The company also reported record revenues and earnings for 2005. Net revenues climbed 25 percent to $921 million for the year, compared with $734 million for 2004. Net income rose 40 percent to $307 million, versus $220 million a year ago. Diluted earnings per share increased 38 percent to $8.81 from $6.38 per diluted share in 2004.
"One of CME's core strengths is its product diversity, and in 2005 CME delivered impressive volume growth across the board," said CME Chairman Terry Duffy. "Total average daily volume grew 34 percent and total volume exceeded one billion contracts for the first time ever in a single year. Furthermore, 70 percent of our volume was traded electronically on our CME(R) Globex(R) platform, up from 57 percent in 2004. These results are particularly significant since market volatility measures were muted during 2005."
"Our 2005 record revenues and earnings were driven by volume growth of more than 20 percent in every product category and 62 percent growth in electronic trading," said CME Chief Executive Officer Craig Donohue. "In 2006 we will continue to invest in technology to improve the speed, functionality and reliability of our CME Globex electronic trading platform. We will also continue to focus on growing our foreign exchange markets, increasing electronic trading of our financial options products and expanding our European and Asian client segments."
Fourth-Quarter Results
For the fourth quarter of 2005, net revenues increased 24 percent to $233 million from $188 million for the same period in 2004. Clearing and transaction fees rose 27 percent to $176 million from $139 million a year ago, reflecting a 33 percent increase in average daily volume to 4.1 million contracts for the quarter. The fourth-quarter growth was led by a 49 percent increase in foreign exchange product volume, to a record 375,000 contracts per day. In addition, CME interest rate volume increased 34 percent compared with the same quarter a year ago, averaging 2.2 million contracts per day; CME E- mini(TM) products grew 30 percent, averaging a record 1.3 million contracts per day; and CME commodity products increased by 20 percent with average daily volume of 51,000 contracts.
Processing services, which includes support for the Chicago Board of Trade, NYMEX and OneChicago, generated $16 million in the fourth quarter, versus $15 million in fourth-quarter 2004. Quotation data fees were $17 million, versus $16 million in fourth-quarter 2004.
Total expenses were $107 million for the fourth quarter of 2005. This represents a 14 percent increase from $94 million for the same period in 2004, driven primarily by technology related costs. Capital expenditures and capitalized software development costs were $25 million for fourth-quarter 2005, compared with $19 million for the final quarter of 2004.
Income before income taxes was $126 million for fourth-quarter 2005, compared with $94 million for the same period during 2004. Operating margin, defined as income before income taxes expressed as a percentage of net revenues, was 54 percent in fourth-quarter 2005, compared with 50 percent in fourth-quarter 2004.
The company reported net income of $76 million, or $2.18 per diluted share, for fourth- quarter 2005, compared with $57 million, or $1.64 per diluted share, for the same period in 2004.
CME's working capital increased $70 million during fourth-quarter 2005, to $953 million at December 31, 2005.
Full-Year 2005 Results
Average daily volume was 4.2 million contracts in 2005, up 34 percent from 3.1 million contracts in 2004. Volume on the CME Globex electronic platform increased 62 percent for the year, with total volume of 730 million contracts and average daily volume of 2.9 million contracts.
For 2005, revenue from clearing and transaction fees increased 26 percent, to $696 million, from $553 million for 2004. Processing services revenue rose 23 percent to $69 million, from $56 million in 2004, and quotation data fees were up 18 percent to $72 million, from $61 million in 2004.
Total expenses were $412 million for 2005, compared with $366 million for 2004. This 12.6 percent increase was driven primarily by technology spending related to additional functionality and capacity. In 2006, the company expects total expense growth in the 11 to 13 percent range, in line with recent expense patterns.
Capital expenditures and capitalized software development costs were $88 million for 2005, primarily due to continued investments in capacity related to volume growth and functionality. In 2006, the company expects capital expenditures to be in the $90 to $100 million range, due primarily to further investment in technology.
Income before income taxes was $508 million for 2005, compared with $368 million for 2004. Operating margin was 55 percent, compared with 50 percent during 2004. The company reported record net income of $307 million, or $8.81 per diluted share, for the year, compared with $220 million, or $6.38 per diluted share, for 2004.
For the year 2005, the company paid dividends of $1.84 per common share, totaling $63 million.
During 2005, CME's working capital grew by $281 million.
CME will hold a conference call to discuss year-end and fourth-quarter results at 8:30 a.m. Eastern Time today. A live audio Web cast of the call will be available on the Investor Relations section of CME's Web site at http://www.cme.com . An archived recording will be available after the call.
Chicago Mercantile Exchange Holdings Inc. became the first publicly traded U.S. financial exchange on Dec. 6, 2002. The company was added to the Russell 1000(R) Index on July 1, 2003. It is the parent company of Chicago Mercantile Exchange Inc. ( http://www.cme.com ), the largest futures exchange in the United States. 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 moved an average of $1.4 billion per day in settlement payments in 2005 and managed $45.6 billion in collateral deposits at December 30, 2005, including $3.2 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 http://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 efficiently and simultaneously operate both open outcry trading and electronic trade execution facilities; our ability to adjust our fixed costs and expenses if our revenues decline; our ability to continue to realize the benefits of our transaction processing agreement with the Chicago Board of Trade; our ability to maintain existing customers and attract new ones; 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 market data fees 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 members; 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; and seasonality of the futures business. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, including our most recent Quarterly Report on Form 10-Q, which is available in the Investor Information section of the CME Web site. We undertake no obligation to publicly update any forward- looking statements, whether as a result of new information, future events or otherwise.
All references to volume and rate per contract information in the text of this document exclude our non-traditional TRAKRS(TM) products, for which CME receives significantly lower clearing fees than other CME products, and CME Auction Markets(TM) products.
CME-E
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
Dec. 31, 2005 Dec. 31, 2004
ASSETS
Current Assets:
Cash and cash equivalents $610,891 $357,562
Collateral from securities lending 2,160,893 1,582,985
Short-term investments of interest
earning facilities - 87,521
Marketable securities, including
pledged securities 292,862 302,429
Accounts receivable 86,980 78,825
Other current assets 39,669 18,959
Cash performance bonds and security
deposits 592,127 269,919
Total current assets 3,783,422 2,698,200
Property, net of accumulated
depreciation and amortization 153,329 131,361
Other assets 32,643 27,905
TOTAL ASSETS $3,969,394 $2,857,466
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $23,553 $23,045
Payable under securities lending
agreements 2,160,893 1,582,985
Payable to participants in interest
earning facilities - 87,521
Other current liabilities 53,354 62,153
Cash performance bonds and
security deposits 592,127 269,919
Total current liabilities 2,829,927 2,025,623
Other liabilities 20,783 19,246
Total liabilities 2,850,710 2,044,869
Shareholders' Equity 1,118,684 812,597
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,969,394 $2,857,466
Balance Sheet Items Excluding Cash Performance Bonds and Security Deposits,
Securities Lending and Interest Earning Facilities (1)
Dec. 31, 2005 Dec. 31, 2004
Current assets $1,030,402 $757,775
Total assets 1,216,374 917,041
Current liabilities 76,907 85,198
Total liabilities 97,690 104,444
(1) Securities lending, cash performance bonds and security deposits, and
interest earnings facilities are excluded from this presentation, as
these current assets have equal and offsetting current liabilities.
This presentation results in a more meaningful indication to investors
of the assets owned and related obligations of the company. Clearing
firms are subject to performance bond requirements pursuant to the
rules of the exchange. The clearing firm can elect to satisfy these
requirements in cash, which is reflected on the consolidated balance
sheets, or by depositing securities, which are not reflected on the
consolidated balance sheets. The balance of cash performance bonds
and security deposits that are deposited by clearing firms may change
daily as a result of changes in the clearing firms' open positions and
how clearing firms elect to satisfy their performance bond
requirements. Securities lending transactions utilize a portion of
the securities that clearing firms have deposited to satisfy their
proprietary performance bond requirements. Deposits received from
clearing firms in the first interest earning facilities were included
on the consolidated financial statements of CME Holdings until
December 1, 2005 when these facilities were discontinued. These
interest earning facilities were invested on a short-term basis and
payable to the clearing firm participants on demand.
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Quarter Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
REVENUES
Clearing and
transaction fees $ 176,457 $ 139,191 $ 696,201 $ 552,953
Processing services 15,562 14,877 68,730 55,882
Quotation data fees 17,370 15,742 71,741 60,940
Access fees 4,743 4,500 18,866 16,393
Communication fees 2,140 2,455 8,964 10,035
Investment income 10,252 5,426 31,441 14,520
Securities lending
interest income 19,188 8,429 58,725 20,320
Other 5,850 5,403 22,628 21,759
TOTAL REVENUES 251,562 196,023 977,296 752,802
Securities lending
interest expense (18,666) (7,996) (56,778) (19,013)
NET REVENUES 232,896 188,027 920,518 733,789
EXPENSES
Compensation and benefits 45,469 42,693 179,594 164,843
Occupancy 7,208 6,632 28,529 27,193
Professional fees,
outside services and
licenses 12,975 10,250 44,832 37,200
Communications and
computer and software
maintenance 15,745 11,340 57,935 48,264
Depreciation and
amortization 16,799 13,942 64,917 53,408
Marketing, advertising
and public relations 3,767 3,115 13,278 10,973
Other operating expense 5,191 5,964 23,054 24,252
TOTAL EXPENSES 107,154 93,936 412,139 366,133
Income before income taxes 125,742 94,091 508,379 367,656
Income tax provision (49,462) (37,307) (201,522) (148,101)
NET INCOME $ 76,280 $ 56,784 $ 306,857 $ 219,555
EARNINGS PER SHARE:
Basic $2.21 $1.67 $8.94 $6.55
Diluted $2.18 $1.64 $8.81 $6.38
Weighted average number
of common shares:
Basic 34,476 34,057 34,315 33,545
Diluted 34,974 34,652 34,839 34,411
4Q 1Q 2Q 3Q 4Q
2004 2005 2005 2005 2005
Trading Days 64 61 64 64 63
Average Daily Volume (Round Turns, in Thousands)
Interest rates 1,654 2,235 2,577 2,489 2,209
Equity E-mini 1,026 1,237 1,301 1,181 1,335
Equity standard-size 119 129 124 124 147
Foreign exchange 252 294 332 336 375
Commodities 42 51 46 50 51
Subtotal 3,093 3,946 4,380 4,180 4,117
TRAKRS 73 30 21 27 595
Total 3,166 3,976 4,401 4,207 4,712
Open outcry 965 1,276 1,210 1,263 1,107
Electronic
(including TRAKRS) 2,155 2,648 3,144 2,897 3,556
Privately negotiated 46 52 47 47 49
Total 3,166 3,976 4,401 4,207 4,712
Transaction Fees (in Thousands)
4Q 1Q 2Q 3Q 4Q
2004 2005 2005 2005 2005
Interest rates $ 56,556 $ 71,003 $ 83,429 $ 79,955 $ 70,840
Equity E-mini 44,586 50,048 57,185 53,255 59,427
Equity standard-size 10,071 10,319 10,552 11,125 13,271
Foreign exchange 25,404 26,621 28,796 29,079 29,442
Commodities 2,510 2,832 2,589 2,896 3,009
Subtotal 139,127 160,823 182,551 176,310 175,989
TRAKRS 64 23 17 20 468
Total $139,191 $160,846 $182,568 $176,330 $176,457
Open outcry $34,665 $36,987 $36,190 $37,438 $35,677
Electronic
(including TRAKRS) 93,407 112,416 135,429 127,812 129,088
Privately
negotiated 11,119 11,443 10,949 11,080 11,692
Total $139,191 $160,846 $182,568 $176,330 $176,457
Average Rate Per Contract (RPC)
4Q 1Q 2Q 3Q 4Q
2004 2005 2005 2005 2005
Interest rates $ 0.534 $ 0.521 $ 0.506 $ 0.502 $ 0.509
Equity E-mini 0.679 0.663 0.687 0.705 0.706
Equity standard-size 1.317 1.315 1.330 1.400 1.436
Foreign exchange 1.577 1.483 1.357 1.353 1.246
Commodities 0.932 0.904 0.870 0.904 0.944
Average
(excluding TRAKRS) $ 0.703 $ 0.668 $ 0.651 $ 0.659 $ 0.678
TRAKRS 0.014 0.012 0.012 0.011 0.012
Overall average
RPC $ 0.687 $ 0.663 $ 0.648 $ 0.655 $ 0.594
Open outcry $ 0.562 $ 0.475 $ 0.467 $ 0.463 $ 0.512
Electronic
(including TRAKRS) 0.677 0.696 0.673 0.690 0.576
Electronic
(excluding TRAKRS) 0.701 0.704 0.678 0.696 0.690
Privately negotiated 3.671 3.611 3.615 3.674 3.759
Overall average
RPC $ 0.687 $ 0.663 $ 0.648 $ 0.655 $ 0.594
