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Net revenues increased 32 percent to a record $142.4 million for the second quarter of 2003, compared with $107.5 million for the year-earlier period. Net income rose 67 percent to a record $35.0 million, versus $21.0 million for the same period in 2002. Earnings per diluted share improved 45 percent to a record $1.03 from 71 cents per diluted share for the second quarter last year. This growth occurred on a base of shares that has increased by 3.7 million with the company's initial public offering in December 2002.
Average daily volume increased 23 percent to nearly 2.7 million contracts for the second quarter of 2003 versus the same period of 2002. Each of CME's trading venues set quarterly volume records. More than 1.5 million contracts a day were traded via open outcry, up 5 percent from the second quarter last year. Nearly 1.1 million contracts a day changed hands on CME's GLOBEX® electronic trading platform, a 63 percent increase from a year ago, and 41,000 contracts a day were privately negotiated, up 25 percent. During the second quarter of 2003, 41 percent of CME's volume traded on GLOBEX, compared with 31 percent during the same period a year ago. June 2003 was the second busiest month in CME's history for E-mini. equity futures, which averaged more than 1.0 million contracts a day during the month.
"Our strong second quarter performance was driven by our diverse product line with substantial trading volume in our three largest product groups - particularly interest rates - where volume grew each month to culminate in a new record in June," said Chairman Terry Duffy. "We believe that one contributor to this growth has been a continuing shift in the global derivatives landscape as users are increasingly focused on credit quality and cognizant of the appeal of transparent, exchange-traded instruments with central counterparty clearing. Our interest rate volume also benefited from continued mortgage refinancing activity, which increasingly is hedged with our Eurodollar futures and options contracts - as well as the quarter-point interest rate adjustment by the U.S. Federal Reserve Board.
"This quarter, we will continue to aggressively prepare for the launch of the CME/CBOT® Common Clearing Link based on the definitive agreement we reached in April," said Duffy. "We are on track to begin clearing Chicago Board of Trade® commodity, equity and certain interest rate products on Nov. 24, 2003, with the remainder scheduled to begin on Jan. 2, 2004."
"We've focused significant resources on expanding our distribution, making it easier than ever before to trade on CME, no matter where you are in the world," said President and Chief Executive Officer Jim McNulty. "In the past three years, we opened up access to GLOBEX, dramatically increased the speed of trading, established a telecommunications hub in Europe and increased the number of independent software vendors and data centers that offer GLOBEX interfaces. Since the beginning of this year, we've added 16 network connections to our European hub, for a total of 36; streamlined our foreign exchange delivery process to offer cost savings to market participants; and announced two new programs to expand telecommunications alternatives and reduce costs for users of GLOBEX, our CLEARING 21® system and our market data. We believe that broadening access and distribution has expanded both our customer base and trading volume."
For the second quarter of 2003, revenue from clearing and transaction fees increased 37 percent to $115.8 million from $84.3 million for the same period of 2002. Quotation data fees rose 14 percent to $13.6 million for the second quarter of 2003, versus $11.9 million for the same period a year ago, driven by a pricing change that took effect in April 2003.
Total operating expenses for the second quarter of 2003 were $83.0 million, compared with $73.0 million for the second quarter of 2002. During the 2003 quarter, the company recorded stock-based compensation expense of $0.8 million. Based on a stock option and restricted stock grant in June, CME expects the stock-based compensation portion of compensation and benefits to increase to approximately $1.4 million per quarter in the third and fourth quarters of 2003.
Income before income taxes was $59.4 million for the second quarter of 2003, an increase of 72 percent from $34.5 million for the same period a year ago. The company's operating margin, defined as income before income taxes expressed as a percentage of net revenues, was 41.7 percent for the second quarter of 2003, compared with 32.1 percent for the year-earlier quarter.
CME's working capital was $381.6 million at June 30, 2003, compared with $325.6 million at Dec. 31, 2002, primarily due to the operating results during the first six months of 2003.
Capital expenditures and capitalized software development costs were $13.9 million for the second quarter. The company paid a quarterly dividend of 14 cents per common share, which totaled $4.6 million in June 2003.
Six-Month Results
For the first six months of 2003, net revenues increased 29 percent to a record $268.4 million from $208.6 million for the first half of 2002. Clearing and transaction fees improved 35 percent to $218.2 million from $162.2 million a year ago, benefiting from higher trading volume. Total operating expenses were $165.3 million for the first half of 2003, versus nearly $143.0 million for the comparable period of 2002. Income before income taxes was $103.1 million for the first half of 2003, up 57 percent from $65.7 million for the same period a year ago. The operating margin was 38.4 percent for the first six months of 2003, compared with 31.5 percent for the year-earlier period.
The company reported record net income of $61.1 million, or $1.81 per diluted share, for the first six months of this year, compared with $39.7 million, or $1.33 per diluted share, for the first half of 2002.
Capital expenditures and capitalized software development costs were $25.0 million for the first six months of 2003.
During the second quarter of 2003, certain shareholders sold 1,220,635 shares of Class A common stock at a price of $69.60 per share in an underwritten offering. The company did not sell any shares or receive any proceeds from the sale of stock by its shareholders in the offering.
Chicago Mercantile Exchange Holdings Inc. became the first publicly traded U.S. financial exchange on Dec. 6, 2002. The company was added to the Russell 1000® Index on July 1, 2003. It is the parent company of Chicago Mercantile Exchange Inc. (www.cme.com), the largest futures exchange in the United States. As an international marketplace, CME brings together buyers and sellers on its trading floors and its GLOBEX electronic trading platform. CME offers futures contracts and options on futures contracts primarily in four areas: interest rates, stock indexes, foreign exchange and commodities. The exchange moved about $1.5 billion per day in settlement payments in the first half of 2003 and managed $29.1 billion in collateral deposits at June 30, 2003.
CME will hold a conference call to discuss second quarter results at 8:30 a.m. Eastern time today. A live audio Webcast of the conference call will be available on the Investor Relations section of CME's Web site; those wishing to listen to the live conference via telephone should dial (800) 500-0177 if calling from within the United States or (719) 457-2679 if calling from outside the United States at least 10 minutes before the call begins. Following the conference call, an archived recording and PowerPoint slides will be available at the same site.
