Average daily volume was 4.2 million contracts for third-quarter 2005, a 30 percent increase from third-quarter 2004. Trading on the CME(R) Globex(R) electronic trading platform grew 45 percent to 2.9 million contracts per day and represented 69 percent of total CME volume in the quarter, compared with 61 percent in the same period last year.
"CME's strong volume trends in both futures and options underscore the effectiveness of our ongoing strategy to grow our business in existing and new markets," said CME Chairman Terry Duffy. "We posted another solid quarter, fueled by significant volume growth in our foreign exchange, interest rate and equity products. We achieved record monthly volume in September and are seeing sizable volume growth in our equity products in October. Our customer initiatives in Europe and Asia, along with our expanding network of telecommunications hubs, have positioned CME to continue building momentum outside the United States where the potential for growth in exchange-traded derivatives is significant."
"We continue to add new products and expand electronic trading of options to meet the evolving needs of our customers globally," said CME CEO Craig Donohue. "In recent months we have added significant new functionality for trading options on the CME Globex electronic trading platform that has doubled our average daily volume in electronic options to nearly 90,000 contracts. We also extended to 2016 CME's exclusive agreement with Standard & Poor's for futures and options on all of the S&P indexes. This durable franchise benefits our customers and shareholders by strengthening our equity product line on a long-term basis. In addition, we continue to launch innovative new products that further leverage our nearly 24-hour trading day, including derivatives contracts based on the Eurozone HICP inflation index, S&P Asia 50 index, NASDAQ Biotechnology Index and our Economic Derivatives Auctions."
Revenue from clearing and transaction fees from CME products increased 19 percent to $176 million, up from $148 million for third-quarter 2004. Clearing and transaction services revenue rose 23 percent to $18 million and quotation data fees were up 26 percent to $19 million. While net revenues increased 22 percent, expenses increased 15 percent to $106 million, primarily driven by technology spending related to improved functionality and capacity.
Third-quarter income before income taxes was $128 million, an increase of 28 percent from $100 million for the year-ago period. The company's operating margin, defined as income before income taxes expressed as a percentage of net revenues, was 55 percent for the quarter, compared with 52 percent for the same period last year.
Capital expenditures, including capitalized software development costs, were $19 million in third-quarter 2005.
CME's working capital increased by $74 million during the third quarter, to $883 million at September 30, 2005.
Nine-Month Results
For the first nine months of 2005, net revenues increased 26 percent to $688 million from $546 million for the first nine months of 2004. Revenue from clearing and transaction fees improved 26 percent to $520 million from $414 million a year ago, benefiting from higher trading volume. Total operating expenses were $305 million for the first nine months of 2005, versus $272 million for the comparable period of 2004, up 12 percent.
Capital expenditures and capitalized software development costs were $62 million for the first nine months of 2005.
Income before taxes was $383 million for the first nine months of 2005, up 40 percent versus the same period a year ago. The operating margin was 56 percent for the first nine months of 2005, compared with 50 percent for the year-earlier period.
The company reported record net income of $231 million, or $6.63 per diluted share, for the first nine months of this year, compared with $163 million, or $4.74 per diluted share, for the first nine months of 2004. During the first nine months of the year, the company paid dividends totaling $1.38 per common share.
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 http://www.cme.com . An archived recording will be available for up to two months after the call.
Chicago Mercantile Exchange Holdings Inc. became the first publicly traded U.S. financial exchange on Dec. 6, 2002. The company was added to the Russell 1000(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 about $1.4 billion per day in settlement payments in the first three quarters of 2005 and managed $43.8 billion in collateral deposits at September 30, 2005, including $3.8 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 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 successfully implement our competitive initiatives; 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 interest rate policy and 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 recover market data fees that may be reduced or eliminated by the growth of electronic trading; changes in the level of trading activity; changes in our rate per contract due to shifts in the mix at the products traded, the trading venue and the mix of customers, and whether the customer receives member or non-member fees or participates in one of our various incentive programs; changes in price levels and volatility in the derivatives markets and in underlying fixed income, equity, foreign exchange and commodities markets; the ability of our joint venture, OneChicago, LLC, to obtain market acceptance of its products and achieve sufficient trading volume to operate profitably; 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.
CME-E
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
Sep. 30, 2005 Dec. 31, 2004
ASSETS
Current Assets:
Cash and cash equivalents $585,665 $357,562
Collateral from securities lending 1,222,688 1,582,985
Short-term investments of interest earning
facilities 59,480 87,521
Marketable securities 242,146 302,429
Accounts receivable 107,188 78,825
Other current assets 21,024 18,959
Cash performance bonds and security deposits 536,568 269,919
Total current assets 2,774,759 2,698,200
Property, net of accumulated depreciation
and amortization 144,865 131,361
Other assets 30,317 27,905
TOTAL ASSETS $2,949,941 $2,857,466
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $17,555 $23,045
Payable under securities lending agreements 1,222,688 1,582,985
Payable to participants in interest earning
facilities 59,480 87,521
Other current liabilities 55,240 62,153
Cash performance bonds and security deposits 536,568 269,919
Total current liabilities 1,891,531 2,025,623
Other liabilities 19,339 19,246
Total liabilities 1,910,870 2,044,869
Shareholders' Equity 1,039,071 812,597
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,949,941 $2,857,466
Balance Sheet Items Excluding Cash Performance Bonds and Security Deposits,
Securities Lending and Interest Earning Facilities(1)
Sep. 30, 2005 Dec. 31, 2004
Current assets $956,023 $757,775
Total assets 1,131,205 917,041
Current liabilities 72,795 85,198
Total liabilities 92,134 104,444
(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 are included
on the consolidated financial statements of CME Holdings. These
interest earning facilities are invested on a short-term basis, are
payable to the clearing firm participants on demand and will fluctuate
daily.
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
REVENUES
Clearing and transaction fees $176,330 $147,937 $519,744 $413,763
Clearing and transaction
services 17,593 14,354 53,168 41,005
Quotation data fees 18,811 14,913 54,371 45,198
Access fees 4,637 3,924 14,123 11,893
Communication fees 2,232 2,523 6,824 7,579
Investment income 8,830 3,229 21,189 9,094
Securities lending interest
income 15,714 4,492 39,537 11,892
Other 5,495 5,328 16,778 16,355
TOTAL REVENUES 249,642 196,700 725,734 556,779
Securities lending interest
expense (15,331) (4,311) (38,112) (11,017)
NET REVENUES 234,311 192,389 687,622 545,762
EXPENSES
Compensation and benefits 45,229 40,939 134,125 122,150
Occupancy 7,272 7,033 21,321 20,561
Professional fees, outside
services and licenses 11,519 10,020 31,857 26,950
Communications and computer and
software maintenance 14,791 12,008 42,190 36,923
Depreciation and amortization 17,256 13,555 48,118 39,466
Marketing, advertising and public
relations 3,961 2,878 9,511 7,859
Other operating expense 5,992 6,077 17,863 18,288
TOTAL EXPENSES 106,020 92,510 304,985 272,197
Income before income taxes 128,291 99,879 382,637 273,565
Income tax provision (50,825) (40,451) (152,060) (110,794)
NET INCOME $77,466 $59,428 $230,577 $162,771
EARNINGS PER SHARE:
Basic $2.25 $1.75 $6.73 $4.88
Diluted $2.22 $1.72 $6.63 $4.74
Weighted average number of
common shares:
Basic 34,370 33,935 34,262 33,374
Diluted 34,891 34,496 34,793 34,330
3Q 4Q 1Q 2Q 3Q
2004 2004 2005 2005 2005
Trading Days 64 64 61 64 64
Average Daily Volume (Round Turns, in Thousands)
3Q 4Q 1Q 2Q 3Q
2004 2004 2005 2005 2005
Interest rates 1,854 1,654 2,235 2,577 2,489
Equity E-mini 1,025 1,026 1,237 1,301 1,181
Equity
standard-size 111 119 129 124 124
Foreign exchange 193 252 294 332 336
Commodities 40 42 51 46 50
Subtotal 3,223 3,093 3,946 4,380 4,180
TRAKRS 32 73 30 21 27
Total 3,255 3,166 3,976 4,401 4,207
Open outcry 1,191 965 1,276 1,210 1,263
Electronic
(including
TRAKRS) 2,013 2,155 2,648 3,144 2,897
Privately
negotiated 51 46 52 47 47
Total 3,255 3,166 3,976 4,401 4,207
Transaction Fees (in Thousands)
3Q 4Q 1Q 2Q 3Q
2004 2004 2005 2005 2005
Interest rates $69,750 $56,556 $71,003 $83,429 $79,955
Equity E-mini 45,930 44,586 50,048 57,185 53,255
Equity
standard-size 9,090 10,071 10,319 10,552 11,125
Foreign
exchange 20,721 25,404 26,621 28,796 29,079
Commodities 2,401 2,510 2,832 2,589 2,896
Subtotal 147,892 139,127 160,823 182,551 176,310
TRAKRS 45 64 23 17 20
Total $147,937 $139,191 $160,846 $182,568 $176,330
Open outcry $43,162 $34,665 $36,987 $36,190 $37,438
Electronic
(including
TRAKRS) 92,924 93,407 112,416 135,429 127,812
Privately
negotiated 11,851 11,119 11,443 10,949 11,080
Total $147,937 $139,191 $160,846 $182,568 $176,330
Average Rate Per Contract (RPC)
3Q 4Q 1Q 2Q 3Q
2004 2004 2005 2005 2005
Interest rates $0.588 $0.534 $0.521 $0.506 $0.502
Equity E-mini 0.700 0.679 0.663 0.687 0.705
Equity
standard-size 1.284 1.317 1.315 1.330 1.400
Foreign exchange 1.676 1.577 1.483 1.357 1.353
Commodities 0.925 0.932 0.904 0.870 0.904
Average
(excluding
TRAKRS) $0.717 $0.703 $0.668 $0.651 $0.659
TRAKRS 0.022 0.014 0.012 0.012 0.011
Overall
average RPC $0.710 $0.687 $0.663 $0.648 $0.655
Open outcry $0.566 $0.562 $0.475 $0.467 $0.463
Electronic
(including
TRAKRS) 0.721 0.677 0.696 0.673 0.690
Electronic
(excluding
TRAKRS) 0.732 0.701 0.704 0.678 0.696
Privately
negotiated 3.649 3.671 3.611 3.615 3.674
Overall
average RPC $0.710 $0.687 $0.663 $0.648 $0.655
