Chicago Mercantile Exchange Holdings Inc. Reports Record Revenues and A 40 Percent Increase in Net Income for the First Quarter of 2003
CHICAGO, April 22 /PRNewswire-FirstCall/ -- Chicago Mercantile Exchange Holdings Inc. (NYSE: CME) today reported record revenues and a 40 percent increase in net income for the first quarter of 2003, primarily due to higher trading volume. Net revenues climbed 25 percent to a record $126.0 million for the first quarter of this year, compared with $101.1 million for the same period of 2002. Net income was $26.1 million, versus $18.7 million for the first quarter last year. Earnings per diluted share rose 22 percent to 77 cents from 63 cents per diluted share for the year-earlier period.
Average daily volume was 2.4 million contracts for the first quarter of 2003, a 20 percent increase from the first quarter of last year. In March 2003, average daily volume achieved a monthly record of nearly 2.8 million contracts a day. At 1.1 million average contracts a day, trading on CME's GLOBEX® electronic trading platform grew 109 percent in the first quarter of 2003 versus 2002 and represented 44 percent of total volume, compared with 25 percent for the same period a year ago. E-mini equity contract volume led CME's electronic volume growth, averaging nearly 958,000 contracts a day for the first quarter of 2003 -- more than double the 450,000 contracts a day recorded in the first quarter of 2002.
"In recent months, CME products again demonstrated their ability to meet customer needs in a volatile global climate," said Chairman Terry Duffy. "We benefit from a diverse product line that allows market participants to hedge against financial risks and obtain 23-hour-a-day investment and asset allocation opportunities in interest rates, equities, foreign exchange and commodities. Total volume in all four of our major product areas grew in the first quarter of 2003 from the fourth quarter of last year, even though we had three fewer trading days."
"For the first time this past quarter, our GLOBEX electronic trading platform was the largest contributor to transaction fee revenue, at 48 percent," said President and Chief Executive Officer Jim McNulty. "Also this quarter, we continued to attract new customers worldwide through GLOBEX, which contributed to a new monthly record in foreign exchange futures of more than 3.1 million contracts in March. While open outcry and privately negotiated transactions were strong, much of our foreign exchange growth has been coming from GLOBEX, which handled about 36 percent of our total foreign exchange volume in the first quarter, compared with 23 percent in the first quarter of last year."
For the first quarter of 2003, revenue from clearing and transaction fees increased 31 percent to $102.4 million from $77.9 million for the same period of 2002. The category represented 81 percent of net revenues in the 2003 quarter. Quotation data fees were $11.8 million for the 2003 period, versus $12.5 million for the 2002 quarter, due to a decline in the number of CME data subscribers that occurred because of contraction in the financial services industry. Expenses of approximately $5.1 million for a brand advertising campaign contributed to operating expenses of $82.3 million for the quarter. For the first quarter of 2002, operating expenses were $69.9 million. Income before income taxes was $43.8 million for the current quarter, an increase of 40 percent from $31.2 million for the year-earlier period. The company's operating margin, defined as income before income taxes expressed as a percentage of net revenues, was 34.7 percent for the first quarter of 2003, compared with 30.8 percent for the same period a year ago. Operating margin is presented because it provides an indication of profitability that is not influenced by the size of an organization or the effect of income taxes, which may vary by geographical location and corporate structure.
In the first quarter of 2003, CME introduced CME$INDEX futures and options. This geometric index of seven foreign currencies is weighted to reflect the relative competitiveness of U.S. goods in foreign markets, and is traded both on CME's Chicago-based trading floors and on GLOBEX. Also during the quarter, CME and Frank Russell Company announced that on April 28, the exchange will launch futures contracts based on the Russell 1000® Index. The Russell 1000 is composed of stocks of the top 1,000 U.S. corporations based on market capitalization. In combination with CME's Russell 2000® and E-mini Russell 2000 futures and options, the new contract will offer exposure to the Russell 3000® universe of stocks, representing 98 percent of the investable U.S. equity market.
While CME continues to engage in securities lending activities, there were no balances invested at March 31, 2003, as market conditions and the securities available for lending would not have resulted in a favorable return.
CME's working capital was $347.6 million at March 31, 2003, compared with $325.6 million at Dec. 31, 2002. The company paid a dividend of 14 cents per common share, which totaled $4.6 million in March 2003.
CME will hold a conference call to discuss first 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. Following the conference call, an archived recording will be available at the same site.
Chicago Mercantile Exchange Holdings Inc. is the parent company of Chicago Mercantile Exchange Inc. ( www.cme.com ), the largest futures exchange in the United States based on notional value, trading volume and open interest. On Dec. 6, 2002, CME Holdings became the first publicly traded U.S. financial exchange. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX around-the-clock electronic trading platform. CME offers futures contracts and options on futures primarily in four areas: interest rates, stock indexes, foreign exchange and commodities. The exchange moved about $1.5 billion per day in settlement payments in the first quarter of 2003 and managed $28.5 billion in collateral deposits at March 31, 2002.
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.
GLOBEX is a registered trademark of Chicago Mercantile Exchange Inc. E-mini is a trademark of CME. 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) March 31, 2003 Dec. 31, 2002 ASSETS Current Assets: Cash and cash equivalents $356,954 $339,260 Proceeds from securities lending activities --- 985,500 Accounts receivable 63,708 50,865 Other current assets 11,232 11,515 Cash performance bonds and security deposits 1,814,162 1,827,991 Total Current Assets 2,246,056 3,215,131 Property, net of accumulated depreciation and amortization 107,438 109,563 Other assets 33,191 30,322 TOTAL ASSETS $2,386,685 $3,355,016 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $27,222 $27,607 Payable under securities lending agreements --- 985,500 Other current liabilities 57,076 48,396 Cash performance bonds and security deposits 1,814,162 1,827,991 Total Current Liabilities 1,898,460 2,889,494 Long-term debt 1,469 2,328 Other liabilities 18,405 17,055 Total Liabilities 1,918,334 2,908,877 Shareholders' Equity 468,351 446,139 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,386,685 $3,355,016 Balance Sheet Items Excluding Cash Performance Bonds and Security Deposits and Securities Lending* March 31, 2003 Dec. 31, 2002 Current assets $431,894 $401,640 Total assets 572,523 541,525 Current liabilities 84,298 76,003 Total liabilities 104,172 95,386 * Securities lending and cash performance bonds and securities deposits 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. Chicago Mercantile Exchange Holdings Inc. and Subsidiaries Consolidated Statements of Income (dollars in thousands, except share and per share amounts) Quarter Ended March 31, 2003 2002 REVENUES Clearing & transaction fees $102,399 $77,885 Quotation data fees 11,799 12,465 GLOBEX access fees 3,722 3,130 Communication fees 2,416 2,405 Investment income 1,146 1,617 Securities lending interest income 2,857 3,514 Other 4,261 3,053 TOTAL REVENUES 128,600 104,069 Securities lending interest expense (2,584) (2,977) NET REVENUES 126,016 101,092 EXPENSES Compensation & benefits 33,244 30,773 Occupancy 6,281 5,781 Professional fees, outside services & licenses 7,378 7,261 Communications & computer & software maintenance 12,117 10,308 Depreciation & amortization 13,211 10,814 Marketing, advertising & public relations 5,602 1,563 Other 4,429 3,429 TOTAL EXPENSES 82,262 69,929 Income before income taxes 43,754 31,163 Income tax provision (17,633) (12,504) NET INCOME $26,121 $18,659 EARNINGS PER SHARE: Basic $0.80 $ 0.65 Diluted $0.77 $ 0.63 Weighted average number of common shares: Basic** 32,534,483 28,774,700 Diluted** 33,863,591 29,756,212 ** In December 2002, CME Holdings issued approximately 3.7 million shares in its initial public offering. Average Daily Volume (Round Turns, in Thousands) 1Q 2Q 3Q 4Q Full Year 1Q 2002 2002 2002 2002 2002 2003 Interest rates 1,295 1,295 1,290 1,030 1,226 1,121 Equity E-mini 450 598 812 848 680 958 Equity standard-size 136 140 161 138 144 142 Foreign exchange 96 103 93 93 96 127 Commodities 32 32 28 29 30 35 Subtotal 2,009 2,167 2,385 2,138 2,177 2,383 TRAKRS -- -- 31 122 39 18 Total 2,009 2,167 2,415 2,260 2,216 2,401 Open outcry 1,468 1,468 1,472 1,192 1,399 1,299 Electronic (including TRAKRS) 508 667 915 1,036 786 1,063 Privately negotiated 33 33 29 32 32 39 Total 2,009 2,167 2,415 2,260 2,216 2,401 Transaction Fees (in Thousands) 1Q 2Q*** 3Q 4Q Full Year 1Q 2002 2002 2002 2002 2002 2003 Interest rates $35,536 $35,809 $38,318 $33,506 $143,169 $33,763 Equity E-mini 20,704 25,945 37,018 37,639 121,306 41,607 Equity standard-size 8,762 9,149 11,945 10,691 40,546 10,594 Foreign exchange 11,139 11,606 10,320 11,322 44,387 14,502 Commodities 1,744 1,764 1,650 1,766 6,924 1,920 Subtotal 77,885 84,274 99,250 94,924 356,333 102,386 TRAKRS -- -- 5 58 63 13 Total $77,885 $84,274 $99,255 $94,982 $356,396 $102,399 Open outcry $44,690 $43,968 $49,032 $43,568 $181,258 $43,986 Electronic (including TRAKRS) 25,408 32,760 43,489 43,322 144,979 48,936 Privately negotiated 7,787 7,546 6,734 8,092 30,160 9,477 Total $77,885 $84,274 $99,255 $94,982 $356,396 $102,399 Average Rate Per Trade 1Q 2Q*** 3Q 4Q Full Year 1Q 2002 2002 2002 2002 2002 2003 Interest rates $0.46 $0.43 $0.46 $0.51 $0.46 $0.49 Equity E-mini 0.77 0.68 0.71 0.69 0.71 0.71 Equity standard-size 1.07 1.02 1.16 1.21 1.12 1.22 Foreign exchange 1.93 1.77 1.73 1.90 1.83 1.88 Commodities 0.91 0.87 0.92 0.95 0.91 0.91 Average excluding TRAKRS 0.65 0.61 0.65 0.69 0.65 0.70 TRAKRS -- -- 0.003 0.007 0.006 0.012 Overall rate per trade 0.65 0.61 0.64 0.66 0.64 0.70 Open outcry $0.51 $0.47 $0.52 $0.57 $0.51 $0.56 Electronic (including TRAKRS) 0.83 0.77 0.74 0.65 0.73 0.75 Privately negotiated 3.91 3.62 3.65 3.90 3.77 3.96 Overall rate per trade 0.65 0.61 0.64 0.66 0.64 0.70 *** The second quarter 2002 transaction fees and rate per trade figures were impacted by a $5 million fund established for clearing firms related to a one-time adjustment of the time allowed to submit transaction fee claim adjustment requests.