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Chicago Mercantile Exchange Holdings Inc. (NYSE, Nasdaq: CME) today reported a 22 percent increase in total revenues to $275 million and a 34 percent increase in net income to $104 million for third-quarter 2006 compared with third-quarter 2005. Income before income taxes was up 33 percent to $171 million. Diluted earnings per share rose 33 percent to $2.95 from $2.22.
Average daily volume reached 5.4 million contracts during third-quarter 2006, a 28 percent increase from third-quarter 2005. Trading on the CME(R) Globex(R) electronic trading platform grew 32 percent to 3.8 million contracts per day in third-quarter 2006 from 2.9 million per day in third-quarter 2005. Electronic volume represented 71 percent of total CME volume in the quarter. Total third-quarter options volume averaged 1.3 million contracts per day, up 39 percent compared with third-quarter 2005. Electronic options volume averaged a record 148,000 contracts per day for the quarter, nearly tripling from the same period a year ago, and representing a record 12 percent of total CME options volume in the quarter.
"After concluding another impressive quarter, we announced our proposed merger with the Chicago Board of Trade, which will create the world's leading derivatives exchange," said CME Chairman Terry Duffy. "Building on our successful common clearing agreement, this merger will enable us to provide customers more diverse and innovative products across all asset classes, increased operational efficiencies, wider global distribution and unsurpassed liquidity. It will strengthen our ability to compete going forward and help maintain Chicago's position as the center of global risk management."
"Our strong financial results in the third quarter were driven by solid execution in our core business," said CME Chief Executive Officer Craig Donohue. "During the quarter, we continued to deliver impressive volume growth compared to third-quarter 2005, with each product line up by more than 25 percent. In addition, we significantly increased NYMEX volume on the CME Globex platform during the quarter to more than 11 million contracts traded, and we increased the number of FXMarketSpace early adopters, which now include the 16 of the top 20 FX banks in the world."
Clearing and transaction fees increased 23 percent to $217 million, up from $176 million for third-quarter 2005. Revenue from processing services rose 36 percent to $24 million and quotation data fees were up 7 percent to $20 million.
Total expenses increased 11 percent to $118 million, driven by increased compensation-related, technology maintenance and licensing expenses.
Capital expenditures, including capitalized software development costs, were $19 million in third-quarter 2006.
Third-quarter income before income taxes was $171 million, an increase of 33 percent from $128 million for the year-ago period. The company's pre-tax margin was 59 percent, compared with 55 percent for the same period last year. Pre-tax margin is defined as income before income taxes expressed as a percentage of total revenues added to total non-operating income and expense.
CME's working capital increased by approximately $76 million during the third quarter, to more than $1.2 billion at September 30, 2006.
Nine-Month Results
Average daily volume was 5.4 million contracts for the first nine months of 2006, up 28 percent from 4.2 million contracts in the same time period in 2005. Volume on the CME Globex electronic platform increased 31 percent year over year to an average of 3.8 million contracts per day.
For the first nine months of 2006, total revenues increased 21 percent to $809 million from $667 million for the first nine months of 2005. Clearing and transaction fees improved 24 percent to $646 million from $520 million a year ago, benefiting from higher trading volume. Processing services increased 17 percent, to $62 million from $53 million a year ago.
Total operating expenses were $346 million for the first nine months of 2006, an increase of 13 percent from $305 million for the comparable period in 2005.
Capital expenditures and capitalized software development costs were $58 million for the first nine months of 2006.
Income before taxes was $501 million for the first nine months of 2006, up 31 percent versus the same period a year ago. The pre-tax margin was 59 percent for the first nine months of 2006, compared with 56 percent for the year-earlier period.
The company reported net income of $305 million, or $8.68 per diluted share, for the first nine months of this year, compared with $231 million, or $6.63 per diluted share, for the first nine months of 2005.
CME will hold a conference call to discuss third-quarter results at 8:30 a.m. Eastern Time today. A live audio Webcast of the call will be available on the Investor Relations section of CME's Web site at 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 S&P 500(R) Index on August 10, 2006, and 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 and most diverse financial exchange in the world. As an international marketplace, CME brings together buyers and sellers on its CME Globex electronic trading platform and on its trading floors. CME offers futures and options on futures primarily in interest rates, equities, foreign exchange and commodities. The exchange managed $43.3 billion in collateral deposits at September 30, 2006, including $4.8 billion in deposits for non-CME products.
Chicago Mercantile Exchange, CME and Globex are registered trademarks of Chicago Mercantile Exchange Inc. E-mini is a trademark of CME. TRAKRS, Total Return Asset Contracts and other trade names, service marks, trademarks and registered trademarks that are not proprietary to Chicago Mercantile Exchange Inc. are the property of their respective owners, and are used herein under license. Further information about CME and its products is available on the CME Web site at 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: our ability to obtain the required approvals for our proposed merger with CBOT Holdings, Inc. and our ability to realize the benefits and control the costs of the proposed transaction; increasing competition by foreign and domestic competitors, including new entrants into our markets; our ability to keep pace with rapid technological developments, including our ability to complete the development and implementation of the enhanced functionality required by our customers; our ability to continue introducing competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and our ability to maintain the competitiveness of our existing products and services; our ability to adjust our fixed costs and expenses if our revenues decline; our ability to continue to realize the benefits of our transaction processing services provided to third parties; our ability to maintain existing customers and attract new ones; our ability to expand and offer our products in foreign jurisdictions; changes in domestic and foreign regulations; changes in government policy, including policies relating to common or directed clearing; the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others; our ability to generate revenue from our market data that may be reduced or eliminated by the growth of electronic trading; changes in our rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one of our various incentive programs) and the impact of our tiered pricing structure; the ability of our financial safeguards package to adequately protect us from the credit risk of our clearing firms; changes in price levels and volatility in the derivatives markets and in underlying fixed income, equity, foreign exchange and commodities markets; economic, political and market conditions; our ability to accommodate increases in trading volume without failure or degradation of performance of our systems; our ability to execute our growth strategy and maintain our growth effectively; our ability to manage the risks and control the costs associated with our acquisition, investment and alliance strategy; industry and customer consolidation; decreases in trading and clearing activity; the imposition of a transaction tax on futures and options on futures transactions; and seasonality of the derivatives business. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, including our most recent Quarterly Report on Form 10-Q, which is available in the Investor Information section of the CME Web site. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
All references to volume and rate per contract information in the text of this document exclude our non-traditional TRAKRS(R) products, for which CME receives significantly lower clearing fees than other CME products, and CME Auction Markets(TM) products.
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
September 30, December 31,
2006 2005
ASSETS
Current Assets:
Cash and cash equivalents $868,624 $610,891
Collateral from securities lending 1,356,940 2,160,893
Marketable securities, including pledged
securities 268,930 292,862
Accounts receivable, net of allowance 125,995 84,974
Other current assets 37,811 41,675
Cash performance bonds and security deposits 590,046 592,127
Total current assets 3,248,346 3,783,422
Property, net of accumulated depreciation
and amortization 158,068 153,329
Other assets 89,207 32,643
Total Assets $3,495,621 $3,969,394
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $25,816 $23,553
Payable under securities lending agreements 1,356,940 2,160,893
Other current liabilities 73,888 53,354
Cash performance bonds and security deposits 590,046 592,127
Total current liabilities 2,046,690 2,829,927
Other liabilities 27,846 20,783
Total liabilities 2,074,536 2,850,710
Shareholders' equity 1,421,085 1,118,684
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,495,621 $3,969,394
Chicago Mercantile Exchange Holdings Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Quarter Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Revenues
Clearing and
transaction fees $216,999 $176,330 $646,315 $519,744
Processing services 23,910 17,593 62,219 53,168
Quotation data fees 20,057 18,811 60,736 54,371
Access fees 5,186 4,637 14,939 14,123
Communication fees 2,142 2,232 6,541 6,824
Other 6,411 6,103 17,881 18,995
Total Revenues 274,705 225,706 808,631 667,225
Expenses
Compensation and
benefits 51,159 45,229 149,051 134,125
Communications 7,691 8,357 23,484 22,477
Technology support
services 8,459 6,434 23,377 19,713
Professional fees and
outside services 7,473 7,563 25,226 19,704
Depreciation and
amortization 18,609 17,256 53,592 48,118
Occupancy 7,731 7,272 22,202 21,321
Licensing and other
fee agreements 6,394 3,956 19,255 12,153
Marketing, advertising
and public relations 4,510 3,961 11,593 9,511
Other 5,717 5,992 18,251 17,863
Total Expenses 117,743 106,020 346,031 304,985
Operating Income 156,962 119,686 462,600 362,240
Non-Operating Income
and Expense
Investment income 14,654 8,830 38,789 21,189
Securities lending
interest income 19,343 15,714 70,439 39,537
Securities lending
interest expense (18,943) (15,331) (68,809) (38,112)
Equity in losses of
unconsolidated
subsidiaries (1,502) (608) (2,110) (2,217)
Total Non-Operating 13,552 8,605 38,309 20,397
Income Before Income
Taxes 170,514 128,291 500,909 382,637
Income tax provision (66,714) (50,825) (196,163) (152,060)
Net Income $103,800 $77,466 $304,746 $230,577
Earnings per Common Share:
Basic $2.99 $2.25 $8.79 $ 6.73
Diluted 2.95 2.22 8.68 6.63
Weighted Average Number
of Common Shares:
Basic 34,749 34,370 34,657 34,262
Diluted 35,153 34,891 35,098 34,793
Note: Beginning in the third quarter of 2006, the following income
statement items have been reclassified from revenue to non-operating
income and expense in the consolidated statements of income: investment
income, securities lending interest income and expense, and equity in
losses of unconsolidated subsidiaries. The equity in losses of
unconsolidated subsidiaries was previously included as part of other
income. All other items were included separately in the income statement.
The presentation of these items has been changed to more closely conform
to the Securities and Exchange Commission's Article 5 of Regulation S-X.
3Q 4Q 1Q 2Q 3Q
2005 2005 2006 2006 2006
Trading Days 64 63 62 63 63
Average Daily Volume (Round Turns, in Thousands)*
3Q 4Q 1Q 2Q 3Q
2005 2005 2006 2006 2006
Interest rates 2,489 2,209 2,918 3,255 3,148
Equity E-mini 1,181 1,336 1,408 1,748 1,564
Equity
standard-size 118 141 145 173 154
Foreign exchange 336 375 407 471 423
Commodities 56 56 80 81 78
Subtotal 4,180 4,117 4,958 5,728 5,367
TRAKRS 27 595 161 419 117
Total 4,207 4,712 5,119 6,147 5,484
Open outcry 1,263 1,107 1,467 1,657 1,517
Electronic
(including
TRAKRS) 2,897 3,556 3,595 4,441 3,917
Privately
negotiated 47 49 57 49 50
Total 4,207 4,712 5,119 6,147 5,484
Transaction Fees (in Thousands)*
3Q 4Q 1Q 2Q 3Q
2005 2005 2006 2006 2006
Interest
rates $79,955 $70,840 $89,194 $97,768 $98,306
Equity E-mini 53,255 59,427 62,183 76,889 70,194
Equity
standard-size 10,657 12,823 12,859 15,493 12,947
Foreign
exchange 29,079 29,442 31,616 33,212 30,576
Commodities 3,364 3,457 4,737 4,673 4,597
Subtotal 176,310 175,989 200,589 228,035 216,620
TRAKRS 20 468 208 384 244
Total $176,330 $176,457 $200,797 $228,419 $216,864
Open outcry $37,438 $35,677 $43,406 $50,067 $45,429
Electronic
(including
TRAKRS) 127,812 129,088 144,776 166,741 160,295
Privately
negotiated 11,080 11,692 12,615 11,611 11,140
Total $176,330 $176,457 $200,797 $228,419 $216,864
Average Rate Per Contract (RPC)*
3Q 4Q 1Q 2Q 3Q
2005 2005 2006 2006 2006
Interest
rates $0.502 $0.509 $0.493 $0.477 $0.496
Equity E-mini 0.705 0.706 0.712 0.698 0.712
Equity
standard-size 1.410 1.443 1.431 1.421 1.338
Foreign
exchange 1.353 1.246 1.253 1.119 1.146
Commodities 0.937 0.975 0.953 0.921 0.939
Average
(excluding
TRAKRS) $0.659 $0.678 $0.652 $0.632 $0.641
TRAKRS 0.011 0.012 0.021 0.015 0.033
Overall
average
RPC $0.655 $0.594 $0.633 $0.590 $0.628
Open outcry $0.463 $0.512 $0.477 $0.480 $0.475
Electronic
(including
TRAKRS) 0.690 0.576 0.650 0.597 0.652
Electronic
(excluding
TRAKRS) 0.696 0.690 0.679 0.657 0.668
Privately
negotiated 3.674 3.759 3.583 3.785 3.545
Overall
average RPC $0.655 $0.594 $0.633 $0.590 $0.628
*Note: All volume, transaction fee data, and rate per contract information exclude CME Auction Markets(TM) products.
