UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
- OR -
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-31553
CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
(Exact name of registrant as specified in its charter)
| Delaware | 36-4459170 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| 20 South Wacker Drive, Chicago, Illinois | 60606 | |
| (Address of principal executive offices) | (Zip Code) | |
(312) 930-1000
(Registrant’s telephone number, including area code)
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨
The number of shares outstanding of each of the registrant’s classes of common stock as of April 23, 2004 was as follows: 9,068,014 shares of Class A common stock, $0.01 par value; 5,869,066 shares of Class A common stock, Class A-1, $0.01 par value; 5,484,249 shares of Class A common stock, Class A-2, $0.01 par value; 6,444,334 shares of Class A common stock, Class A-3, $0.01 par value; 6,163,009 shares of Class A common stock, Class A-4, $0.01 par value; 625 shares of Class B common stock, Class B-1, $0.01 par value; 813 shares of Class B common stock, Class B-2, $0.01 par value; 1,287 shares of Class B common stock, Class B-3, $0.01 par value; and 413 shares of Class B common stock, Class B-4, $0.01 par value.
CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
FORM 10-Q
INDEX
2
From time to time, in written reports and oral statements, we discuss our expectations regarding future performance. Forward-looking statements are based on currently available competitive, financial and economic data, current expectations, estimates, forecasts and projections about the industries in which we operate and management’s beliefs and assumptions. 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. We want to caution you to not place undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Among the factors that might affect our performance are: economic, political and market conditions; changes in the level of trading activity, price levels and volatility in the derivatives markets and in underlying fixed income, equity, foreign exchange and commodities markets; changes in domestic and foreign regulations; changes in government policy, including interest rate policy and policies relating to common or directed clearing; industry and customer consolidation; seasonality of the futures business; our ability to adjust our fixed costs and expenses if our revenues decline; our ability to efficiently and simultaneously operate both open outcry trading and electronic trade execution facilities; our ability to keep pace with rapid technological developments; our ability to accommodate increases in trading volume without failure or degradation of performance of our trading systems; increasing competition by foreign and domestic competitors, including new entrants into our markets; our ability to successfully implement our competitive initiatives; 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; decreases in member trading and clearing activity; our ability to manage the risks and control the costs associated with our acquisition, investment and alliance strategy; the ability of our joint venture, OneChicago, LLC, to obtain market acceptance of its products and achieve sufficient trading volume to operate profitably; the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others; and the continued availability of financial resources in the amounts and on the terms required to support our future business. For a detailed discussion of these and other factors that might affect our performance, see Exhibit 99.1 to this Quarterly Report on Form 10-Q.
Chicago Mercantile Exchange GLOBEX® and SPAN® are our registered trademarks. E-mini™ is our service mark. e-miNYsm is a service mark of Chicago Mercantile Exchange Inc. and New York Mercantile Exchange, or NYMEX, pursuant to agreement. E-mini S&P 500®, S&P 500®, E-mini NASDAQ-100®, NASDAQ-100® and TRAKRSsm and other trade names, service marks, trademarks and registered trademarks that are not proprietary to us, are the property of their respective owners and used herein under license.
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CHICAGO MERCANTILE EXCHANGE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 187,986 | $ | 185,124 | ||||
| Collateral from securities lending |
1,295,706 | 1,004,400 | ||||||
| Short-term investments of interest earning facilities |
174,103 | 370,504 | ||||||
| Marketable securities |
272,163 | 256,538 | ||||||
| Accounts receivable, net of allowance of $804 and $866 |
78,336 | 52,972 | ||||||
| Other current assets |
16,097 | 21,589 | ||||||
| Cash performance bonds and security deposits |
2,809,580 | 2,832,252 | ||||||
| Total current assets |
4,833,971 | 4,723,379 | ||||||
| Property, net of accumulated depreciation and amortization |
114,428 | 118,203 | ||||||
| Other assets |
34,792 | 31,054 | ||||||
| Total Assets |
$ | 4,983,191 | $ | 4,872,636 | ||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | 13,394 | $ | 24,690 | ||||
| Payable under securities lending agreements |
1,295,706 | 1,004,400 | ||||||
| Payable to participants in interest earning facilities |
174,103 | 370,504 | ||||||
| Other current liabilities |
66,215 | 56,129 | ||||||
| Cash performance bonds and security deposits |
2,809,580 | 2,832,252 | ||||||
| Total current liabilities |
4,358,998 | 4,287,975 | ||||||
| Other liabilities |
21,152 | 21,666 | ||||||
| Total Liabilities |
4,380,150 | 4,309,641 | ||||||
| Shareholders’ Equity: |
||||||||
| Preferred stock, $0.01 par value, 9,860,000 shares authorized, none issued and outstanding |
— | — | ||||||
| Series A junior participating preferred stock, $0.01 par value, 140,000 shares authorized, none issued and outstanding |
— | — | ||||||
| Class A common stock, $0.01 par value, 138,000,000 shares authorized, 32,931,485 and 32,922,061 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively |
329 | 329 | ||||||
| Class B common stock, $0.01 par value, 3,138 shares authorized, issued and outstanding |
— | — | ||||||
| Additional paid-in capital |
196,588 | 195,222 | ||||||
| Unearned restricted stock compensation |
(767 | ) | (941 | ) | ||||
| Retained earnings |
405,794 | 368,312 | ||||||
| Accumulated net unrealized gains on securities |
1,097 | 73 | ||||||
| Total Shareholders’ Equity |
603,041 | 562,995 | ||||||
| Total Liabilities and Shareholders’ Equity |
$ | 4,983,191 | $ | 4,872,636 | ||||
See accompanying notes to consolidated financial statements.
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CHICAGO MERCANTILE EXCHANGE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
||||||||
| Clearing and transaction fees |
$ | 122,952 | $ | 102,399 | ||||
| Clearing and transaction services |
12,478 | 180 | ||||||
| Quotation data fees |
15,490 | 11,799 | ||||||
| Access fees |
3,990 | 3,722 | ||||||
| Communication fees |
2,498 | 2,416 | ||||||
| Investment income |
3,097 | 1,146 | ||||||
| Securities lending interest income |
3,457 | 2,857 | ||||||
| Other |
5,585 | 4,081 | ||||||
| Total Revenues |
169,547 | 128,600 | ||||||
| Securities lending interest expense |
(3,175 | ) | (2,584 | ) | ||||
| Net Revenues |
166,372 | 126,016 | ||||||
| Expenses |
||||||||
| Compensation and benefits |
40,580 | 33,244 | ||||||
| Occupancy |
6,705 | 6,281 | ||||||
| Professional fees, outside services and licenses |
8,083 | 7,378 | ||||||
| Communications and computer and software maintenance |
12,249 | 12,117 | ||||||
| Depreciation and amortization |
12,795 | 13,211 | ||||||
| Marketing, advertising and public relations |
2,514 | 5,602 | ||||||
| Other |
6,034 | 4,429 | ||||||
| Total Expenses |
88,960 | 82,262 | ||||||
| Income before income taxes |
77,412 | 43,754 | ||||||
| Income tax provision |
(31,352 | ) | (17,633 | ) | ||||
| Net Income |
$ | 46,060 | $ | 26,121 | ||||
| Earnings per Common Share: |
||||||||
| Basic |
$ | 1.40 | $ | 0.80 | ||||
| Diluted |
1.35 | 0.77 | ||||||
| Weighted average number of common shares: |
||||||||
| Basic |
32,932,354 | 32,534,483 | ||||||
| Diluted |
34,046,784 | 33,863,591 | ||||||
See accompanying notes to consolidated financial statements.
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CHICAGO MERCANTILE EXCHANGE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share and per share data)
(unaudited)
| Class A Common Stock |
Class B Common Stock |
Common Stock and Additional Paid-In Capital |
Unearned |
Retained |
Accumulated |
Total |
||||||||||||||||
| Shares |
Shares |
Amount |
||||||||||||||||||||
| Balance December 31, 2003 |
32,922,061 | 3,138 | $ | 195,551 | $ | (941 | ) | $ | 368,312 | $ | 73 | $ | 562,995 | |||||||||
| Comprehensive income: |
||||||||||||||||||||||
| Net income |
46,060 | 46,060 | ||||||||||||||||||||
| Change in net unrealized gain on securities, net of tax of $683 |
1,024 | 1,024 | ||||||||||||||||||||
| Total comprehensive income |
47,084 | |||||||||||||||||||||
| Exercise of stock options |
9,424 | 207 | 207 | |||||||||||||||||||
| Tax benefit related to employee stock compensation |
234 | 234 | ||||||||||||||||||||
| Quarterly cash dividends on common stock of $0.26 per share |
(8,578 | ) | (8,578 | ) | ||||||||||||||||||
| Stock-based compensation |
925 | 925 | ||||||||||||||||||||
| Amortization of unearned restricted stock compensation |
174 | 174 | ||||||||||||||||||||
| Balance March 31, 2004 |
32,931,485 | 3,138 | $ | 196,917 | $ | (767 | ) | $ | 405,794 | $ | 1,097 | $ | 603,041 | |||||||||
| Balance December 31, 2002 |
32,530,372 | 3,138 | $ | 179,994 | $ | (665 | ) | $ | 266,810 | $ | — | $ | 446,139 | |||||||||
| Net income |
26,121 | 26,121 | ||||||||||||||||||||
| Exercise of stock options |
1,200 | 26 | 26 | |||||||||||||||||||
| Cash dividends on common stock of $0.14 per share |
(4,563 | ) | (4,563 | ) | ||||||||||||||||||
| Stock-based compensation |
528 | 528 | ||||||||||||||||||||
| Amortization of unearned restricted stock compensation |
100 | 100 | ||||||||||||||||||||
| Balance March 31, 2003 |
32,531,572 | 3,138 | $ | 180,548 | $ | (565 | ) | $ | 288,368 | $ | — | $ | 468,351 | |||||||||
See accompanying notes to consolidated financial statements.
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CHICAGO MERCANTILE EXCHANGE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)