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.
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, firstname.lastname@example.org , or
Investors, John Peschier, +1-312-930-8491, both of Chicago Mercantile Exchange Holdings Inc. Web site: http://www.cme.com