Chicago Mercantile Exchange Holdings Inc. Reports Record Results for 2006
CHICAGO, Jan 30, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Chicago Mercantile Exchange Holdings Inc. (NYSE, Nasdaq: CME) today reported a 26 percent increase in total revenues to $281 million and a 35 percent increase in net income to $103 million for fourth-quarter 2006 compared with fourth-quarter 2005. Income before income taxes was up 36 percent to $171 million. Diluted earnings per share rose 33 percent to $2.91 from $2.18.
The company also reported record total revenues and earnings for 2006. Total revenues climbed 22 percent to $1.1 billion for the year, compared with $890 million for 2005. Net income rose 33 percent to $407 million, versus $307 million a year ago. Diluted earnings per share increased 32 percent to $11.60 from $8.81 per diluted share in 2005.
"This past year marked the sixth consecutive year of record performance for CME as we continued to grow our business organically -- delivering volume growth of 25 percent or more across all product lines -- while expanding into new markets and building new alliances," said CME Executive Chairman Terry Duffy. "Most important, our proposed merger with the Chicago Board of Trade is expected to close midyear, pending shareholder and regulatory approval. This will enable us to serve customers more efficiently and effectively, and in turn further benefit our shareholders, as we position CME more strategically to better compete in the dynamic global marketplace."
"Successful execution of our growth strategy enabled CME to achieve record revenues and earnings in 2006, with overall volume surging 28 percent to more than 1.3 billion contracts and electronic trading expanding to 75 percent of total volume in the fourth quarter," said CME Chief Executive Officer Craig Donohue. "Our strong results reflect continued record annual volumes in foreign exchange and interest rate products and greater than expected NYMEX volume on CME Globex, which more than doubled from average daily volume of 175,000 contracts in the third quarter to average daily volume of 370,000 contracts in the fourth quarter."
All references to volume and rate per contract information in the text of this document exclude our non-traditional TRAKRS products, for which CME receives significantly lower clearing fees than other CME products, CME Auction Markets products and Swapstream products.
Fourth-Quarter Results
For the fourth quarter of 2006, clearing and transaction fees rose 25 percent to $220 million from $176 million, reflecting a 29 percent increase in average daily volume to 5.3 million contracts for the quarter. The fourth- quarter growth was led by a 36 percent increase in foreign exchange product volume, to a record 508,000 contracts per day. In addition, CME interest rate volume increased 35 percent compared with the same quarter a year ago, averaging 3.0 million contracts per day; CME E-mini products grew 19 percent, averaging 1.6 million contracts per day; and CME commodity products increased by 27 percent with average daily volume of 72,000 contracts.
Processing services, which includes support for the Chicago Board of Trade, NYMEX and OneChicago, generated $28 million in the fourth quarter. This represents a 79 percent increase from $16 million for the same period in 2005. Quotation data fees were $20 million, versus $17 million in fourth- quarter 2005.
Total operating expenses were $123 million for the fourth quarter of 2006. This represents a 15 percent increase from $107 million for the same period in 2005, driven by compensation, professional fees and marketing-related costs. Capital expenditures, including capitalized software development costs, were $29 million for fourth-quarter 2006, compared with $25 million for the final quarter of 2005.
Fourth-quarter income before income taxes was $171 million, an increase of 36 percent from $126 million for the year-ago period. The company's pre-tax margin was 58 percent, compared with 54 percent for the same period last year. Pre-tax margin is defined as income before income taxes expressed as a percentage of total revenues added to total non-operating income and expense.
CME's working capital increased by more than $73 million during the fourth quarter, to $1.3 billion at December 31, 2006.
Full-Year 2006 Results
Average daily volume was 5.3 million contracts in 2006, up 28 percent from 4.2 million contracts in 2005. Volume on the CME Globex electronic platform increased 31 percent year over year to an average of 3.8 million contracts per day.
For 2006, revenue from clearing and transaction fees grew 24 percent to $866 million from $696 million a year ago, benefiting from higher trading volume. Processing services increased 31 percent to $90 million from $69 million a year ago.
Total operating expenses were $469 million for 2006, up 14 percent from $412 million for 2005. In 2007, the company expects operating expenses on a stand-alone basis to total $530 to $540 million, which includes a full-year of expenditures related to Swapstream, a European based market-leading multilateral electronic trading platform for interest rate swaps, CBOT merger planning, and costs associated with FXMarketSpace to support the service level agreements in place.
Capital expenditures and capitalized software development costs were $87 million for 2006, primarily due to continued investments in capacity related to volume growth and functionality. In 2007, the company expects capital expenditures to total between $110 and $115 million, on a stand-alone basis, net of leasehold allowances.
Income before income taxes was $672 million for 2006, compared with $508 million for 2005. The pre-tax margin was 59 percent, compared with 55 percent for the year-earlier period.
For the year 2006, the company paid dividends of $2.52 per common share, totaling $88 million.
During 2006, CME's working capital grew by $321 million.
CME will hold a conference call to discuss year-end and fourth-quarter results at 8:30 a.m. Eastern Time today. A live audio Webcast of the call will be available on the Investor Relations section of CME's Web site at http://www.cme.com . An archived recording will be available for up to two months after the call.
Chicago Mercantile Exchange Holdings Inc. became the first publicly traded U.S. financial exchange on Dec. 6, 2002. The company was added to the S&P 500(R) Index on August 10, 2006, and the Russell 1000(R) Index on July 1, 2003. It is the parent company of Chicago Mercantile Exchange Inc. ( http://www.cme.com ), the largest and most diverse financial exchange in the world. As an international marketplace, CME brings together buyers and sellers on its CME Globex electronic trading platform and on its trading floors. CME offers futures and options on futures primarily in interest rates, equities, foreign exchange and commodities.
The Globe Logo, Chicago Mercantile Exchange(R), CME(R), E-mini(R), Globex(R), Swapstream(R) and CME Auction Markets(TM) are trademarks of CME. 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 CME and its products is available on the CME Web site at http://www.cme.com .
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: our ability to obtain the required approvals for our proposed merger with CBOT Holdings, Inc. and our ability to realize the benefits and control the costs of the proposed transaction; increasing competition by foreign and domestic competitors, including new entrants into our markets; our ability to keep pace with rapid technological developments, including our ability to complete the development and implementation of the enhanced functionality required by our customers; our ability to continue introducing competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and our ability to maintain the competitiveness of our existing products and services; our ability to adjust our fixed costs and expenses if our revenues decline; our ability to continue to realize the benefits of our transaction processing services provided to third parties; our ability to maintain existing customers and attract new ones; our ability to expand and offer our products in foreign jurisdictions; changes in domestic and foreign regulations; changes in government policy, including policies relating to common or directed clearing; the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others; our ability to generate revenue from our market data that may be reduced or eliminated by the growth of electronic trading; changes in our rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one of our various incentive programs) and the impact of our tiered pricing structure; the ability of our financial safeguards package to adequately protect us from the credit risk of our clearing firms; changes in 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 systems; our ability to execute our growth strategy and maintain our growth effectively; our ability to manage the risks and control the costs associated with our acquisition, investment and alliance strategy; industry and customer consolidation; decreases in trading and clearing activity; the imposition of a transaction tax on futures and options on futures transactions; and seasonality of the derivatives 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 Quarterly Report on Form 10-Q, 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 Holdings Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands) December 31, December 31, 2006 2005 ASSETS Current Assets: Cash and cash equivalents $969,504 $610,891 Collateral from securities lending 2,130,156 2,160,893 Marketable securities, including pledged securities 250,718 292,862 Accounts receivable, net of allowance 121,128 84,974 Other current assets 37,566 41,675 Cash performance bonds and security deposits 521,180 592,127 Total current assets 4,030,252 3,783,422 Property, net of accumulated depreciation and amortization 168,755 153,329 Other assets 107,498 32,643 Total Assets $4,306,505 $3,969,394 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $25,552 $23,553 Payable under securities lending agreements 2,130,156 2,160,893 Other current liabilities 78,466 53,354 Cash performance bonds and security deposits 521,180 592,127 Total current liabilities 2,755,354 2,829,927 Other liabilities 32,059 20,783 Total liabilities 2,787,413 2,850,710 Shareholders' equity 1,519,092 1,118,684 Total Liabilities and Shareholders' Equity $4,306,505 $3,969,394 Chicago Mercantile Exchange Holdings Inc. and Subsidiaries Consolidated Statements of Income (in thousands, except per share amounts) Quarter Ended Year Ended December 31, December 31, 2006 2005 2006 2005 Revenues Clearing and transaction fees $219,774 $176,457 $866,089 $696,201 Processing services 27,929 15,562 90,148 68,730 Quotation data fees 20,100 17,370 80,836 71,741 Access fees 5,215 4,743 20,154 18,866 Communication fees 2,047 2,140 8,588 8,964 Other 6,251 6,269 24,132 25,264 Total Revenues 281,316 222,541 1,089,947 889,766 Expenses Compensation and benefits 53,915 45,469 202,966 179,594 Communications 8,096 8,621 31,580 31,098 Technology support services 7,849 7,124 31,226 26,837 Professional fees and outside services 9,064 7,146 34,290 26,850 Depreciation and amortization 19,191 16,799 72,783 64,917 Occupancy 7,412 7,208 29,614 28,529 Licensing and other fee agreements 6,478 5,829 25,733 17,982 Marketing, advertising and public relations 5,147 3,767 16,740 13,278 Other 5,909 5,191 24,160 23,054 Total Expenses 123,061 107,154 469,092 412,139 Operating Income 158,255 115,387 620,855 477,627 Non-Operating Income and Expense Investment income 17,003 10,252 55,792 31,441 Securities lending interest income 23,589 19,188 94,028 58,725 Securities lending interest expense (23,294) (18,666) (92,103) (56,778) Equity in losses of unconsolidated subsidiaries (4,805) (419) (6,915) (2,636) Total Non-Operating 12,493 10,355 50,802 30,752 Income Before Income Taxes 170,748 125,742 671,657 508,379 Income tax provision (68,146) (49,462) (264,309) (201,522) Net Income $102,602 $76,280 $407,348 $306,857 Earnings per Common Share: Basic $2.95 $2.21 $ 11.74 $ 8.94 Diluted 2.91 2.18 11.60 8.81 Weighted Average Number of Common Shares: Basic 34,812 34,476 34,696 34,315 Diluted 35,199 34,974 35,124 34,839
Note: Beginning in the third quarter of 2006, the following income statement items have been reclassified from revenue to non-operating income and expense in the consolidated statements of income: investment income, securities lending interest income and expense, and equity in losses of unconsolidated subsidiaries. The equity in losses of unconsolidated subsidiaries was previously included as part of other revenues. All other items were included separately in the income statement. The presentation of these items has been changed to more closely conform to the Securities and Exchange Commission's Article 5 of Regulation S-X.
4Q 1Q 2Q 3Q 4Q 2005 2006 2006 2006 2006 Trading Days 63 62 63 63 63 Average Daily Volume (Round Turns, in Thousands)* 4Q 1Q 2Q 3Q 4Q 2005 2006 2006 2006 2006 Interest rates 2,209 2,918 3,255 3,148 2,990 Equity E-mini 1,336 1,408 1,748 1,564 1,596 Equity standard-size 141 145 173 154 147 Foreign exchange 375 407 471 423 508 Commodities 56 80 81 78 72 Subtotal 4,117 4,958 5,728 5,367 5,313 TRAKRS 595 161 419 117 294 Total 4,712 5,119 6,147 5,484 5,607 Open outcry 1,107 1,467 1,657 1,517 1,293 Electronic (including TRAKRS) 3,556 3,595 4,441 3,917 4,261 Privately negotiated 49 57 49 50 53 Total 4,712 5,119 6,147 5,484 5,607 Transaction Fees (in Thousands)* 4Q 1Q 2Q 3Q 4Q 2005 2006 2006 2006 2006 Interest rates $70,840 $89,194 $97,768 $98,306 $95,741 Equity E-mini 59,427 62,183 76,889 70,194 71,111 Equity standard- size 12,823 12,859 15,493 12,947 13,271 Foreign exchange 29,442 31,616 33,212 30,576 34,752 Commodities 3,457 4,737 4,673 4,597 4,257 Subtotal 175,989 200,589 228,035 216,620 219,132 TRAKRS 468 208 384 244 344 Total $176,457 $200,797 $228,419 $216,864 $219,476 Open outcry $35,677 $43,406 $50,067 $45,429 $41,710 Electronic (including TRAKRS) 129,088 144,776 166,741 160,295 165,399 Privately negotiated 11,692 12,615 11,611 11,140 12,367 Total $176,457 $200,797 $228,419 $216,864 $219,476 Average Rate Per Contract (RPC)* 4Q 1Q 2Q 3Q 4Q 2005 2006 2006 2006 2006 Interest rates $0.509 $0.493 $0.477 $0.496 $0.508 Equity E-mini 0.706 0.712 0.698 0.712 0.707 Equity standard-size 1.443 1.431 1.421 1.338 1.430 Foreign exchange 1.246 1.253 1.119 1.146 1.085 Commodities 0.975 0.953 0.921 0.939 0.942 Average (excluding TRAKRS) $0.678 $0.652 $0.632 $0.641 $0.655 TRAKRS 0.012 0.021 0.015 0.033 0.019 Overall average RPC $0.594 $0.633 $0.590 $0.628 $0.621 Open outcry $0.512 $0.477 $0.480 $0.475 $0.512 Electronic (including TRAKRS) 0.576 0.650 0.597 0.652 0.616 Electronic (excluding TRAKRS) 0.690 0.679 0.657 0.668 0.660 Privately negotiated 3.759 3.583 3.785 3.545 3.713 Overall average RPC $0.594 $0.633 $0.590 $0.628 $0.621
*Note: All volume, transaction fee data, and rate per contract information exclude CME Auction Markets products and Swapstream products.
CME-E
SOURCE Chicago Mercantile Exchange Holdings Inc.
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