Chicago Mercantile Exchange Holdings Inc. Reports Record Revenues and Net Income for Third-Quarter 2004, and Has Declared Quarterly Dividend
CHICAGO, Oct. 26 /PRNewswire-FirstCall/ -- Chicago Mercantile Exchange Holdings Inc. (NYSE: CME) today reported record revenues and profits for the third straight quarter, with an 89 percent increase in net income for third- quarter 2004 compared with third-quarter 2003. These results were driven by continued strong volume growth in its benchmark products, particularly on the CME Globex® electronic trading platform, and the continued impact of third- party transaction processing. Net revenues climbed 42 percent to a record $192.4 million, compared with $135.0 million during the same period a year ago. Income before income taxes was $99.9 million, compared with $52.9 million. Net income was $59.4 million, versus $31.4 million. Earnings per diluted share rose 85 percent to $1.72 from $0.93 per diluted share. Yesterday, the company declared a regular quarterly dividend of 26 cents per share, payable on December 27, 2004 to shareholders of record on December 10, 2004.
Average daily volume was 3.2 million contracts for third-quarter 2004, a 29 percent increase from third-quarter 2003. Additionally, with average daily electronic volume of approximately 2.0 million contracts, trading on CME Globex grew 87 percent compared with the same period last year, and represented 61 percent of total volume compared with 52 percent in the second quarter and 42 percent in the third quarter a year ago. In September, trading on CME Globex averaged a record 2.2 million contracts per day, up 80 percent from September 2003.
"CME is pleased to report its third straight quarter of record revenues and profitability, despite a typical summer slowdown," said CME Chairman Terry Duffy. "Average daily volume rose substantially over the same period a year ago due to the success of our diverse product line in meeting customer needs and our continued efforts to expand access to our markets through CME Globex. CME Eurodollars on Globex grew from one hundred thousand contracts per day in January to one million per day in September. Our foreign exchange products also set all-time volume records in September and for the third quarter."
"CME's continued strong performance is a testament to successful execution of our growth strategy to enhance CME products and services and extend them globally through new relationships and distribution channels," said Chief Executive Officer Craig Donohue. "In addition to expanding our core futures product volume through electronification, we are working to increase electronic trading of our CME E-mini® S&P® and Eurodollar options. Furthermore, our initiative with Reuters -- which will bring direct futures trading to the professional interbank foreign exchange market -- has generated a positive initial response, with seven leading global financial institutions set to begin beta testing in the fourth quarter."
Clearing and transaction fee revenue from CME products increased 37 percent to $147.9 million, up from $107.8 million for third-quarter 2003. Revenue from clearing and trans-action processing services was $14.4 million. Quotation data fees were $14.9 million, versus $13.6 million in third-quarter 2003. While net revenues increased 42 percent, expenses increased 13 percent to $92.5 million, compared with $82.1 million in the year-ago quarter.
Income before income taxes was $99.9 million, an increase of 89 percent from $52.9 million for the year-ago period. The company's operating margin, defined as income before income taxes expressed as a percentage of net revenues, was 51.9 percent, compared with 39.2 percent for the same period last year.
Capital expenditures and capitalized software development costs were $17.2 million.
Net income was $59.4 million, or $1.72 per diluted share, compared with $31.4 million, or $0.93 cents per diluted share, for the same period in 2003.
CME's working capital increased by approximately $55.1 million during the third quarter, to $610.7 million at September 30, 2004.
Nine-Month Results
For the first nine months of 2004, net revenues increased 35 percent to $545.8 million from $403.4 million for the same period in 2003. Clearing and transaction fees improved 27 percent to $413.8 million from $326.1 million, benefiting from higher trading volume and a greater percentage of trades executed on CME Globex. Total operating expenses were $272.2 million, versus $247.4 million for the comparable period of 2003.
Capital expenditures and capitalized software development costs were $49.0 million year to date.
Income before income taxes was $273.6, up 75 percent from $156.0 million for the same period a year ago. Operating margin was 50.1 percent, compared with 38.7 percent for the year-earlier period.
The company reported record net income of $162.8 million, or $4.74 per diluted share, for the first nine months of this year, compared with $92.5 million, or $2.73 per diluted share, for the same period in 2003. In 2004, the company has declared four quarterly dividends totaling $1.04 per common share, which amounts to approximately $35 million.
For the first nine months of 2004, CME's working capital increased by approximately $175.3 million.
CME will hold a conference call to discuss third-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 CME 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 approximately $1.5 billion per day in settlement payments in the first nine months of 2004 and managed $39.8 billion in collateral deposits as of September 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.
CME 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 .
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
Sept. 30, Dec. 31,
2004 2003
ASSETS
Current Assets:
Cash and cash equivalents $282,779 $185,124
Collateral from securities lending
activities 1,729,216 1,004,400
Short-term investments of interest earnings
facilities 129,408 370,504
Marketable securities 302,779 256,538
Accounts receivable 83,884 52,972
Other current assets 15,343 21,589
Cash performance bonds and security
deposits 1,594,896 2,832,252
Total Current Assets 4,138,305 4,723,379
Property, net of accumulated depreciation
and amortization 127,354 118,203
Other Assets 30,061 31,054
TOTAL ASSETS $4,295,720 $4,872,636
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $16,680 $24,690
Payable under securities lending agreements 1,729,216 1,004,400
Payable to participants in interest earnings
facilities 129,408 370,504
Other current liabilities 57,435 56,129
Cash performance bonds and security
deposits 1,594,896 2,832,252
Total Current Liabilities 3,527,635 4,287,975
Other Liabilities 18,436 21,666
Total Liabilities 3,546,071 4,309,641
Shareholders' Equity 749,649 562,995
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,295,720 $4,872,636
Balance Sheet Items Excluding Cash Performance Bonds and Security Deposits,
Securities Lending and Interest Earnings Facilities(A)
Sept. 30, Dec. 31,
2004 2003
Current assets $684,785 $516,223
Total assets 842,200 665,480
Current liabilities 74,115 80,819
Total liabilities 92,551 102,485
(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 Nine Months Ended
Sept. 30, Sept. 30,
2004 2003 2004 2003
REVENUES
Clearing and
transaction fees $147,937 $107,846 $413,763 $326,053
Clearing and
transaction
processing services 14,354 180 41,005 540
Quotation data fees 14,913 13,611 45,198 38,980
Access fees 3,924 3,961 11,893 11,566
Communication fees 2,523 2,415 7,579 7,243
Investment income 3,229 2,351 9,094 5,661
Securities lending
interest income 4,492 2,441 11,892 7,327
Other operating
revenue 5,328 4,456 16,355 12,786
TOTAL REVENUES 196,700 137,261 556,779 410,156
Securities lending
interest expense (4,311) (2,251) (11,017) (6,739)
NET REVENUES 192,389 135,010 545,762 403,417
EXPENSES
Compensation and
benefits 40,939 36,664 122,150 107,878
Occupancy 7,033 6,421 20,561 18,996
Professional fees,
outside services
and licenses 10,020 7,850 26,950 22,789
Communications and
computer and software
maintenance 12,008 10,687 36,923 33,986
Depreciation and
amortization 13,555 13,331 39,466 39,863
Marketing, advertising
and public relations 2,878 1,827 7,859 8,963
Other operating
expense 6,077 5,349 18,288 14,937
TOTAL EXPENSES 92,510 82,129 272,197 247,412
Income before income
taxes 99,879 52,881 273,565 156,005
Income tax provision (40,451) (21,484) (110,794) (63,474)
NET INCOME $ 59,428 $ 31,397 $ 162,771 $ 92,531
EARNINGS PER SHARE
Basic $1.75 $0.96 $4.88 $2.84
Diluted $1.72 $0.93 $4.74 $2.73
Weighted average
number of common
shares:
Basic 33,935,280 32,738,674 33,373,797 32,632,391
Diluted 34,496,191 33,942,315 34,330,411 33,890,969
Average Daily Volume (Round Turns, in Thousands)
3Q 4Q 1Q 2Q 3Q
2003 2003 2004 2004 2004
Interest rates 1,257 1,166 1,418 1,889 1,854
Equity E-mini 950 879 1,069 1,075 1,025
Equity standard-size 118 112 118 112 111
Foreign exchange 136 141 188 176 193
Commodities 38 35 37 41 40
Subtotal 2,499 2,333 2,830 3,293 3,223
TRAKRS 114 135 116 67 32
Total 2,613 2,468 2,946 3,360 3,255
Open outcry 1,398 1,281 1,446 1,534 1,191
Electronic (including TRAKRS) 1,175 1,155 1,461 1,787 2,013
Privately negotiated 40 32 39 39 51
Total 2,613 2,468 2,946 3,360 3,255
Transaction Fees (in Thousands)
3Q 4Q 1Q 2Q 3Q
2003 2003 2004 2004 2004
Interest rates $ 39,403 $ 37,099 $ 44,803 $ 64,815 $ 69,750
Equity E-mini 40,533 38,513 45,950 47,456 45,930
Equity standard-
size 9,329 8,809 9,077 8,826 9,090
Foreign exchange 16,300 16,076 20,784 19,297 20,721
Commodities 2,255 2,193 2,140 2,399 2,401
Subtotal 107,820 102,690 122,754 142,793 147,892
TRAKRS 26 59 198 81 45
Total $107,846 $102,749 $122,952 $142,874 $147,937
Open outcry $ 47,831 $ 44,254 $47,553 $50,516 $43,162
Electronic
(including TRAKRS) 49,971 50,383 66,013 82,934 92,924
Privately
negotiated 10,044 8,112 9,386 9,424 11,851
Total $107,846 $102,749 $122,952 $142,874 $147,937
Average Rate Per Contract
3Q 4Q 1Q 2Q 3Q
2003 2003 2004 2004 2004
Interest rates $ 0.49 $ 0.50 $ 0.51 $ 0.54 $ 0.59
Equity E-mini 0.67 0.68 0.69 0.70 0.70
Equity standard-size 1.23 1.23 1.24 1.25 1.28
Foreign exchange 1.88 1.79 1.78 1.74 1.68
Commodities 0.92 0.97 0.92 0.94 0.93
Average (excluding TRAKRS) 0.67 0.69 0.70 0.69 0.72
TRAKRS 0.004 0.007 0.028 0.019 0.022
Overall avg. rate per
contract $ 0.65 $ 0.65 $ 0.67 $ 0.68 $ 0.71
Open outcry $ 0.54 $ 0.54 $ 0.53 $ 0.52 $ 0.57
Electronic (including TRAKRS) 0.66 0.68 0.73 0.74 0.72
Electronic (excluding TRAKRS) 0.74 0.77 0.79 0.77 0.73
Privately negotiated 3.95 3.93 3.90 3.78 3.65
Overall avg. rate per
contract $ 0.65 $ 0.65 $ 0.67 $ 0.68 $ 0.71
SOURCE Chicago Mercantile Exchange Holdings Inc.
CONTACT: Media, Anita S. Liskey, +1-312-466-4613, or Bill Parke,
+1-312-930-3467, news@cme.com , or Investor, John Peschier, +1-312-930-8491,
all of Chicago Mercantile Exchange Holdings
Web site: http://www.cme.com