Chicago Mercantile Exchange Holdings Inc. Reports Record Volume and Revenues

Jul 22, 2004

Chicago Mercantile Exchange Holdings Inc. Reports Record Volume and Revenues

Chicago Mercantile Exchange Holdings Inc. Reports Record Volume and Revenues

CHICAGO, July 22 /PRNewswire-FirstCall/ -- Chicago Mercantile Exchange Holdings Inc. (NYSE: CME) today reported record revenues and a 64 percent increase in net income for the second quarter of 2004 compared to the second quarter of last year, driven by strong volume growth in its benchmark products, particularly on CME's GLOBEX® electronic trading platform, and continued growth from the company's clearing processing agreement with the Chicago Board of Trade (CBOT). Net revenues climbed 31 percent to a record $187.0 million for the second quarter of this year, compared with $142.4 million for the same period of 2003. Net income was $57.3 million, versus $35.0 million for the second quarter last year. Earnings per diluted share rose 61 percent to $1.66 from $1.03 per diluted share for the year- earlier period.

Average daily volume was 3.3 million contracts for the second quarter of 2004, a 25 percent increase from the second quarter of last year. With average daily volume of 1.7 million contracts, trading on GLOBEX grew 65 percent in the second quarter of 2004 versus 2003 and represented 52 percent of total volume, compared with 40 percent for the same period a year ago. GLOBEX accounted for 54 percent of total volume in the month of June.

"Our continued strong performance during the second quarter was led by dramatic growth in Eurodollar futures on GLOBEX, where volume more than tripled from the first quarter of 2004," said CME Chairman Terry Duffy. "In June, we traded an average of 655,000 Eurodollar contracts on GLOBEX per day, compared to 104,000 per day in January 2004. Volume in our interest rate quadrant, which was up 36 percent from the same period last year, was also positively impacted by anticipation of the initial rate hike by the Federal Reserve, which occurred at the end of the second quarter."

"We are beginning to see the results of our efforts to expand distribution of our products through GLOBEX," said CME Chief Executive Officer Craig Donohue. "This year, we launched telecommunications hubs in five European cities and initiated our European Incentive Plan in March. Through June, we have 27 proprietary trading firms trading under the plan. We expect to facilitate continued long-term growth of our markets through a number of innovative new initiatives to be rolled out later this year, including our recently-announced agreement with Reuters to provide access to CME's eFX markets, the introduction of new functionality for trading Eurodollar futures and options on GLOBEX, and our OTC clearing and trade matching agreement with Tullett Liberty."

Revenues from clearing and transaction fees from CME products increased 23 percent to $142.9 million for the second quarter of 2004, from $115.8 million for the same period of 2003. This category represented 76 percent of net revenues in the second quarter of 2004. Clearing and transaction services revenue, primarily related to our clearing agreement with CBOT, was $14.2 million for the quarter. Quotation data fees were $14.8 million for the second quarter of 2004, versus $13.6 million for the same period in 2003.

While net revenues increased 31 percent, expenses increased 9 percent to $90.7 million in the second quarter compared to $83.0 million in the year ago quarter. The company recorded expense of $1.6 million during the second quarter related to its annual stock option grant in mid-June. The company expects to record an expense of approximately $2.6 million of stock-based compensation in each of the next two quarters, which reflects the full quarterly effect of the recent grant.

Capital expenditures and capitalized software development costs were $22.8 million for the second quarter of 2004. CME's working capital was $555.6 million at June 30, 2004, compared with $435.4 million at Dec. 31, 2003.

Income before income taxes was $96.3 million for the current quarter, an increase of 62 percent from $59.4 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 51.5 percent for the second quarter of 2004, compared to 41.7 percent for the same period last year.

The company reported net income of $57.3 million, or $1.66 per diluted share, for the second quarter of 2004, compared to $35.0 million, or $1.03 cents per diluted share, for the same period in 2003. The company paid a dividend of 26 cents per common share, which totaled $8.8 million in June 2004.

Six-Month Results

For the first six months of 2004, net revenues increased 32 percent to $353.4 million from $268.4 million for the first half of 2003. Clearing and transaction fees improved 22 percent to $265.8 million from $218.2 million a year ago, benefiting from higher trading volume. Total operating expenses were $179.7 million for the first half of 2004, versus $165.3 million for the comparable period of 2003.

Capital expenditures and capitalized software development costs were $31.8 million for the first six months of 2004.

Income before taxes was $173.7 million for the first half of 2004, up 68 percent from $103.1 million for the same period a year ago. The operating margin was 49.2 percent for the first six months of 2004, compared with 38.4 percent for the year-earlier period.

The company reported record net income of $103.3 million, or $3.02 per diluted share, for the first six months of this year, compared with $61.1 million, or $1.81 per diluted share, for the first half of 2003. During the first half of the year, the company paid dividends totaling 52 cents per common share, which totaled $17.4 million.

CME will hold a conference call to discuss second quarter results at 8:30 a.m., Eastern Time today. A live audio Web cast 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 after the call.

Chicago Mercantile Exchange Inc. ( http://www.cme.com ) is 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 $1.6 billion per day in settlement payments in the first half of 2004 and managed $39.1 billion in collateral deposits as of June 30, 2004. CME is a wholly owned subsidiary of Chicago Mercantile Exchange Holdings Inc. (NYSE: CME), which is part of the Russell 1000® Index.

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 and 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 and 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; 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 and control the costs 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 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.

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 http://www.cme.com .

    * 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 than other CME
      products.


          Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
                         Consolidated Balance Sheets
                            (dollars in thousands)

                                            June 30, 2004  Dec. 31, 2003
    ASSETS
    Current Assets:
      Cash and cash equivalents                $222,344       $185,124
      Collateral from securities lending
       activities                               739,595      1,004,400
      Short-term investments of interest
       earnings facilities                      185,956        370,504
      Marketable securities                     266,706        256,538
      Accounts receivable                        81,648         52,972
      Other current assets                       51,753         21,589
      Cash performance bonds and security
       deposits                               2,028,056      2,832,252
    Total Current Assets                      3,576,058      4,723,379
    Property, net of accumulated
     depreciation and amortization              123,892        118,203
    Other Assets                                 33,417         31,054
    TOTAL ASSETS                             $3,733,367     $4,872,636

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable                          $17,246        $24,690
      Payable under securities lending
       agreements                               739,595      1,004,400
      Payable to participants in interest
       earnings facilities                      185,956        370,504
      Other current liabilities                  49,601         56,129
      Cash performance bonds and security
       deposits                               2,028,056      2,832,252
    Total Current Liabilities                 3,020,454      4,287,975
    Other Liabilities                            20,274         21,666
    Total Liabilities                         3,040,728      4,309,641
    Shareholders' Equity                        692,639        562,995
    TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY                                  $3,733,367     $4,872,636


                        Balance Sheet Items Excluding
Cash Performance Bonds and Security Deposits, Securities Lending and Interest
                            Earnings Facilities(a)


                                            June 30, 2004  Dec. 31, 2003
    Current assets                             $622,451       $516,223
    Total assets                                779,760        665,480
    Current liabilities                          66,847         80,819
    Total liabilities                            87,121        102,485

    (a) Securities lending, cash performance bonds and security deposits, and
    interest earnings facilities are excluded from this presentation, as these
    current assets 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 on the consolidated balance sheets, or by
    depositing securities, which are not reflected on 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 earnings facilities have been included in the
    consolidated financial statements of CME Holdings.  Deposits received from
    clearing firms in these interest earning facilities are included on the
    consolidated financial statements of CME Holdings.  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           Six Months Ended
                                   June 30,                  June 30,
                              2004         2003         2004         2003
    REVENUES
      Clearing & transaction
       fees               $142,874     $115,808     $265,826     $218,207
      Clearing & transaction
       services             14,173          180       26,651          360
                            14,796       13,570       30,286       25,369
      Quotation data fees
      Access fees            3,979        3,883        7,969        7,605
      Communication fees     2,558        2,412        5,056        4,828
      Investment income      2,768        2,164        5,865        3,310
      Securities lending
       interest income       3,943        2,029        7,400        4,886
      Other operating
       revenue               5,441        4,249       11,026        8,330
        TOTAL REVENUES     190,532      144,295      360,079      272,895
      Securities lending
       interest expense     (3,531)      (1,904)      (6,706)      (4,488)
        NET REVENUES       187,001      142,391      353,373      268,407

    EXPENSES
      Compensation &
       benefits             40,630       37,970       81,210       71,214
      Occupancy              6,823        6,294       13,528       12,575
      Professional fees,
       outside services &
       licenses              8,847        7,561       16,930       14,939
      Communications &
       computer
       & software
       maintenance          12,666       11,182       24,915       23,299
      Depreciation &
       amortization         13,116       13,321       25,911       26,532
      Marketing, advertising
       & public relations    2,467        1,534        4,981        7,136
      Other operating
       expense               6,178        5,159       12,212        9,588
        TOTAL EXPENSES      90,727       83,021      179,687      165,283

    Income before income
     taxes                  96,274       59,370      173,686      103,124
    Income tax provision   (38,991)     (24,357)     (70,343)     (41,990)
      NET INCOME          $ 57,283     $ 35,013    $ 103,343     $ 61,134

    EARNINGS PER SHARE
    Basic                    $1.72        $1.07        $3.12        $1.88
    Diluted                  $1.66        $1.03        $3.02        $1.81

    Weighted average number
     of common shares:
      Basic             33,253,756   32,624,015   33,093,055   32,579,249
      Diluted           34,448,257   33,867,000   34,247,521   33,865,296


               Average Daily Volume (Round Turns, in Thousands)

                       2Q           3Q           4Q          1Q          2Q
                     2003         2003         2003        2004        2004

    Interest rates  1,389        1,257        1,166       1,418       1,889
    Equity E-mini     936          950          879       1,069       1,075
    Equity
     standard-size    134          118          112         118         112
    Foreign exchange  137          136          141         188         176
    Commodities        34           38           35          37         41
      Subtotal      2,630        2,499        2,333       2,830       3,293
    TRAKRS             46          114          135         116          67
      Total         2,676        2,613        2,468       2,946       3,360

    Open outcry     1,548        1,398        1,281       1,446       1,534
    Electronic
     (including
     TRAKRS)        1,087        1,175        1,155       1,461       1,787
    Privately
     negotiated        41           40           32          39          39
      Total         2,676        2,613        2,468       2,946       3,360


                       Transaction Fees (in Thousands)

                    2Q(b)           3Q           4Q          1Q          2Q
                     2003         2003         2003        2004        2004

    Interest
     rates        $47,174      $39,403      $37,099     $44,803     $64,815
    Equity E-mini  39,692       40,533       38,513      45,950      47,456
    Equity
     standard-
     size          10,641        9,329        8,809       9,077       8,826
    Foreign
     exchange      16,235       16,300       16,076      20,784      19,297
    Commodities     2,034        2,255        2,193       2,140       2,399
      Subtotal    115,776      107,820      102,690     122,754     142,793
    TRAKRS             32           26           59         198          81
      Total      $115,808     $107,846     $102,749    $122,952    $142,874
    Open outcry  $ 56,308     $ 47,831      $44,254     $47,553     $50,516
    Electronic
     (including
     TRAKRS)       49,245       49,971       50,383      66,013      82,934
    Privately
     negotiated    10,255       10,044        8,112       9,386       9,424
      Total      $115,808     $107,846     $102,749    $122,952    $142,874


                          Average Rate Per Contract

                    2Q(b)           3Q           4Q          1Q          2Q
                     2003         2003         2003        2004        2004

    Interest rates  $0.54        $0.49        $0.50       $0.51       $0.54
    Equity E-mini    0.67         0.67         0.68        0.69        0.70
    Equity standard
     -size           1.26         1.23         1.23        1.24        1.25
    Foreign
     exchange        1.89         1.88         1.79        1.78        1.74
    Commodities      0.95         0.92         0.97        0.92        0.94
    Average
     (excluding
     TRAKRS)         0.70         0.67         0.69        0.70        0.69
    TRAKRS          0.011        0.004        0.007       0.028       0.019
      Overall avg.
       rate per
       contract     $0.69        $0.65        $0.65       $0.67       $0.68
    Open outcry     $0.58        $0.54        $0.54       $0.53       $0.52
    Electronic
     (including
     TRAKRS)         0.72         0.66         0.68        0.73        0.74
    Electronic
     (excluding
     TRAKRS)         0.75         0.74         0.77        0.79        0.77
    Privately
     negotiated      4.00         3.95         3.93        3.90        3.78
      Overall avg.
       rate per
       contract     $0.69        $0.65        $0.65       $0.67       $0.68

    (b) 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.

SOURCE Chicago Mercantile Exchange Holdings Inc.

CONTACT: Media, Anita S. Liskey, +1-312-466-4613, aliskey@cme.com , or
Investors, John Peschier, +1-312-930-8491, both of Chicago Mercantile Exchange Holdings Inc. Web site: http://www.cme.com

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