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)
October 24, 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 October 24, 2006, reporting Chicago Mercantile Exchange Holdings Inc.’s financial results for the third quarter ended September 30, 2006.
Item 9.01. Financial Statements and Exhibits.
EXHIBIT INDEX
| Exhibit Number |
Description | |
| 99.1 | Press Release, dated October 24, 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: October 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 | ||||
Chicago Mercantile Exchange Holdings Inc. Reports Strong Revenues and a 34 Percent Increase in Net Income for Third-Quarter 2006
| • | Diluted earnings per share rose 33 percent to $2.95 |
| • | Average daily volume increased 28 percent, to 5.4 million contracts |
| • | Options volume on CME Globex averaged a record 148,000 contracts per day, representing a record 12 percent of total CME options volume |
CHICAGO, October 24, 2006 – Chicago Mercantile Exchange Holdings Inc. (NYSE, NASDAQ: CME) today reported a 22 percent increase in total revenues to $275 million and a 34 percent increase in net income to $104 million for third-quarter 2006 compared with third-quarter 2005. Income before income taxes was up 33 percent to $171 million. Diluted earnings per share rose 33 percent to $2.95 from $2.22.
Average daily volume reached 5.4 million contracts during third-quarter 2006, a 28 percent increase from third-quarter 2005. Trading on the CME® Globex® electronic trading platform grew 32 percent to 3.8 million contracts per day in third-quarter 2006 from 2.9 million per day in third-quarter 2005. Electronic volume represented 71 percent of total CME volume in the quarter. Total third quarter options volume averaged 1.3 million contracts per day, up 39 percent compared with third-quarter 2005. Electronic options volume averaged a record 148,000 contracts per day for the quarter, nearly tripling from the same period a year ago, and representing a record 12 percent of total CME options volume in the quarter.
“After concluding another impressive quarter, we announced our proposed merger with the Chicago Board of Trade, which will create the world’s leading derivatives exchange,” said CME Chairman Terry Duffy. “Building on our successful common clearing agreement, this merger will enable us to provide customers more diverse and innovative products across all asset classes, increased operational efficiencies, wider global distribution and unsurpassed liquidity. It will strengthen our ability to compete going forward and help maintain Chicago’s position as the center of global risk management.”
“Our strong financial results in the third quarter were driven by solid execution in our core business,” said CME Chief Executive Officer Craig Donohue. “During the quarter, we continued to deliver impressive volume growth compared to third-quarter 2005, with each product line up by more than 25 percent. In addition, we significantly increased NYMEX volume on the CME Globex platform during the quarter to more than 11 million contracts traded, and we increased the number of FXMarketSpace early adopters, which now include the 16 of the top 20 FX banks in the world.”
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.
- more -
Clearing and transaction fees increased 23 percent to $217 million, up from $176 million for third-quarter 2005. Revenue from processing services rose 36 percent to $24 million and quotation data fees were up 7 percent to $20 million.
Total expenses increased 11 percent to $118 million, driven by increased compensation-related, technology maintenance and licensing expenses.
Capital expenditures, including capitalized software development costs, were $19 million in third-quarter 2006.
Third-quarter income before income taxes was $171 million, an increase of 33 percent from $128 million for the year-ago period. The company’s pre-tax margin was 59 percent, compared with 55 percent for the same period last year. Pre-tax margin is defined as income before income taxes expressed as a percentage of total revenues added to total non-operating income and expense.
CME’s working capital increased by approximately $76 million during the third quarter, to more than $1.2 billion at September 30, 2006.
Nine-Month Results
Average daily volume was 5.4 million contracts for the first nine months 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 31 percent year over year to an average of 3.8 million contracts per day.
For the first nine months of 2006, total revenues increased 21 percent to $809 million from $667 million for the first nine months of 2005. Clearing and transaction fees improved 24 percent to $646 million from $520 million a year ago, benefiting from higher trading volume. Processing services increased 17 percent, to $62 million from $53 million a year ago.
Total operating expenses were $346 million for the first nine months of 2006, an increase of 13 percent from $305 million for the comparable period in 2005.
Capital expenditures and capitalized software development costs were $58 million for the first nine months of 2006.
Income before taxes was $501 million for the first nine months of 2006, up 31 percent versus the same period a year ago. The pre-tax margin was 59 percent for the first nine months of 2006, compared with 56 percent for the year-earlier period.
The company reported net income of $305 million, or $8.68 per diluted share, for the first nine months of this year, compared with $231 million, or $6.63 per diluted share, for the first nine months of 2005.
CME will hold a conference call to discuss third-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 S&P 500® Index on August 10, 2006, and 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 $43.3 billion in collateral deposits at September 30, 2006, including $4.8 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: our ability to obtain the required approvals for our proposed merger with CBOT Holdings, Inc. and our ability to realize the benefits and control the costs of the proposed transaction; 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.
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
| September 30, 2006 | December 31, 2005 | |||||
| ASSETS |
||||||
| Current Assets: |
||||||
| Cash and cash equivalents |
$ | 868,624 | $ | 610,891 | ||
| Collateral from securities lending |
1,356,940 | 2,160,893 | ||||
| Marketable securities, including pledged securities |
268,930 | 292,862 | ||||
| Accounts receivable, net of allowance |
125,995 | 84,974 | ||||
| Other current assets |
37,811 | 41,675 | ||||
| Cash performance bonds and security deposits |
590,046 | 592,127 | ||||
| Total current assets |
3,248,346 | 3,783,422 | ||||
| Property, net of accumulated depreciation and amortization |
158,068 | 153,329 | ||||
| Other assets |
89,207 | 32,643 | ||||
| Total Assets |
$ | 3,495,621 | $ | 3,969,394 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||
| Current liabilities: |
||||||
| Accounts payable |
$ | 25,816 | $ | 23,553 | ||
| Payable under securities lending agreements |
1,356,940 | 2,160,893 | ||||
| Other current liabilities |
73,888 | 53,354 | ||||
| Cash performance bonds and security deposits |
590,046 | 592,127 | ||||
| Total current liabilities |
2,046,690 | 2,829,927 | ||||
| Other liabilities |
27,846 | 20,783 | ||||
| Total liabilities |
2,074,536 | 2,850,710 | ||||
| Shareholders’ equity |
1,421,085 | 1,118,684 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 3,495,621 | $ | 3,969,394 | ||
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
| Quarter Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Revenues | ||||||||||||||||
| Clearing and transaction fees |
$ | 216,999 | $ | 176,330 | $ | 646,315 | $ | 519,744 | ||||||||
| Processing services |
23,910 | 17,593 | 62,219 | 53,168 | ||||||||||||
| Quotation data fees |
20,057 | 18,811 | 60,736 | 54,371 | ||||||||||||
| Access fees |
5,186 | 4,637 | 14,939 | 14,123 | ||||||||||||
| Communication fees |
2,142 | 2,232 | 6,541 | 6,824 | ||||||||||||
| Other |
6,411 | 6,103 | 17,881 | 18,995 | ||||||||||||
| Total Revenues |
274,705 | 225,706 | 808,631 | 667,225 | ||||||||||||
| Expenses | ||||||||||||||||
| Compensation and benefits |
51,159 | 45,229 | 149,051 | 134,125 | ||||||||||||
| Communications |
7,691 | 8,357 | 23,484 | 22,477 | ||||||||||||
| Technology support services |
8,459 | 6,434 | 23,377 | 19,713 | ||||||||||||
| Professional fees and outside services |
7,473 | 7,563 | 25,226 | 19,704 | ||||||||||||
| Depreciation and amortization |
18,609 | 17,256 | 53,592 | 48,118 | ||||||||||||
| Occupancy |
7,731 | 7,272 | 22,202 | 21,321 | ||||||||||||
| Licensing and other fee agreements |
6,394 | 3,956 | 19,255 | 12,153 | ||||||||||||
| Marketing, advertising and public relations |
4,510 | 3,961 | 11,593 | 9,511 | ||||||||||||
| Other |
5,717 | 5,992 | 18,251 | 17,863 | ||||||||||||
| Total Expenses |
117,743 | 106,020 | 346,031 | 304,985 | ||||||||||||
| Operating Income | 156,962 | 119,686 | 462,600 | 362,240 | ||||||||||||
| Non-Operating Income and Expense | ||||||||||||||||
| Investment income |
14,654 | 8,830 | 38,789 | 21,189 | ||||||||||||
| Securities lending interest income |
19,343 | 15,714 | 70,439 | 39,537 | ||||||||||||
| Securities lending interest expense |
(18,943 | ) | (15,331 | ) | (68,809 | ) | (38,112 | ) | ||||||||
| Equity in losses of unconsolidated subsidiaries |
(1,502 | ) | (608 | ) | (2,110 | ) | (2,217 | ) | ||||||||
| Total Non-Operating |
13,552 | 8,605 | 38,309 | 20,397 | ||||||||||||
| Income Before Income Taxes | 170,514 | 128,291 | 500,909 | 382,637 | ||||||||||||
| Income tax provision |
(66,714 | ) | (50,825 | ) | (196,163 | ) | (152,060 | ) | ||||||||
| Net Income | $ | 103,800 | $ | 77,466 | $ | 304,746 | $ | 230,577 | ||||||||
| Earnings per Common Share: | ||||||||||||||||
| Basic |
$ | 2.99 | $ | 2.25 | $ | 8.79 | $ | 6.73 | ||||||||
| Diluted |
2.95 | 2.22 | 8.68 | 6.63 | ||||||||||||
| Weighted Average Number of Common Shares: | ||||||||||||||||
| Basic |
34,749 | 34,370 | 34,657 | 34,262 | ||||||||||||
| Diluted |
35,153 | 34,891 | 35,098 | 34,793 | ||||||||||||
Note: Beginning in the third quarter of 2006, the following income statement items have been reclassified from revenue to non-operating income and expense in the consolidated statements of income: investment income, securities lending interest income and expense, and equity in losses of unconsolidated subsidiaries. The equity in losses of unconsolidated subsidiaries was previously included as part of other income. All other items were included separately in the income statement. The presentation of these items has been changed to more closely conform to the Securities and Exchange Commission’s Article 5 of Regulation S-X.
| 3Q 2005 |
4Q 2005 |
1Q 2006 |
2Q 2006 |
3Q 2006 | |||||||||||
| Trading Days |
64 | 63 | 62 | 63 | 63 | ||||||||||
| Average Daily Volume (Round Turns, in Thousands)* | |||||||||||||||
| 3Q 2005 |
4Q 2005 |
1Q 2006 |
2Q 2006 |
3Q 2006 | |||||||||||
| Interest rates |
2,489 | 2,209 | 2,918 | 3,255 | 3,148 | ||||||||||
| Equity E-mini |
1,181 | 1,336 | 1,408 | 1,748 | 1,564 | ||||||||||
| Equity standard-size |
118 | 141 | 145 | 173 | 154 | ||||||||||
| Foreign exchange |
336 | 375 | 407 | 471 | 423 | ||||||||||
| Commodities |
56 | 56 | 80 | 81 | 78 | ||||||||||
| Subtotal |
4,180 | 4,117 | 4,958 | 5,728 | 5,367 | ||||||||||
| TRAKRS |
27 | 595 | 161 | 419 | 117 | ||||||||||
| Total |
4,207 | 4,712 | 5,119 | 6,147 | 5,484 | ||||||||||
| Open outcry |
1,263 | 1,107 | 1,467 | 1,657 | 1,517 | ||||||||||
| Electronic (including TRAKRS) |
2,897 | 3,556 | 3,595 | 4,441 | 3,917 | ||||||||||
| Privately negotiated |
47 | 49 | 57 | 49 | 50 | ||||||||||
| Total |
4,207 | 4,712 | 5,119 | 6,147 | 5,484 | ||||||||||
| Transaction Fees (in Thousands)* | |||||||||||||||
| 3Q 2005 |
4Q 2005 |
1Q 2006 |
2Q 2006 |
3Q 2006 | |||||||||||
| Interest rates |
$ | 79,955 | $ | 70,840 | $ | 89,194 | $ | 97,768 | $ | 98,306 | |||||
| Equity E-mini |
53,255 | 59,427 | 62,183 | 76,889 | 70,194 | ||||||||||
| Equity standard-size |
10,657 | 12,823 | 12,859 | 15,493 | 12,947 | ||||||||||
| Foreign exchange |
29,079 | 29,442 | 31,616 | 33,212 | 30,576 | ||||||||||
| Commodities |
3,364 | 3,457 | 4,737 | 4,673 | 4,597 | ||||||||||
| Subtotal |
176,310 | 175,989 | 200,589 | 228,035 | 216,620 | ||||||||||
| TRAKRS |
20 | 468 | 208 | 384 | 244 | ||||||||||
| Total |
$ | 176,330 | $ | 176,457 | $ | 200,797 | $ | 228,419 | $ | 216,864 | |||||
| Open outcry |
$ | 37,438 | $ | 35,677 | $ | 43,406 | $ | 50,067 | $ | 45,429 | |||||
| Electronic (including TRAKRS) |
127,812 | 129,088 | 144,776 | 166,741 | 160,295 | ||||||||||
| Privately negotiated |
11,080 | 11,692 | 12,615 | 11,611 | 11,140 | ||||||||||
| Total |
$ | 176,330 | $ | 176,457 | $ | 200,797 | $ | 228,419 | $ | 216,864 | |||||
| Average Rate Per Contract (RPC)* | |||||||||||||||
| 3Q 2005 |
4Q 2005 |
1Q 2006 |
2Q 2006 |
3Q 2006 | |||||||||||
| Interest rates |
$ | 0.502 | $ | 0.509 | $ | 0.493 | $ | 0.477 | $ | 0.496 | |||||
| Equity E-mini |
0.705 | 0.706 | 0.712 | 0.698 | 0.712 | ||||||||||
| Equity standard-size |
1.410 | 1.443 | 1.431 | 1.421 | 1.338 | ||||||||||
| Foreign exchange |
1.353 | 1.246 | 1.253 | 1.119 | 1.146 | ||||||||||
| Commodities |
0.937 | 0.975 | 0.953 | 0.921 | 0.939 | ||||||||||
| Average (excluding TRAKRS) |
$ | 0.659 | $ | 0.678 | $ | 0.652 | $ | 0.632 | $ | 0.641 | |||||
| TRAKRS |
0.011 | 0.012 | 0.021 | 0.015 | 0.033 | ||||||||||
| Overall average RPC |
$ | 0.655 | $ | 0.594 | $ | 0.633 | $ | 0.590 | $ | 0.628 | |||||
| Open outcry |
$ | 0.463 | $ | 0.512 | $ | 0.477 | $ | 0.480 | $ | 0.475 | |||||
| Electronic (including TRAKRS) |
0.690 | 0.576 | 0.650 | 0.597 | 0.652 | ||||||||||
| Electronic (excluding TRAKRS) |
0.696 | 0.690 | 0.679 | 0.657 | 0.668 | ||||||||||
| Privately negotiated |
3.674 | 3.759 | 3.583 | 3.785 | 3.545 | ||||||||||
| Overall average RPC |
$ | 0.655 | $ | 0.594 | $ | 0.633 | $ | 0.590 | $ | 0.628 | |||||
| * | Note: All volume, transaction fee data, and rate per contract information exclude CME Auction Markets™ products. |
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