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Exhibit 99.1
Contact: Maryellen T. Thielen, 312/930-3467
William Burks, 312/930-3446
[email protected]
CHICAGO, Nov. 14, 2000--The attached communication reporting on the results of
operations of Chicago Mercantile Exchange and its subsidiaries for the nine
months ended September 30, 2000, was distributed to CME shareholders today.
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Chicago Mercantile Exchange Inc.
November 14, 2000
Dear Shareholder:
The following is a report on the results of operations of Chicago Mercantile
Exchange and its subsidiaries for the nine months ended September 30, 2000,
compared to the same period in 1999. Selected Consolidated Financial Data is
also attached for your review. A net loss of $10.6 million was incurred during
the nine months ended September 30, 2000, compared to net income of $5.8 million
for the nine months ended September 30, 1999. These financial results reflect
the fact that 2000 has been a transition year for the Exchange, and that we have
been making substantial technology investments in order to capitalize on growth
opportunities. Although operating expenses have increased, our working capital
position remains strong at $62.7 million, versus $66.8 million at December 31,
1999.
As you know, the demutualization plan that was overwhelmingly approved by you
anticipated the creation of a senior management team capable of transitioning
the Exchange from a mutual organization to a for-profit company, Chicago
Mercantile Exchange Inc. To accomplish this, throughout the course of the year,
we recruited and retained a new senior management team, and several senior
management personnel departed. These actions resulted in significant non-
recurring expenses.
In addition, we have made significant strategic technology investments over the
past two years. These investments are necessary in order to capitalize on the
rapid growth in electronic trading associated with our highly successful E-mini
S&P 500(R) contracts and our E-mini Nasdaq 100(R) contracts. Our year-to-date
growth rate in GLOBEX(R)/2/ trading volume was 104 percent. Additionally, the
number of GLOBEX/2/ terminals has increased 43 percent from September 30, 1999
to September 30, 2000, again underscoring the demand for our products.
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November 14, 2000
Page 2
As we go forward, we will continue to promote growth and shareholder value by
opening access to our markets, further improving our electronic and open outcry
platforms, and bringing innovative new products to market. We will also
continue to establish ourselves as a successful provider of clearing and
settlement services to emerging business-to-business (B2B) exchanges and
marketplaces. Finally, we intend to continue the process, begun earlier this
year, of reducing expenses and rationalizing our fee structure. We expect to
begin implementing the results of our long-term pricing review effective January
2001.
Revenues
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Total revenues decreased slightly to $159.4 million from $160.0 million.
Clearing and transaction fee revenue increased by $0.1 million as trading volume
increased 9.2%. Clearing fees charged for the E-mini S&P 500 and the E-mini
Nasdaq 100 contracts are lower than those charged for our other equity
contracts; therefore, the increases in volume during this period did not create
corresponding increases in clearing and transaction fee revenues. Quotation
data fees decreased to $27.5 million from $32.0 million as a result of a
marketing effort to expand our retail customer base by reducing fees to non-
professional subscribers. While quotation revenue decreased, the total number
of professional and non-professional subscribers increased 26% from September
30, 1999. Communication revenue increased $0.9 million, as a result of rate
increases to users of the Exchange's telecommunication system. Other operating
revenue increased to $10.2 million from $7.4 million due primarily to a $1.7
million increase in trading gains in GFX and a $1.0 million increase in
GLOBEX/2/ terminal charges.
Expenses
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Excluding approximately $10.0 million of one-time expenses, total operating
expenses increased by $16.8 million from $149.1 million to $175.9 million.
There were two primary factors for this increase. First, as mentioned above, we
incurred expenses related to reorganization of the management team which include
both new hires and several departures. Salaries and benefits increased 22.9% or
$13.7 million. In January 2000, the Exchange entered into an employment
agreement with James J. McNulty, the Exchange's President & CEO. The agreement
provided for a $2.0 million sign-on bonus and options that vest over a four year
period, the value of which is tied to any increase in the value of the Exchange.
The expense related to the appreciation of the granted options plan totaled $2.1
million during the first nine months of 2000. In addition, three executives
with employment contracts resigned during the first quarter of 2000. Payments
required by these contracts, a rise in overall compensation levels for
employees, and the corresponding impact on employment taxes and employee benefit
costs account for the remainder of the increases.
Second, communication and computer and software maintenance costs of $31.2
million increased by $11.6 million. Depreciation and amortization increased by
$7.2 million due
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November 14, 2000
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to software and computer equipment purchases, as well as capitalized software
development costs. Ongoing technology investments, combined with policy changes
to open access to our markets, are key elements of our strategy to increase
trading volume.
Additionally, occupancy costs increased $0.9 million primarily due to higher
utility costs. Professional fees, outside services and licenses decreased by
$7.2 million, resulting primarily from a $5.0 million decrease in expenditures
for technology consultants on major technology initiatives completed in 1999.
Public relations and promotion costs decreased by $0.9 million due primarily to
the elimination or reduction of certain trading incentive programs offered by
the Exchange. Other operating expenses increased by $1.4 million as a result of
a $2.7 million write-off of certain capitalized software development costs for
internally developed software that will not be used as intended. Partially
offsetting this increase were decreases in travel and other operating expenses.
P-M-T Limited Partnership
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The limited partners' interest in the earnings of P-M-T Limited Partnership was
relatively constant. Increased revenue of GFX, which flows to the P-M-T Limited
Partnership, was offset by higher systems costs associated with P-M-T
operations.
Additional Information
----------------------
As a publicly registered company, we will issue quarterly earnings reports and
file 10-Q statements with the Securities and Exchange Commission. For the
twelve months ending December 31, 2000, we will file our first 10-K as Chicago
Mercantile Exchange Inc. Future earnings releases will be available on our Web
site at www.cme.com. Our SEC filings will also be available at
www.freeedgar.com.
Sincerely,
Scott Gordon Jim McNulty
Chairman President and Chief Executive Officer
Forward Looking and Cautionary Statements and Factors That May Affect Future
Results:
The Securities and Exchange Commission encourages companies to disclose forward-
looking information so that investors can better understand a company's future
prospects and make informed investment decisions. Except for the historical
information and discussions contained herein, statements contained in this
letter may constitute "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Exchange has tried,
wherever possible, to identify such statements by using words such as
"anticipate", "believe", "expects", and other words and terms similar in nature
with any discussion of future operating or financial performance. These
statements involve a number of risks, uncertainties and other factors that could
cause actual results to differ materially, including the decision to operate
both pit-based, open outcry trading systems and electronic systems, competitive
pressures, adverse political and economic conditions, failure to retain or
attract key personnel, and other risks, uncertainties and factors discussed in
the Exchange's other filings with the Securities and Exchange Commission and in
materials incorporated therein by reference.
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November 14, 2000
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CHICAGO MERCANTILE EXCHANGE AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
BALANCE SHEET DATA: September 30, 2000 December 31, 1999
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<S> <C> <C>
ASSETS
Current assets $675,831 $178,343
Property, net of accumulated
depreciation and amortization 82,482 93,531
Other assets 36,780 31,444
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Total assets $795,093 $303,318
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LIABILITIES AND MEMBERS' EQUITY
Current liabilities $613,094 $111,568
Limited Partners' interest in net
assets of PMT Limited Partnership 4,179 3,018
Long-term debt 5,896 8,132
Other liabilities 13,703 11,937
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Total liabilities 636,872 134,655
Members' equity 158,221 168,663
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Total liabilities and members' equity $795,093 $303,318
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</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
INCOME STATEMENT DATA: 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
REVENUES
Clearing and transaction fees $107,971 $107,856 $ 32,282 $36,962
Quotation data fees 27,479 32,046 9,028 10,816
Communication fees 7,087 6,226 2,442 2,022
Investment income 6,680 6,436 2,296 1,826
Other operating revenue 10,181 7,401 3,433 2,963
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Total revenues 159,398 159,965 49,481 54,589
EXPENSES 175,900 149,108 55,598 51,541
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Income (loss) from continuing
operations before limited partners'
interest in PMT and income taxes (16,502) 10,857 (6,117) 3,048
Limited partners' interest in (earnings)
loss of PMT Limited Partnership (1,161) (1,201) 21 (1,596)
Income tax (provision) benefit 7,065 (3,862) 2,438 (580)
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Net income (loss) $(10,598) $ 5,794 $(3,658) $ 872
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</TABLE>
