UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2006

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

INTERCONTINENTALEXCHANGE, INC.

Delaware		58-2555670
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification Number)

2100 RiverEdge Parkway, Suite 500, Atlanta, Georgia 30328
(Address of principal executive offices) (Zip Code)

(770) 857-4700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 26, 2006, the number of shares of IntercontinentalExchange common stock outstanding was 56,551,705 comprised of 56,548,494 shares of Common Stock, 0 shares of Class A Common Stock, Series 1, and 3,211 shares of Class A Common Stock, Series 2.

 

 

IntercontinentalExchange, Inc.
Form 10-Q
Quarterly Period Ended June 30, 2006

Table of Contents

		Page
Part I. Financial Information			1
Item 1. Consolidated Financial Statements (Unaudited):			1
Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005			1
Consolidated Statements of Income for the six months and three months ended June 30, 2006 and 2005			2
Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2006			3
Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2006 and 2005			4
Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005			5
Notes to the Consolidated Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures about Market Risk			45
Item 4. Controls and Procedures			46
Part II. Other Information			47
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			63
Item 3. Defaults Upon Senior Securities			63
Item 4. Submission of Matters to a Vote of Security Holders			63
Item 5. Other Information			64
Item 6. Exhibits			64
Signature			65
EX-31.1 SECTION 302 CERT OF CEO
EX-31.2 SECTION 302 CERT OF CFO
EX-32.1 SECTION 906 CERT OF CEO
EX-32.2 SECTION 906 CERT OF CFO

Part I. Financial Information

Item 1. Consolidated Financial Statements (Unaudited)

IntercontinentalExchange, Inc. and Subsidiaries

Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)

		June 30,				December 31,
		2006				2005
ASSETS
Current assets:
Cash and cash equivalents		$	54,094			$	20,002
Restricted cash			14,178				12,578
Short-term investments			134,461				111,181
Customer accounts receivable:
Trade, net of allowance for doubtful accounts of $369 and $261 at June 30, 2006 and December 31, 2005, respectively			25,801				13,000
Related-parties			3,803				1,773
Prepaid expenses and other current assets			10,096				5,481
Total current assets			242,433				164,015
Property and equipment, net			23,887				20,348
Other noncurrent assets:
Goodwill, net			79,574				73,967
Other intangible assets, net			1,618				2,087
Long-term investments			—				2,296
Other noncurrent assets			2,708				3,057
Total other noncurrent assets			83,900				81,407
Total assets		$	350,220			$	265,770
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,204			$	1,697
Accrued salaries and benefits			9,396				8,916
Accrued liabilities, including $197 to a related-party at December 31, 2005			7,177				5,396
Income taxes payable			4,997				8,512
Current deferred tax liability, net			957				676
Deferred revenue			1,961				1,197
Total current liabilities			25,692				26,394
Noncurrent liabilities:
Noncurrent deferred tax liability, net			6,484				5,450
Other noncurrent liabilities			1,401				1,303
Total noncurrent liabilities			7,885				6,753
Total liabilities			33,577				33,147
Commitments and contingencies
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 25,000 shares authorized; no shares issued or outstanding at June 30, 2006 and December 31, 2005			—				—
Common stock, $0.01 par value; 194,275 shares authorized; 52,491 and 18,400 shares issued at June 30, 2006 and December 31, 2005, respectively; 50,922 and 18,400 shares outstanding at June 30, 2006 and December 31, 2005, respectively			525				184
Class A common stock, Series 1, $0.01 par value; 5,725 shares authorized; no shares issued and outstanding at June 30, 2006; 2,863 shares issued and outstanding at December 31, 2005			—				29
Class A common stock, Series 2, $0.01 par value; 75,000 shares authorized; 5,432 and 35,782 shares issued at June 30, 2006 and December 31, 2005, respectively; 5,432 and 34,248 shares outstanding at June 30, 2006 and December 31, 2005, respectively			54				358
Treasury stock, at cost; 1,569 and 1,534 shares at June 30, 2006 and December 31, 2005, respectively			(8,101	)			(5,541	)
Additional paid-in capital			197,555				177,602
Deferred stock compensation			—				(6,899	)
Retained earnings			98,542				47,911
Accumulated other comprehensive income			28,068				18,979
Total shareholders’ equity			316,643				232,623
Total liabilities and shareholders’ equity		$	350,220			$	265,770

See accompanying notes.

IntercontinentalExchange, Inc. and Subsidiaries

Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)

		Six Months Ended								Three Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenues:
Transaction fees, net (including $12,055 and $6,866 with related-parties for the six months ended June 30, 2006 and 2005, respectively, and $6,867 and $3,666 for the three months ended June 30, 2006 and 2005, respectively)		$	106,892			$	60,120			$	63,657			$	33,035
Market data fees (including $329 and $111 with related-parties for the six months ended June 30, 2006 and 2005, respectively, and $269 and $54 for the three months ended June 30, 2006 and 2005, respectively)			14,841				6,942				8,819				3,460
Other (including $1,030 and $1,164 with related-parties for the six months ended June 30, 2006 and 2005, respectively, and $561 and $626 for the three months ended June 30, 2006 and 2005, respectively)			2,140				2,296				1,115				1,035
Total revenues			123,873				69,358				73,591				37,530
Operating expenses:
Compensation and benefits			22,549				16,399				11,932				8,513
Professional services			5,925				5,751				3,235				2,551
Selling, general and administrative			13,833				9,204				7,699				4,828
Floor closure costs			—				4,814				—				4,814
Settlement expense			—				15,000				—				15,000
Depreciation and amortization			6,497				7,755				3,309				3,797
Total operating expenses			48,804				58,923				26,175				39,503
Operating income (loss)			75,069				10,435				47,416				(1,973	)
Other income (expense):
Interest income			2,428				1,410				1,250				744
Interest expense			(120	)			(315	)			(57	)			(152	)
Other income (expense), net			(347	)			1,070				(340	)			581
Total other income, net			1,961				2,165				853				1,173
Income (loss) before income taxes			77,030				12,600				48,269				(800	)
Income tax expense (benefit)			26,399				3,871				17,302				(659	)
Net income (loss)		$	50,631			$	8,729			$	30,967			$	(141	)
Redemption adjustments to redeemable stock put			—				(6,594	)			—				(6,594	)
Net income (loss) available to common shareholders		$	50,631			$	2,135			$	30,967			$	(6,735	)
Earnings (loss) per common share:
Basic		$	0.91			$	0.04			$	0.55			$	(0.13	)
Diluted		$	0.86			$	0.04			$	0.52			$	(0.13	)
Weighted average common shares outstanding:
Basic			55,703				52,870				55,871				52,873
Diluted			59,092				53,072				59,209				52,873

See accompanying notes.

IntercontinentalExchange, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity
(In thousands)
(Unaudited)

																																														Accumulated Other
										Class A																																				Comprehensive Income
										Common								Class A																												Net Unrealized Gain (Loss) from
		Common								Stock,								Common Stock,																Additional				Deferred								Foreign				Available-								Total
		Stock								Series 1								Series 2								Treasury Stock								Paid-in				Stock				Retained				Currency				For-Sale				Hedging				Shareholders’
		Shares				Value				Shares				Value				Shares				Value				Shares				Value				Capital				Compensation				Earnings				Translation				Investments				Derivatives				Equity
Balance, January 1, 2005			—			$	—				2,863			$	29				51,537			$	515				(1,534	)		$	(5,541	)		$	39,886			$	(6,087	)		$	68,820			$	37,043			$	—			$	(2,516	)		$	132,149
Other comprehensive income (loss)			—				—				—				—				—				—				—				—				—				—				—				(15,705	)			91				66				(15,548	)
Exercise of common stock options			—				—				—				—				145				2				—				—				864				—				—				—				—				—				866
Issuance of restricted stock			—				—				—				—				—				—				—				—				2,837				(2,467	)			—				—				—				—				370
Amortization of deferred compensation			—				—				—				—				—				—				—				—				—				1,655				—				—				—				—				1,655
Redemption adjustments to redeemable stock put			—				—				—				—				—				—				—				—				—				—				(61,319	)			—				—				—				(61,319	)
Cancellation of redeemable stock put			—				—				—				—				—				—				—				—				78,901				—				—				—				—				—				78,901
Issuance of common stock			2,500				25				—				—				—				—				—				—				55,114				—				—				—				—				—				55,139
Conversion of Class A common stock, Series 2 into common stock			15,900				159				—				—				(15,900	)			(159	)			—				—				—				—				—				—				—				—				—
Net income			—				—				—				—				—				—				—				—				—				—				40,410				—				—				—				40,410
Balance, December 31, 2005			18,400				184				2,863				29				35,782				358				(1,534	)			(5,541	)			177,602				(6,899	)			47,911				21,338				91				(2,450	)			232,623
Other comprehensive income (loss)			—				—				—				—				—				—				—				—				—				—				—				9,356				(267	)			—				9,089
Exercise of common stock options			800				8				—				—				78				—				—				—				7,647				—				—				—				—				—				7,655
Reversal of deferred stock compensation in connection with adoption of SFAS No. 123(R)			—				—				—				—				—				—				—				—				(6,899	)			6,899				—				—				—				—				—
Conversion of Class A common stock, Series 1 and Series 2 into common stock			33,291				333				(2,863	)			(29	)			(30,428	)			(304	)			—				—				—				—				—				—				—				—				—
Treasury shares received for stock option tax payment			—				—				—				—				—				—				(35	)			(2,560	)			—				—				—				—				—				—				(2,560	)
Stock-based compensation			—				—				—				—				—				—				—				—				5,033				—				—				—				—				—				5,033
Tax benefits from stock option plans			—				—				—				—				—				—				—				—				14,191				—				—				—				—				—				14,191
Additional costs related to issuance of common stock			—				—				—				—				—				—				—				—				(19	)			—				—				—				—				—				(19	)
Net income			—				—				—				—				—				—				—				—				—				—				50,631				—				—				—				50,631
Balance, June 30, 2006			52,491			$	525				—			$	—				5,432			$	54				(1,569	)		$	(8,101	)		$	197,555			$	—			$	98,542			$	30,694			$	(176	)		$	(2,450	)		$	316,643

See accompanying notes.

IntercontinentalExchange, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)

		Six Months Ended
		June 30,
		2006				2005
Net income		$	50,631			$	8,729
Other comprehensive income (loss):
Foreign currency translation adjustments			9,356				(10,694	)
Change in available-for-sale investments			(267	)			—
Change in derivatives used for hedging activities			—				66
Comprehensive income (loss)		$	59,720			$	(1,899	)

See accompanying notes.

IntercontinentalExchange, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

		Six Months Ended
		June 30,
		2006				2005
Operating activities
Net income		$	50,631			$	8,729
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			6,497				7,755
Amortization of revolving credit facility issuance costs			74				48
Allowance for doubtful accounts			269				10
Net realized gains on sales of available-for-sale investments			(2,668	)			(81	)
Stock-based compensation			4,791				816
Deferred taxes			1,202				(1,196	)
Non-cash floor closure costs			—				560
Excess tax benefits from stock-based compensation			(13,222	)			—
Changes in assets and liabilities:
Customer accounts receivable:
Trade, net			(12,353	)			(6,426	)
Related-parties			(2,030	)			(618	)
Prepaid expenses and other current assets			(4,831	)			(3,839	)
Noncurrent assets			801				7
Accounts payable			(554	)			384
Income taxes payable			10,150				(3,414	)
Deferred revenue			711				342
Accrued salaries and benefits, and other accrued liabilities			(784	)			13,157
Total adjustments			(11,947	)			7,505
Net cash provided by operating activities			38,684				16,234
Investing activities
Capital expenditures			(4,347	)			(755	)
Capitalized software development costs			(3,229	)			(2,625	)
Proceeds from sales of available-for-sale investments			107,909				12,481
Purchases of available-for-sale investments			(125,459	)			(6,700	)
(Increase) decrease in restricted cash			(628	)			5,080
Net cash (used in) provided by investing activities			(25,754	)			7,481
Financing activities
Payments on capital lease obligations			—				(482	)
Repayments of revolving credit facility			—				(12,000	)
Excess tax benefits from stock-based compensation			13,222				—
Payments relating to offerings of common stock			(510	)			(2,985	)
Proceeds from exercise of common stock options			7,655				122
Net cash provided by (used in) financing activities			20,367				(15,345	)
Effect of exchange rate changes on cash and cash equivalents			795				(3,930	)
Net increase in cash and cash equivalents			34,092				4,440
Cash and cash equivalents, beginning of period			20,002				61,199
Cash and cash equivalents, end of period		$	54,094			$	65,639
Supplemental cash flow disclosure
Cash paid for income taxes		$	15,661			$	4,913
Cash paid for interest		$	47			$	257

See accompanying notes.

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
(Unaudited)

1. Nature of Business and Organization

     IntercontinentalExchange, Inc. (the “Company”) operates the leading electronic global futures and over-the-counter (“OTC”) marketplace (the “Platform”) for trading a broad array of energy products. The Company owns 100% of ICE Futures Holdings Plc, which is the sole shareholder of ICE Futures. ICE Futures operates as a United Kingdom (“U.K.”) Recognized Investment Exchange (“RIE”) in London, England, for the purpose of trading energy commodity futures and options contracts. Headquartered in Atlanta, Georgia, the Company also has offices in London, New York, Chicago, Houston, Calgary and Singapore.

     As an RIE, ICE Futures is subject to supervision in the U.K. by the Financial Services Authority in accordance with the Financial Services and Markets Act 2000. ICE Futures is responsible for properly supervising its markets as a self-regulatory organization, and for maintaining financial resources sufficient for the proper performance of its functions as a RIE, and, in order to satisfy this requirement, is obligated to maintain a minimum amount of liquid financial assets at all times.

     The Company currently operates its OTC markets as an exempt commercial market (“ECM”) pursuant to the Commodity Exchange Act and regulations of the Commodity Futures Trading Commission (“CFTC”). As an ECM, the Company is required to file a notice with the CFTC, provide the CFTC with access to its trading system and respond to requests for information or records from the CFTC.

2. Basis of Presentation and New Accounting Pronouncements

     The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended December 31, 2005. The accompanying unaudited consolidated financial statements reflect all adjustments that are, in the opinion of the Company’s management, necessary for a fair presentation of results for the interim periods presented. Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates. The results of operations for the six months and three months ended June 30, 2006 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.

     The accompanying unaudited consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions between the Company and its wholly-owned subsidiaries have been eliminated in consolidation.

     Certain prior period amounts have been reclassified to conform to the current period’s financial statement presentation.

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. We will adopt this Interpretation on January 1, 2007. The cumulative effects, if any, of applying this Interpretation will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. We have commenced the process of evaluating the expected effect of FIN 48 on our consolidated financial statements and are currently not yet in a position to determine such effects.

3. Foreign Currency Translation Adjustments and Transactions

     In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, Foreign Currency Translation, the functional currency of the Company’s U.K. subsidiaries has historically been U.K. pounds sterling. The Company translated the assets and liabilities of its U.K. subsidiaries into U.S. dollars using period-end

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

exchange rates and the revenues and expenses of these entities were translated using the average exchange rates for the reporting period. Translation adjustments were recorded in accumulated other comprehensive income, a separate component of shareholders’ equity in the accompanying consolidated balance sheets and in the consolidated statements of comprehensive income (loss). Gains and losses from foreign currency transactions, such as those resulting from the settlement of foreign receivables or payables or the Company’s foreign subsidiaries cash accounts held in U.S. dollars, were included in other income (expense) in the accompanying consolidated statements of income.

     Effective July 1, 2006, the functional currency of the Company’s U.K. subsidiaries became U.S. dollars. SFAS No. 52 states that the functional currency of an entity is the currency of the primary economic environment in which the entity operates. Normally, it is the currency of the environment in which an entity primarily generates and expends cash. Once the functional currency of a foreign entity is determined, that determination should be used consistently unless significant changes in economic facts and circumstances indicate clearly that the functional currency has changed. A change in functional currency should be accounted for prospectively, and previously issued financial statements should not be restated for a change in functional currency. In addition, if the functional currency changes from a foreign currency to the reporting currency, as is the case with the Company, translation adjustments for prior periods should not be removed from equity and the translated amounts for non-monetary assets at the end of the prior period become the accounting basis for those assets in the period of the change and subsequent periods. The functional currency changed based on various economic factors and circumstances, including the fact that during the second quarter of 2006, ICE Futures began to charge and collect exchange fees in U.S. dollars rather than pounds sterling in its key futures contracts, including crude oil and heating oil contracts. The Company will no longer recognize any translation adjustments in the accompanying consolidated financial statements subsequent to June 30, 2006. However, gains and losses from foreign currency transactions will continue to be included in other income (expense) in the accompanying consolidated statements of income.

4. Stock-Based Compensation

     The Company currently sponsors employee stock option and restricted stock plans. On January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors including employee stock options and restricted stock based on estimated fair values. SFAS No. 123(R) supersedes the Company’s previous accounting under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, for periods beginning in fiscal 2006.

     The Company adopted SFAS No. 123(R) using the modified prospective method. Under the modified prospective method, compensation costs are recognized beginning with the effective date based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. The Company’s consolidated financial statements as of and for the six months and three months ended June 30, 2006 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective transition method, the Company’s consolidated financial statements for the prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R).

     SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as stock-based compensation expenses over the requisite service period in the Company’s consolidated financial statements. Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB Opinion No. 25 as allowed under SFAS No. 123. Under the intrinsic value method, no stock-based compensation expenses have been recognized in the Company’s consolidated statements of income for stock options because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

     As stock-based compensation expenses recognized in the accompanying unaudited consolidated statement of income for the six months ended June 30, 2006 is based on awards ultimately expected to vest, it has been reduced

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience and management’s estimates. In the Company’s pro forma information required under SFAS No. 123 for the periods prior to fiscal 2006, the Company accounted for stock option forfeitures as they occurred. The Company also did not estimate any forfeitures for the restricted stock grants in 2004 and 2005. At the adoption of SFAS No. 123(R), the Company was required to record a cumulative adjustment to reverse compensation costs that would not have been recorded if forfeitures had been estimated. Therefore, the Company recorded a cumulative adjustment of $440,000 for the six months ended June 30, 2006 to reduce compensation costs that were actually recognized in the Company’s consolidated financial statements during 2004 and 2005 relating to the restricted stock compensation expense amortization. The Company is not required to adjust the pro forma SFAS No. 123 disclosures.

     A company that adopts SFAS No. 123(R) is required to calculate its historical additional paid-in capital pool (“APIC Pool”) for the period from 1995 to 2005 at such time that excess tax deficiencies arise in connection with stock-based compensation. Under SFAS No. 123(R), a company may use one of two methods to calculate its historical APIC Pool. A company may elect to calculate its initial pool of excess tax benefits pursuant to the method described in paragraph 81 of SFAS No. 123(R) or pursuant to the method described in FSP No. SFAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. Generally, the pool of excess tax benefits that is available to offset future excess tax deficiencies is based on the amounts that would have been recognized under SFAS No. 123 and SFAS No. 123(R) as if the company had always applied those standards for recognition purposes.

     The Company has not yet elected which method it will choose to calculate its historical APIC Pool balance. However, prior to January 1, 2006, the Company had not reported any taxable income arising in connection with the share-based awards nor has it deducted in its tax returns any compensation related to the share-based awards. Accordingly, the Company has no tax benefits available to credit toward its historical APIC Pool calculation. As of January 1, 2006, the APIC Pool for the Company is zero using either calculation methodology. The Company will elect a method in accordance with the prescribed time limitation for doing so and understands that the election will dictate the treatment of awards vested as of the date of adoption of SFAS No. 123(R) for purposes of updating its APIC Pool post-adoption. During the six months ended June 30, 2006, excess tax benefits of $14.2 million were recognized as an increase to the APIC balance. Of that amount, $13.2 million were qualifying excess tax benefits that increased the APIC Pool eligible to absorb future write-offs of unrealized deferred tax assets. In accordance with SFAS No. 123(R), the $13.2 million is reported as a financing cash flow in the accompanying unaudited consolidated statement of cash flows.

     No unearned compensation is included in stockholders’ equity under SFAS No. 123(R) for stock options and restricted stock awards granted. Rather, such stock options and restricted stock awards and units are included in stockholders’ equity under SFAS No. 123(R) when services required from employees and directors in exchange for the awards are rendered and expensed. Upon the adoption of SFAS No. 123(R) on January 1, 2006, the Company reversed the December 31, 2005 $6.9 million deferred stock compensation balance by a charge to additional paid-in capital.

     Employee and director stock-based compensation expenses and the related income tax benefit recognized for both stock options and restricted stock in the accompanying unaudited consolidated statement of income for the six months ended June 30, 2006 was $4.8 million and $1.5 million, respectively, and for the three months ended June 30, 2006 was $2.6 million and $813,000, respectively. Employee and director stock-based compensation expenses and the related income tax benefit recognized on the restricted stock in the accompanying unaudited consolidated statement of income for the six months ended June 30, 2005 was $816,000 and $307,000 respectively, and for the three months ended June 30, 2005 was $410,000 and $158,000, respectively. As a result of the adoption SFAS No. 123(R), the Company’s income before income taxes and net income for the six months ended June 30, 2006 was $909,000 and $823,000 lower, respectively, than if it had continued to account for share-based compensation under APB Opinion No. 25. The adoption of SFAS No. 123(R) decreased the Company’s calculation of basic and diluted earnings per share by $0.01 and $0.01 during the six months and three months ended June 30, 2006, respectively. Had the Company determined compensation costs based on the estimated fair value at the grant dates for its stock options granted prior to adoption of SFAS No. 123(R), the Company’s pro forma net income and earnings per common share for the six months and three months ended June 30, 2005 would have been as follows:

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

		Six Months Ended				Three Months Ended
		June 30,				June 30,
		2005				2005
		(In thousands, except per share amounts)
Net income (loss) available to common shareholders, as reported		$	2,135			$	(6,735	)
Add: Stock-based compensation expenses included in reported net income, net of tax			544				275
Deduct: Total stock-based compensation expenses determined under the fair value method for all awards, net of tax			(3,726	)			(1,834	)
Net loss available to common shareholders, pro forma		$	(1,047	)		$	(8,294	)
Earnings (loss) per common share:
Basic and Diluted — as reported		$	0.04			$	(0.13	)
Basic and Diluted — pro forma		$	(0.02	)		$	(0.16	)

     The Company will continue to use the Black-Scholes option pricing model for purposes of valuing share-based awards. The Company’s determination of fair value of share-based payment awards on the date of grant using the Black-Scholes option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with SFAS No. 123(R) using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. The Company did not grant any stock options during the six months ended June 30, 2006.

5. Stock Option and Restricted Stock Plans

     The Company has adopted the IntercontinentalExchange, Inc. 2000 Stock Option Plan (the “2000 Stock Option Plan”), pursuant to which 5,250,000 shares of common stock have been reserved for issuance. As of June 30, 2006, there are 436,274 shares available for future issuance under this plan.

     The Company has adopted the IntercontinentalExchange, Inc. 2005 Equity Incentive Plan (the “2005 Equity Incentive Plan”). Under this plan, 2,125,000 shares have been reserved for issuance, which may be granted in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units. As of June 30, 2006, there were 150,184 restricted stock units issued and outstanding. The Company granted 86,434 restricted stock units under the 2005 Equity Incentive Plan during the six months ended June 30, 2006 with a fair value of $49.23 per share. The fair value was based on the closing stock price on the date of grant. The fair value of the restricted stock units on the date of the grant is recognized as expense ratably over the vesting period, net of estimated forfeitures.

     Stock options are granted at the discretion of the compensation committee of the board of directors. The Company may grant both incentive stock options and nonqualified stock options. Options generally vest over four years, but can vest at different intervals based on the compensation committee’s determination. Generally, options may be exercised up to ten years after the date of grant, but generally expire 14 days after termination of employment. All stock options were granted at a price equal to the estimated fair value of the common stock at the date of grant. The following is a summary of stock options for the six months ended June 30, 2006:

						Weighted Average
						Exercise Price per
		Number of Options				Option
Outstanding at January 1, 2006			4,787,418			$	9.51
Granted			—				—
Exercised			(888,279	)			8.91
Forfeited			(123,782	)			8.31
Outstanding at June 30, 2006			3,775,357				9.68

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

     Details of stock options outstanding as of June 30, 2006 are as follows:

										Weighted Average				Aggregate
						Weighted Average				Remaining				Intrinsic
						Exercise				Contractual Life				Value
		Number of Options				Price				(Years)				(In thousands)
Vested or expected to vest			3,480,057			$	9.40				7.38			$	168,910
Exercisable			2,197,001			$	8.59				6.89			$	108,426

     The total intrinsic value of stock options exercised during the six months and three months ended June 30, 2006 was $45.1 million and $39.0 million, respectively. As of June 30, 2006, there were $6.1 million in total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 2.4 years as the stock options vest.

     The Company has also adopted the IntercontinentalExchange, Inc. 2004 Restricted Stock Plan (the “Restricted Plan”), pursuant to which 1,475,000 shares of common stock have been reserved for issuance. As of June 30, 2006, 1,446,674 were subject to outstanding awards of restricted stock units made to senior officers of the Company and members of the board of directors. Of these shares, 800,212 were granted in 2004 as time-based restricted shares and vest based on a four-year vesting schedule. The fair value of the restricted shares on the date of the grant is recognized as expense ratably on a straight-line basis over the vesting period. Until the shares vest and are issued, the participants have no voting or dividend rights and the shares may not be sold, assigned, transferred, pledged or otherwise encumbered. During the six months ended June 30, 2006, no restricted shares were issued.

     An additional 208,404 to 625,212 restricted shares under the Restricted Plan have been reserved for potential issuance as performance-based restricted shares for the Company’s senior officers and vest based on Company financial performance relative to three-year cumulative performance targets (the “Performance Targets”) set by the Company’s Compensation Committee for the period from January 1, 2005 to December 31, 2007. The potential compensation expenses to be recognized under the performance-based restricted shares would be $1.4 million if the minimum Performance Targets are met and 208,404 restricted shares are issued, $2.8 million if the target Performance Targets are met and 416,807 restricted shares are issued or $4.2 million if the maximum Performance Targets are met and 625,212 restricted shares are issued. Under SFAS No. 123(R), the Company would recognize compensation costs for awards with performance conditions only if it is probable that the condition will be satisfied. If the Company initially determines that it is not probable that the performance condition will be satisfied and later determines that it is probable the performance condition will be satisfied, or vice versa, the effect of the change in estimate should be accounted for in the period of change by recording a cumulative catch-up adjustment to retroactively apply the new estimate. The Company would recognize the remaining compensation costs over the remaining requisite service period.

     During the three months ended March 31, 2006, the Company determined that it was probable that the target Performance Targets will be met and the Company recorded a cumulative catch-up adjustment to non-cash compensation expenses of $1.2 million. During the three months ended June 30, 2006, the Company determined that it was probable that the maximum Performance Targets will be met and the Company recorded a cumulative catch-up adjustment to non-cash compensation expenses of $943,000. The remaining $2.1 million in non-cash compensation expenses under the maximum Performance Targets will be expensed ratably over the remaining requisite service period, currently estimated to be the end of the three-year performance period, or December 31, 2007. If the Performance Targets are not reached, the corresponding performance-based restricted shares will not be issued and the expense previously recognized will be reversed.

Intercontinental Exchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

     The following is a summary of the nonvested restricted shares for the six months ended June 30, 2006:

						Weighted Average
						Grant-Date Fair
		Number of				Value
		Restricted Stock Shares				per Share
Nonvested at January 1, 2006			1,260,773			$	8.73
Granted			89,078				49.64
Vested			(125,502	)			(13.48	)
Forfeited			(67,175	)			(8.00	)
Nonvested at June 30, 2006			1,157,174				11.38

     As of June 30, 2006, there were $9.9 million in total unrecognized compensation costs related to restricted stock. These costs are expected to be recognized over a weighted average period of 2.0 years as the restricted stock vests.

6. Short-Term and Long-Term Investments

     Short-term and long-term investments consist of available-for-sale securities. Available-for-sale securities are carried at fair value with unrealized gains or losses, net of deferred income taxes, reported as a component of accumulated other comprehensive income. The cost of securities sold is based on the specific identification method. As of June 30, 2006, available-for-sale securities consisted of the following (in thousands):

						Gross				Gross
						Unrealized				Unrealized				Estimated
		Cost				Gains				Losses				Fair Value
Municipal bonds		$	134,637			$	—			$	176			$	134,461

     During the six months ended June 30, 2005, the Company only invested in Auction Rate Securities (“ARS”). Based on the short-term nature of the 28-day auction rate issues and their market rates, the estimated fair value of the ARS approximates carrying value. Therefore, no unrealized gains or losses were recorded on available-for-sale securities during the six months ended June 30, 2005.

     The contractual maturities of these investments as of June 30, 2006, were as follows (in thousands):

		Estimated
		Fair Value
Maturities:
Due within 1 year		$	27,141
Due within 1 year to 5 years			7,990
Due within 5 years to 10 years			17,570
Due after 10 years			81,760
Total		$	134,461

     As of June 30, 2006, the Company had $134.5 million in short-term investments. Investments that the Company intends to hold for more than one year are classified as long-term investments in the accompanying unaudited consolidated balance sheets. As of June 30, 2006, the Company does not intend to hold any of the investments for more than one year.

7. Income Taxes

     For the six months ended June 30, 2006 and 2005, income before income taxes from domestic operations was $50.3 million and $771,000, respectively, and income before income taxes from foreign operations was $26.7 million and $11.8 million, respectively. For the three months ended June 30, 2006 and 2005, income (loss) before income taxes from domestic operations was $31.2 million and ($5.3 million), respectively, and income before income taxes from foreign operations was $17.0 million and $4.5 million, respectively. Details of the income tax provision in the accompanying unaudited consolidated statements of income for the six months and three months ended June 30, 2006 and 2005 are as follows:

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

		Six Months Ended								Three Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
						(In thousands)
Current tax expense (benefit):
Domestic		$	14,521			$	1,435			$	9,910			$	(895	)
Foreign			11,370				4,000				6,795				1,684
			25,891				5,435				16,705				789
Deferred tax expense (benefit):
Domestic			479				(1,202	)			624				(1,151	)
Foreign			29				(362	)			(27	)			(297	)
			508				(1,564	)			597				(1,448	)
Total tax expense (benefit)		$	26,399			$	3,871			$	17,302			$	(659	)

     The Company’s effective tax rate increased to 34.3% for the six months ended June 30, 2006 from 30.7% for the six months ended June 30, 2005. The Company’s effective tax rate was 35.8% for the three months ended June 30, 2006. The effective tax rate for the six months ended June 30, 2006 is lower than the statutory rate primarily due to tax exempt income and a $1.2 million reduction in U.S. residual taxes that was recorded as a discrete item during the three months ended March 31, 2006. The effective tax rate for the six months ended June 30, 2005 is lower than the statutory rate primarily due to federal and state research and development tax credits.

8. Commitments and Contingencies

Licensing Agreement

     In March 2002, the Company entered into a long-term, non-exclusive licensing agreement with a third party, which granted the use of the third party’s patent to the Company and its majority-owned and controlled affiliates. The patent relates to automated futures trading systems in which transactions are completed by a computerized matching of bids and offers of futures contracts on an electronic platform. The license of the patent provides legal certainty to traders, clearing banks and brokers wishing to utilize the Company’s Platform for trading futures contracts from within the U.S. Under the agreement, the Company is required to pay minimum annual license fees of $2.0 million beginning April 5, 2002 through the expiration date of the patent on February 20, 2007 along with additional royalty payments calculated quarterly based upon the volume of certain futures transactions executed on the Platform. The agreement also includes a clause that requires an additional $2.0 million payment each time that the number of electronic futures contacts covered by the agreement exceeds 25 million contracts in any given year. The agreement covers the Company’s use of the patent in certain markets including energy, certain metals, weather, sulfur and nitrogen pollution allowances and financial products specifically related to products in these markets.

     The Company recorded amortization expense of $1.0 million during the six months ended June 30, 2006 and 2005 and $500,000 during the three months ended June 30, 2006 and 2005 relating to the licensing agreement. The Company incurred royalty payments of $2.7 million and $323,000 during the six months ended June 30, 2006 and 2005, respectively, and $1.6 million and $297,000 during the three months ended June 30, 2006 and 2005, respectively, which were recorded as selling, general and administrative expenses in the accompanying unaudited consolidated statements of income. The Company also determined that it is probable that the contract volume will exceed 25 million contracts during the period from April 1, 2006 to February 20, 2007 and will require an additional $2.0 million payment. Therefore, the Company accrued $561,000 to selling, general and administrative expenses during the six months and three months ended June 30, 2006. If the contract volume does not exceed 25 million contracts during the period from April 1, 2006 to February 20, 2007, the $2.0 million payment will not be required and any previously recorded expense will be reversed.

Legal Proceedings

     On September 29, 2005, the U.S. District Court for the Southern District of New York granted the Company’s motion for summary judgment dismissing all claims brought by the New York Mercantile Exchange, Inc. (“NYMEX’) against the Company in an action commenced in November 2002. NYMEX’s complaint alleged copyright infringement by the Company on the basis of its use of NYMEX’s publicly available settlement prices in two of the Company’s cleared OTC contracts. The complaint also alleged that the Company infringed and diluted

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

NYMEX’s trademark rights by referring to NYMEX trademarks in certain of the Company’s swap contract specifications and that the Company has tortiously interfered with a contract between NYMEX and the data provider that provides the Company with the NYMEX settlement prices pursuant to a license. In dismissing all of NYMEX’s claims, the court found that NYMEX’s settlement prices were not copyrightable works as a matter of law, and the Company had not engaged in copyright or trademark infringement in referencing NYMEX’s publicly available settlement prices. The trademark dilution and tortious interference claims, which are state law claims, were dismissed on jurisdictional grounds. While the court granted summary judgment in the Company’s favor on all claims, NYMEX is currently appealing the decision regarding the copyright claims and state law claims in the Second Circuit Court of Appeals. If NYMEX continues with its appeal, or proceeds with a claim in state court, the Company intends to vigorously defend these actions. The Company does not believe that the resolution of this matter will have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.

     On February 2, 2006, MBF Clearing Corp. filed a complaint against the Company in the U.S. District Court for the Southern District of New York asserting that the Company has monopoly power in the markets for electronic trading of Brent Crude Oil futures and certain other energy contracts. On March 22, 2006, the Company filed a motion to dismiss all of MBF Clearing’s claims in the complaint. Rather than responding to our motion, MBF Clearing filed an amended complaint dropping one state law claim, and making additional allegations that actions taken by the Company with respect to MBF Clearing were taken with the intention of foreclosing competition from contracts presently traded or to be traded on NYMEX’s electronic trading platform. MBF Clearing, which is a major NYMEX clearing and trading firm and a market maker for certain NYMEX electronic contracts, alleges that the Company disconnected MBF Clearing’s access to the Company’s trading platform and denied MBF Clearing information from ICE Data in breach of a contract with MBF Clearing and in violation of U.S. antitrust laws. MBF Clearing also alleges, among other things, that the Company has engaged in tortious interference with contract and business advantage. The amended complaint does not specify the amount of damages alleged to have been caused to MBF Clearing but requests that MBF Clearing be awarded treble and punitive damages. On June 5, 2006, the Company filed a renewed motion to dismiss all of MBF Clearing’s claims and MBF Clearing filed its brief in opposition of the Company’s motion to dismiss on July 12, 2006. Briefing is still ongoing and the Company plans on filing a reply brief in the near future. The Company intends to vigorously defend these claims and does not believe that the resolution of this matter will have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.

9. Floor Closure Costs

On April 7, 2005, the Company closed its open-outcry trading floor in London. This was done to take advantage of the increasing acceptance and adoption of electronic trading, and to maintain and enhance the Company’s competitive position. All futures trading is now conducted exclusively on the Company’s electronic platform. The Company recorded floor closure costs of $4.8 million during the second quarter of 2005 in connection with the closure of the open-outcry trading floor. These costs include lease terminations for the building where the floor was located, payments made to 18 employees who were terminated as a result of the closure, contract terminations, and other associated costs, including legal costs and asset impairment charges. This expense was classified as “Floor closure costs” in the accompanying unaudited consolidated statements of income for the six months and three months ended June 30, 2005. No floor closure costs were incurred in prior periods and no additional closure costs are expected to be incurred.

10. Settlement Expense

          In January 2004, EBS Dealing Resources, Inc. (“EBS”) filed a complaint against the Company in United States District Court, Southern District of New York, alleging that the Company infringed on patents held by EBS related to credit filter technology for electronic brokerage systems. In September 2005, the Company settled the legal action brought by EBS related to the alleged patent infringement. Under the settlement agreement, the Company made a payment of $15.0 million to EBS, and was released from the legal claims brought against it without admitting liability. The payment was classified as “Settlement expense” in the accompanying unaudited consolidated statements of income for the six months and three months ended June 30, 2005.

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

11. Redemption Adjustments to Redeemable Stock Put

          Continental Power Exchange, Inc. is the Company’s predecessor company and is owned by the chief executive officer of the Company. The Company had a put agreement (the “Redeemable Stock Put”) with Continental Power Exchange, Inc. under which, in certain circumstances, Continental Power Exchange, Inc. had the right to require the Company to purchase a portion of the Company’s common stock held by Continental Power Exchange, Inc. for an amount equal to the greater of fair market value at the date the put was exercised, or $5.0 million. Continental Power Exchange, Inc. had the right to exercise the put option upon the termination, retirement, death or disability of the senior officer, exercisable at any time within six months of such an event.

          The Company initially recorded the Redeemable Stock Put at the minimum $5.0 million redemption threshold. The Company had adjusted the Redeemable Stock Put to its redemption amount at each subsequent balance sheet date. The adjustment to the redemption amount had been recorded directly to retained earnings or, in the absence of positive retained earnings, by charges against additional paid-in capital. The Company increased the Redeemable Stock Put by $6.6 million during the six months and three months ended June 30, 2005. This adjustment resulted from an increase in the estimated fair value of the Company’s common stock from $8.00 per share as of March 31, 2005 to $11.00 per share as of June 30, 2005.

          In October 2005, the Company entered into an agreement with Continental Power Exchange, Inc. (“the Put Termination Agreement”) to cancel the Redeemable Stock Put contingent upon the closing of the Company’s initial public offering of common stock. The Company increased the Redeemable Stock Put by $61.3 million during the year ended December 31, 2005 resulting from an increase in the estimated fair value of the Company’s common stock from $8.00 per share as of December 31, 2004 to $35.90 per share as of November 21, 2005, the closing date of the Company’s initial public offering of common stock and the termination date of the Redeemable Stock Put. The balance of the Redeemable Stock Put on November 21, 2005 was $78.9 million and was reclassified to additional paid-in capital upon its termination.

12. Segment Reporting

     The Company’s principal business segments consist of its OTC business, its futures business and its market data business. The operations of ICE Futures comprise the futures business segment and the operations of ICE Data, L.P. and ICE Data LLP comprise the market data business segment. Intersegment revenues and transactions attributable to the performance of services are recorded at cost plus an agreed market percentage intercompany profit. Intersegment revenues attributable to licensing transactions have been priced in accordance with comparable third party agreements. Financial data for the Company’s business segments and geographic areas are as follows:

										Market
		OTC				Futures				Data
		Business				Business				Business
		Segment				Segment				Segment				Total
		(In thousands)
Six Months Ended June 30, 2006:
Revenues from external customers		$	65,690			$	49,622			$	8,561			$	123,873
Intersegment revenues			9,975				3,028				4,510				17,513
Depreciation and amortization			5,458				1,033				6				6,497
Interest income			1,668				743				17				2,428
Interest expense			120				—				—				120
Income tax expense			12,414				10,953				3,032				26,399
Net income			24,658				20,341				5,632				50,631
Total assets			272,090				72,405				5,725				350,220
Capital expenditures and software development costs			6,882				692				2				7,576
Goodwill and other intangibles, net			81,192				—				—				81,192
Net cash provided by operating activities			7,915				22,233				8,536				38,684

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

Geographic areas:

						European
		United States				Union				Total
		(In thousands)
Six Months Ended June 30, 2006:
Revenues from external customers		$	70,148			$	53,725			$	123,873
As of June 30, 2006:
Property and equipment, net			14,681				9,206				23,887

     Revenues from one customer of the futures business segment comprised 14% of the Company’s futures revenues for the six months ended June 30, 2006. No additional customers accounted for more than 10% of the Company’s segment revenues or consolidated revenues during the six months ended June 30, 2006.

										Market
		OTC				Futures				Data
		Business				Business				Business
		Segment				Segment				Segment				Total
		(In thousands)
Six Months Ended June 30, 2005:
Revenues from external customers		$	36,314			$	27,558			$	5,486			$	69,358
Intersegment revenues			5,066				2,228				881				8,175
Depreciation and amortization			6,493				1,259				3				7,755
Interest income			447				963				—				1,410
Interest expense			315				—				—				315
Income tax expense (benefit)			(533	)			3,274				1,130				3,871
Net income			551				6,080				2,098				8,729
Total assets			136,196				61,968				4,376				202,540
Capital expenditures and software development costs			2,561				808				11				3,380
Goodwill and other intangibles, net			79,911				—				—				79,911
Net cash provided by operating activities			7,920				6,253				2,061				16,234

Geographic areas:

						European
		United States				Union				Total
		(In thousands)
Six Months Ended June 30, 2005:
Revenues from external customers		$	38,242			$	31,116			$	69,358
As of June 30, 2005:
Property and equipment, net			8,756				7,349				16,105

     Revenues from one customer of the futures business segment comprised 14% of the Company’s futures revenues for the six months ended June 30, 2005. No additional customers accounted for more than 10% of the Company’s segment revenues or consolidated revenues during the six months ended June 30, 2005.

										Market
		OTC				Futures				Data
		Business				Business				Business
		Segment				Segment				Segment				Total
		(In thousands)
Three Months Ended June 30, 2006:
Revenues from external customers		$	39,104			$	30,159			$	4,328			$	73,591
Intersegment revenues			4,898				557				3,283				8,738
Depreciation and amortization			2,798				508				3				3,309
Interest income			996				245				9				1,250
Interest expense			57				—				—				57
Income tax expense			8,139				6,960				2,203				17,302
Net income			13,952				12,925				4,090				30,967
Total assets			272,090				72,405				5,725				350,220
Capital expenditures and software development costs			4,070				188				—				4,258
Goodwill and other intangibles, net			81,192				—				—				81,192
Net cash provided by (used in) operating activities			(699	)			15,052				7,255				21,608

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

Geographic areas:

						European
		United States				Union				Total
		(In thousands)
Three Months Ended June 30, 2006:
Revenues from external customers		$	41,592			$	31,999			$	73,591
As of June 30, 2006:
Property and equipment, net			14,681				9,206				23,887

     Revenues from one customer of the futures business segment comprised 15% of the Company’s futures revenues for the three months ended June 30, 2006. No additional customers accounted for more than 10% of the Company’s segment revenues or consolidated revenues during the three months ended June 30, 2006.

										Market
		OTC				Futures				Data
		Business				Business				Business
		Segment				Segment				Segment				Total
		(In thousands)
Three Months Ended June 30, 2005:
Revenues from external customers		$	20,272			$	14,458			$	2,800			$	37,530
Intersegment revenues			2,792				1,192				451				4,435
Depreciation and amortization			3,166				630				1				3,797
Interest income			237				507				—				744
Interest expense			152				—				—				152
Income tax expense (benefit)			(2,454	)			1,225				570				(659	)
Net income (loss)			(3,474	)			2,275				1,058				(141	)
Total assets			136,196				61,968				4,376				202,540
Capital expenditures and software development costs			1,455				355				7				1,817
Goodwill and other intangibles, net			79,911				—				—				79,911
Net cash provided by (used in) operating activities			(500	)			7,381				1,032				7,913

Geographic areas:

						European
		United States				Union				Total
		(In thousands)
Three Months Ended June 30, 2005:
Revenues from external customers		$	21,244			$	16,286			$	37,530
As of June 30, 2005:
Property and equipment, net			8,756				7,349				16,105

     Revenues from one customer of the futures business segment comprised 14% of the Company’s futures revenues for the three months ended June 30, 2005. No additional customers accounted for more than 10% of the Company’s segment revenues or consolidated revenues during the three months ended June 30, 2005.

IntercontinentalExchange, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)
(Unaudited)

13. Earnings Per Common Share

     The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the six months ended June 30, 2006 and 2005:

		Six Months Ended								Three Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
		(In thousands, except per share amounts)
Basic:
Net income (loss) available to common shareholders		$	50,631			$	2,135			$	30,967			$	(6,735	)
Weighted average common shares outstanding			55,703				52,870				55,871				52,873
Basic earnings (loss) per common share		$	0.91			$	0.04			$	0.55			$	(0.13	)
Diluted:
Weighted average common shares outstanding			55,703				52,870				55,871				52,873
Effect of dilutive securities:
Stock options and restricted shares			3,389				202				3,338				—
Diluted weighted average common shares outstanding			59,092				53,072				59,209				52,873
Diluted earnings (loss) per common share		$	0.86			$	0.04			$	0.52			$	(0.13	)

     Basic earnings per common share is calculated using the weighted average common shares outstanding during the period. Common equivalent shares from stock options and restricted stock awards, using the treasury stock method, are also included in the diluted per share calculations unless their effect of inclusion would be antidilutive. The Company’s outstanding options and restricted shares have not been included in the computation of diluted earnings per share for the three months ended June 30, 2005 due to the $6.7 million net loss available to common shareholders. Therefore, the Company’s diluted earnings per share is computed in the same manner as basic earnings per share for the three months ended June 30, 2005.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This Quarterly Report on Form 10-Q, including the sections entitled “Legal Proceedings” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 that are based on our present beliefs and assumptions and on information currently available to us. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “targets,” “goal,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other comparable terminology. These statements relate to future events or our future financial performance and involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. These risks and other factors include those set forth in Item 1(A) under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and other filings with the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements and other risks and factors that may affect our performance include, but are not limited to: our business environment, trends in our industry, increasing competition, strategic initiatives by our competitors, technological developments, expectations of various costs, expansion of our market data business, development of new products and services, pursuit of strategic acquisitions and alliances, maintaining existing market participants and attracting new ones, protection of our intellectual property rights, our ability to avoid violating the intellectual property rights of others, changes in domestic and foreign regulations or government policy, adverse litigation results and our ability to gain access to comparable products and services if our key technology contracts were terminated. We caution you not to place undue reliance on these forward-looking statements as they speak only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or to reflect the occurrence of an unanticipated event. New factors emerge from time to time, and it is not possible for management to predict all factors that may affect our business and prospects. Further, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

     In this quarterly report on Form 10-Q, unless otherwise indicated, the terms “IntercontinentalExchange”, “we”, “us”, “our”, “our company” and “our business” refer to IntercontinentalExchange, Inc., together with our consolidated subsidiaries. Due to rounding, figures may not sum exactly.

Overview

     We operate the leading electronic global futures and over-the-counter, or OTC, marketplace for trade execution in a broad array of energy products. Currently, we are the only marketplace to offer an integrated electronic platform for trading energy products in both futures and OTC markets. Through our widely-distributed electronic trading platform, our marketplace brings together buyers and sellers of derivative and physical energy commodities contracts. We operate our business in, and report our financial results based on, three distinct segments: futures markets, OTC markets and market data markets. Futures markets offer trading in standardized derivative contracts on a regulated exchange and OTC markets offer trading in over-the-counter, or off-exchange, derivative contracts, including contracts that can provide for the physical delivery of an underlying commodity or for financial settlement based on the price of an underlying commodity. Through our market data segment, we offer a variety of market data services and products for both futures and OTC market participants and observers.

     On a consolidated basis, we generated $123.9 million in revenues for the six months ended June 30, 2006, a 78.6% increase compared to $69.4 million for the six months ended June 30, 2005. On a consolidated basis, we generated $50.6 million in net income for the six months ended June 30, 2006 compared to $8.7 million for the six months ended June 30, 2005. During the six months ended June 30, 2006, 37.7 million contracts were traded in our futures markets and 49.2 million contracts were traded in our OTC markets, up 102.6% from 18.6 million futures contracts traded during the six months ended June 30, 2005 and up 98.2% from 24.8 million OTC contracts traded during the six months ended June 30, 2005. The financial results for the six months ended June 30, 2005 include $4.8 million in expenses incurred relating to the closure of our open-outcry trading floor in London and a $15.0 million settlement expense related to a payment to EBS Dealing Resources, Inc., or EBS, to settle litigation.

     Our futures business segment consists primarily of trade execution in futures contracts and options on futures contracts, which we conduct through our subsidiary, ICE Futures. Historically, we offered futures trading both on our electronic platform and on our open-outcry trading floor. We closed our open-outcry trading floor in London on April 7, 2005 and all of our futures trading is now conducted exclusively in our electronic markets. This decision has allowed us to maintain and enhance our competitive position in our futures markets, and to take advantage of the increasing demand for electronically traded markets. Our OTC business segment consists of trade execution in OTC energy contracts conducted exclusively on our electronic platform and the provision of trading-related services, including OTC electronic trade confirmation and OTC risk management functionality. Our market data business segment, which we conduct through our subsidiary, ICE Data, consists of the distribution of electronically generated, verifiable energy market data primarily derived from actual trades executed in our marketplace.

Our Business Environment

     Our business is primarily transaction-based, and our revenues and profitability relate directly to the level of trading activity in our markets. Trading volumes are driven by a number of factors, including the degree of volatility in commodities prices. Higher price volatility increases the need to hedge contractual price risk and creates opportunities for arbitrage or speculative trading. While higher energy prices do not have a direct correlation to our trading volumes, changes in the absolute price level of energy commodities, such as those experienced in recent years in crude oil, can have a significant impact on our trading volumes. Changes in our futures trading volumes and OTC average daily commissions have also been driven by varying levels of liquidity both in our markets and in the broader markets for energy commodities trading, which influence trading volumes across all of the markets we operate. For example, the use of clearing in the OTC markets has served to increase participation in the OTC markets by non-traditional participants. This in turn has increased liquidity in formerly illiquid contracts, and resulted in increased trading activity, particularly in North American natural gas and power markets. Our trading volumes in our futures business segment were also favorably impacted by our transition to electronic trading in April 2005 when the distribution of our futures markets was significantly expanded through increased use of screen-based trading.

     Commodity futures markets are highly regulated and offer trading of standardized contracts. The futures markets are more structured and mature than the institutional markets for OTC energy trading. In our futures business segment, rising demand for, among other things, increased price discovery and risk management tools in the energy sector has driven annual record trading volumes for eight consecutive years at ICE Futures and its predecessor company.

     Unlike the futures markets, the OTC markets generally involve limited regulation and offer customization of contract terms by counterparties. While the OTC markets have matured considerably in recent years, contracts traded in the OTC markets are generally less standardized than the futures markets. These markets have been characterized by less transparency and fragmentation of liquidity. However, we have introduced a number of structural changes to our OTC markets to increase both transparency and liquidity, including the availability of electronic trading, the introduction of cleared OTC contracts and the use of transaction-based indices.

     We introduced the industry’s first cleared OTC energy contracts in North America in March 2002 in the natural gas market. The use of OTC clearing serves to reduce the credit risk associated with bilateral OTC trading by interposing an independent clearinghouse as a counterparty to trades in these contracts. The use of a central clearinghouse rather than the reliance on bilateral trading agreements resulted in more participants becoming active in the OTC markets. In addition, clearing through a central clearinghouse typically offers market participants the ability to reduce the amount of capital required to trade as well as the ability to cross-margin positions in various commodities. Cross-margining means that a participant is able to have offsetting positions taken into account in determining its margin requirements, which could reduce the amount of margin the participant must deposit with the futures commission merchant through which it clears. As a result of the introduction of OTC clearing, the addition of new participants and an improved credit environment in the markets for energy commodities trading, our OTC markets have experienced steady growth, increased price transparency and increased institutionalization.

     We believe that the move toward electronic trade execution, together with the improved accessibility for new market participants and the increased adoption of energy commodities as a tradable, investable asset class, will support continued secular growth in the global energy markets. As participation continues to increase and as

participants continue to employ more sophisticated financial instruments and risk management strategies to manage their energy price exposure, we believe there remains considerable opportunity for growth in energy derivatives trading on a global basis.

Variability in Quarterly Comparisons

     In addition to general conditions in the financial markets and in the energy markets in particular, energy trading has historically been subject to variability in trading volumes due primarily to five key factors. These factors include geopolitical events, weather, real and perceived supply and demand imbalances, number of trading days in the period and seasonality. These and other factors could cause our revenues to fluctuate from quarter to quarter. These fluctuations may affect the reliability of quarter to quarter comparisons of our revenues and operating results when, for example, these comparisons are between quarters in different seasons. Inter-seasonal comparisons will not necessarily be indicative of our results for future periods.