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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

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FORM 10-Q/A

 

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x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2005

 

OR

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 333-72184

 

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CBOT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

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Delaware		36-4468986
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

141 West Jackson Boulevard

Chicago, Illinois 60604

(312) 435-3500

(Address of principal executive offices)

(Registrant’s telephone number, including area code)

 

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

As of May 12, 2005, there were 49,359,836 shares of the registrant’s Class A common stock, par value $0.001 per share, issued and outstanding.

 

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CBOT HOLDINGS, INC.

 

TABLE OF CONTENTS

 

FORM 10-Q/A—QUARTERLY REPORT

For the quarterly period ended March 31, 2005

 

		Page
Explanatory Note		ii
PART I— FINANCIAL INFORMATION
Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		16
Item 4. Controls and Procedures		16
PART II— OTHER INFORMATION
Item 1. Legal Proceedings		17
Item 6. Exhibits		17
SIGNATURES		18

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EXPLANATORY NOTE

 

We are filing this Form 10-Q/A to amend our Form 10-Q for the quarterly period ended March 31, 2005 (“March 31, 2005 Form 10-Q”). The purpose of this amendment is to reflect the effects of the restatement of our consolidated statement of cash flows for the three months ended March 31, 2004 (as discussed in Note 8 to the consolidated financial statements) resulting from the correction in the classification of distributions made to partners in connection with the dissolution of our Ceres Trading Limited Partnership (“Ceres”) subsidiary from cash flows from investing activities to cash flows from financing activities. As a result, we are also revising our discussion under the heading “Item 4: Controls and Procedures.” In addition, we are concurrently amending the March 31, 2005 Form 10-Q to reflect the effects of the reclassification of restricted cash activity from cash flows from operating activities to cash flows from investing activities, consistent with the reclassification of restricted cash activity described in our Form 10-Q for the quarterly period ended June 30, 2005. These matters did not change any of the account balances on the accompanying consolidated statements of financial condition, consolidated statements of income or the net increase (decrease) in cash and cash equivalents included in the consolidated statements of cash flows for the three months ended March 31, 2004. Except with respect to these reclassifications, this Form 10-Q/A does not reflect any events that have occurred after the March 31, 2005 Form 10-Q was filed.

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PART I - FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

BOARD OF TRADE OF THE CITY OF CHICAGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited, in thousands)

 

		December 31, 2004			March 31, 2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents:
Unrestricted		$	91,165		$	101,455
Held under deposit and membership transfers			14,262			16,439
Total cash and cash equivalents			105,427			117,894
Restricted cash			7,661			4,025
Accounts receivable—net of allowance of $4,352 and $4,582 in 2004 and 2005, respectively			34,556			47,775
Income tax receivable			1,557			—
Deferred income taxes			2,219			2,591
Prepaid expenses			20,542			24,388
Total current assets			171,962			196,673
PROPERTY AND EQUIPMENT:
Land			34,234			34,234
Buildings and equipment			320,295			322,363
Furnishings and fixtures			188,316			189,825
Computer software and systems			72,662			81,492
Construction in progress			13,702			6,196
Total property and equipment			629,209			634,110
Less accumulated depreciation and amortization			360,038			373,708
Property and equipment—net			269,171			260,402
OTHER ASSETS—net			19,283			19,162
TOTAL ASSETS		$	460,416		$	476,237
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	20,545		$	12,837
Accrued clearing services			11,591			13,516
Accrued real estate taxes			7,623			5,994
Accrued payroll costs			6,031			2,882
Accrued exchange fee rebates			2,301			1,587
Accrued employee termination			403			322
Accrued liabilities			9,524			9,056
Funds held for deposit and membership transfers			14,262			16,439
Current portion of long-term debt			20,359			20,229
Income tax payable			—			12,012
Other current liabilities			249			4,733
Total current liabilities			92,888			99,607
LONG-TERM LIABILITIES:
Deferred income tax liabilities			28,484			27,225
Long-term debt			31,074			20,231
Other liabilities			14,379			14,671
Total long-term liabilities			73,937			62,127
Total liabilities			166,825			161,734
MEMBERS’ EQUITY			293,591			314,503
TOTAL LIABILITIES AND MEMBERS’ EQUITY		$	460,416		$	476,237

 

See notes to consolidated financial statements.

 

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BOARD OF TRADE OF THE CITY OF CHICAGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands)

 

		Three Months Ended March 31,
		2004				2005
REVENUES:
Exchange fees		$	54,351			$	66,518
Clearing fees			16,589				21,277
Market data			15,979				18,522
Building			5,398				5,608
Services			3,056				3,591
Dues			4,658				—
Other			854				941
Total revenues			100,885				116,457
EXPENSES:
Salaries and benefits			17,915				18,633
Clearing services			12,210				16,516
Depreciation and amortization			11,292				13,814
Professional services			6,673				4,592
General and administrative expenses			5,465				4,922
Building operating costs			6,355				6,638
Information technology services			8,181				10,677
Contracted license fees			1,443				1,625
Programs			2,786				2,016
Interest			1,324				922
Severance and related costs			360				114
Operating expenses			74,004				80,469
INCOME FROM OPERATIONS			26,881				35,988
INCOME TAXES:
Current			10,785				16,577
Deferred			193				(1,632	)
Total income taxes			10,978				14,945
INCOME BEFORE EQUITY IN UNCONSOLIDATED SUBSIDIARY AND MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY			15,903				21,043
EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY—NET OF TAX OF $93 AND $170, RESPECTIVELY			(139	)			(255	)
MINORITY INTEREST IN LOSS OF CONSOLIDATED SUBSIDIARY			254				—
Net income		$	16,018			$	20,788

 

See notes to consolidated financial statements.

 

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BOARD OF TRADE OF THE CITY OF CHICAGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

		Three Months Ended March 31,
		2004 (As restated- See Note 8)				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	16,018			$	20,788
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization			11,292				13,814
Change in allowance for doubtful accounts			22				230
(Gain) loss on foreign currency transaction			919				(260	)
Deferred income taxes (benefit)			193				(1,632	)
Minority interest in loss of subsidiary			(254	)			—
Equity in loss of unconsolidated subsidiary			232				425
Changes in assets and liabilities:
Accounts receivable			(911	)			(13,449	)
Income tax receivable / payable			10,781				13,569
Prepaid expenses			(6,278	)			(3,846	)
Other assets			258				(410	)
Accounts payable			(16,329	)			(7,708	)
Accrued clearing services			8,386				1,925
Accrued real estate taxes			(1,741	)			(1,629	)
Accrued payroll costs			(2,625	)			(3,149	)
Accrued exchange fee rebates			(2,878	)			(714	)
Accrued employee termination			(1,040	)			(81	)
Accrued liabilities			(4,825	)			(468	)
Funds held for deposit and membership transfers			3,720				2,177
Other current liabilities			13,613				4,484
Other long-term liabilities			220				292
Net cash flows from operating activities			28,773				24,358
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment			(4,700	)			(4,932	)
Restricted cash			(5,158	)			3,636
Investment in joint ventures			(73	)			(6	)
Net cash flows used in investing activities			(9,931	)			(1,302	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of borrowings			(10,713	)			(10,713	)
Capital contributions from members			89				124
Distribution to partners			(60,300	)			—
Net cash flows used in financing activities			(70,924	)			(10,589	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(52,082	)			12,467
CASH AND CASH EQUIVALENTS—BEGINNING OF PERIOD			142,666				105,427
CASH AND CASH EQUIVALENTS—END OF PERIOD		$	90,584			$	117,894
CASH PAID FOR:
Interest		$	1,532			$	1,089
Income taxes (net of refunds)		$	—			$	2,837

 

See notes to consolidated financial statements.

 

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BOARD OF TRADE OF THE CITY OF CHICAGO, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2004 and 2005

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation—The accompanying unaudited consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnote disclosures normally included in audited financial statements. However, in the opinion of management, all adjustments necessary to present fairly the results of operations, financial position and cash flows have been made. Results for interim periods are not necessarily indicative of the results that may be expected for the entire year. These interim financial statements should be read in conjunction with the audited financial statements and related notes as of and for the three years ended December 31, 2004. The consolidated financial statements include the accounts of the Board of Trade of the City of Chicago, Inc. and its wholly owned subsidiaries, including Electronic Chicago Board of Trade, Inc. (“Electronic CBOT”) which held a controlling general partner interest in Ceres Trading Limited Partnership (“Ceres”) (collectively, the “CBOT”). Ceres was dissolved on December 31, 2003 and was liquidated during 2004. The CBOT holds an approximate 9% interest in a joint venture called OneChicago, LLC (“OneChicago”). The CBOT accounts for its interest in OneChicago under the equity method. The investment has a carrying value of zero as the losses recognized exceed the total amount invested. All significant inter-company balances and transactions have been eliminated in consolidation.

 

Business and Proposed Restructuring Transactions—The CBOT operates a marketplace for the trading of commodity and financial futures contracts, as well as options on futures contracts. Products traded on the exchange include financial derivatives, global listed agricultural futures and options contracts (e.g., wheat, corn and soybeans), and global listed financial futures and options contracts (e.g., U.S. Treasury bonds and notes). Products are traded in traditional open-auction venues on trading floors where members trade among themselves for their own accounts and for the accounts of their customers. Products are also traded electronically on e-cbot powered by LIFFE CONNECT^® (“e-cbot”), a system that was developed and implemented in the fourth quarter of 2003. The CBOT also provides a full range of clearing services for every contract traded through its exchange through a clearing agreement with the Chicago Mercantile Exchange (“CME”) called the CME/CBOT Common Clearing Link. The CBOT also engages in market surveillance and financial supervision activities designed to ensure market integrity and provide financial safeguards for users of the markets. In addition, the CBOT markets and distributes real-time and historical market data generated for trading activity in its markets to users of its products and related cash and derivative markets. The CBOT also owns and operates three office buildings in the city of Chicago.

 

Over the last several years, the CBOT has conducted an ongoing and extensive evaluation process with respect to the structure of its organization and its competitiveness in the futures industry. As a result of this evaluation process, the CBOT has determined that it should restructure its organization in order to enhance its competitiveness.

 

The CBOT has developed, and proposed for approval by its Full Members and Associate Members, a series of transactions designed to restructure the CBOT. These “restructuring transactions” are designed to:

 

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“de-mutualize” the CBOT by creating a stock, for-profit holding company, referred to as “CBOT Holdings,” and distributing shares of common stock of CBOT Holdings to its members, while maintaining the CBOT as a non-stock, for-profit subsidiary of CBOT Holdings, referred to as the “CBOT Subsidiary”;

 

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modernize the CBOT’s corporate governance structure by, among other things, adopting new mechanisms for initiating and voting on stockholder and member proposals, providing for a modest

 

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BOARD OF TRADE OF THE CITY OF CHICAGO, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

reduction in the size of its board and modifying the nomination and election process for directors as well as the terms of office and qualifications of directors; and

 

•

create a framework to facilitate access to public markets for equity securities of CBOT Holdings, capital-raising transactions and other securities issuances following a subsequent approval by the stockholders of CBOT Holdings.

 

Prior to the completion of the restructuring transactions, CBOT Holdings had not begun doing business as a separate entity and, therefore did not have its own set of financial statements. As a result, these financial statements and notes are those of the CBOT Subsidiary, which operated the exchange prior to the restructuring. The CBOT Subsidiary will continue to operate the exchange after the restructuring as a subsidiary of CBOT Holdings. It is anticipated that in future filings the business of the CBOT Subsidiary will be the primary business of CBOT Holdings. See Note 7—”Subsequent Event” for further information on the restructuring transactions.

 

Use of Estimates—The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements, such as estimates for bad debts, exchange fee rebates, real estate taxes and assumptions used for the calculation of pension and other postretirement benefit plan costs. Actual amounts could differ from those estimates.

 

Prior Year Reclassifications—Certain reclassifications have been made of prior period amounts to conform to current period presentations. Restricted cash activity, which was previously shown as cash flows from operating activities is now shown as cash flows from investing activities, resulting in an increase of $5.2 million in both net cash flows from operating activities and net cash flows used in investing activities for the three months ended March 31, 2004.

 

2. DEBT

 

Long-term debt at December 31, 2004 and March 31, 2005 consisted of the following (in thousands):

 

		December 31, 2004			March 31, 2005
Private placement senior notes, due in annual installments through 2007, at an annual interest rate of 6.81%		$	32,144		$	21,430
LIFFE financing agreement			19,289			19,030
			51,433			40,460
Less current portion			20,359			20,229
Total		$	31,074		$	20,231

 

In the first quarter of 2005, an annual principal repayment of $10.7 million was made on the senior notes. No additional payments or borrowings were made. LIFFE debt is denominated in pounds sterling.

 

3. BENEFIT PLANS

 

Substantially all employees of the CBOT are covered by a noncontributory, defined benefit pension plan. The benefits of this plan are based primarily on the years of service and the employees’ average compensation levels. The CBOT’s funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. The plan assets are primarily invested in marketable debt and equity securities. The measurement date of plan assets and obligations is December 31.

 

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BOARD OF TRADE OF THE CITY OF CHICAGO, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The components of net periodic benefit cost are as follows:

 

		Three Months Ended March 31,
		2004				2005
Service cost		$	590			$	579
Interest cost			509				499
Expected return on plan assets			(562	)			(551	)
Net amortization:
Unrecognized prior service cost			1				1
Unrecognized net loss			212				207
Net periodic benefit cost		$	750			$	735

 

The CBOT has a retiree benefit plan which covers all eligible employees, as defined. Employees retiring from CBOT on or after age 55, who have at least ten years of service, or after age 65 with five years of service, are entitled to postretirement medical and life insurance benefits. The CBOT funds benefit costs on a pay as you go basis. The measurement date of plan obligations is December 31.

 

The components of net periodic benefit cost are as follows:

 

		Three Months Ended March 31,
		2004			2005
Service cost		$	65		$	132
Interest cost			84			169
Net amortization:
Transition liability			16			32
Unrecognized net loss			26			52
Net periodic benefit cost		$	191		$	385

 

The CBOT contributed $0.8 million to its pension plan during the three months ended March 31, 2005 and expects to contribute an additional $2.5 million to the plan by December 31, 2005.

 

4. FOREIGN CURRENCY FORWARD CONTRACTS

 

The CBOT currently utilizes foreign currency forward contracts that are designated as fair value hedges. These are intended to offset the effect of exchange rate fluctuations on firm commitments for purchases of fixed annual and quarterly services denominated in pounds sterling. These contracts had notional amounts approximating $46.1 million (26.9 million pounds sterling) at March 31, 2005. Gains and losses on these hedge instruments, as well as the gains and losses on the underlying hedged item, are recognized currently in general and administrative expense. There were no gains or losses recorded on these fair value hedges related to hedge ineffectiveness.

 

The CBOT also utilizes foreign currency forward contracts that are intended to offset the effect of exchange rate fluctuations on recorded debt that is denominated in pounds sterling. These contracts, which are not designated as hedges under FASB Statement No. 133, had notional amounts approximating $17.5 million (10.1 million pounds sterling) at March 31, 2005. Gains and losses on these instruments, as well as the gains and losses on revaluing the recorded debt, are recognized currently in general and administrative expense.

 

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BOARD OF TRADE OF THE CITY OF CHICAGO, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

5. LITIGATION

 

The CBOT has been named as a defendant in various lawsuits.

 

In October 2003, a lawsuit was filed in the U.S. District Court of the District of Columbia by Eurex U.S. against the CBOT and the CME alleging that the CBOT and CME have engaged in anti-competitive behavior. On December 12, 2003, the CBOT filed in the U.S. District Court for the District of Columbia a motion to dismiss the amended complaint and a motion to transfer the action to the U.S. District Court for the Northern District of Illinois. The grounds for dismissal included Eurex’s failure to state a cause of action under U.S. antitrust laws and Eurex’s inability to demonstrate any harm to competition resulting from the CBOT stating its views on Eurex’s pending application to become a U.S. regulated exchange. On September 2, 2004, the United States District Court for the District of Columbia granted the motion to transfer the case to the United States District Court for the Northern District of Illinois. The District Court denied the motion to dismiss as moot in light of its ruling on the transfer motion. An amended complaint was filed by Eurex in the Northern District of Illinois in late March 2005.

 

In February 2004, the CBOT entered into a settlement agreement to settle a lawsuit brought by certain Associate Members, GIMs, IDEMs and COMs in the Circuit Court of Cook County, Illinois over the proposed allocation of equity in a restructuring of the CBOT. Under the terms of the settlement agreement, the CBOT is obligated to pay $3.5 million in attorney fees and expenses upon entry of a final judgment order by the Circuit Court of Cook County, Illinois County Department, Chancery Division. In addition, upon an affirmative vote by CBOT members in favor of a restructuring, the CBOT is obligated to pay an additional $4.0 million in attorney fees, provided that such a vote occurs within 5 years from the final judgment order and that a restructuring is completed within 3 years from the date of the first vote by CBOT members regarding a restructuring.

 

On May 18, 2004, the Circuit Court of Cook County, Illinois entered an order granting preliminary approval of the settlement agreement. On September 10, 2004, the court conducted a hearing on the fairness of the settlement agreement. On September 20, 2004, the court entered a final order, approving the settlement agreement as fair, adequate and reasonable and in the best interest of all CBOT members.

 

On October 20, 2004, the statutory period for appeals of the Circuit Court’s final order expired and the order became final and non-appealable. Upon expiration of the statutory period for filing a notice of appeal, counsel for the plaintiff class representatives were paid the initial payment of attorneys’ fees in the amount of $3.5 million plus interest at the Prime Rate minus one percent.

 

On April 14, 2005, the CBOT members voted in favor of a restructuring. Counsel for the plaintiff class representatives were paid the additional payment of attorneys’ fees in the amount of $4.0 million plus interest at the Prime Rate minus one percent. This payment will be recognized as an expense in the second quarter of 2005.

 

CBOT management believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the CBOT’s financial position, results of operations or cash flows.

 

6. OPERATING SEGMENTS

 

Management has identified two reportable operating segments: exchange trading and real estate operations. The exchange trading segment primarily consists of revenue and expenses from both traditional open-auction trading activities and electronic trading platform activities, as well as from the sale of related market data to vendors. The real estate operations segment consists of revenue and expenses from renting and managing the real estate owned by the CBOT. The CBOT allocates certain business activity to each operating segment based on trading volume and other factors.

 

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BOARD OF TRADE OF THE CITY OF CHICAGO, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The CBOT evaluates segment performance based on revenues and income from operations. Intercompany transactions between segments have been eliminated. The accounting principles used for segment reporting are the same as those used for consolidated financial reporting. A summary by operating segment follows for the three months ended March 31, 2004 and 2005 (in thousands):

 

		Three Months Ended March 31, 2004
		Exchange Trading			Real Estate Operations			Eliminations				Totals
Revenues:
Exchange fees		$	54,351									$	54,351
Clearing fees			16,589										16,589
Market data			15,979										15,979
Building						5,398							5,398
CBOT space rent						6,462			(6,462	)
Services			3,056										3,056
Members’ dues			4,658										4,658
Other			854										854
Total revenues		$	95,487		$	11,860		$	(6,462	)		$	100,885
Depreciation and amortization		$	7,833		$	3,459		$	—			$	11,292
Income from operations		$	26,875		$	6		$	—			$	26,881
Total assets		$	239,753		$	186,664		$	—			$	426,417
Capital expenditures		$	4,662		$	38		$	—			$	4,700
		Three Months Ended March 31, 2005
		Exchange Trading			Real Estate Operations			Eliminations				Totals
Revenues:
Exchange fees		$	66,518									$	66,518
Clearing fees			21,277										21,277
Market data			18,522										18,522
Building						5,608							5,608
CBOT space rent						6,547			(6,547	)
Services			3,591										3,591
Other			941										941
Total revenues		$	110,849		$	12,155		$	(6,547	)		$	116,457
Depreciation and amortization		$	10,192		$	3,622		$	—			$	13,814
Income from operations		$	35,892		$	96		$	—			$	35,988
Total assets		$	293,131		$	183,106		$	—			$	476,237
Capital expenditures		$	4,190		$	742		$	—			$	4,932

 

7. SUBSEQUENT EVENT

 

On April 22, 2005, we completed a series of restructuring transactions that converted our organization from a nonstock, not-for-profit company with members into a stock, for-profit holding company with stockholders and a nonstock for-profit derivatives exchange subsidiary with members. As a result of the restructuring transactions,

 

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BOARD OF TRADE OF THE CITY OF CHICAGO, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

our members became stockholders of CBOT Holdings and members of the CBOT subsidiary. Accordingly, members of the CBOT were distributed a total of 49,359,836 shares of restricted Class A common stock in CBOT Holdings.

 

8. STATEMENT OF CASH FLOWS

 

Subsequent to the issuance of the consolidated financial statements for the three months ended March 31, 2004, the company determined that the $60.3 million distribution to the partners of Ceres previously reported as cash flows from investing activities should have been reported as cash flows from financing activities. As a result, the accompanying consolidated statement of cash flows for the three months ended March 31, 2004 has been restated.

 

Also, restricted cash activity, which was previously shown as cash flows from operating activities is now shown as cash flows from investing activities, resulting in an increase of $5.2 million in both net cash flows from operating activities and net cash flows used in investing activities for the three months ended March 31, 2004.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the matters discussed in Note 8 to the consolidated financial statements.

 

On April 22, 2005, we completed a series of restructuring transactions that converted our organization from a nonstock, not-for-profit company with members into a stock, for-profit holding company with stockholders and a nonstock, for-profit derivatives exchange subsidiary with members. This type of transaction is sometimes called a demutualization. As a result of the restructuring transactions, our members became stockholders of CBOT Holdings and members of the CBOT subsidiary.

 

Prior to the completion of the restructuring transactions, CBOT Holdings had not begun doing business as a separate entity and, therefore did not have its own set of financial statements. As a result, the financial condition and results of operations discussed here are those of the CBOT, which operated the exchange prior to the completion of the restructuring transactions. The CBOT continues to operate the exchange after the restructuring transactions as a subsidiary of CBOT Holdings. It is currently anticipated that the business of the CBOT will be the primary business of CBOT Holdings.

 

Results of Operations

 

Three months ended March 31, 2005 compared to three months ended March 31, 2004

 

Net income for the first quarter of 2005 was $20.8 million, 30% higher than the first quarter of 2004 and an all-time quarterly record. This record income was primarily a result of increased revenues of $15.6 million in the first quarter of 2005, offset to a degree by increased operating expenses of $6.5 million compared to the first quarter of 2004. Revenues increased from the prior year primarily as a result of record trading volume in the first quarter of 2005.

 

The following chart provides trading volume across the different categories of products traded at the CBOT (in thousands):

 

		1st Quarter 2004					1st Quarter 2005
Trading Volume by Product		Volume		% of Total			Volume		% of Total			Volume Change			% of Change			% Change
Interest Rate		107,547		79	%		143,730		83	%		36,183			99	%		34	%
Agricultural		23,271		17	%		22,779		13	%		(492	)		–1	%		–2	%
Stock Market Indices		5,618		4	%		6,381		4	%		763			2	%		14	%
Metals and Energy		137		0	%		211		0	%		74			0	%		54	%
Total		136,573		100	%		173,101		100	%		36,528			100	%		27	%

 

The following chart provides contract trading volume on our various platforms (in thousands):

 

		1st Quarter 2004					1st Quarter 2005
Trading Volume by Platform		Volume		% of Total			Volume		% of Total			Volume Change		% of Change			% Change
Electronic		74,013		54	%		108,079		63	%		34,066		93	%		46	%
Open-auction		56,627		42	%		57,360		33	%		733		2	%		1	%
Off-exchange		5,933		4	%		7,662		4	%		1,729		5	%		29	%
Total		136,573		100	%		173,101		100	%		36,528		100	%		27	%

 

Trading volume in the first quarter of 2005 was 173.1 million contracts, a 27% increase from the 136.6 million contracts in the first quarter of 2004. Electronic trading volume increased 46% to 108.1 million contracts versus

 

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74.0 million contracts in the first quarter of 2004. Open-auction trading volume increased slightly to 57.4 million contracts compared to 56.6 million contracts in 2004. The percentage of electronic trading to total trading volume increased to 63% in the first quarter of 2005 from 54% in the first quarter of 2004 . Off-exchange volume was 7.7 million contracts and 5.9 million contracts in the first quarters of 2005 and 2004, respectively.

 

Revenues Consolidated revenues for the quarter ended March 31, 2005 were $116.5 million, a 15% increase from $100.9 million in the first quarter of 2004. The following chart provides revenues by source and by percent of total revenues for the quarter ended March 31:

 

		1st Quarter 2004						1st Quarter 2005						Variance
		In Thousands			% of Total			In Thousands			% of Total			In Thousands				% Change
Exchange fees		$	54,351		54	%		$	66,518		57	%		$	12,167			22	%
Clearing fees			16,589		16	%			21,277		18	%			4,688			28	%
Market data			15,979		16	%			18,522		16	%			2,543			16	%
Building			5,398		5	%			5,608		5	%			210			4	%
Services			3,056		3	%			3,591		3	%			535			18	%
Dues			4,658		5	%			—		0	%			(4,658	)		–100	%
Other			854		1	%			941		1	%			87			10	%
Total revenues		$	100,885		100	%		$	116,457		100	%		$	15,572			15	%

 

Revenues from exchange fees increased 22% to $66.5 million in the first quarter of 2005, from $54.4 million in the prior year period. Exchange fee revenues grew at a lesser rate than trading volume due to a reduction in the average fee per contract rate in the current period. The average fee per contract traded in the first quarter of 2005 was $0.38, 5% less than the $0.40 per contract rate in the first quarter of 2004. In February 2004, we decreased trading fees on selected contracts traded on our electronic trading platform. Based upon 2004 operating results, as well as other factors, we made modest fee increases in January 2005 for certain electronic trades for which we had reduced trading fees during 2004. The higher fees charged before the fee reduction in February 2004, offset somewhat by the fee increases made in 2005, accounted for the higher average fee per contract rate in the first quarter of 2004. We continuously evaluate the fees that we charge on all types of trades and may adjust fees in the future.

 

Electronic trading fees were $30.6 million for the quarter ended March 31, 2005, 32% more than the $23.1 million in the prior year period. The growth rate in electronic trading revenues was less than the growth rate of electronic trading volume because the trading fee reductions introduced in February 2004 were for selected contracts traded primarily on our electronic trading platform. The average electronic trading fee per contract traded was $0.28 in the first quarter of 2005, compared to $0.31 in the prior year period. Additionally, volume discounts reduced electronic trading fees by $1.7 million in the first quarter of 2004.

 

Open-auction trading fees were $21.4 million for the quarter ended March 31, 2005, a $1.8 million decrease compared to $23.2 million in the prior year period. The first quarter of 2004 included revenue of $1.0 million for under paid exchange fees that were discovered upon our routine exchange fee audit process. The average open-auction fee per contract traded was $0.38 in the first quarter of 2005, compared to $0.41 in the prior year period. Volume discounts and fee caps reduced open-auction trading fees by $1.0 million and $0.3 million in the first Quarters of 2005 and 2004, respectively.

 

Off-exchange fees were $14.5 million in the first quarter of 2005 versus $8.0 million in the first quarter of 2004. These fees include charges for off-exchange transactions such as wholesale trades, EFPs, EFRs and EFSs, which are part of reported trading volume. These fees also include charges for other off-exchange transactions that are not included in our reported trading volume. We refer to such transactions that we charge fees for but do not include in reported volume as non-trade allocations (NTAs), which include transactions such as assignments of positions, expirations of options or delivery charges.

 

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Clearing fee revenues were $21.3 million versus $16.6 million in the first quarters of 2005 and 2004, respectively. Clearing fees are a fixed amount per contract traded and fluctuate directly with trading volume. The clearing fee revenue increase of 28% is primarily a result of the increased trading volume in the current period.

 

Total trading volume-based revenues, which consist of exchange and clearing fees, were $87.8 million in the first quarter of 2005 versus $70.9 million in the first quarter of 2004. The average revenue per reported contract in the first quarter of 2005 was $0.507, 2% less than the $0.519 per contract rate in the first quarter of 2004.

 

Market data revenues were $18.5 million in the first quarter of 2005, a 16% increase from $16.0 million in the first quarter of 2004. The main component of market data revenues, quote fees, increased by $2.1 million, or 14%, due to a pricing increase for real-time quote feeds instituted in January of 2005. Other market data revenues increased by $0.4 million in the first quarter of 2005 primarily from the development of new market data products and from the distribution of market data for other exchanges that we began hosting on our electronic trading platform in the fourth quarter of 2004.

 

Member dues of $4.7 million were recognized in the first quarter of 2004 related to a six month dues assessment made in January 2004. The dues were levied by our board of directors in order to provide us with adequate funds to meet increased financial demands associated with competitive pressures such as the launch of Eurex US. The need for an additional dues levy was reviewed by the board of directors in July 2004, at which time it was decided that an additional dues levy was unnecessary. The board of directors reevaluated this decision in October 2004 and decided to rescind the original dues assessment. No dues were assessed during 2005.

 

Operating Income. Income from operations increased 34% to $36.0 million in the quarter ended March 31, 2005. Operating income from the exchange trading segment increased $9.0 million, or 34%, to $35.6 million in 2005. Operating income from the real estate operations segment increased slightly to $0.1 million in 2005 from operating income of zero in 2004.

 

The exchange trading segment increase was largely the result of $12.2 million and $2.5 million increases in exchange fee and market data fee revenues, respectively. These revenue increases were partially offset by a $2.4 million increase in segment depreciation expense and a $2.5 million increase in technology expense. Exchange fees and market data fees increased in 2005 due to trading volume increases and quote fee increases, respectively, as discussed above. Depreciation increased in 2005 due to technology projects related to enhancing our electronic trading and open-auction trading platforms that were completed at the end of 2004 and in early 2005. Increases in technology expenses also related to supporting both of our trading platforms.

 

The real estate operations segment increased by $0.1 million from income of zero in 2004, primarily as a result of increased building revenue of $0.3 million, $0.1 million of which related to internal rent charges for office space used by the CBOT that is eliminated in consolidation. Building segment expenses increased slightly by $0.2 million.

 

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Expenses. Operating expenses totaled $80.5 million for the quarter ended March 31, 2005, compared to $74.0 million for the same period of 2004, a 9% increase. Operating expenses as a percent of total revenues decreased from 73% in 2004, to 69% in 2005, thereby raising the operating margin to 31% in 2005 from 27% in 2004. The following chart illustrates operating expenses and income from operations in total and as a percent of total revenues for the quarter ended March 31:

 

		1st Quarter 2004						1st Quarter 2005						Variance
		In Thousands			% of Total			In Thousands			% of Total			In Thousands				% Change
Total revenues		$	100,885		100	%		$	116,457		100	%		$	15,572			15	%
Expenses:
Salaries and benefits			17,915		18	%			18,633		16	%			718			4	%
Clearing services			12,210		12	%			16,516		14	%			4,306			35	%
Depreciation and amortization			11,292		11	%			13,814		12	%			2,522			22	%
Professional services			6,673		7	%			4,592		4	%			(2,081	)		-31	%
General and administrative expenses			5,465		5	%			4,922		4	%			(543	)		-10	%
Building operating costs			6,355		6	%			6,638		6	%			283			4	%
Information technology services			8,181		8	%			10,677		9	%			2,496			31	%
Contracted license fees			1,443		1	%			1,625		1	%			182			13	%
Programs			2,786		3	%			2,016		2	%			(770	)		-28	%
Interest			1,324		1	%			922		1	%			(402	)		-30	%
Severance and related costs			360		0	%			114		0	%			(246	)		-68	%
Operating expenses			74,004		73	%			80,469		69	%			6,465			9	%
Income from operations		$	26,881		27	%		$	35,988		31	%		$	9,107			34	%

 

Salaries and benefits were $18.6 million in the first quarter of 2005, a 4% increase from $17.9 million in the first quarter of 2004. Salaries increased $1.2 million in 2005 due to higher staffing levels as well as merit increases. We employed 3% more full time employees at the end of March 31, 2005 as compared with a year earlier.

 

Clearing services expense was $16.5 million in the first quarter of 2005, a 35% increase from $12.2 million in the same period of 2004. Clearing service expense represents a contract trading volume-based fee we pay to our provider of clearing services. Accordingly, this expense varies in direct correlation with our trading volume. The average rate per cleared trade that we paid for clearing in the first quarter of 2005 was approximately 6% more than the rate paid in the first quarter of 2004 due to negotiated fee reductions in 2004 that did not continue into 2005. This increased clearing rate paid in 2005 accounts for the clearing services expense growth of 35% that exceeded the 28% clearing fee revenue growth in the first quarter of 2005.

 

Depreciation and amortization charges increased $2.5 million to $13.8 million in the first quarter of 2005, from $11.3 million in the first quarter of 2004 . This increase was the result of assets placed into service since the first quarter of 2004. Specifically, additional depreciation of $1.4 million was recorded on software and equipment for technological enhancements to the electronic and open-auction trading platforms. Various building improvements and projects finished in the last year led to $0.3 million of additional depreciation. Also, the first quarter of 2005 included $0.3 million of additional depreciation related to a change in the estimated useful life of equipment used in connection with our electronic trading platform.

 

Professional services expense decreased $2.1 million in the first quarter of 2005 to $4.6 million, from $6.7 million in 2004. The largest variance in professional services was a decrease of $2.3 million in costs for consultants and programmers primarily used for modifications to our various trading technologies. Costs related to the restructuring process we are going through increased $0.7 million in the current quarter and legal fees decreased approximately $0.5 million.

 

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General and administrative expenses decreased $0.5 million, or 10%, to $4.9 million in the first quarter of 2005. Expenses for leased computers and computer hardware increased $0.9 million in 2005 due to additional computers and servers leased since the first quarter of 2004 to meet our increasing reliance on technology to support our electronic and open-auction trading venues. However, gains on foreign currency transactions were $0.2 million in 2005, as compared to the $1.3 million of losses realized in the first quarter of 2004.

 

Information technology services were $10.7 million in the first three months of 2005, a 31% increase from $8.2 million in 2004. The increase is primarily the result of $1.4 million of increased maintenance charges for our hardware and software systems. Also, costs associated with connections to our electronic trading system increased $0.6 million in the current quarter as we continued to add more customers to our electronic platform.

 

Contracted license fees in the first quarter of 2005 were $1.6 million, a slight increase from $1.4 million in 2004. The licensing arrangement in place for the electronic trading platform is fixed for the term of the license agreement and was $0.4 million in each period. Other license fees, which are volume based, were $1.2 million and $1.0 million in 2005 and 2004, respectively.

 

Programs costs decreased $0.8 million to $2.0 million in the three months ended March 31, 2005, as advertising costs decreased $0.4 million in the current quarter. Also, the first quarter of 2004 included $0.3 million of costs to subsidize the expense of European firms connecting to our electronic trading system. These costs were higher in 2004 as we tried to generate interest, both domestically and abroad, in our new electronic trading system that was developed during 2003.

 

The provision for income taxes was $14.9 million in the first quarter of 2005, compared to $11.0 million in the same period of 2004. The effective tax rate was 42% and 41% for the 2005 and 2004 period, respectively. These rates were higher than the corporate federal and state combined rate of 40% due to expenses that are non-deductible for tax purposes, such as expenses related to the restructuring transactions of $1.4 million and $0.8 million in 2005 and 2004, respectively.

 

Financial Position

 

At March 31, 2005, total assets were $476.2 million, a $15.8 million increase from the December 31, 2004 balance of $460.4 million. Cash and cash equivalents increased $12.5 million, primarily the result of cash from operations of $24.4 million, offset by cash payments of $10.7 million for debt repayments. Restricted cash, at March 31, 2005, decreased $3.6 million from year end 2004 levels from the return of $3.6 million in margin collateral that had been required under foreign currency forward contracts in place. Property and equipment, net of accumulated depreciation, decreased $8.8 million from December 31, 2004. The change to property and equipment reflects recorded depreciation of $13.7 million offset by capital acquisitions of $4.9 million.

 

Total liabilities at March 31, 2005 decreased $5.1 million from December 31, 2004 to $161.7 million. Accounts payable at March 31, 2005 decreased $7.7 million from December 31, 2004 to a balance of $12.8 million due to timing differences in payments to vendors. Income tax payable was $12.0 million at March 31, 2005 versus a recorded tax receivable at year end 2004 of $1.6 million. This variance is a result of first quarter estimated tax payments not being due until the second quarter in any given tax year. Total debt was reduced as a result of debt payments of $10.7 million made in the first quarter of 2005.

 

Liquidity and Capital Resources

 

Our operations are the major source of our liquidity. In addition, working capital requirements can be met through an available revolving line of credit. Cash requirements principally consist of capital expenditures for technology enhancements as well as scheduled debt repayments. At March 31, 2005, we had $101.5 million in unrestricted cash and $20.0 million in an available, unused revolving line of credit.

 

We anticipate that current cash balances and future funds generated through operations will be sufficient to meet cash requirements currently and in the long-term. If the cash flows from operations were to become

 

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significantly affected, we currently have a variety of capital options for satisfying short-term cash needs, such as the unused revolving line of credit and the ability to assess dues on our membership at our board of directors’ discretion. In the past we have also used assets of the company to secure loans when necessary.

 

Net Cash Flows From Operating Activities

 

Net cash provided by operating activities totaled $24.4 million and $28.8 million for the first quarters of 2005 and 2004 respectively. Cash provided by operations in 2005 primarily consisted of $20.8 million of net income adjusted for non-cash items such as $13.8 million of depreciation and reduced by a $9.0 million increase in net assets and liabilities. Cash provided by operations in 2004 primarily consisted of $16.0 million of net income adjusted for non-cash items such as $11.3 million of depreciation and amortization.

 

Net Cash Flows Used in Investing Activities

 

Net cash used in investing activities totaled $1.3 million and $9.9 million in the quarters ended March 31, 2005 and 2004, respectively. Cash used for capital acquisitions in the first quarters of 2005 and 2004 was $4.9 million and $4.7 million, respectively. The remaining investing activities primarily related to changes in restricted cash balances.

 

Capital Expenditures

 

Capital expenditures in the first quarters of both 2005 and 2004 related primarily to the technology driving our electronic and open-auction trading platforms. For 2005, we expect our total capital expenditures to approximate $54 million. Planned investments include $30 million for replacement hardware and additional software related to our trading platforms, as well as $24 million for real estate projects. Real estate investments are expected to include $13 million in “Class L” renovation efforts and $11 million in tenant improvement and other building projects.

 

Net Cash Flows Used in Financing Activities

 

Net cash used in financing activities totaled $10.6 million and $70.9 million for the quarters ended March 31, 2005 and 2004, respectively. Cash used for financing in 2005 primarily related to $10.7 million of repayments of long-term debt. Cash used for financing in 2004 largely related to $60.3 million of liquidation payments to the limited partners of Ceres as well as $10.7 million of repayments of long-term debt. Ceres, which formerly conducted the electronic trading activities of the CBOT, was dissolved on December 31, 2003 and was liquidated in 2004 with its assets distributed to its partners in accordance with the terms of the Ceres limited partnership agreement.

 

Long-Term and Short-Term Debt

 

During the first quarters of 2005 and 2004, we made scheduled payments of $10.7 million on senior notes payable. Also, in the second half of 2005, principal repayments of $8.8 million are scheduled to be made on the LIFFE financing agreement.

 

Critical Accounting Policies

 

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual amounts could differ from those estimates. Our 2004 audited financial statements and related notes includes a summary of the critical accounting policies that we believe are the most important to aid in understanding our financial results. There have been no material changes to these critical accounting policies that impacted our reported amounts of assets, liabilities, revenues or expenses during the first three months of 2005.

 

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Market Risk

 

We provide markets for trading futures and options on futures. However, we do not trade futures and options on futures for our own account. We invest available cash in highly liquid, short-term investment grade paper. We do not believe there is significant risk associated with these short-term investments. Our long-term debt pays interest at a weighted fixed rate of 6.2%. Based on the terms of our existing long-term debt and the terms currently available for similar borrowings, management estimates the fair value of the long-term debt approximates the carrying value.

 

Foreign Currency Risk

 

We have from time to time entered into arrangements that are related to the provision of our electronic trading software that are denominated in pounds sterling. As a result, we are exposed to movements in

foreign currency exchange rates. The primary purpose of our foreign currency hedging activities is to manage the volatility associated with foreign currency purchases of materials and services and liabilities created in the normal course of business. We do not rely on economic hedges to manage risk.

 

We enter into forward contracts when the timing of the future payment is certain. When the exact foreign currency amount is known, such as under fixed service agreements, we treat this as a firm commitment and identify the hedge instrument as a fair value hedge. When the foreign currency amount is variable, such as under variable service agreements, we treat this as a forecasted transaction and identify the hedge instrument as a cash flow hedge. At the time we enter into a forward contract, the forecasted transaction or firm commitment is identified as the hedged item and the forward contract is identified as the hedge instrument. We measure hedge ineffectiveness using the forward rates for hedges at each reporting period. In all forward contracts, the critical terms of the hedging instrument and the hedged item match. At each reporting period we verify that the critical terms of the contract continue to be the same.

 

We currently utilize foreign currency forward contracts that we identified as fair value hedges. These are intended to offset the effect of exchange rate fluctuations on firm commitments for purchases of fixed annual and quarterly services denominated in pounds sterling associated with our arrangements with LIFFE. These contracts designated as fair value hedges had notional amounts approximating $46.1 million (26.9 million pounds sterling) at March 31, 2005. Gains and losses on these hedge instruments, as well as the gains and losses on the underlying hedged item, are recognized currently in general and administrative expense. There were no gains or losses recorded on these fair value hedges related to hedge ineffectiveness.

 

We also utilize foreign currency forward contracts that are intended to offset the effect of exchange rate fluctuations on recorded debt that is denominated in pounds sterling. These contracts, which are not designated as hedges under FASB Statement No. 133, had notional amounts approximating $17.5 million (10.1 million pounds sterling) at March 31, 2005. Gains and losses on these hedge instruments, as well as the gains and losses on revaluing the recorded debt, are recognized currently in general and administrative expense.

 

Forward-Looking Statements

 

In this document, our use of the words “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or other comparable terminology is intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. While these forward-looking statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, including risks associated with intense competition in our industry, our inability to successfully execute our electronic trading strategy, risks associated with the globalization of our business, risks associated with our recent conversion to a for-profit company, our inability to retain current customers or attract new customers, the possibility of declines in derivatives trading volume generally, risks associated with our dependence on certain third-party suppliers, regulatory and legal risks, and other risks and uncertainties identified in reports and other filings that we have made with the SEC, as may be

 

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revised or supplemented in subsequent filings with the SEC. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

For information relating to market risk, see “Market Risk” and “Foreign Currency Risk” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part I, Item 2 of this quarterly report on Form 10-Q.

 

ITEM 4. CONTROLS AND PROCEDURES

 

We maintain a system of disclosure controls and procedures designed to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in Securities and Exchange Commission rules and forms.

 

In December 31, 2003, we ceased conducting our electronic trading business through our Ceres subsidiary. Ceres was dissolved on December 31, 2003 and liquidating distributions were made to the Ceres partners during 2004. In connection with the filing of our Form 10-Q for the three months ended March 31, 2005, our management determined to report these distributions as cash flows from investing activities and we have now determined that these distributions should have been reported as cash flows from financing activities. Subsequent to this determination, we have restated our consolidated statement of cash flows for the three months ended March 31, 2004 and amended our Form 10-Q for the period ended March 31, 2005 to reflect this reclassification. In the third quarter of 2005, our management implemented additional review procedures designed to monitor the reporting of cash flow from investing activities and cash flow from financing activities and factors affecting the classifications in the consolidated statements of cash flow.

 

Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2005. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of such dates, our disclosure controls and procedures were not effective at the reasonable assurance level because of the failure to classify the distributions to the Ceres partners as cash flows from financing activities. However, based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of such dates, the absence of such procedure is the only area in which our disclosure controls and procedures were not effective at the reasonable assurance level. This reclassification of the distributions to Ceres partners to cash flows from financing activities from cash flows from investing activities did not change any of the account balances on the consolidated statements of financial condition, consolidated statements of income or the cash flows from operating activities or the net increase (decrease) in cash and cash equivalents included in our consolidated financial statements for the three months ended March 31, 2004 included in our Form 10-Q for the three months ended March 31, 2005.

 

There have been no significant changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

For information relating to legal proceedings, see Note 5 to the Unaudited Consolidated Financial Statements contained in Part I, Item 1 of this quarterly report on Form 10-Q/A.

 

ITEM 6. EXHIBITS

 

31.1	Certification by CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2	Certification by CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1	Certification by CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, CBOT Holdings, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		CBOT HOLDINGS, INC.
		/S/    BERNARD W. DAN
Date: September 8, 2005		Bernard W. Dan
		President and Chief Executive Officer
		/S/    GLEN M. JOHNSON
Date: September 8, 2005		Glen M. Johnson
		Senior Vice President and Chief Financial Officer

 

19

Exhibit 31.1

 

Certification of the Chief Executive Officer

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Bernard W. Dan, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q/A of CBOT Holdings, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

c)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Exhibit 31.2

 

Certification of the Chief Financial Officer

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Glen M. Johnson, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q/A of CBOT Holdings, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

c)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Exhibit 32.1

 

Certification of the Chief Executive Officer and Chief Financial Officer

pursuant to 18 U.S.C. §1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the quarterly report on Form 10-Q/A of CBOT Holdings, Inc. (the “Company”) for the quarter ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Bernard W. Dan, as Chief Executive Officer of the Company, and Glen M. Johnson, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

 

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.