8% Average Daily UST Volume 381 389 450 478 422 (11.6%) 10.8% NYSE - Volume (shares traded) - in millions (3) 93,353 86,585 92,981 87,303 85,529 (2.0%) (8.4%) Transaction Value - in millions 2,410,169 2,173,033 2,497,359 2,475,689 2,546,235 2.8% 5.6% NASDAQ - Volume (shares traded) - in millions (4) 105,200 88,636 112,524 110,672 112,636 1.8% 7.1% Transaction Value - in millions 1,583,382 1,390,364 1,739,506 1,896,887 2,030,335 7.0% 28.2% % Change ----------------------------------------------- 2002 2003 2003 vs 2002 ------------------------------ VOLUME (IN BILLIONS) Fully Electronic Volume 26,239 31,706 20.8% Voice-Assisted Volume 8,818 10,835 22.9% --------------------------------------------- Total Electronic Volume 35,057 42,541 21.3% ============================================= ELECTRONIC TRANSACTION COUNT Fully Electronic Transactions 3,955,363 4,948,952 25.1% Voice-Assisted Transactions 597,140 607,075 1.7% --------------------------------------------- Total Transactions 4,552,503 5,556,027 22.0% ============================================= Trading Days 250 250 Global Interest Rate Futures Volume (1) CBOT - US Treasury Contracts 205,594,628 288,444,895 40.3% CME - Euro $ Contracts 202,080,832 208,771,164 3.3% EUREX - Bund Contracts 191,263,413 244,414,274 27.8% Fed UST Volume (in billions) (2) UST Volume 92,861 108,838 17.2% Average Daily UST Volume 371 435 17.2% NYSE - Volume (shares traded) - in millions (3) 363,135 352,398 (3.0%) Transaction Value - in millions 10,311,156 9,692,316 (6.0%) NASDAQ - Volume (shares traded) - in millions (4) 441,701 424,468 (3.9%) Transaction Value - in millions 7,254,595 7,057,092 (2.7%) 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 ------------------------------------------------------------------------------------------------------------------------------------ Fiscal Year 2002 Jan'02 Feb'02 Mar'02 Apr'02 May'02 Jun'02 Volume Data (in billions) Fully Electronic 1,992 1,811 2,158 1,953 2,169 2,119 Voice 731 677 642 622 608 601 Total 2,723 2,488 2,800 2,575 2,777 2,720 Transaction Count Fully Electronic 311,319 269,697 305,905 289,150 305,115 321,257 Voice 53,828 50,038 47,803 54,733 59,580 43,436 Total 365,147 319,735 353,708 343,883 364,695 364,693 Trading Days 21 19 20 22 22 20 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ Fiscal Year 2003 Jan'03 Feb'03 Mar'03 Apr'03 May'03 Jun'03 Volume Data (in billions) Fully Electronic 2,309 1,906 2,564 2,070 2,871 2,840 Voice 864 810 917 761 956 944 Total 3,173 2,716 3,481 2,831 3,827 3,784 Transaction Count Fully Electronic 370,992 305,296 403,307 338,281 425,213 431,131 Voice 49,801 48,449 53,520 44,767 49,946 53,510 Total 420,793 353,745 456,827 383,048 475,159 484,641 Trading Days 21 19 21 21 21 21 ------------------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------------- Fiscal Year 2002 Jul'02 Aug'02 Sep'02 Oct'02 Nov'02 Dec'02 Volume Data (in billions) Fully Electronic 2,630 2,482 2,129 2,958 2,190 1,648 Voice 800 737 904 952 854 690 Total 3,430 3,219 3,033 3,910 3,044 2,338 Transaction Count Fully Electronic 390,803 364,202 337,101 458,419 332,631 269,764 Voice 56,216 50,863 51,995 45,559 50,593 32,496 Total 447,019 415,065 389,096 503,978 383,224 302,260 Trading Days 22 22 20 22 19 21 --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- Fiscal Year 2003 Jul'03 Aug'03 Sep'03 Oct'03 Nov'03 Dec'03 Volume Data (in billions) Fully Electronic 3,428 2,952 3,230 3,019 2,233 2,285 Voice 992 733 1,100 1,034 941 781 Total 4,419 3,686 4,330 4,053 3,174 3,067 Transaction Count Fully Electronic 512,447 453,324 499,492 485,177 354,283 370,009 Voice 55,258 44,804 57,839 58,222 49,382 41,577 Total 567,705 498,128 557,331 543,399 403,665 411,586 Trading Days 22 21 21 22 18 22 --------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- Trading Days ---------------------------------------------------------- 2004 Q1 Q2 Q3 Q4 -- -- -- -- 62 63 64 62 2003 Q1 Q2 Q3 Q4 -- -- -- -- 61 63 64 62 2002 Q1 Q2 Q3 Q4 -- -- -- -- 60 64 64 62 ----------------------------------------------------------