UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported)
July 25, 2006
CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
(Exact Name of Registrant as Specified in Charter)
| Delaware | 000-33379 | 36-4459170 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File No.) | (IRS Employer Identification No.) |
20 South Wacker Drive
Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (312) 930-1000
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition.
The information set forth under “Item 2.02. Results Of Operations And Financial Condition,” including the Exhibit attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
Attached and incorporated herein by reference as Exhibit 99.1 is a copy of a press release of Chicago Mercantile Exchange Holdings Inc., dated July 25, 2006, reporting Chicago Mercantile Exchange Holdings Inc.’s financial results for the second quarter ended June 30, 2006.
EXHIBIT INDEX
| Exhibit Number |
Description | |
| 99.1 | Press Release, dated July 25, 2006. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CHICAGO MERCANTILE EXCHANGE HOLDINGS INC. Registrant | ||||
| Date: July 24, 2006 | By: | /s/ Kathleen M. Cronin | ||
| Name: | Kathleen M. Cronin | |||
| Title: | Managing Director, General Counsel and Corporate Secretary | |||
Exhibit 99.1
| 20 S. Wacker Drive, Chicago, IL 60606-7499 www.cme.com | ||
| Media Contacts | ||
| Anita Liskey, 312.466.4613 | ||
| William Parke, 312.930.3467 | ||
| news@cme.com | ||
| Investor Contact | ||
| John Peschier, 312.930.8491 | ||
| CME-E | ||
FOR IMMEDIATE RELEASE
Chicago Mercantile Exchange Holdings Inc. Reports Record Revenues and Profits; Net Income Grew 33 percent in Second-Quarter 2006
| • | Earnings per share rose 32 percent to $3.12 |
| • | Quarterly volume records reached in all product lines |
CHICAGO, July 25, 2006 – Chicago Mercantile Exchange Holdings Inc. (NYSE, NASDAQ: CME) today reported a 23 percent increase in net revenues to a record $295 million and a 33 percent increase in net income for second-quarter 2006 compared with second-quarter 2005. Income before income taxes was up 32 percent to $180 million. Diluted earnings per share rose 32 percent to $3.12 from $2.36.
Average daily volume was a record 5.7 million contracts for second-quarter 2006, a 31 percent increase from second-quarter 2005. Trading on the CME® Globex® electronic trading platform grew 29 percent to 4.0 million contracts per day in second-quarter 2006 from 3.1 million per day in second-quarter 2005. Electronic volume represented 70 percent of total CME volume in the quarter. In June, CME volume was a record 6.4 million contracts per day, up 51 percent from June 2005, and electronic volume rose 46 percent to a record 4.4 million contracts per day compared with June 2005.
“CME finished a record quarter with unprecedented volumes across all product lines, particularly in June where volume increased 51 percent,” said CME Chairman Terry Duffy. “During times of geopolitical uncertainty and heightened volatility, the business of managing risk becomes even more important for our users around the globe. We implemented several important technology enhancements last quarter that significantly improved transaction speed and expanded our capacity to handle record volume levels efficiently.”
“Great execution in our core businesses led to record volumes, revenues, and earnings,” said CME Chief Executive Officer Craig Donohue. “We also continue to expand our business beyond our traditional offerings. During the second quarter, we launched trade matching services for NYMEX energy futures on CME Globex; we created FXMarketSpace, a joint venture with Reuters, which will be the world’s first centrally cleared global foreign exchange marketplace; and in early July we announced our acquisition of Swapstream, a leading multilateral trading platform for OTC interest rate swaps.”
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, and CME Auction Markets™ products.
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CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
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Clearing and transaction fees increased 25 percent to $229 million, up from $183 million for second-quarter 2005. Record quarterly average daily volume across all product lines fueled this growth. CME posted a 34 percent increase in CME E-mini® product volume, to a record 1.7 million contracts per day. In addition, CME interest rate volume increased 26 percent compared with the same quarter a year ago, averaging a record 3.3 million contracts per day; CME FX products increased 42 percent, averaging a record 471,000 contracts per day; CME equity standard products grew 47 percent, averaging a record 173,000 contracts per day; and CME commodity products increased 53 percent, averaging a record 81,000 contracts per day.
Revenue from processing services rose 7 percent to $20 million and quotation data fees were up 16 percent to $21 million.
Total expenses increased 12 percent to $115 million, driven by higher license fees and ongoing investments in technology. In 2006, the company expects annual overall expense growth in the high end of its previously stated 12 to 13 percent range, following its acquisition of Swapstream.
Capital expenditures, including capitalized software development costs, were $23 million in second-quarter 2006. For the full year of 2006, the company continues to expect total capital expenditures to range from $90 to $100 million.
Second-quarter income before income taxes was $180 million, an increase of 32 percent from $136 million for the year-ago period. The company’s record operating margin, defined as income before income taxes expressed as a percentage of net revenues, was 61 percent, compared with 57 percent for the same period last year.
CME’s working capital increased by approximately $101 million during the second quarter, to more than $1.1 billion at June 30, 2006.
Six-Month Results
Average daily volume was 5.3 million contracts for the first half of 2006, up 28 percent from 4.2 million contracts in the same time period in 2005. Volume on the CME Globex electronic platform increased 30 percent year over year, to an average of 3.7 million contracts per day.
For the first six months of 2006, net revenues increased 23 percent to $559 million from $453 million for the first half of 2005. Clearing and transaction fees improved 25 percent to $429 million from $343 million a year ago, benefiting from higher trading volume. Processing services increased 8 percent, to $38 million from $36 million a year ago.
Total operating expenses were $228 million for the first half of 2006, an increase of 15 percent from $199 million for the comparable period in 2005.
Capital expenditures and capitalized software development costs were $40 million for the first six months of 2006.
Income before taxes was $330 million for the first half of 2006, up 30 percent versus the same period a year ago. The operating margin was 59 percent for the first six months of 2006, compared with 56 percent for the year-earlier period.
The company reported record net income of $201 million, or $5.73 per diluted share, for the first six months of this year, compared with $153 million, or $4.41 per diluted share, for the first half of 2005.
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CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
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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 call will be available on the Investor Relations section of CME’s Web site at 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 Russell 1000® Index on July 1, 2003. It is the parent company of Chicago Mercantile Exchange Inc. (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 exchange managed $47.2 billion in collateral deposits at June 30, 2006, including $4.6 billion in deposits for non-CME products.
Chicago Mercantile Exchange, CME and Globex are registered trademarks of Chicago Mercantile Exchange Inc. E-mini is a trademark of CME. TRAKRS, Total Return Asset Contracts 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 CME and its products is available on the CME Web site at 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: 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.
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CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
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Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
| Jun. 30, 2006 | Dec. 31, 2005 | |||||
| ASSETS |
||||||
| Current Assets: |
||||||
| Cash and cash equivalents |
$ | 782,145 | $ | 610,891 | ||
| Collateral from securities lending |
1,487,274 | 2,160,893 | ||||
| Marketable securities, including pledged securities |
256,237 | 292,862 | ||||
| Accounts receivable, net of allowance |
128,687 | 84,974 | ||||
| Other current assets |
48,174 | 41,675 | ||||
| Cash performance bonds and security deposits |
537,613 | 592,127 | ||||
| Total current assets |
3,240,130 | 3,783,422 | ||||
| Property, net of accumulated depreciation and amortization |
157,824 | 153,329 | ||||
| Other assets |
54,210 | 32,643 | ||||
| TOTAL ASSETS |
$ | 3,452,164 | $ | 3,969,394 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||
| Current Liabilities: |
||||||
| Accounts payable |
$ | 23,363 | $ | 23,553 | ||
| Payable under securities lending agreements |
1,487,274 | 2,160,893 | ||||
| Other current liabilities |
65,919 | 53,354 | ||||
| Cash performance bonds and security deposits |
537,613 | 592,127 | ||||
| Total current liabilities |
2,114,169 | 2,829,927 | ||||
| Other liabilities |
26,153 | 20,783 | ||||
| Total liabilities |
2,140,322 | 2,850,710 | ||||
| Shareholders’ Equity |
1,311,842 | 1,118,684 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 3,452,164 | $ | 3,969,394 | ||
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CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
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Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
| Quarter Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| REVENUES |
||||||||||||||||
| Clearing and transaction fees |
$ | 228,519 | $ | 182,568 | $ | 429,316 | $ | 343,414 | ||||||||
| Processing services |
20,184 | 18,779 | 38,309 | 35,575 | ||||||||||||
| Quotation data fees |
20,579 | 17,783 | 40,679 | 35,560 | ||||||||||||
| Access fees |
4,875 | 4,754 | 9,753 | 9,486 | ||||||||||||
| Communication fees |
2,173 | 2,226 | 4,399 | 4,592 | ||||||||||||
| Investment income |
12,726 | 6,883 | 24,135 | 12,359 | ||||||||||||
| Securities lending interest income |
23,360 | 13,580 | 51,096 | 23,823 | ||||||||||||
| Other |
5,660 | 5,613 | 10,862 | 11,283 | ||||||||||||
| TOTAL REVENUES |
318,076 | 252,186 | 608,549 | 476,092 | ||||||||||||
| Securities lending interest expense |
(22,769 | ) | (13,065 | ) | (49,866 | ) | (22,781 | ) | ||||||||
| NET REVENUES |
295,307 | 239,121 | 558,683 | 453,311 | ||||||||||||
| EXPENSES |
||||||||||||||||
| Compensation and benefits |
48,055 | 44,967 | 97,892 | 88,896 | ||||||||||||
| Communications |
7,945 | 7,292 | 15,793 | 14,120 | ||||||||||||
| Technology maintenance |
7,656 | 7,042 | 14,918 | 13,279 | ||||||||||||
| Professional fees and outside services |
9,622 | 6,596 | 17,753 | 12,141 | ||||||||||||
| Depreciation and amortization |
17,596 | 16,071 | 34,983 | 30,862 | ||||||||||||
| Occupancy |
7,223 | 7,179 | 14,471 | 14,049 | ||||||||||||
| Licensing and other fee agreements |
6,929 | 4,230 | 12,861 | 8,197 | ||||||||||||
| Marketing, advertising and public relations |
3,987 | 3,312 | 7,083 | 5,550 | ||||||||||||
| Other |
6,400 | 6,228 | 12,534 | 11,871 | ||||||||||||
| TOTAL EXPENSES |
115,413 | 102,917 | 228,288 | 198,965 | ||||||||||||
| Income before income taxes |
179,894 | 136,204 | 330,395 | 254,346 | ||||||||||||
| Income tax provision |
(70,361 | ) | (53,978 | ) | (129,449 | ) | (101,235 | ) | ||||||||
| NET INCOME |
$ | 109,533 | $ | 82,226 | $ | 200,946 | $ | 153,111 | ||||||||
| EARNINGS PER SHARE: |
||||||||||||||||
| Basic |
$ | 3.16 | $ | 2.40 | $ | 5.81 | $ | 4.48 | ||||||||
| Diluted |
$ | 3.12 | $ | 2.36 | $ | 5.73 | $ | 4.41 | ||||||||
| Weighted average number of common shares: |
||||||||||||||||
| Basic |
34,639 | 34,251 | 34,610 | 34,208 | ||||||||||||
| Diluted |
35,096 | 34,772 | 35,070 | 34,745 | ||||||||||||
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CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
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| 2Q 2005 |
3Q 2005 |
4Q 2005 |
1Q 2006 |
2Q 2006 | ||||||
| Trading Days |
64 | 64 | 63 | 62 | 63 |
Average Daily Volume (Round Turns, in Thousands)*
| 2Q 2005 |
3Q 2005 |
4Q 2005 |
1Q 2006 |
2Q 2006 | ||||||
| Interest rates |
2,577 | 2,489 | 2,209 | 2,918 | 3,255 | |||||
| Equity E-mini |
1,301 | 1,181 | 1,336 | 1,408 | 1,748 | |||||
| Equity standard-size |
118 | 118 | 141 | 145 | 173 | |||||
| Foreign exchange |
332 | 336 | 375 | 407 | 471 | |||||
| Commodities |
52 | 56 | 56 | 80 | 81 | |||||
| Subtotal |
4,380 | 4,180 | 4,117 | 4,958 | 5,728 | |||||
| TRAKRS |
21 | 27 | 595 | 161 | 419 | |||||
| Total |
4,401 | 4,207 | 4,712 | 5,119 | 6,147 | |||||
| Open outcry |
1,210 | 1,263 | 1,107 | 1,467 | 1,657 | |||||
| Electronic (including TRAKRS) |
3,144 | 2,897 | 3,556 | 3,595 | 4,441 | |||||
| Privately negotiated |
47 | 47 | 49 | 57 | 49 | |||||
| Total |
4,401 | 4,207 | 4,712 | 5,119 | 6,147 | |||||
Transaction Fees (in Thousands)*
| 2Q 2005 |
3Q 2005 |
4Q 2005 |
1Q 2006 |
2Q 2006 | |||||||||||
| Interest rates |
$ | 83,429 | $ | 79,955 | $ | 70,840 | $ | 89,194 | $ | 97,768 | |||||
| Equity E-mini |
57,185 | 53,255 | 59,427 | 62,183 | 76,889 | ||||||||||
| Equity standard-size |
10,087 | 10,657 | 12,823 | 12,859 | 15,493 | ||||||||||
| Foreign exchange |
28,796 | 29,079 | 29,442 | 31,616 | 33,212 | ||||||||||
| Commodities |
3,054 | 3,364 | 3,457 | 4,737 | 4,673 | ||||||||||
| Subtotal |
182,551 | 176,310 | 175,989 | 200,589 | 228,035 | ||||||||||
| TRAKRS |
17 | 20 | 468 | 208 | 384 | ||||||||||
| Total |
$ | 182,568 | $ | 176,330 | $ | 176,457 | $ | 200,797 | $ | 228,419 | |||||
| Open outcry |
$ | 36,190 | $ | 37,438 | $ | 35,677 | $ | 43,406 | $ | 50,067 | |||||
| Electronic (including TRAKRS) |
135,429 | 127,812 | 129,088 | 144,776 | 166,741 | ||||||||||
| Privately negotiated |
10,949 | 11,080 | 11,692 | 12,615 | 11,611 | ||||||||||
| Total |
$ | 182,568 | $ | 176,330 | $ | 176,457 | $ | 200,797 | $ | 228,419 | |||||
Average Rate Per Contract (RPC)*
| 2Q 2005 |
3Q 2005 |
4Q 2005 |
1Q 2006 |
2Q 2006 | |||||||||||
| Interest rates |
$ | 0.506 | $ | 0.502 | $ | 0.509 | $ | 0.493 | $ | 0.477 | |||||
| Equity E-mini |
0.687 | 0.705 | 0.706 | 0.712 | 0.698 | ||||||||||
| Equity standard-size |
1.336 | 1.410 | 1.443 | 1.431 | 1.421 | ||||||||||
| Foreign exchange |
1.357 | 1.353 | 1.246 | 1.253 | 1.119 | ||||||||||
| Commodities |
0.909 | 0.937 | 0.975 | 0.953 | 0.921 | ||||||||||
| Average (excluding TRAKRS) |
$ | 0.651 | $ | 0.659 | $ | 0.678 | $ | 0.652 | $ | 0.632 | |||||
| TRAKRS |
0.012 | 0.011 | 0.012 | 0.021 | 0.015 | ||||||||||
| Overall average RPC |
$ | 0.648 | $ | 0.655 | $ | 0.594 | $ | 0.633 | $ | 0.590 | |||||
| Open outcry |
$ | 0.467 | $ | 0.463 | $ | 0.512 | $ | 0.477 | $ | 0.480 | |||||
| Electronic (including TRAKRS) |
0.673 | 0.690 | 0.576 | 0.650 | 0.597 | ||||||||||
| Electronic (excluding TRAKRS) |
0.678 | 0.696 | 0.690 | 0.679 | 0.657 | ||||||||||
| Privately negotiated |
3.615 | 3.674 | 3.759 | 3.583 | 3.785 | ||||||||||
| Overall average RPC |
$ | 0.648 | $ | 0.655 | $ | 0.594 | $ | 0.633 | $ | 0.590 | |||||
| * | Note: All volume, transaction fee data, and rate per contract information exclude CME Auction Markets™ products. |
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