News Release

CBOT Holdings Reports Best Year in Company History for Revenue

Wed Jan 31 2007

For Immediate Release

Media Contact:                                                          Investor Contact:
Melissa Jarmel                                                           Debbie Koopman
(312) 435-7137                                                        (312) 789-8532
news@cbot.com                                                       investorrelations@cbot.com

CBOT Holdings Reports Best Year in Company History for Revenue, Operating Margins and Earnings
--Achieves Fifth Consecutive Year of Record Trading Volume
--Delivers Strong Finish to 2006 with Record Fourth-Quarter Results

CHICAGO, January 31, 2007 – CBOT Holdings, Inc. (CBOT), holding company for the Chicago Board of Trade, today announced record revenue of $169.3 million for the fourth quarter ended December 31, 2006, a 48 percent increase over the prior year period.  Net income for the fourth quarter was $44.9 million, more than double last year’s fourth quarter net income of $17.7 million.  Diluted earnings per share were $0.85 and $0.34, for the fourth quarter of 2006 and 2005, respectively.  Growth in trading volume, higher average exchange fee rates and disciplined expense management drove these strong financial results.

Included in the fourth-quarter 2006 results are $9.5 million in merger-related expenses, which are non-deductible for tax purposes and consist primarily of professional fees incurred in connection with the CBOT’s proposed merger with Chicago Mercantile Exchange Holdings Inc. (CME).  On a non-GAAP basis, excluding the merger-related expenses, net income for the quarter ending December 31, 2006 was $54.4 million or $1.03 per diluted share. 

For the year ended December 31, 2006, the company achieved record revenue of $621.1 million, a 35 percent increase from $461.5 million a year ago.  Net income for the year of $172.2 million was the best ever for the company, reflecting a 125 percent increase compared with last year’s net income of $76.5 million.  Diluted earnings per share were $3.26 for the year.  Excluding non-tax deductible, merger-related expenses of $9.7 million for the year, non-GAAP net income was $181.9 million, or $3.44 per diluted share, for the 2006 fiscal year.

“Our record-setting results for the quarter and the year reflect the success of our strategic growth initiatives and our ability to capitalize on our scaleable business model,” said Bernard W. Dan, president and CEO of the CBOT.  These results were particularly rewarding given the changing dynamics in our marketplace.  The financial services industry is witnessing an expansion in global access to risk management vehicles, and with that, competition among cash, futures and over-the-counter markets is intensifying." 

“This past year unquestionably has been a momentous one for the CBOT, as we took important steps to strengthen our competitive position in a consolidating marketplace.  Our decision to merge with CME was paramount in our efforts to secure a stronger future for the CBOT, while benefiting our market users.  Other initiatives such as our move to offer electronic trading of Agricultural futures during daytime trading hours and our launch of the Asian-based commodities Exchange, JADE, lay the groundwork for future growth of the CBOT.  In 2007, we will focus on serving the diverse needs of our customer base with innovative products and services while successfully completing our merger with CME.” said Dan.

Financial Highlights:

 

($s in millions, except per share)

Q4 FY06

Q4 FY05

Y/Y

FY06

FY05

Y/Y

 

Revenues

$169.3

$114.7

 48%

$621.1

$461.5

35%

 

GAAP Operating Income

$ 75.8

$ 28.0

171%

$276.0

$130.5

112%

Non-GAAP Operating Income

$ 85.3

$ 28.0

205%

$285.7

$130.5

119%

 

GAAP Operating Margin %

 44.8%

 24.4%

20.4 pts

44.4%

 28.3%

16.1 pts

Non-GAAP Operating Margin %

 50.4%

 24.4%

26.0 pts

46.0%

 28.3%

17.7 pts

 

GAAP Net Income

$ 44.9

$  17.7

154%

$172.2

$ 76.5

125%

Non-GAAP Net Income

$ 54.4

$  17.7

207%

$181.9

$ 76.5

138%

 

GAAP Diluted EPS

$ 0.85

$ 0.34

150%

$ 3.26

$ 1.09

*

Non-GAAP Diluted EPS

$ 1.03

$ 0.34

203%

$ 3.44

$ 1.09

*

NOTE: Certain prior period amounts have been reclassified to conform to current period presentation.The non-GAAP financial measures of operating performance exclude merger-related expenses of $9.5 million for the fourth quarter and $9.7 million for the year.  The merger-related expenses are non-deductible for tax purposes, thus the pre-tax and after-tax impact is the same.  Non-GAAP measures do not replace and are not superior to the presentation of our GAAP financial results but are provided to improve overall understanding of our current financial performance and our prospects for the future.  * Percentage change for fiscal year EPS is not meaningful due to the company’s demutualization in second quarter of 2005.

Revenue growth for the fourth quarter and the year was primarily driven by increased trading volume and higher average rates per contract, resulting in higher exchange and clearing fees.  Revenue also benefited from a 33 percent increase in market data fees for the quarter and the year.  The growth in market data fees was primarily generated by a market data price increase implemented January 1, 2006.

For the year, exchange and clearing fees increased 38 percent over the prior year.  This growth was generated by a 19.5 percent rise in trading volume and a 15 percent increase in the average rate per contract in 2006 compared with 2005.  CBOT achieved its fifth consecutive year of record-breaking volume.  Trading volume for the year reached 805.9 million contracts, with volume increases across each of CBOT’s major product categories.  Average daily volume (ADV) for the year ended December 31, 2006 was 3.2 million contracts, up 20 percent from the same period last year.  Average daily trading volume on the CBOT’s e-cbot® electronic trading platform grew 29 percent, representing 70 percent of total exchange ADV in 2006 compared with 65 percent in 2005.

For the quarter, exchange and clearing fees increased 56 percent compared with the same period last year, reflecting a 36 percent lift in trading volume and a 15 percent increase in the average rate per contract.  Trading volume for the quarter was 205.9 million contracts versus 151.4 million in last year’s fourth quarter.  The average rate per contract was $0.653 for the quarter compared with $0.570 in the fourth quarter of 2005.  The rate increase primarily resulted from changes in trading fees, as part of the company’s strategy to further segment its pricing structure.  Additionally, the average rate per contract benefited from increased electronic trading of Agricultural contracts, resulting from the August 1, 2006, introduction of electronic trading of Agricultural futures during daytime trading hours.  The average rate per contract represents total exchange and clearing fee revenue divided by total reported trading volume.

Average daily volume in the fourth quarter was 3.3 million contracts, up 36 percent compared with the 2005 fourth quarter.  In addition, ADV on the CBOT’s e-cbot® electronic trading platform rose to 73 percent of total exchange ADV, up from 68 percent in the fourth quarter of 2005, reflecting strong adaptation to the side-by-side trading of Agricultural futures.

Total operating expenses for the fourth quarter were $93.5 million, up 8 percent over the prior year’s fourth quarter.  Excluding merger-related expenses of $9.5 million for the quarter, operating expenses declined 3 percent compared with the prior year period.  Volume-based expenses of $21.1 million rose 32 percent, in line with the growth in trading volume.  Baseline and other costs, or non-volume based expenses, were $72.4 million this quarter compared with $70.7 million in the fourth quarter of 2005, a 2 percent increase. 

Strong expense controls were a key driver in boosting operating margins.  In the fourth quarter, operating margins expanded by more than 20 percentage points to 44.8 percent from 24.4 percent in the same period last year.  Excluding merger-related expenses, the operating margin for the quarter was 50.4 percent, up 26 percentage points.

Other Financial Metrics (in millions, except rate per contract)

 

 

Q4 FY06

Q4 FY05

FY06

FY05

Average Daily Volume

3.3

2.4

3.2

2.7

Reported Trading Volume

205.9

151.4

805.9

674.7

Average Rate per Contract

$0.653

$0.570

$ 0.597

$0.517

Depreciation & Amortization

$12.3

$13.7

$54.8

$54.9

Non-Cash Stock Compensation

$ 0.5

$ 1.8

$ 2.7

$ 1.8

Capital Expenditures

$ 4.6

$12.8

$24.1

$40.2

CBOT Fourth Quarter 2006 Operational Highlights

  • Entered into a definitive agreement to merge with Chicago Mercantile Exchange Holdings Inc. to create the most extensive and diverse global derivatives exchange.
  • Reached new record for daily trading volume, topping 7 million contracts.
  • Introduced open auction trading of options on Full-sized Gold (100 oz.) and Silver (5,000 oz.) futures contracts, listing them “side-by-side” with electronic trading in the contracts to create additional trading opportunities for customers.
  • Launched Dow Jones-AIG Excess Return Commodity IndexSM futures contract, which was developed at the request of market participants seeking an exchange-traded instrument that provides diverse, global commodities exposure.  Subsequently, this contract became eligible for wholesale transactions.
  • Implemented new process and delivery enhancements to the Metals complex, introducing an Electronic Vault Delivery Receipt system for the Precious Metals complex. 
  • Implemented a directed fungibility program between the Full-sized and mini-sized Agricultural futures contracts.
  • Launched clearing services for two new over-the-counter (OTC) Ethanol Calendar Swap contracts, forward and previous month calendar swaps, the first exchange-cleared OTC products to be specifically tailored for use in the ethanol industry.
  • Chicago Mercantile Exchange Holdings Inc. and CBOT Holdings, Inc. filed a joint proxy and registration statement on Form S-4 with the U.S. Securities and Exchange Commission relating to the proposed merger of the two companies.  

Outlook

The guidance outlined below is based on the company’s current operating model as a standalone company and does not take into account merger-related expenses expected to be incurred in connection with the pending transaction between CBOT and CME.  Given current market conditions and what is known today, CBOT currently expects the following for the:

 

 

Fiscal Year 2007

First Quarter 2007

 

($s in millions, except per contract data)

Baseline and other expenses, which equal total operating expenses less volume-based expenses (excludes merger-related expenses)

   $250 –$260

$62 - $65

 

 

 

Non-cash stock compensation expense included

in baseline expenses

  $4.0 - $4.5

  $0.800 – $0.900

 

Fiscal Year and

First Quarter 2007

Volume-based expenses, which include clearing costs and contracted license fees, per reported contract

About $0.103

Absent changes in transaction mix, the average rate per contract should approximate the fourth quarter rate 

About $0.653

The company does not provide an outlook for trading volume or revenue but does report the trading volume daily on its website at http://www.cbot.com/cbot/pub/page/0,3181,834,00.html#daily

 

 

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

 

2006

2006

2006

2006

2005

2005

2005

2005

Trading Days

63

63

63

62

63

64

64

61


AVERAGE RATE PER CONTRACT 

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

PRODUCT:

2006

2006

2006

2006

2005

2005

2005

2005

 Interest Rate

0.569

0.568

0.523

0.517

0.537

0.469

0.467

0.482

 Agriculture

0.931

0.790

0.680

0.673

0.666

0.631

0.643

0.641

 Equity Index

0.803

0.779

0.712

0.760

0.789

0.672

0.630

0.578

 Metals, Energy & Other

1.001

1.048

0.986

1.312

1.559

1.360

1.312

0.855

   Overall average rate per contract

0.653

0.618

0.564

0.552

0.570

0.501

0.499

0.507

VENUE:

 

 

 

 

 

 

 

 

 Open-Auction

0.522

0.524

0.515

0.515

0.507

0.485

0.483

0.491

 Electronic

0.612

0.562

0.503

0.495

0.506

0.411

0.397

0.400

 Off-Exchange

3.179

3.172

2.564

2.296

2.299

2.117

2.404

2.131

   Overall average rate per contract

0.653

0.618

0.564

0.552

0.570

0.501

0.499

0.507

 

AVERAGE DAILY VOLUME (Round Turns, in thousands)

 

 

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

PRODUCT:

2006

2006

2006

2006

2005

2005

2005

2005

 Interest Rate

2,480

2,507

2,588

2,561

1,951

2,123

2,368

2,356

 Agriculture

611

490

529

412

331

350

404

373

 Equity Index

112

110

131

113

112

103

115

105

 Metals, Energy & Other

65

56

54

22

9

5

3

4

   Total

3,269

3,163

3,302

3,108

2,404

2,582

2,889

2,838

VENUE:

 

 

 

 

 

 

 

 

 Open-Auction

813

850

990

887

685

773

940

940

 Electronic

2,375

2,232

2,220

2,132

1,633

1,707

1,843

1,772

 Off-Exchange

81

81

91

88

86

102

106

126

   Total

3,269

3,163

3,302

3,108

2,404

2,582

2,889

2,838

TRANSACTION FEES (in thousands)

 

 

4Q

3Q

2Q

1Q

4Q

3Q

2Q

1Q

PRODUCT:

2006

2006

2006

2006

2005

2005

2005

2005

 Interest Rate

$88,894

$89,673

$85,339

$82,032

$65,994

$63,741

$70,733

$69,327

 Agriculture

35,821

24,378

22,664

17,176

13,869

14,150

16,604

14,598

 Equity Index

5,677

5,416

5,859

5,337

5,588

4,439

4,627

3,687

 Metals, Energy & Other

4,116

3,699

3,360

1,805

908

393

252

184

   Total

$134,509

$123,166

$117,221

$106,351

$86,360

$82,722

$92,216

$87,796

VENUE:

 

 

 

 

 

 

 

 

 Open-Auction

$26,730

$28,060

$32,136

$28,356

$21,885

$23,979

$29,085

$28,185

 Electronic

91,570

79,000

70,341

65,442

52,013

44,872

46,883

43,285

 Off-Exchange

16,209

16,106

14,745

12,552

12,462

13,871

16,247

16,325

   Total

$134,509

$123,166

$117,221

$106,351

$86,360

$82,722

$92,216

$87,796

Earnings Conference Call

Executives of CBOT will host a conference call to review its fourth quarter results today, January 31, 2007, at 8:00 a.m. ET / 7:00 a.m. CT.  The conference call and any accompanying slides will be publicly available via live webcast from the investor relations section of the CBOT Holdings website at http://www.cbot.com.  The webcast will be available for replay at the same address approximately two hours following its conclusion.  Those wishing to listen to the live audio webcast via telephone should dial 866.314.5232 (U.S. callers) and 617.213.8052 (International callers) at least 10 minutes before the call begins. The verbal passcode for the call is “CBOT Holdings.”  To listen to an archived recording after the call, please dial 888-286-8010 (U.S. callers) and 617-801-6888 (International callers).  The passcode for the replay is 96871566.

Use of Non-GAAP Financial Information

In this press release, we use non-GAAP financial measures of operating performance.  For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure, calculated and prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).  Non-GAAP financial measures do not replace and are not superior to the presentation of our GAAP financial results, but are provided to present the effects of expenses recorded by CBOT Holdings, Inc. in connection with our proposed merger with Chicago Mercantile Exchange Holdings, Inc., and to improve overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to financial condition and operating results. In addition, our management uses these measures for reviewing financial results and evaluating financial performance.

About the CBOT

As one of the leading global derivative exchanges, the Chicago Board of Trade provides a diverse mix of financial, equity, and commodity futures and options-on-futures products.  Building on its 158-year history, the CBOT continues to advance into the future using the strength of deep liquidity, market integrity and member-trader expertise.  Using superior trading technology in both electronic and open-auction trading platforms, the CBOT provides premier customer service to risk managers and investors worldwide.  For more information visit our website at www.cbot.com.

Important Merger Information

In connection with the proposed merger of CBOT Holdings, Inc. (“CBOT”) and the Chicago Mercantile Exchange Holdings Inc. (“CME”), the parties have filed relevant materials with the Securities Exchange Commission (“SEC”), including a joint proxy statement/prospectus regarding the proposed transaction.  INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION, BECAUSE IT CONTAINS IMPORTANT INFORMATION.  Investors are able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about CBOT and CME without charge, at the SEC’s website (http://www.sec.gov).  Copies of the joint proxy statement/prospectus can also be obtained when available, without charge by directing a request to CBOT Holdings, Inc., Attention: Investor Relations, at 141 West Jackson, Chicago, Illinois 60604 or calling (312) 435-3500.

CBOT, CME and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from CBOT shareholders in respect of the proposed transaction.  Information regarding CBOT directors and executive officers is available in CBOT’s proxy statement for its 2006 annual meeting of stockholders, dated March 29, 2006.  Additional information regarding the interests of such potential participants is included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC.  This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Forward-Looking Statements

Certain statements in this document and its attachments may contain forward-looking information regarding CBOT, CME and the combined company after the completion of the transactions that are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995.  These statements include, but are not limited to, the benefits of the business combination transaction involving CBOT and CME including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical facts.  Such statements are based upon the current beliefs and expectations of the management of CBOT and CME and are subject to significant risks and uncertainties.  Actual results may differ from those set forth in the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the ability to obtain governmental approvals of the transaction on the proposed terms and schedule; the failure of CBOT shareholders or CME shareholders to approve the transaction; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; competition and its effect on pricing, spending, third-party relationships and revenues; social and political conditions such as war, political unrest or terrorism; general economic conditions and normal business uncertainty.  Additional risks and factors are identified in CBOT’s filings with the SEC, including its Report on Form 10-K for the fiscal year ending December 31, 2005 which is available on CBOT’s website at http://www.cbot.com.

You should not place undue reliance on forward-looking statements, which speak only as of the date of this document.  Except for any obligation to disclose material information under the Federal securities laws, CBOT undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this document.

Other Information

“Dow Jones,” “AIG®” and “Dow Jones-AIG Commodity IndexSM” are service marks of Dow Jones & Company, Inc. and American International Group, Inc. (“American International Group”), as the case may be, and have been licensed for use for certain purposes by CBOT.  CBOT’s DJ-AIG ER contract based on the Dow Jones-AIG Commodity IndexSM, are not sponsored, endorsed, sold or promoted by Dow Jones, AIG Financial Products Corp. (“AIG-FP”), American International Group, or any of their respective subsidiaries or affiliates, and none of Dow Jones, AIG-FP, American International Group, or any of their respective subsidiaries or affiliates, makes any representation regarding the advisability of investing in such contracts.

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