Chicago Mercantile Exchange Holdings Inc. Reports Record Revenues, Earnings For the Second Quarter of 2003, Spurred by Strength in Major Product Groups
CHICAGO, July 22 /PRNewswire-FirstCall/ -- Chicago Mercantile Exchange Holdings Inc. (NYSE: CME) today reported record revenues and earnings for the second quarter of 2003, spurred by strong trading volume in its three largest product categories: interest rates, equities and foreign exchange.
Net revenues increased 32 percent to a record $142.4 million for the second quarter of 2003, compared with $107.5 million for the year-earlier period. Net income rose 67 percent to a record $35.0 million, versus $21.0 million for the same period in 2002. Earnings per diluted share improved 45 percent to a record $1.03 from 71 cents per diluted share for the second quarter last year. This growth occurred on a base of shares that has increased by 3.7 million with the company's initial public offering in December 2002.
Average daily volume increased 23 percent to nearly 2.7 million contracts for the second quarter of 2003 versus the same period of 2002. Each of CME's trading venues set quarterly volume records. More than 1.5 million contracts a day were traded via open outcry, up 5 percent from the second quarter last year. Nearly 1.1 million contracts a day changed hands on CME's GLOBEX® electronic trading platform, a 63 percent increase from a year ago, and 41,000 contracts a day were privately negotiated, up 25 percent. During the second quarter of 2003, 41 percent of CME's volume traded on GLOBEX, compared with 31 percent during the same period a year ago. June 2003 was the second busiest month in CME's history for E-mini equity futures, which averaged more than 1.0 million contracts a day during the month.
"Our strong second quarter performance was driven by our diverse product line with substantial trading volume in our three largest product groups -- particularly interest rates -- where volume grew each month to culminate in a new record in June," said Chairman Terry Duffy. "We believe that one contributor to this growth has been a continuing shift in the global derivatives landscape as users are increasingly focused on credit quality and cognizant of the appeal of transparent, exchange-traded instruments with central counterparty clearing. Our interest rate volume also benefited from continued mortgage refinancing activity, which increasingly is hedged with our Eurodollar futures and options contracts -- as well as the quarter-point interest rate adjustment by the U.S. Federal Reserve Board.
"This quarter, we will continue to aggressively prepare for the launch of the CME/CBOT® Common Clearing Link based on the definitive agreement we reached in April," said Duffy. "We are on track to begin clearing Chicago Board of Trade® commodity, equity and certain interest rate products on Nov. 24, 2003, with the remainder scheduled to begin on Jan. 2, 2004."
"We've focused significant resources on expanding our distribution, making it easier than ever before to trade on CME, no matter where you are in the world," said President and Chief Executive Officer Jim McNulty. "In the past three years, we opened up access to GLOBEX, dramatically increased the speed of trading, established a telecommunications hub in Europe and increased the number of independent software vendors and data centers that offer GLOBEX interfaces. Since the beginning of this year, we've added 16 network connections to our European hub, for a total of 36; streamlined our foreign exchange delivery process to offer cost savings to market participants; and announced two new programs to expand telecommunications alternatives and reduce costs for users of GLOBEX, our CLEARING 21® system and our market data. We believe that broadening access and distribution has expanded both our customer base and trading volume."
For the second quarter of 2003, revenue from clearing and transaction fees increased 37 percent to $115.8 million from $84.3 million for the same period of 2002. Quotation data fees rose 14 percent to $13.6 million for the second quarter of 2003, versus $11.9 million for the same period a year ago, driven by a pricing change that took effect in April 2003.
Total operating expenses for the second quarter of 2003 were $83.0 million, compared with $73.0 million for the second quarter of 2002. During the 2003 quarter, the company recorded stock-based compensation expense of $0.8 million. Based on a stock option and restricted stock grant in June, CME expects the stock-based compensation portion of compensation and benefits to increase to approximately $1.4 million per quarter in the third and fourth quarters of 2003.
Income before income taxes was $59.4 million for the second quarter of 2003, an increase of 72 percent from $34.5 million for the same period a year ago. The company's operating margin, defined as income before income taxes expressed as a percentage of net revenues, was 41.7 percent for the second quarter of 2003, compared with 32.1 percent for the year-earlier quarter.
CME's working capital was $381.6 million at June 30, 2003, compared with $325.6 million at Dec. 31, 2002, primarily due to the operating results during the first six months of 2003.
Capital expenditures and capitalized software development costs were $13.9 million for the second quarter. The company paid a quarterly dividend of 14 cents per common share, which totaled $4.6 million in June 2003.
Six-Month Results
For the first six months of 2003, net revenues increased 29 percent to a record $268.4 million from $208.6 million for the first half of 2002. Clearing and transaction fees improved 35 percent to $218.2 million from $162.2 million a year ago, benefiting from higher trading volume. Total operating expenses were $165.3 million for the first half of 2003, versus nearly $143.0 million for the comparable period of 2002. Income before income taxes was $103.1 million for the first half of 2003, up 57 percent from $65.7 million for the same period a year ago. The operating margin was 38.4 percent for the first six months of 2003, compared with 31.5 percent for the year-earlier period.
The company reported record net income of $61.1 million, or $1.81 per diluted share, for the first six months of this year, compared with $39.7 million, or $1.33 per diluted share, for the first half of 2002.
Capital expenditures and capitalized software development costs were $25.0 million for the first six months of 2003.
During the second quarter of 2003, certain shareholders sold 1,220,635 shares of Class A common stock at a price of $69.60 per share in an underwritten offering. The company did not sell any shares or receive any proceeds from the sale of stock by its shareholders in the offering.
Chicago Mercantile Exchange Holdings Inc. 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. ( www.cme.com ), the largest futures exchange in the United States. As an international marketplace, CME brings together buyers and sellers on its trading floors and its GLOBEX electronic trading platform. CME offers futures contracts and options on futures contracts 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 half of 2003 and managed $29.1 billion in collateral deposits at June 30, 2003.
CME will hold a conference call to discuss second 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) 500-0177 if calling from within the United States or (719) 457-2679 if calling from outside the United States at least 10 minutes before the call begins. Following the conference call, an archived recording and PowerPoint slides 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.
GLOBEX is a registered trademark of Chicago Mercantile Exchange Inc. E-mini is a trademark of CME. CLEARING 21 is a registered trademark of CME and New York Mercantile Exchange, Inc. Russell 1000 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)
June 30, 2003 Dec. 31, 2002
ASSETS
Current Assets:
Cash and cash equivalents $392,835 $339,260
Proceeds from securities
lending activities 1,057,976 985,500
Accounts receivable 69,316 50,865
Other current assets 8,350 11,515
Cash performance bonds
and security deposits 1,968,317 1,827,991
Total Current Assets 3,496,794 3,215,131
Property, net of accumulated
depreciation and amortization 107,096 109,563
Other assets 36,360 30,322
TOTAL ASSETS $3,640,250 $3,355,016
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $29,173 $27,607
Payable under securities
lending agreements 1,057,976 985,500
Other current liabilities 59,692 48,396
Cash performance bonds
and security deposits 1,968,317 1,827,991
Total Current Liabilities 3,115,158 2,889,494
Long-term debt 648 2,328
Other liabilities 19,411 17,055
Total Liabilities 3,135,217 2,908,877
Shareholders' Equity 505,033 446,139
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,640,250 $3,355,016
Balance Sheet Items Excluding
Cash Performance Bonds and Security Deposits and Securities Lending(A)
June 30, 2003 Dec. 31, 2002
Current assets $470,501 $401,640
Total assets 613,957 541,525
Current liabilities 88,865 76,003
Total liabilities 108,924 95,386
(A) 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 Six Months Ended
June 30, June 30,
2003 2002 2003 2002
REVENUES
Clearing &
transaction fees $115,808 $84,274 $218,207 $162,159
Quotation data fees 13,570 11,925 25,369 24,390
GLOBEX access fees 3,883 3,278 7,605 6,408
Communication fees 2,412 2,506 4,828 4,911
Investment income 2,164 1,304 3,310 2,921
Securities lending
interest income 2,029 6,275 4,886 9,789
Other operating
revenue 4,429 3,518 8,690 6,571
TOTAL REVENUES 144,295 113,080 272,895 217,149
Securities lending
interest expense (1,904) (5,548) (4,488) (8,525)
NET REVENUES 142,391 107,532 268,407 208,624
EXPENSES
Compensation &
benefits 37,970 29,335 71,214 60,108
Occupancy 6,294 5,308 12,575 11,089
Professional fees,
outside services
& licenses 7,561 8,377 14,939 15,638
Communications &
computer & software
maintenance 11,182 11,325 23,299 21,633
Depreciation &
amortization 13,321 12,337 26,532 23,151
Marketing,
advertising &
public relations 1,534 1,354 7,136 2,917
Other operating
expense 5,159 5,007 9,588 8,436
TOTAL EXPENSES 83,021 73,043 165,283 142,972
Income before
income taxes 59,370 34,489 103,124 65,652
Income tax provision (24,357) (13,498) (41,990) (26,002)
NET INCOME $35,013 $20,991 $61,134 $39,650
EARNINGS PER SHARE
Basic $1.07 $0.73 $1.88 $1.38
Diluted $1.03 $0.71 $1.81 $1.33
Weighted average
number of
common shares:
Basic(B) 32,624,015 28,800,423 32,579,249 28,787,562
Diluted(B) 33,867,000 29,656,429 33,865,295 29,706,321
(B) In December 2002, CME Holdings issued approximately 3.7 million
shares in its initial public offering.
Average Daily Volume (Round Turns, in Thousands)
2Q 3Q 4Q 1Q 2Q
2002 2002 2002 2003 2003
Interest rates 1,295 1,290 1,030 1,121 1,389
Equity E-mini 598 812 848 958 936
Equity
standard-size 140 161 138 142 134
Foreign exchange 102 93 93 127 137
Commodities 32 28 29 35 34
Subtotal 2,167 2,384 2,138 2,383 2,630
TRAKRS -- 31 122 18 46
Total 2,167 2,415 2,260 2,401 2,676
Open outcry 1,467 1,471 1,192 1,299 1,548
Electronic
(including TRAKRS) 667 915 1,036 1,063 1,087
Privately
negotiated 33 29 32 39 41
Total 2,167 2,415 2,260 2,401 2,676
Transaction Fees (in Thousands)
2Q(C) 3Q 4Q 1Q 2Q(D)
2002 2002 2002 2003 2003
Interest rates $35,809 $38,314 $33,506 $33,763 $47,174
Equity E-mini 25,946 37,018 37,639 41,607 39,692
Equity
standard-size 9,149 11,948 10,691 10,594 10,641
Foreign exchange 11,606 10,320 11,322 14,502 16,235
Commodities 1,764 1,650 1,766 1,920 2,034
Subtotal 84,274 99,250 94,924 102,386 115,776
TRAKRS -- 5 58 13 32
Total $84,274 $99,255 $94,982 $102,399 $115,808
Open outcry $43,968 $49,032 $43,568 $43,986 $56,308
Electronic
(including
TRAKRS) 32,760 43,489 43,322 48,936 49,245
Privately
negotiated 7,546 6,734 8,092 9,477 10,255
Total $84,274 $99,255 $94,982 $102,399 $115,808
Average Rate Per Trade
2Q(C) 3Q 4Q 1Q 2Q(D)
2002 2002 2002 2003 2003
Interest rates $0.43 $0.46 $0.51 $0.49 $0.54
Equity E-mini 0.68 0.71 0.69 0.71 0.67
Equity
standard-size 1.02 1.16 1.21 1.22 1.26
Foreign exchange 1.77 1.73 1.90 1.88 1.89
Commodities 0.87 0.92 0.95 0.91 0.95
Average
excluding
TRAKRS 0.61 0.65 0.69 0.70 0.70
TRAKRS -- 0.003 0.007 0.012 0.011
Overall rate
per trade $0.61 $0.64 $0.66 $0.70 $0.69
Open outcry $0.47 $0.52 $0.57 $0.56 $0.58
Electronic
(including
TRAKRS) 0.77 0.74 0.65 0.75 0.72
Privately
negotiated 3.62 3.64 3.90 3.96 4.00
Overall rate
per trade $0.61 $0.64 $0.66 $0.70 $0.69
(C) Second quarter 2002 transaction fees reflect a $5 million reduction
for a fund established for clearing firms related to a one-time
adjustment. This reduced the overall rate per trade by 3.6 cents
from 64.4 cents to 60.8 cents, impacting all product groups.
(D) Second quarter 2003 transaction fees include a $2.5 million
assessment to a clearing firm which primarily affected the rate per
trade for interest rate contracts. Without this assessment, the
interest rate contract rate per trade would have been 51.2 cents,
the assessment increased it 2.7 cents to 53.9 cents. The overall
rate per trade, 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 Contact, Ellen G. Resnick, +1-312-930-3435, or Maryellen
T. Thielen, +1-312-930-3467, or news@cme.com , or Investor Contact, John
Peschier, +1-312-930-8491, all of Chicago Mercantile Exchange Inc./
/Web site: http://www.cme.com /
(CME)