##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number:
    001-32419
  optionsXpress Holdings, Inc. (Exact name of
    registrant as specified in its charter)
  Delaware

20-1444525(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)39 S. LaSalle, Suite 220
    Chicago, Illinois 60603(Address of Principal
    Executive Offices,
    including Zip Code)

(312) 630-3300(Registrants
    Telephone Number,
    Including Area Code)   Securities Registered Pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock 
    $0.0001 par value

The NASDAQ Stock Market LLC   Securities
    Registered Pursuant to Section 12(g) of the Act:
    None
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 Large
    accelerated filer þ
    Accelerated
    filer o
    Non-Accelerated
    filer o  Rule 12b-2 o þ
    DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



TABLE OF
    CONTENTS
  
  PagePART IITEM 1.

BUSINESS


3ITEM 1A.

RISK
    FACTORS


13ITEM 2.

PROPERTIES


23ITEM 3.

LEGAL
    PROCEEDINGS


23ITEM 4.

SUBMISSION OF
    MATTERS TO A VOTE OF SECURITY HOLDERS


23PART IIITEM 5.

MARKET FOR THE
    REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS


23ITEM 6.

SELECTED FINANCIAL
    DATA


25ITEM 7.

MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS


26ITEM 7A.

QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK


34ITEM 8.

FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA


35ITEM 9.

CHANGES IN AND
    DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURE


35ITEM 9A.

CONTROLS AND
    PROCEDURES


35PART IIIITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS
    OF THE REGISTRANTITEM 11.

EXECUTIVE COMPENSATIONITEM 12.

SECURITY OWNERSHIP OF CERTAIN
    BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
    MATTERSITEM 13.

CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONSITEM 14.

PRINCIPAL ACCOUNTANT FEES AND
    SERVICESPART IVITEM 15.

EXHIBITS, FINANCIAL
    STATEMENT SCHEDULES, AND REPORTS ON
    FORM 8-K


37SIGNATURES


38REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


F-2CONSOLIDATED
    STATEMENTS OF OPERATIONS


F-3CONSOLIDATED
    STATEMENTS OF FINANCIAL CONDITION


F-4CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY


F-5CONSOLIDATED
    STATEMENTS OF CASH FLOWS


F-6NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS


F-7EX-21.1 SUBSIDIARIES OF THE
    REGISTRANTEX-23.1 CONSENT OF
    ERNST & YOUNG LLPEX-31.1 SECTION 302
    CERTIFICATION OF THE CEOEX-31.2 SECTION 302
    CERTIFICATION OF THE CFOEX-32.1 SECTION 906
    CERTIFICATION OF THE CEO AND THE CFOConsent of Ernst & Young
    LLPCertification of CEO Pursuant to
    Section 302Certification of CFO Pursuant to
    Section 302Certification of CEO and CFO
    Pursuant to Section 906SubsidiariesConsent of Ernst & Young LLPCertificationCertificationCertification   2




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Forward-Looking
    Statements
  Form 10-K, Form 10-K
    
    the statements about our intention to pay dividends;
    the statements about future growth in online brokerage accounts,
    options trading and online options trading;
    the statement that on a per trade basis, brokerage, clearing and
    other related expenses generally decrease as the number of
    customer trades increase;
    the statements about continuing to expand our product offering
    and our customer base and the costs associated with such
    expansion;
    the statements concerning future growth of our futures business,
    international operations and brokersXpress;
    the statements regarding the anticipated benefits of
    self-clearing;
    the statements concerning continued financing options; and
    the statements regarding scalability of our systems and the cost
    of increases.  Form 10-K
 PART I  ITEM 1.
    BUSINESS  Overview
  Barrons 2003-2006, Forbes SmartMoney
 3




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Market
    Opportunity
      Platform
      Growth
    Strategy
    Growing
    Share of Growing Market  Retail Online
    Options
    Increased
    Penetration in Larger Markets  Retail Online Stocks,
    Mutual Funds and Fixed-Income Products
   4




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Expand
    our Futures Business
  side-by-side
  24-hour
  brokersXpress 
    Expansion into Professional Advisor and Institutional
    Markets
  easy-to-set-up
    International
    Expansion
    
    in 2004, we purchased a minority interest in an Australian
    registered broker;
    in 2005, we obtained a license to provide brokerage services in
    Canada;
    in early 2006, we obtained a license to provide brokerage
    services in Singapore; and
    in late 2006, we received approval to provide brokerage services
    in the European Union.    Pursue
    Selective Strategic Acquisitions
    
    expand our product offering;
    accelerate the growth of one of our developing businesses like
    brokersXpress, futures or international; or 5




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
    provide technology capabilities that allow us to continue to
    provide superior differentiating tools to our customers.  Our
    Brokerage Platform
  easy-to-use
    
    We empower our customers by making accessible cutting-edge
    position management and order execution technology, advanced
    analytical tools, education and real-time financial information
    from any web browser.
    Our software was designed to ensure an efficient customer
    experience, beginning with a highly automated account opening
    process and ending with fast trade execution and thorough,
    real-time position monitoring.
    Our user-friendly interface provides interactive real-time views
    of account balances, positions, profits or losses and buying
    power to enable our customers to more easily make informed
    investment decisions. Customers are able to access all features
    from any web browser without downloading software.    
    
    Strategy
    Scan®.  Strategy
    Scan enables an investor to transform a trading idea into an
    executable trade. It accomplishes this by identifying up to
    three trading opportunities for our customers based upon their 6




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bullish, bearish or neutral opinion of a specific stock over a
    specified time frame. We clearly identify the range of potential
    gain or loss for each trading opportunity.  
    Xspreads®.  Our
    Xspreads technology simplifies and expedites the execution of
    our customers combination trades. The Xspreads Order
    Booksm
    electronically displays customers orders, thereby creating
    greater transparency in the market, resulting in increased
    liquidity for both our customers and the broader marketplace. In
    addition, Xspreads enables our customers to execute all portions
    of a combination trade simultaneously, thereby eliminating the
    risk that all portions will not be executed at the desired price.
    Xecutesm
    (patent pending).  We pioneered online auto-trading
    for the retail investor. Our Xecute product allows our customers
    who subscribe to specified third-party advisory newsletters and
    other financial publications to automate the trading of the
    third-party recommendations. This not only benefits our
    customers who subscribe to these newsletters, but also makes us
    the logical brokerage platform for other subscribers to such
    newsletters.
    Advanced Order Management (patent
    pending).  Our software allows our retail
    customers to automate professional trading strategies involving
    order sequencing without manual intervention. Our customers are
    able to enter contingent orders which are executed in accordance
    with specified time, price or other triggers. A significant
    advantage of this feature is that our customers do not have to
    constantly monitor the market in order to execute their orders.
    Virtual Trading.  Virtual trading provides our
    customers with a mock trading environment where they can
    practice strategies and educate themselves without risk,
    utilizing current market information. This provides our
    customers with a practical method of gaining real market
    experience without putting money at risk. Our customers can mock
    trade almost any strategy involving stocks, options and mutual
    funds, including spreads, straddles, and covered calls. We
    believe virtual trading provides our customers with a better
    environment to learn versus simply studying trading strategies.
    Integration with Third-Party Investment
    Software.  The design of our technology allows
    customers to integrate our execution with third-party investment
    or analytical software, including
    e-Signal,
    Quotracker, PowerOptions and Wizetrade. This is a key design
    feature of our platform and differentiates us from other online
    trading systems that rely on legacy technologies. Giving the
    customer access to other technologies allows us to service
    customers who use complementary analytical software. The design
    of our technology allows us to easily and cost-effectively
    private label our website for other financial institutions.  Customer
    Service
  e-mail
  e-mail point-of-contact
   7




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Marketing
    e-mail
    Broker-Dealer
    Operations
  Order
    Processing
    Clearing
    and Custody
     8




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
    maintaining customer accounts;
    extending credit for margin accounts;
    settling stock and bond transactions with the Depository
    Trust & Clearing Corporation (DTCC) and option
    transactions with the Options Clearing Corporation (OCC);
    settling commissions and clearing fees; preparing customer trade
    confirmations and statements;
    performing designated cashier functions, including the delivery
    and receipt of funds and securities to or from the customer;
    possession or control of customer securities, safeguarding
    customer funds and transmitting tax accounting information to
    the customer and to the applicable tax authorities; and
    forwarding prospectuses, proxies and other shareholder
    information to customers.    Margin
    and Leverage
    Payment
    for Order Flow
  .
   9




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Supervision
    and Compliance
      Technology
    Systems and Architecture
    Intellectual
    Property
    optionsXpress brokersXpress , optionsXpress brokersXpress
  Competition
    and Pricing
   10




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Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 10-K, Form 10-Q, Form 8-K,
  Regulation
  Overview
   11




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
    sales methods;
    trade practices;
    use and safekeeping of customers funds and securities;
    capital structure;
    record-keeping;
    best execution;
    financing of customers purchases; and
    conduct of directors, officers and employees.    Net
    Capital Rule
      Foreign
    Jurisdictions and Regulation
    and/or
 12




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Patriot
    Act
    ITEM 1A.
    RISK
    FACTORS  Form 10-K
  We may be
    unable to effectively manage our rapid growth and retain our
    customers.
      We
    operate in a highly regulated industry and compliance failures
    could adversely affect our business.
    
    sales methods,
    trade practices,
    use and safekeeping of customers funds and securities,
    capital structure,
    record-keeping,
    best execution,
    financing of customers purchases, and
    conduct of directors, officers and employees. 13




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cease-and-desist
  Changes
    in legislation or regulations may affect our ability to conduct
    our business or reduce our profitability.
      Servicing
    customers outside the United States involves special challenges
    that we may not be able to meet, which could negatively impact
    our financial results.
      Substantial
    competition could reduce our market share and harm our financial
    performance.
   14




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If we
    fail to attract customers in a cost-effective manner, our
    profitability and growth may be impaired.
    Our
    business is primarily transaction-based, and decreases in
    trading or other changes in our revenue base could harm our
    business.
     15




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We have
    exposure to interest rate risk.
    We have
    exposure to liquidity risk.
    We are
    subject to various forms of credit risk, and those risks could
    have a material adverse effect on our financial
    situation.
      Our risk
    management policies and procedures may not be effective and may
    leave us exposed to unidentified or unexpected risks.
   16




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We may
    suffer losses if our reputation is harmed.
    Systems
    failures and delays could harm our business.
      
    a loss of customers or a reduction in the growth of our customer
    base;
    increased operating expenses;
    financial losses; and
    litigation or other customer claims; and regulatory sanctions or
    additional regulatory burdens.    Our
    networks and those of our third-party service providers may be
    vulnerable to security risks.
   17




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We will
    need to introduce new products and services to remain
    competitive.
    Our
    inability to protect our intellectual property rights or our
    infringement of the intellectual property rights of others could
    adversely affect our business.
        Acquisitions
    involve risks that could adversely affect our
    business.
      
    difficulties in the integration of acquired operations, services
    and products;
    failure to achieve expected synergies;
    diversion of managements attention from other business
    concerns; 18




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
    assumption of unknown material liabilities of acquired companies;
    amortization of acquired intangible assets, which could reduce
    future reported earnings;
    potential loss of clients or key employees of acquired
    companies; and
    dilution to existing stockholders.    Failure
    to comply with net capital requirements could adversely affect
    our business.
      Our
    recent conversion to self-clearing securities transactions will
    require additional resources and subject us to additional
    regulations.
    We are
    dependent on clearing agents for executing and processing our
    futures transactions and any failures by them or difficulties in
    our relationships could materially harm our business.
   19




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The loss
    of or change in our third-party vendors may adversely affect our
    business.
      Our
    exposure to possible litigation could adversely affect our
    business.
      Losses
    due to employee or customer fraud could have an adverse effect
    on our business.
    Procedures
    and requirements of the Patriot Act may expose us to significant
    costs or penalties.
   20




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Requirements
    associated with being a public company will require significant
    company resources and management attention.
    The
    market price of our common stock could fluctuate
    significantly.
    Market
    volatility may cause our stock price and the value of your
    investment to decline.
    
    actual or anticipated variations in quarterly operating results;
    changes in financial estimates by us or by any securities
    analysts who might cover our stock;
    conditions or trends in our industry, including trading volumes,
    regulatory changes or changes in the securities marketplace;
    changes in the market valuations of other companies operating in
    our industry; announcements by us or our competitors of
    significant acquisitions, strategic partnerships or divestitures;
    announcements of investigations or regulatory scrutiny of our
    operations or lawsuits filed against us;
    additions or departures of key personnel; and
    sales of our common stock, including sales of our common stock
    by our directors and officers or our strategic investors.  Our
    officers, directors and largest stockholders will maintain the
    ability to control all matters submitted to stockholders for
    approval.
   21




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The
    future sale of shares of our common stock may negatively impact
    our stock price.
      Provisions
    in our charter documents and Delaware law could discourage
    potential acquisition proposals, could delay, deter or prevent a
    change in control and could limit the price certain investors
    might be willing to pay for our stock.
    
    a classified board of directors with staggered terms;
    a prohibition on stockholder action through written consents;
    a requirement that special meetings of stockholders be called
    only by the board of directors;
    advance notice requirements for stockholder proposals and
    director nominations;
    limitations on the ability of stockholders to amend, alter or
    repeal the by-laws; and
    the authority of the board of directors to issue, without
    stockholder approval, preferred stock with such terms as the
    board of directors may determine and additional shares of our
    common stock.    We may
    not continue to pay dividends on our common stock.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS   22




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ITEM 2.
    PROPERTIES    Location

Space

Principal UsageChicago, IL

23,147 sq. feet

Corporate HeadquartersEl Paso (Mesa St), TX

10,000 sq. feet

Customer Service CenterEl Paso (Granada St), TX

2,200 sq. feet

Office SpaceThousand Oaks, CA

950 sq. feet

Office Space     ITEM 3.
    LEGAL
    PROCEEDINGS    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  ITEM 5.
    MARKET
    FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS    Common Stock


Common StockClosing Sales Price


Closing Sales Price2006


2005High


Low


High


LowFirst Quarter

$
32.40


$
24.25


$
23.90


$
15.55Second Quarter

$
33.94


$
20.75


$
17.47


$
12.48Third Quarter

$
29.40


$
21.13


$
19.07


$
15.11Fourth Quarter

$
32.19


$
22.20


$
26.20


$
17.21    23




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Dividends
      Recent
    Sales of Unregistered Securities; Use of Proceeds from
    Registered Securities
  Form S-1 No. 333-119967)
     24




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Form 10-K.
  Year Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share data)Results of OperationsRevenuesCommissions

$
123,305


$
91,410


$
71,567


$
38,088


$
14,173Other brokerage related revenue


33,816



24,503



17,751



8,793



2,751Interest revenue and fees


30,781



12,813



3,648



1,274



340Interest expense


(1,440
)














Net interest revenue and fees


29,341



12,813



3,648



1,274



340Other


470



257



103



26



4Total revenues

$
186,932


$
128,983


$
93,069


$
48,181


$
17,268ExpensesBrokerage, clearing, and other
    related expenses

$
21,583


$
15,295


$
14,258


$
8,494


$
5,198Compensation and benefits


21,510



14,175



9,760



5,037



2,865Advertising


7,454



5,681



6,675



2,975



1,070Quotation services


5,688



4,249



3,693



1,984



786Depreciation and amortization


3,394



2,293



1,648



770



331Technology and telecommunication


2,969



2,305



1,434



693



362Other


7,447



4,732



3,376



1,010



466Total expenses


70,045



48,730



40,844



20,963



11,078Income before income taxes


116,887



80,253



52,225



27,218



6,190Income taxes


45,158



31,512



21,015



10,862



1,819Net income

$
71,729


$
48,741


$
31,210


$
16,356


$
4,371Net income per share 
    basic

$
1.15


$
0.79


$
0.56


$
0.30


$
0.08Net income per share 
    diluted

$
1.15


$
0.79


$
0.55


$
0.29


$
0.08Weighted average
    shares  basic


62,319



60,136



37,956



40,583



38,935Weighted average
    shares  diluted


62,612



62,055



57,264



56,783



55,370   25




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As of December 31,2006


2005


2004


2003


2002Statistical DataNumber of customer accounts (at
    period end)(1)


204,600



161,800



101,000



57,700



22,200Daily average revenue trades
    (DARTs)(2)


27,200



19,600



13,600



7,600



2,800Customer trades per account(3)


37



38



43



47



53Average commission per trade

$
18.13


$
18.54


$
20.99


$
19.90


$
19.80Option trades as a percent of
    total trades


74
%


76
%


79
%


79
%


90
%Advertising expense per net new
    customer account(4)

$
138


$
93


$
154


$
84


$
61Balance Sheet (at period end,
    in thousands)Cash and short-term investments

$
194,665


$
105,533


$
24,759


$
2,777


$
2,604Total assets


687,524



126,569



40,095



9,990



5,129Long-term debt


















Total liabilities


506,696



8,050



7,089



2,011



2,213Total stockholders equity


180,828



118,519



33,006



7,979



2,916DividendsDividends declared per share
    (during the period)

$
0.20


$
0.72


$
0.13


$
0.17


$
0.05     (1)
    
    Customer accounts are open, numbered accounts.(2)
    
    DARTs are total revenue-generating trades for a period divided
    by the number of trading days in that period.(3)
    
    Customer trades per account are total trades divided by the
    average number of total customer accounts during the period.(4)
    
    Calculated based on total net new customer accounts opened
    during the period.  ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Overview
    Sources
    of Revenue
   26




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Operating
    Expenses
  Brokerage,
    clearing and other related expenses
    Other
    operating expenses
    Results
    of Operations
    Year Ended December 31,2006


2005


2004Results of
    OperationsTotal revenues (in thousands)

$
186,932


$
128,983


$
93,069Brokerage, clearing, and other
    related expenses


11.5
%


11.8
%


15.3
%Compensation and benefits


11.5



11.0



10.5Advertising


4.0



4.4



7.2Quotation services


3.0



3.3



4.0Depreciation and amortization


1.8



1.8



1.8Technology and telecommunication


1.6



1.8



1.5Other


4.0



3.7



3.6Income before income taxes


62.6



62.2



56.1Income taxes


24.2



24.4



22.6Net income


38.4



37.8



33.5  27




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Year
    Ended December 31, 2006 versus Year Ended December 31,
    2005
  Overview
    
    total customer accounts increased by 42,800 to 204,600, or 26.5%;
    total trades increased by 1.9 million to 6.8 million,
    or 38.8%; and
    average commission per trade decreased by $0.41 to $18.13, or
    2.2%.    Total
    revenues
    Brokerage,
    clearing, and other related expenses
    Compensation
    and benefits
   28




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Advertising
    Quotation
    services
    Depreciation
    and amortization
    Technology
    and telecommunication
    Other
    Income
    taxes
    Net
    income
    Year
    Ended December 31, 2005 versus Year Ended December 31,
    2004
  Overview
    
    total customer accounts increased by 60,800 to 161,800, or 60.2%;
    total trades increased by 1.5 million to 4.9 million,
    or 44.2%; and
    average commission per trade decreased by $2.45 to $18.54, or
    11.7%. 29




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Total
    revenues
    Brokerage,
    clearing, and other related expenses
    Compensation
    and benefits
    Advertising
    Quotation
    services
    Depreciation
    and amortization
   30




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Technology
    and telecommunication
    Other
    Income
    taxes
    Net
    income
    Liquidity
    and Capital Resources
      (Rule 15c3-1)
  Rule 15c3-1
 31




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Cash
    Flow
        Capital
    Expenditures
  98-1
  Off-Balance-Sheet
    Arrangements
   32




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Summary
    Disclosures about Contractual Obligations and Commercial
    Commitments
    Payments Due by PeriodLess Than








More ThanContractual Obligations

Total


1 Year


1 - 3 Years


3 - 5 Years


5 Years(In thousands)Capital lease obligations

$
73


$
73


$



$



$
Operating lease obligations


1,047



554



276



217



Purchase obligations


3,954



1,637



1,797



520



Total

$
5,074


$
2,264


$
2,073


$
737


$
   Critical
    Accounting Policies
  Form 10-K,
  Software
  SOP 98-1
    Recently
    Issued Accounting Standards
  FIN No. 48 Accounting for Uncertainty
    in Income Taxes Accounting for Income Taxes
 33




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SFAS No. 157 Fair Value
    Measurements.
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      Interest
    Rate Risk
      Credit
    Risk
   34




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ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  page F-1 Form 10-K.
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  MANAGEMENTS
    ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
    REPORTING
       35




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control  Integrated Framework
            Ernst &
    Young LLP
    36




---



##### Table of Contents



Disclosure
    Controls and Procedures
    Changes
    in Internal Control over Financial Reporting
    ITEM 9B.
    OTHER
    INFORMATION   PART III  Form 10-K Form 10-K,
 PART IV  ITEM 15.
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
    FORM 10-K  Form 10-K:
  PageNumber

DescriptionF-1

Index to Consolidated Financial
    StatementsF-2

Report of Ernst & Young
    LLP, Independent Registered Public Accounting FirmF-3

Consolidated Statements of
    Operations at December 31, 2005, 2004 and 2003F-4

Consolidated Statements of
    Financial Condition at December 31, 2005 and 2004F-5

Consolidated Statements of Changes
    in Stockholders Equity for the years ended
    December 31, 2005, 2004 and 2003F-6

Consolidated Statements of Cash
    Flows for the years ended December 31, 2005, 2004 and 2003F-7

Notes to Consolidated Financial
    Statements     Form 10-K:
  PageSchedule I 
    Condensed Financial Information of Registrant


S-1          37




---



##### Table of Contents



SIGNATURES    Signature

Title/s/  JAMES
    A. GRAYJames
    A. Gray

Chairman of the Board/s/  DAVID
    S. KALTDavid
    S. Kalt

Chief Executive Officer
    (Principal Executive Officer) and Director/s/  NED
    W. BENNETTNed
    W. Bennett

Chief Operating Officer and
    Director/s/  DAVID
    A. FISHERDavid
    A. Fisher

Chief Financial Officer
    (Principal Financial and Accounting Officer)/s/  BRUCE
    EVANSBruce
    Evans

Director/s/  STEVEN
    FRADKINSteven
    Fradkin

Director/s/  STEVEN
    SCOTT WALDSteven
    Scott Wald

Director  38




---



##### Table of Contents



Exhibits
  ExhibitNumber

Description3
.1

Amended and Restated Certificate
    of Incorporation of optionsXpress Holdings, Inc.(3)3
.2

Amended and Restated By-laws of
    optionsXpress Holdings, Inc.(1)4
.1

Certificate of Common Stock of
    optionsXpress Holdings, Inc.(1)10
.1

Restricted Stock Agreement, by and
    between optionsXpress Holdings, Inc. and David A. Fisher(1)(2)10
.2

Management Rights Agreement, dated
    January 15, 2004, by and among investment funds affiliated
    with Summit Partners, L.P.(1)10
.3

optionsXpress, Inc. 2001 Equity
    Incentive Plan(1)10
.4

Form of optionsXpress Holdings,
    Inc. 2005 Equity Incentive Plan(1)10
.5

Form of optionsXpress Holdings,
    Inc. 2005 Employee Stock Purchase Plan(1)10
.6

Amended and Restated Retention
    Agreement, by and between optionsXpress, Inc. and James A. Gray
    dated January 3, 200710
.7

Employment Agreement, dated as of
    January 15, 2004, by and between optionsXpress, Inc. and
    David S. Kalt(1)(2)10
.8

Employment Agreement, dated as of
    January 15, 2004, by and between optionsXpress, Inc. and
    Ned W. Bennett(1)(2)10
.9

Employment Agreement, by and
    between optionsXpress Holdings, Inc. and David A. Fisher(1)(2)10
.10

Form of Indemnification Agreement,
    dated as of January 15, 2004, by and between optionsXpress,
    Inc. and its directors(1)10
.11

Amended and Restated 2005 Employee
    Stock Purchase Plan, incorporated by reference to the Report on
    Form 8-K,
    filed May 17, 2005(2)14
.1

Code of Ethics(3)21
.1

Subsidiaries of optionsXpress
    Holdings, Inc.23
.1

Consent of Ernst & Young
    LLP31
.1

Certification of Chief Executive
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200231
.2

Certification of Chief Financial
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200232
.1

Certification of Chief Executive
    Officer and Chief Financial Officer Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002     (1)
    
    Incorporated by reference to the same exhibit filed with
    optionsXpress Holdings, Inc Registration Statement on Form
    S-1(2)
    
    Management Contract(3)
    
    Incorporated by reference to the same exhibit filed with the
    optionsXpress Holdings, Inc. Annual Report of
    Form 10-K,
    filed March 30, 2006 39




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Consolidated Financial Statements
 Years Ended December 31, 2006, 2005 and 2004
  Contents
  Consolidated Financial Statements


F-1Report of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Statements of Operations


F-3Consolidated
    Statements of Financial Condition


F-4Consolidated
    Statements of Changes in Stockholders Equity


F-5Consolidated
    Statements of Cash Flows


F-6Notes to
    Consolidated Financial Statements


F-7  F-1




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm            stock-based
    Ernst &
    Young LLP
    F-2




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Consolidated
    Statements of Operations
  Years Ended December 312006


2005


2004(In thousands, except per share data)RevenuesCommissions

$
123,305


$
91,410


$
71,567Other brokerage-related revenue


33,816



24,503



17,751Interest revenue and fees


30,781



12,813



3,648Interest expense


(1,440
)






Net interest revenue and fees


29,341



12,813



3,648Other income


470



257



103Total revenues


186,932



128,983



93,069ExpensesBrokerage, clearing, and other
    related expenses


21,583



15,295



14,258Compensation and benefits


21,510



14,175



9,760Advertising


7,454



5,681



6,675Quotation services


5,688



4,249



3,693Depreciation and amortization


3,394



2,293



1,648Technology and telecommunication


2,969



2,305



1,434Other


7,447



4,732



3,376Total expenses


70,045



48,730



40,844Income before income taxes


116,887



80,253



52,225Income taxes


45,158



31,512



21,015Net income

$
71,729


$
48,741


$
31,210Earnings per common share:Basic

$
1.15


$
0.79


$
0.56Diluted


1.15



0.79



0.55Weighted-average number of common
    shares:Basic


62,319



60,136



37,956Diluted


62,612



62,055



57,264    F-3




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Consolidated
    Statements of Financial Condition
  December 312006


2005(In thousands)ASSETSCash and cash equivalents

$
76,590


$
10,258Short-term investments


118,075



95,275Cash segregated in compliance with
    federal regulations


281,288



585Receivables from brokerage
    customers


139,080



Receivables from brokers, dealers,
    and clearing organizations


21,601



11,765Deposits with clearing
    organizations


38,115



Fixed assets (net of accumulated
    depreciation and amortization of $6,806 and $4,626, respectively)


6,619



4,088Other assets


6,156



4,598Total assets

$
687,524


$
126,569LIABILITIES AND
    STOCKHOLDERS EQUITYPayables to brokerage customers

$
476,890


$
369Payables to brokers, dealers and
    clearing organizations


17,422



Accounts payable and accrued
    liabilities


8,748



6,570Current and deferred income taxes


3,636



1,111Total liabilities


506,696



8,050Stockholders
    equityCommon stock, $0.0001 par
    value, 187,500 shares authorized; 2006  62,386
    issued and outstanding, 2005  62,101 issued and
    outstanding


6



6Preferred stock, $0.0001 par
    value, 75,000 shares authorized; none issued






Additional paid-in capital


93,183



90,176Accumulated other comprehensive
    income (loss)


28



(13
)Retained earnings


87,611



28,350Total stockholders equity


180,828



118,519Total liabilities and
    stockholders equity

$
687,524


$
126,569    F-4




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Consolidated
    Statements of Changes in Stockholders Equity
  Series A





AccumulatedConvertible


Additional


OtherCommon Stock


Preferred Stock


Paid-In


Comprehensive


RetainedShares


Amount


Shares


Amount


Capital


Income (Loss)


Earnings


Total(In thousands)Balance, January 1, 2004


41,138


$
4



13,948


$
1



11,275


$



$
(3,301
)

$
7,979Preferred stock converted to common
    stock


13,948



1



(13,948
)


(1
)














Convertible preferred stock issued
    (Note 12)










18,196



2



88,388











88,390Common stock redeemed
    (Note 12)


(18,196
)


(2
)










(88,388
)










(88,390
)Direct cost of capital raised


















(2,491
)










(2,491
)Tax benefit (Note 12)


















646











646Common stock issued


473















2,654











2,654Common stock redeemed


(74
)














(355
)










(355
)Options exercised


986



1











374











375Stock dividend (Note 12)


21















347







(347
)


Dividends declared


























(7,014
)


(7,014
)Net income


























31,210



31,210Currency translation adjustment






















2







2Total comprehensive income






















2



31,210



31,212Balance, December 31, 2004


38,296


$
4



18,196


$
2


$
12,450


$
2


$
20,548


$
33,006Preferred stock converted into
    common stock


18,196



2



(18,196
)


(2
)














Proceeds from initial public
    offering


5,000















76,725











76,725Direct costs of capital raised


















(1,885
)










(1,885
)Tax benefit (Note 12)


















1,923











1,923Stock options expensed


















24











24Employee stock purchase plan


















14











14Stock option exercises


609















924











924Stock dividend (Note 12)


















1







(1
)


Dividend declared


























(40,938
)


(40,938
)Net income


























48,741



48,741Currency translation adjustment






















9







9Unrealized loss on short-term
    investments






















(24
)






(24
)Total comprehensive income






















(15
)






(15
)Balance, December 31, 2005


62,101


$
6






$




90,176


$
(13
)

$
28,350


$
118,519Tax benefit (Note 12)


















694











694Stock options expensed


















1,452











1,452Employee stock purchase plan


1















21











21Stock option exercises


284















840











840Dividend declared


























(12,468
)


(12,468
)Net income


























71,729



71,729Currency translation adjustment






















17







17Unrealized loss on short-term
    investments






















24







24Total comprehensive income






















41







Balance, December 31, 2006


62,386


$
6






$




93,183


$
28


$
87,611


$
180,828    F-5




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Consolidated
    Statements of Cash Flows
  Years Ended December 312006


2005


2004(In thousands)Operating activitiesNet income

$
71,729


$
48,741


$
31,210Adjustments to reconcile net income
    to cash provided by operating activities:Depreciation and amortization


3,394



2,293



1,648Stock-based compensation


1,452



24



Tax benefit (Note 12)






1,923



646Net deferred income taxes


(439
)


195



469Gain from investment in
    non-consolidated affiliate


(53
)


(189
)


(41
)Changes in operating assets and
    liabilities:(Increase) decrease in:Cash segregated in compliance with
    federal regulations


(280,703
)


(585
)


Receivables from brokerage
    customers, net of allowance for doubtful accounts


(139,080
)






Receivable from brokers, dealers
    and clearing organizations


(9,836
)


(2,466
)


(4,929
)Deposits with clearing organizations


(38,115
)






Other assets


(437
)


3



(1,569
)Increase (decrease) in:Payables to brokerage customers


476,521



369



Payables to brokers, dealers and
    clearing organizations


17,422







Accounts payable and accrued
    liabilities


2,178



1,547



3,669Current income taxes payable


2,964



(1,150
)


940Net cash provided by operating
    activities


106,997



50,705



32,043Investing activitiesPurchases of short-term investments


(74,275
)


(240,464
)


Proceeds from maturities/sales of
    short-term investments


51,499



145,165



Purchases and development of
    computer software


(2,264
)


(1,386
)


(1,593
)Purchases of fixed assets


(3,661
)


(1,263
)


(1,580
)Loan to affiliates and
    non-affiliates


(972
)


(2,098
)


(57
)Cash used in business acquisition


(79
)






Net cash used in investing
    activities


(29,752
)


(100,046
)


(3,230
)Financing activitiesExercise of stock options


840



924



338Purchases through employee stock
    purchase plan


21



14



Excess tax benefit for stock-based
    compensation


694







Dividends paid


(12,468
)


(40,938
)


(7,014
)Proceeds from initial public
    offering






76,725



Redemption of common stock










(88,708
)Issuance of convertible preferred
    stock










88,390Issuance of common stock










2,654Direct costs of capital raised






(1,885
)


(2,491
)Net cash provided by (used) in
    financing activities


(10,913
)


34,840



(6,831
)Net increase (decrease) in cash and
    cash equivalents


66,332



(14,501
)


21,982Cash and cash equivalents,
    beginning of year


10,258



24,759



2,777Cash and cash equivalents, end of
    year

$
76,590


$
10,258


$
24,759Supplemental disclosure of cash
    flow information:Income taxes paid

$
41,944


$
30,507


$
18,950Interest paid


1,450



17



7Supplemental disclosure of non-cash
    activity:Non-cash exercise of options

$



$



$
37Non-cash foreign currency
    translation


17



9



2Non-cash unrealized loss on
    short-term investments


24



(24
)


    F-6




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial Statements
 (In thousands, except per share data)
  1.
    Basis of
    Presentation and Nature of Operations  Basis
    of Presentation
    Nature
    of Operations
        2.
    Summary
    of Significant Accounting Policies  Use of
    Estimates
   F-7




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
   Commissions
    Other
    Brokerage-Related Revenue
    Net
    Interest Revenue and Fees
    Advertising
    Income
    Taxes
    Cash
    and Cash Equivalents
    Short-term
    Investments
    Cash
    Segregated in Compliance with Federal Regulations
  Rule 15c3-3
 F-8




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
   Fixed
    Assets
    98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use,
  Securities
    Borrowed
    Customer
    Transactions
    Earnings
    Per Share
    Fair
    Value of Financial Instruments
  Disclosure about Fair Value of Financial
    Instruments,
  3.
    Stock-Based
    Compensation   F-9




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
   Accounting for Stock-Based
    Compensation  Transition and Disclosure Accounting for Stock-Based Compensation
  Share-Based Payment SFAS 123R-3 stock-based
  2005


2004Net income, as reported

$
48,741


$
31,210Deduct  Total
    stock-based employee compensation expense determined under fair
    value-based method for all awards, net of tax


375



196Pro forma net income


48,366



31,014Less income allocable to preferred
    stock


1,020



9,989Pro forma net income applicable to
    common stockholders

$
47,346


$
21,025Income per share:Basic, as reported

$
0.79


$
0.56Basic, pro forma


0.79



0.55Diluted, as reported


0.79



0.55Diluted, pro forma


0.79



0.54     4.
    Recent
    Accounting Pronouncements  FIN No. 48 Accounting for Uncertainty
    in Income Taxes Accounting for Income Taxes
 F-10




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    SFAS No. 157 Fair Value
    Measurements
  5.
    Short-Term
    Investments  available-for-sale
  Amortized


UnrealizedMaturity Period

Type of Security


Cost


Losses


Fair ValueMaturity of less than five years


Auction Rate Certificates


$
1,550


$



$
1,550Maturity of greater than ten years


Auction Rate Certificates



45,675







45,675$
47,225


$



$
47,225   marked-to-market
  Amortized


UnrealizedMaturity Period

Type of Security


Cost


Losses


Fair ValueMaturity of less than five years


Auction Rate Certificates


$
500


$



$
500Maturity of greater than ten years


Auction Rate Certificates



70,350







70,350$
70,850


$



$
70,850   6.
    Receivables
    from Brokers, Dealers and Clearing Organizations    2006


2005Receivables from clearing
    organizations

$
182


$
Deposits for securities borrowed


11,828



Securities failed to deliver


1,599



Net settlement with clearing
    brokers


626



8,419Other receivables from brokers


7,366



3,346$
21,601


$
11,765  F-11




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  7.
    Fixed
    Assets    2006


2005Computer software

$
5,625


$
4,574Computer equipment


7,093



3,566Office furniture


492



401Leasehold improvements


215



17313,425



8,714Less accumulated depreciation and
    amortization


6,806



4,626$
6,619


$
4,088     8.
    Other
    Assets    2006


2005Loan receivable

$
3,000


$
2,000Prepaid expenses


1,067



925Interest receivable


861



485Investment in non-consolidated
    subsidiary


436



396Security deposits


550



547Other


242



245$
6,156


$
4,598   9.
    Payables
    to Brokers, Dealers and Clearing Organizations    2006


2005Payables to clearing organizations

$
6,069


$
Securities failed to receive


11,353



$
17,422


$
  F-12




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
  10.
    Accounts
    Payable and Accrued Liabilities    2006


2005Accrued employee compensation

$
3,884


$
2,801Accounts payable


768



564Other accrued expenses


4,096



3,205$
8,748


$
6,570   11.
    Commitments,
    Contingencies, and Guarantees  Commitments
    December 31,2007


5542008


1362009


1402010


1442011


73$
1,047         Contingencies
     F-13




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
   Guarantees
            12.
    Capitalization  Common
    Stock
   F-14




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
       Preferred
    Stock
      Dividends
      2006


2005


2004Common stock:March 31

$
0.05


$
0.60
*

$
0.00June 30


0.05



0.04



0.13
**September 30


0.05



0.04



0.00December 31


0.05



0.04



0.00Convertible preferred stock:March 31

$
0.00


$
0.60
*

$
0.00June 30


0.00



0.00



0.00September 30


0.00



0.00



0.00December 31


0.00



0.00



0.00     *
    
    Dividend paid to all stockholders of record immediately prior to
    the Companys initial public offering.**
    
    Dividend paid to all stockholders of record immediately prior to
    the issuance of the new series of convertible preferred stock on
    January 15, 2004.  13.
    Employee
    Benefit Plan   F-15




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
   14.
    Employee
    Stock Purchase Plan    15.
    Equity
    Incentive Plan      2006Weighted


WeightedAverage


Average


AggregateNumber of


Exercise


Remaining


Intrinsic ValueOptions


Price


Contractual Term


As of 12/31/06Outstanding, January 1


786


$
8.25Granted to employees


335



27.87Exercised by employees


284



2.96Forfeited by employees


52



23.07Outstanding, December 31


785



17.56



8.16


$
5,658Vested and expected to vest,
    December 31


709



16.74



8.08



5,540Exercisable, December 31


343



9.66



7.21



4,472     Options Outstanding


Weighted-





Weighted-Range of





Remaining


Average


Number of


AverageExercise Prices


Number


Contractual


Exercise


Options


ExerciseLow


High


Price


Life


Price


Exercisable


Price$
0.17


$
7.14



131



6.34


$
2.73



125


$
2.5010.73



15.96



191



7.85



12.45



120



11.7516.00



21.00



208



8.22



17.50



98



16.2224.26



28.58



101



9.42



26.51







30.78



32.77



154



9.17



30.88







785











343



9.66  F-16




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    2006Weighted-AverageNumber of


Grant DateUnits


Fair ValueOutstanding, January 1





$
Granted to employees


55



30.61Exercised by employees






Forfeited by employees


10



29.87Outstanding, December 31


45



30.78Exercisable, December 31





$
         2006


2005


2004Risk-free interest rate


4.60
%


4.35
%


3.65
%Expected volatility


42
%


42
%


30
%Annual dividend yield


1
%


1
%


3
%Expected life


7.5 years



5 years



5 years     16.
    Credit
    Risk   F-17




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
   17.
    Regulatory
    Requirements  (Rule 15c3-1)
  Rule 15c3-1
    18.
    Income
    Taxes    Years Ended December 312006


2005


2004Current:Federal

$
36,860


$
25,421


$
16,727State


8,737



5,896



3,81945,597



31,317



20,546Deferred:Federal


(375
)


149



382State


(64
)


46



87(439
)


195



469Total income tax expense

$
45,158


$
31,512


$
21,015     Years Ended December 312006


2005


2004Federal income tax at statutory
    rate


35.0
%


35.0
%


35.0
%State income taxes, net of federal
    tax effect


4.8



4.8



4.8Other


(1.2
)


(0.5
)


0.438.6
%


39.3
%


40.2
%  F-18




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
    December 312006


2005


2004Deferred tax assets:Stock-based compensation

$
506


$



$
Total deferred tax assets


506







Deferred tax liabilities:Property and intangible assets


(751
)


(751
)


(801
)Other deferred tax liabilities


(425
)


(358
)


(113
)Total deferred tax liabilities


(1,176
)


(1,109
)


(914
)Net deferred tax liabilities

$
(670
)

$
(1,109
)

$
(914
)   19.
    Earnings
    Per Share    Years Ended December 312006


2005


2004Reported net income

$
71,729


$
48,741


$
31,210Less income allocable to preferred
    stock






1,028



10,052Adjusted net income applicable to
    common stockholders

$
71,729


$
47,713


$
21,158Weighted-average number of common
    shares outstanding  basic


62,319



60,136



37,956Effect of dilutive securities


293



1,919



19,308Weighted-average number of common
    shares outstanding  diluted


62,612



62,055



57,264Basic EPS

$
1.15


$
0.79



0.56Diluted EPS


1.15



0.79



0.55   20.
    Related
    Party Transactions       F-19




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
  Notes to Consolidated Financial
    Statements  (Continued)
   month-to-month
  21.
    Subsequent
    Events      22.
    Quarterly
    Financial Information (Unaudited)    2006First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Full YearRevenues

$
46,438


$
47,311


$
43,837


$
49,346


$
186,932Income before income taxes


29,603



29,474



26,401



31,409



116,887Net income


18,045



17,998



16,262



19,424



71,729Basic earnings per share


0.29



0.29



0.26



0.31



1.15Diluted earnings per share


0.29



0.29



0.26



0.31



1.15   2005First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Full YearRevenues

$
26,866


$
28,581


$
33,611


$
39,925


$
128,983Net income before income taxes


16,242



17,501



20,902



25,608



80,253Net income


9,804



10,656



12,651



15,630



48,741Basic earnings per share


0.16



0.17



0.20



0.25



0.79Diluted earnings per share


0.16



0.17



0.20



0.25



0.79  F-20




---



##### Table of Contents



Schedule I 
    Condensed Financial Information of the Registrant.
  optionsXpress Holdings, Inc.
 (Parent Company)
  Statements of Operations
  For the


For theYear Ended


Year EndedDecember 31,


December 31,2006


2005(In thousands)RevenuesInterest income

$
3,102


$
1,955Dividend income from subsidiaries


32,000



66,00035,102



67,955Expenses


3,178



1,980Income before income taxes


31,924



65,975Income taxes


247



308Income before equity distributed
    in excess of net income from subsidiaries


31,677



66,283Equity in undistributed
    (distributed in excess of) net income from subsidiaries


40,052



(17,542
)Net income

$
71,729


$
48,741  S-1




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
    (Parent Company)
    Statements of Financial Condition
  At


AtDecember 31,


December 31,2006


2005(In thousands)ASSETSCash and cash equivalents

$
1,102


$
488Short-term investments


47,225



95,275Investment in subsidiaries


128,910



16,535Due from subsidiaries


3,967



3,132Other assets


538



3,652Total assets

$
181,742


$
119,082LIABILITIES AND
    STOCKHOLDERS EQUITYAccounts payable and accrued
    liabilities

$
775


$
563Due to subsidiaries


139



Total liabilities


914



563Total stockholders equity


180,828



118,519Total liabilities and
    stockholders equity

$
181,742


$
119,082  S-2




---



##### Table of Contents



optionsXpress
    Holdings, Inc.
    (Parent Company)
    Statements of Cash Flows
  For the


For theYear Ended


Year EndedDecember 31,


December 31,2006


2005(In thousands)Operating activitiesNet income

$
71,729


$
48,741Adjustments to reconcile net income
    to cash provided by operating activities:Equity in undistributed
    (distributed in excess of) net income of subsidiaries


(40,052
)


17,542Depreciation and amortization


24



Tax benefit






1,923Net deferred income taxes


(77
)


68Stock options expensed






24Changes in operating assets and
    liabilities:(Increase) decrease in:Due from subsidiaries


(835
)


(3,075
)Other assets


3,166



(3,231
)Deferred initial public offering
    costs






1,426Increase (decrease) in:Accounts payable and accrued
    liabilities


289



(63
)Due to subsidiaries


139



(806
)Net cash provided by operating
    activities


34,383



62,549Investing activitiesPurchases of short-term investments


(65,025
)


(240,464
)Proceeds from maturities/sales of
    short-term investments


42,556



145,165Equity investment in subsidiaries


(311
)


(1,801
)Purchases and development of
    computer software


(76
)


Net cash used in investing
    activities


(22,856
)


(97,100
)Financing activitiesExercise of stock options


840



924Purchases through employee stock
    purchase plan


21



14Excess tax benefit for stock- based
    compensation


694



Dividends paid


(12,468
)


(40,938
)Proceeds from initial public
    offering






76,725Direct costs of capital raised






(1,885
)Net cash provided by financing
    activities


(10,913
)


34,840Net increase in cash


614



289Cash and cash equivalents,
    beginning of year


488



199Cash and cash equivalents, end of
    year

$
1,102


$
488Supplemental disclosure of cash
    flow information:Income taxes paid

$
41,938


$
30,507Supplemental disclosure of non-cash
    activity:Non-cash foreign currency
    translation


17



9Non-cash unrealized gain (loss) on
    short-term investments


24



(24
)Transfer of short-term investments
    to subsidiary


70,543



  S-3




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##### Table of Contents



Notes to
    Condensed Financial Statements (in thousands)
   S-4