Chicago Mercantile Exchange Holdings Inc. Reports Record Revenues, Earnings For 2003, Driven by Record Volume, Growth of Electronic Trading
CHICAGO, Feb 03, 2004 /PRNewswire-FirstCall via Comtex/ -- Chicago Mercantile Exchange Holdings Inc. (NYSE: CME) today reported record revenues and earnings for 2003, driven by record volume and a 39 percent* increase in electronic trading.
Net revenues climbed 18 percent to $536.0 million for 2003, compared with $453.2 million for 2002. Net income rose 30 percent to $122.1 million, versus $94.1 million a year ago. Diluted earnings per share increased 15 percent to $3.60 from $3.13 per diluted share in 2002.
The exchange recorded its fourth consecutive record volume year in 2003. Average daily volume was more than 2.5 million contracts a day in 2003, up 13 percent from 2.2 million contracts a day in 2002. Volume on CME's GLOBEX® electronic trading platform set a record above 1.0 million contracts a day in 2003, a 39 percent increase from the prior year. GLOBEX trading was 42 percent of total volume in 2003 compared to 34 percent in 2002. CME's electronically traded E-mini equity contracts set a record of almost 235 million contracts traded in 2003, a 37 percent increase from 2002 levels. CME also recorded its best year in foreign exchange (FX) trading since 1994, fueled by the increased demand for electronic, or "eFX," trading on GLOBEX and the declining value of the U.S. dollar.
"CME completed another record-breaking year, our first as a publicly traded company," said Chairman Terry Duffy. "In addition to the strong performance of our benchmark products, we continued to leverage our vertical business model. The most important accomplishment during the year was the successful implementation of our clearing agreement with the Chicago Board of Trade, which should have a significant positive impact on CME's results in 2004."
"CME continues to grow because we have the most diverse and successful product lines in the futures industry -- and in 2003, we made it easier than ever before to trade our products," said Chief Executive Officer Craig Donohue. "We continue to enhance connectivity, functionality, speed and reliability. In fact, technology innovation has become equal in importance to product innovation at CME. As a result, we saw an annual increase of 100% in the electronic trading of our foreign exchange products, and a 45% increase in our electronic interest rate volume."
Fourth Quarter Results
For the fourth quarter of 2003, net revenues increased 11 percent to $132.6 million from $119.4 million for the same period of 2002, due to higher trading volume. Clearing and transaction fees rose 8 percent to $102.8 million from $95.0 million a year ago. Average daily volume of 2.3 million was up 9 percent during the fourth quarter compared to the same quarter a year ago. The growth was led by a 51 percent increase in foreign exchange product volume and a 13 percent increase in interest rate products. The average rate per contract was 68.8 cents compared to 69.4 cents a year ago, driven by a higher mix of lower priced interest rate contracts offset by a higher percentage of electronic trades.
GLOBEX volume grew 12% in the fourth quarter compared to the same period a year ago. Interest rate volume on GLOBEX increased from 28,000 contracts per day during the fourth quarter of 2002, or 2.7% of total interest rate volume, to 61,000 contracts per day, or 5.3% of total interest rate volume, in the fourth quarter of 2003. For the first time, GLOBEX foreign exchange volume exceeded 50% of the FX total volume during the fourth quarter of 2003. The average daily volume of 72,000 foreign exchange contracts on GLOBEX during the fourth quarter of 2003 represented an increase of 126 percent compared to 32,000 contracts per day during the same period in 2002.
A new revenue category, clearing and transaction services, reflects fees for providing clearing and transaction processing. Clearing and transaction services generated $1.2 million in the fourth quarter, with approximately $1 million from the clearing agreement with the Chicago Board of Trade (CBOT), which began operation on Nov. 24, 2003 and became fully operational on Jan. 2, 2004.
Total expenses were $82.5 million for the fourth quarter of 2003, including a $2.6 million credit for the forfeiture of a portion of the former CEO's option. This compares to $68.9 million, or $76.4 million excluding the effect of the patent litigation settlement recorded during the fourth quarter of 2002. Included in the total expenses for the fourth quarter of 2003 was approximately $1.8 million of expense to provide clearing services for the CBOT.
Income before income taxes was $50.1 million for the 2003 period, compared to $50.4 million for the 2002 period. Excluding the option forfeiture during the fourth quarter of 2003 and the patent litigation settlement in the fourth quarter of 2002, income before income taxes this quarter would have been $47.5 million, representing an operating margin of 35.8 percent, compared to $43.0 million, or an operating margin of 36.0 percent, during the fourth quarter of last year. Operating margin is defined as income before income taxes expressed as a percentage of net revenues. Excluding the two items mentioned above provides better insight into the company's ongoing operating results.
The company reported net income of $29.6 million, or 87 cents per diluted share, for the fourth quarter of 2003, compared with $31.5 million, or $1.02 per diluted share, for the same period in 2002. Excluding the option forfeiture and patent settlement, fourth quarter 2003 net income would have been $28.1 million or $.82 per diluted share, compared to net income of $26.9 million or $.87 per diluted share during the fourth quarter of 2002. The diluted share count increased by approximately 3 million shares in the fourth quarter of 2003 when compared to a year ago, primarily due to the company's initial public offering in December 2002.
Capital expenditures and capitalized software development costs were $24.9 million for the fourth quarter of 2003, compared with $13.8 million for the final quarter of 2002. Capital expenditures in the current quarter included approximately $16 million for technology related expenditures and $8 million for our new secured building entrance, the reconfiguration to our office space and expenditures for our remote data center.
Full Year 2003 Results
For 2003, revenue from clearing and transaction fees increased 20 percent to $428.8 million from $356.4 million for 2002. The 2003 average rate per contract was 69.1 cents, versus 64.9 cents in 2002, due in part to a higher percentage of trades executed through GLOBEX. In 2003, quotation data fees rose 9 percent to $53.2 million from $48.7 million in 2002, primarily due to a pricing change that took effect in April 2003.
Total expenses were $329.9 million for 2003, compared with $298.9 million for 2002. In 2003, factors affecting expenses included an increased number of employees to support the clearing services for CBOT and the development of additional trading functionality. Other changes from the prior year included the introduction of an annual incentive plan that directly linked employee bonuses to cash earnings and a brand advertising campaign.
Income before income taxes was $206.1 million for 2003, compared with $154.2 million for 2002. Excluding the forfeiture of a portion of the former CEO's option during 2003 and the patent litigation settlement in 2002, the income before income taxes in 2003 would have been $203.5 million, an operating margin of 38.0 percent, compared to $160.5 million, or an operating margin of 35.4 percent, during 2002.
Capital expenditures and capitalized software development costs were $63.0 million for 2003, primarily due to continued investments in technology. In 2004, the CME expects capital expenditures to remain in the $60 to $70 million range.
The consolidated balance sheets at December 31, 2003 reflect two changes that were implemented in the third quarter of the year. Current assets and current liabilities now include $370.4 million as a result of the consolidation of the first interest earning facilities that was effective in the third quarter of 2003. In addition, the consolidated balance sheets at year-end 2003 include $256.5 million in marketable securities as a result of the recent change to the company's investment policy.
CME's working capital was $435.4 million at Dec. 31, 2003, compared with $325.6 million at Dec. 31, 2002, primarily due to improved operating results. The company paid a quarterly dividend of 21 cents per common share in December 2003, which totaled $6.9 million. For the full year of 2003 the company paid total dividends of 63 cents per common share, which totaled $20.7 million.
Chicago Mercantile Exchange Holdings Inc., ( www.cme.com ), became the first publicly traded U.S. financial exchange on Dec. 6, 2002. The company was added to the Russell 1000® Index on July 1, 2003. It is the parent company of Chicago Mercantile Exchange Inc., the largest futures exchange in the United States. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX electronic trading platform. CME offers futures and options on futures primarily in four product areas: interest rates, stock indexes, foreign exchange and commodities. The exchange moved about $1.4 billion per day in settlement payments in 2003 and managed $37.6 billion in collateral deposits at Dec. 31, 2003, including $1.5 billion in deposits for non-CME products.
CME will hold a conference call to discuss third quarter results at 8:30 a.m. Eastern time today. A live audio Webcast of the conference call will be available on the Investor Relations section of CME's Web site; those wishing to listen to the live conference via telephone should dial (800) 289-0436 if calling from within the United States or (913) 981-5507 if calling from outside the United States at least 10 minutes before the call begins. Following the conference call, an archived recording will be available at the same site.
Statements in this news release that are not historical facts are forward- looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Among the factors that might affect our performance are: increasing competition by foreign and domestic competitors, including new entrants into our markets; our ability to keep pace with rapid technological developments; our ability to continue introducing competitive new products and services on a timely, cost- effective basis, including through our electronic trading capabilities; our ability to maintain the competitiveness of our existing products and services; our ability to efficiently and simultaneously operate both open outcry trading and electronic trade execution facilities; our ability to adjust our fixed costs and expenses if our revenues decline; changes in domestic and foreign regulations; changes in government policy, including interest rate policy; the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others; the ability of our joint venture, OneChicago, to obtain market acceptance of its products and achieve sufficient trading volume to operate profitably; and the continued availability of financial resources in the amounts and on the terms required to support our future business. In addition, our performance could be affected by our ability to realize the benefits or efficiencies we expect from our for-profit initiatives, such as fee increases, volume and member discounts and new access rules to our markets; our ability to recover market data fees that may be reduced or eliminated by the growth of electronic trading; changes in the level of trading activity, price levels and volatility in the derivatives markets and in underlying fixed income, equity, foreign exchange and commodities markets; economic, political and market conditions; our ability to accommodate increases in trading volume without failure or degradation of performance of our trading systems; our ability to manage the risks associated with our acquisition, investment and alliance strategy; industry and customer consolidation; decreases in member trading and clearing activity and seasonality of the futures business. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, which is available in the Investor Information section of the CME Web site. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Chicago Mercantile Exchange, CME and GLOBEX are registered trademarks of Chicago Mercantile Exchange Inc. E-mini is a trademark of CME. NASDAQ-100, NASDAQ Composite Index, Russell 1000, TRAKRS and other trade names, service marks, trademarks and registered trademarks that are not proprietary to Chicago Mercantile Exchange Inc. are the property of their respective owners, and are used herein under license. Further information about Chicago Mercantile Exchange Holdings Inc. and Chicago Mercantile Exchange Inc. is available on the CME Web site at www.cme.com .
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands) Dec. 31, 2003 Dec. 31, 2002 ASSETS Current Assets: Cash and cash equivalents $185,124 $339,260 Collateral from securities lending 1,004,400 985,500 Short-term investments of interest earning facilities 370,504 --- Marketable securities 256,538 --- Accounts receivable 52,972 50,865 Other current assets 21,589 11,515 Cash performance bonds and security deposits 2,832,252 1,827,991 Total current assets 4,723,379 3,215,131 Property, net of accumulated depreciation and amortization 118,203 109,563 Other assets 31,054 30,322 TOTAL ASSETS $4,872,636 $3,355,016 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $24,690 $27,607 Payable under securities lending agreements 1,004,400 985,500 Payable to participants in interest earning facilities 370,504 --- Other current liabilities 56,129 48,396 Cash performance bonds and security deposits 2,832,252 1,827,991 Total current liabilities 4,287,975 2,889,494 Long-term debt --- 2,328 Other liabilities 21,666 17,055 Total liabilities 4,309,641 2,908,877 Shareholders' Equity 562,995 446,139 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,872,636 $3,355,016 Balance Sheet Items Excluding Cash Performance Bonds and Security Deposits, Securities Lending and Interest Earning Facilities(1) Dec. 31, 2003 Dec. 31, 2002 Current assets $516,223 $401,640 Total assets 665,480 541,525 Current liabilities 80,819 76,003 Total liabilities 102,485 95,386 (1) Securities lending, cash performance bonds and securities deposits, and interest earning facilities are excluded from this presentation, as there are current assets for these balances that have equal and offsetting current liabilities. This presentation results in a more meaningful indication to investors of the assets owned and related obligations of the company. Clearing firms are subject to performance bond requirements pursuant to the rules of the exchange. The clearing firm can elect to satisfy these requirements in cash, which is reflected in the consolidated balance sheets, or by depositing securities, which are not reflected in the consolidated balance sheets. The balance of cash performance bonds and security deposits that are deposited by clearing firms may change daily as a result of changes in the clearing firms' open positions and how clearing firms elect to satisfy their performance bond requirements. Securities lending transactions utilize a portion of the securities that clearing firms have deposited to satisfy their proprietary performance bond requirements. Effective July 1, 2003, the first interest earning facilities are included in the consolidated financial statements of CME Holdings. Deposits received from clearing firms in these interest earning facilities are invested on a short-term basis, are payable to the clearing firm participants on demand and will fluctuate daily. Chicago Mercantile Exchange Holdings Inc. and Subsidiaries Consolidated Statements of Income (dollars in thousands, except share and per share amounts) Quarter Ended Year Ended Dec. 31, Dec. 31, 2003 2002 2003 2002 REVENUES Clearing & transaction fees $102,749 $94,982 $428,802 $356,396 Clearing & transaction services 1,212 180 1,752 390 Quotation data fees 14,188 12,210 53,168 48,717 Access fees 3,935 3,175 15,501 12,945 Communication fees 2,426 2,369 9,669 9,733 Investment income 3,584 1,642 9,245 7,740 Securities lending interest income 2,146 3,467 9,473 18,169 Other operating revenue 4,388 4,256 17,174 14,989 TOTAL REVENUES 134,628 122,281 544,784 469,079 Securities lending interest expense (2,004) (2,893) (8,743) (15,902) NET REVENUES 132,624 119,388 536,041 453,177 EXPENSES Compensation & benefits 33,119 30,277 140,997 118,710 Occupancy 5,904 5,430 24,900 22,400 Professional fees, outside services & licenses 8,894 7,802 31,683 32,549 Communications & computer & software maintenance 11,779 12,753 45,765 46,569 Depreciation & amortization 13,153 13,005 53,016 48,509 Patent litigation settlement --- (7,455) --- 6,240 Marketing, advertising & public relations 2,909 2,116 11,872 6,514 Other operating expense 6,746 5,016 21,683 17,457 TOTAL EXPENSES 82,504 68,944 329,916 298,948 Income before income taxes 50,120 50,444 206,125 154,229 Income tax provision (20,519) (18,925) (83,993) (60,162) NET INCOME $ 29,601 $ 31,519 $122,132 $ 94,067 EARNINGS PER SHARE Basic $0.90 $1.06 $3.74 $3.24 Diluted $0.87 $1.02 $3.60 $3.13 Weighted average number of common shares: Basic(2) 32,868,538 29,870,065 32,691,427 29,066,242 Diluted(2) 34,066,926 31,051,857 33,934,958 30,060,537 (2) In December 2002, CME Holdings issued approximately 3.7 million shares in its initial public offering. Average Daily Volume (Round Turns, in Thousands) 4Q 1Q 2Q 3Q 4Q 2002 2003 2003 2003 2003 Interest rates 1,030 1,121 1,389 1,257 1,166 Equity E-mini 848 958 936 950 879 Equity standard-size 138 142 134 118 112 Foreign exchange 93 127 137 136 141 Commodities 29 35 34 38 35 Subtotal 2,138 2,383 2,630 2,499 2,333 TRAKRS 122 18 46 114 135 Total 2,260 2,401 2,676 2,613 2,468 Open outcry 1,192 1,299 1,548 1,398 1,281 Electronic (including TRAKRS) 1,036 1,063 1,087 1,175 1,155 Privately negotiated 32 39 41 40 32 Total 2,260 2,401 2,676 2,613 2,468 Transaction Fees (in Thousands) 4Q 1Q 2Q(3) 3Q 4Q 2002 2003 2003 2003 2003 Interest rates $33,506 $33,763 $47,174 $39,403 $37,099 Equity E-mini 37,639 41,607 39,692 40,533 38,513 Equity standard-size 10,691 10,594 10,641 9,329 8,809 Foreign exchange 11,322 14,502 16,235 16,300 16,076 Commodities 1,766 1,920 2,034 2,255 2,193 Subtotal 94,924 102,386 115,776 107,820 102,690 TRAKRS 58 13 32 26 59 Total $94,982 $102,399 $115,808 $107,846 $102,749 Open outcry $43,568 $43,986 $56,308 $47,831 $44,254 Electronic (including TRAKRS) 43,322 48,936 49,245 49,971 50,383 Privately negotiated 8,092 9,477 10,255 10,044 8,112 Total $94,982 $102,399 $115,808 $107,846 $102,749 Average Rate Per Contract 4Q 1Q 2Q3 3Q 4Q 2002 2003 2003 2003 2003 Interest rates $0.51 $0.49 $0.54 $0.49 $0.50 Equity E-mini 0.69 0.71 0.67 0.67 0.68 Equity standard-size 1.21 1.22 1.26 1.23 1.23 Foreign exchange 1.90 1.88 1.89 1.88 1.79 Commodities 0.95 0.91 0.95 0.92 0.97 Average excluding TRAKRS 0.69 0.70 0.70 0.67 0.69 TRAKRS 0.007 0.012 0.011 0.004 0.007 Overall rate per contract $0.66 $0.70 $0.69 $0.65 $0.65 Open outcry $0.57 $0.56 $0.58 $0.54 $0.54 Electronic (including TRAKRS) 0.65 0.75 0.72 0.66 0.68 Electronic (excluding TRAKRS) 0.74 0.77 0.75 0.74 0.77 Privately negotiated 3.90 3.96 4.00 3.95 3.93 Overall rate per contract $0.66 $0.70 $0.69 $0.65 $0.65 (3) Second quarter 2003 transaction fees include a $2.5 million assessment to a clearing firm which primarily affected the rate per contract for interest rate contracts. Without this assessment, the interest rate contract rate per contract would have been 51.2 cents; the assessment increased it 2.7 cents to 53.9 cents. The overall rate per contract, excluding TRAKRS, would have been 68.4 cents, and was increased by 1.5 cents to 69.9 cents. Transaction fee assessments occur in the regular course of business.
* All references to volume and rate per contract information in the text of this document exclude our non-traditional TRAKRS(SM) products, for which CME receives significantly lower clearing fees of less than one cent per contract on average.
SOURCE Chicago Mercantile Exchange
Media, Anita S. Liskey, +1-312-466-4613, or Investors, John
Peschier, +1-312-930-8491, both of Chicago Mercantile Exchange, news@cme.com