Exhibit 99.1
| 400 South LaSalle Street Chicago, IL 60605 www.cboe.com http://cboenews.com http://ir.cboe.com |
NEWS RELEASE |
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CBOE HOLDINGS, INC. REPORTS SOLID FOURTH QUARTER AND RECORD FULL-YEAR 2011 FINANCIAL RESULTS
Fourth Quarter Financial Highlights
· | Adjusted Operating Revenues Increase 6 Percent to $120.2 Million(1) |
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· | Adjusted Net Income Allocated to Common Stockholders Increases 10 Percent to $33.2 Million(1); Adjusted Diluted EPS Up 19 Percent to $0.37(1) |
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· | GAAP Net Income Allocated to Common Stockholders Increases 2 Percent to $31.3 Million; Diluted EPS Up 13 Percent to $0.35 Compared to $0.31 in Prior Year |
2011 Full-Year Records
· | Adjusted Operating Revenues of $508.1 Million Increases 17 Percent(1) |
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· | Adjusted Net Income Allocated to Common Stockholders Increases 38 Percent to $143.7 Million(1); Adjusted Diluted EPS Up 47 Percent to $1.60(1) |
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· | GAAP Net Income Allocated to Common Stockholders Increases 40 Percent to $137.1 Million; Diluted EPS Up 48 Percent to $1.52 Compared to $1.03 in Prior Year |
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· | Adjusted Operating Margin of 48.4 Percent(1) |
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· | Average Daily Trading Volume of 4.83 Million Contracts, Up 8 Percent |
CHICAGO, February 9, 2012 - CBOE Holdings, Inc. (NASDAQ: CBOE) today reported GAAP net income allocated to common stockholders of $31.3 million, or $0.35 per diluted share, in the fourth quarter 2011 compared with $30.7 million, or $0.31 per diluted share in the fourth quarter of 2010. On an adjusted basis, net income allocated to common stockholders increased 10 percent to $33.2 million, or $0.37 per diluted share, compared with $30.2 million, or $0.31 per diluted share, in the prior year period. Adjusted operating revenues for the fourth quarter were $120.2 million, an increase of 6 percent compared to $113.0 million in 2010’s fourth quarter.
(1) A full reconciliation of CBOE Holdings’ non-GAAP results to its GAAP results for the reporting periods is included in the attached tables. See “Non-GAAP Information” in the accompanying financial tables.
For the year ended December 31, 2011, CBOE Holdings reported record revenues and earnings. GAAP net income allocated to common stockholders increased 40 percent to $137.1 million, or $1.52 per diluted share, on total operating revenues of $508.1 million. For the comparable period in 2010, the company reported GAAP net income allocated to common stockholders of $98.2 million, or $1.03 per diluted share, on operating revenues of $437.1 million. On an adjusted basis, net income allocated to common stockholders increased 38 percent to $143.7 million from $104.2 million in 2010, while adjusted diluted earnings per share grew 47 percent to $1.60 from $1.09 in 2010.
CBOE Holdings’ financial results for the three and twelve months ended December 31, 2011 and 2010 included certain items and allocations that management believes are not representative of its operating performance. Financial measures presented on an adjusted basis exclude these items to present a more meaningful comparison. More information on the adjusted financial measures and a detailed analysis are included in the “Non-GAAP Information.”
“2011 was a record year for CBOE Holdings as we set new highs across our key financial metrics, including revenues, earnings, trading volume and operating margin. Thanks to the expertise and dedication of our employees, we continued to meet the needs of our customers throughout the year by offering the industry’s most diverse product line, unparalleled customer service, and trading technology that is second to none,” said William J. Brodsky, CBOE Holdings Chairman and Chief Executive Officer. “As a result, our company is stronger than ever and well positioned for future growth and to generate increased financial returns for our stockholders.”
“Our solid fourth quarter results cap an outstanding year for CBOE Holdings as we set new records for both top-line and bottom-line financial measures for 2011. Throughout the year we continued to demonstrate strong expense control, delivering a record adjusted operating margin of 48.4 percent for 2011,” said Alan J. Dean, CBOE Holdings Executive Vice President and Chief Financial Officer. “Our strong cash flow enabled us to return nearly $92 million to stockholders through dividends and share repurchases, bringing the total returned to stockholders over the past 18 months to more than $525 million. In addition, we ended the year with a strong cash position of more than $135 million, providing us with the flexibility to continue to enhance share value through both internal investments and other capital allocation opportunities,” Dean added.
The table below highlights CBOE Holdings’ operating results for the comparative quarters and twelve-month periods ended December 31, 2011 and 2010.
Key Statistics and Financial Highlights:
(in millions, except per share and fee per contract) |
| 4Q 2011 |
| 4Q 2010 |
| Y/Y |
| YTD 2011 |
| YTD 2010 |
| Y/Y |
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Key Statistics: |
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Average Daily Volume (options and futures) (1) |
| 4.30 |
| 4.26 |
| 1 | % | 4.83 |
| 4.46 |
| 8 | % | ||||
Total Trading Volume (options and futures) |
| 270.9 |
| 272.8 |
| -1 | % | 1,216.9 |
| 1,123.4 |
| 8 | % | ||||
Average Transaction Fee Per Contract |
| $ | 0.321 |
| $ | 0.293 |
| 10 | % | $ | 0.307 |
| $ | 0.294 |
| 4 | % |
GAAP Financial Highlights: |
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Total Operating Revenues |
| $ | 120.2 |
| $ | 117.4 |
| 2 | % | $ | 508.1 |
| $ | 437.1 |
| 16 | % |
Total Operating Expenses |
| 67.5 |
| 65.5 |
| 3 | % | 266.5 |
| 269.8 |
| -1 | % | ||||
Operating Income |
| 52.7 |
| 51.9 |
| 2 | % | 241.6 |
| 167.3 |
| 44 | % | ||||
Operating Margin % |
| 43.8 | % | 44.2 | % | - 40 | bps | 47.6 | % | 38.3 | % | 930 | bps | ||||
Net Income |
| $ | 31.8 |
| $ | 31.4 |
| 1 | % | $ | 139.4 |
| $ | 99.4 |
| 40 | % |
Net Income Allocated to Common Stockholders |
| $ | 31.3 |
| $ | 30.7 |
| 2 | % | $ | 137.1 |
| $ | 98.2 |
| 40 | % |
Diluted EPS |
| $ | 0.35 |
| $ | 0.31 |
| 13 | % | $ | 1.52 |
| $ | 1.03 |
| 48 | % |
Weighted Average Shares Outstanding |
| 89,397 |
| 97,802 |
| -9 | % | 89,994 |
| 95,754 |
| -6 | % | ||||
Adjusted Financial Highlights (2) |
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Total Operating Revenues |
| $ | 120.2 |
| $ | 113.0 |
| 6 | % | $ | 508.1 |
| $ | 432.7 |
| 17 | % |
Total Operating Expenses |
| 63.8 |
| 63.5 |
| — | % | 262.4 |
| 256.8 |
| 2 | % | ||||
Operating Income |
| 56.4 |
| 49.5 |
| 14 | % | 245.7 |
| 175.9 |
| 40 | % | ||||
Operating Margin % |
| 46.9 | % | 43.8 | % | 310 | bps | 48.4 | % | 40.7 | % | 770 | bps | ||||
Net Income |
| $ | 33.7 |
| $ | 30.9 |
| 9 | % | $ | 146.1 |
| $ | 105.5 |
| 38 | % |
Net Income Allocated to Common Stockholders |
| $ | 33.2 |
| $ | 30.2 |
| 10 | % | $ | 143.7 |
| $ | 104.2 |
| 38 | % |
Diluted EPS |
| $ | 0.37 |
| $ | 0.31 |
| 19 | % | $ | 1.60 |
| $ | 1.09 |
| 47 | % |
(1) Trading days in the fourth quarter of 2011 and 2010 totaled 63 and 64, respectively.
(2) A full reconciliation of our non-GAAP results to our GAAP results for the 2011 and 2010 reporting periods is included in the attached tables.
Revenues
Adjusted operating revenues in the fourth quarter of 2011 increased $7.2 million, or 6 percent, to $120.2 million from $113.0 million in 2010’s fourth quarter. This increase primarily reflects a $7.2 million increase in transaction fees and a $0.7 million increase in exchange services and other fees, offset somewhat by a $1.3 million decrease in access fees. Access fees declined primarily due to the implementation of a sliding fee scale for certain trading permits effective January 2011. Exchange services and other fees were up primarily due to fee increases for certain user services versus the fourth quarter of 2010.
Transaction fees increased 9 percent for the quarter due to a 10 percent increase in the average transaction fee per contract, offset slightly by a 1 percent decrease in trading volume compared with the fourth quarter of 2010. Trading volume for the fourth quarter was 270.9 million contracts, or 4.30 million contracts per day, versus 2010’s fourth quarter volume of 272.8 million contracts, or 4.26 million contracts per day. The average transaction fee per contract increased to $0.321 compared with $0.293 in the fourth quarter of 2010.
The increase in the average transaction fee per contract resulted primarily from a shift in trading volume mix, with higher-margin index options and futures contracts accounting for 28.9 percent of total contracts traded during the quarter versus 23.8 percent in the fourth quarter of 2010. The average transaction fee per contract represents total transaction fee revenue divided by total reported trading volume for CBOE, C2 Options Exchange (C2) and CBOE Futures Exchange (CFE).
Adjusted Operating Expenses
Adjusted operating expenses of $63.8 million for the fourth quarter of 2011 was nearly flat compared with $63.5 million in the fourth quarter of 2010. Adjusted operating expenses for the fourth quarters of 2011 and 2010 exclude $3.7 million for severance paid pursuant to an executive employment contract and $2.0 million for accelerated stock-based compensation expense, respectively.
The company’s core operating expenses of $41.5 million for the fourth quarter of 2011 increased by $1.5 million, or 4.0 percent, compared with last year’s fourth quarter, primarily driven by increases in travel and promotional expenses and employee costs, offset somewhat by lower data processing expenses. Travel and promotional expenses were up due to an increase in advertising to support the launch of SPXpm. The increase in employee costs was primarily related to higher expenses for employee benefits.
Core operating expenses represent total operating expenses less volume-based expenses, depreciation and amortization, accelerated stock-based compensation expense and unusual or one-time expenses.
Volume-based expenses, which include royalty fees and trading volume incentives, were $14.8 million in the fourth quarter of 2011, a decrease of $0.6 million, or 4 percent, compared with the same period last year. This decrease reflects a $2.6 million increase in royalty fees, which are directly related to higher trading volume in licensed index products, offset by a $3.2 million decrease in trading volume incentives. The decline in trading volume incentives primarily resulted from changes to the program criteria.
Adjusted Operating Margin
The company’s adjusted operating margin increased 310 basis points to 46.9 percent for the fourth quarter of 2011, compared with 43.8 percent in the same period in 2010, representing the company’s sixth consecutive quarter of year-over-year operating margin increases. The adjusted operating margin for the full-year 2011 was 48.4 percent, the highest annual level in the company’s history.
Effective Tax Rate
The GAAP effective tax rate for the fourth quarter increased to 39.2 percent from 37.2 percent in last year’s fourth quarter, primarily due to the impact of an increase in the Illinois tax rate effective January 1, 2011, offset somewhat by tax benefits recorded in the fourth quarter to recognize tax credits and the adjustment of deferred tax positions.
The adjusted effective tax rate, which excludes the benefit for tax credits related to prior years, was 39.8 percent compared with 37.2 percent for the fourth quarter of 2010.
Fourth Quarter 2011 Operational Highlights and Recent Developments
· On October 4, the company’s all-electronic exchange, C2, began trading SPXpm options, the company’s new S&P 500 Index options product.
· On November 1, CBOE Executive Vice Chairman Edward T. Tilly succeeded Edward J. Joyce as President and Chief Operating Officer of CBOE Holdings, CBOE and C2. Mr. Joyce stepped down for medical reasons after serving as President and Chief Operating Officer since June 2000.
· On December 12, CBOE Futures Exchange, LLC (CFE) announced that James F. Lubin, a 30-year veteran of the futures industry, had been named Managing Director of CFE to lead CFE’s strategic direction.
· On December 13, the company announced its investment in the Intellectual Property Exchange International (IPXI), the first financial exchange focused on intellectual property. In addition, CBOE Executive Vice President Richard DuFour was named to IPXI’s board of directors.
· On January 9, CFE launched trading in security futures on the CBOE Emerging Markets ETF Volatility Index (Index ticker: VXEEM; futures symbol: VXEM). Options on VXEEM were launched on January 31, 2012 at CBOE.
· On February 1, the company reported that average daily volume (ADV) for total options in January 2012 was 4.52 million contracts, a 27 percent increase from December 2011 ADV of 3.55 million contracts and a 15 percent decrease from January 2011 ADV of 5.29 million contracts. In addition, CFE reported ADV of 40,564 contracts in January 2012, up 4 percent compared with 38,908 per day during January 2011 and a 31 percent increase from 30,885 contracts per day in December 2011.
· On February 2, CFE launched trading in futures on the Radar Logic 25-Metropolitan Statistical Area (MSA) RPX Composite Index (ticker symbol: RPXCP), which tracks values of the U.S. residential housing market as a whole.
Share Repurchase Plan
During the fourth quarter of 2011, the company repurchased 1,236,100 shares of its common stock at an average price of $25.97 per share, for approximately $32 million. The shares were purchased as part of the company’s $100 million share repurchase plan that was authorized on August 2, 2011. Over the last five months of 2011, the company used $47 million to repurchase 1,836,000 shares of common stock at an average price of $25.59 per share.
As of December 31, 2011, the company had approximately $53 million remaining on its existing stock repurchase authorization.
Dividends
As announced on February 8, 2012, CBOE Holdings’ Board of Directors declared a quarterly dividend of $0.12 per share, payable March 23, 2012 to shareholders of record on March 2, 2012.
2012 Fiscal Year Financial Guidance
CBOE Holdings currently expects the following for the year ended December 31, 2012:
· The company expects revenue from exchange services and other fees to be in the range of $24.0 million to $26.0 million, a projected increase of about $6.0 million to $8.0 million from $18.2 million reported in 2011. This increase primarily reflects higher fees related to connectivity charges, registration fees and co-location fees.
· Consolidated access fees are expected to be in a range of $64.0 million to $67.0 million, reflecting the expected net impact of access fee changes implemented on January 3, 2012.
· Core expenses are expected to be in the range of $173.0 million to $178.0 million. The company expects core expenses to be at the low end of the guidance range if volume in 2012 is flat to up 4 percent and at the high end of the
range if volume growth is 5 percent or higher. The projected increase in core expenses in 2012 reflects the carryover of projects deferred in 2011 and additional expenses to support revenue growth initiatives.
· Continuing stock-based compensation expense, included in core expenses above, is expected to be in the range of $12.2 million to $12.7 million for the full year.
· The consolidated effective tax rate is expected to be in the range of 41.2 percent to 41.7 percent for the year ended December 31, 2012. Significant changes in trading volume, expenses, state and local tax rates and other items, including ongoing state and federal tax audits, could materially impact this expectation.
· Depreciation and amortization expense is expected to be in the range of $33.0 million to $35.0 million.
· Capital expenditures are projected in the range of $30.0 million to $35.0 million, primarily driven by ongoing investments in systems hardware and software that enhance trading technology.
Earnings Conference Call
Executives of CBOE Holdings will host a conference call to review its fourth quarter financial results today, February 9, 2012, at 8:30 a.m. ET/7:30 a.m. CT. The conference call and any accompanying slides will be publicly available via live webcast from the Investor Relations section of the company’s website at www.cboe.com under Events & Presentations. Participants may also listen via telephone by dialing (877) 372-0876 from the United States or Canada, or (253) 237-1167 for international callers. Telephone participants should place calls 10 minutes prior to the start of the call.
The webcast will be archived on the company’s website for replay. A telephone replay of the earnings call also will be available from approximately 11:00 a.m. CT, February 9, through 11:00 p.m. CT, February 23, 2012, by calling (800) 585-8367 within the U.S. and Canada, or (404) 537-3406 for international callers, using replay code 37608845.
About CBOE Holdings
CBOE Holdings, Inc. is the holding company for Chicago Board Options Exchange (CBOE) and other subsidiaries. CBOE, the largest U.S. options exchange and creator of listed options, continues to set the bar for options trading through product innovation, trading technology and investor education. CBOE offers equity, index and ETF options, including proprietary products, such as S&P 500 options (SPX), the most active U.S. index option, and options on the CBOE Volatility Index (the VIX Index). Other products engineered by CBOE include equity options, security index options, LEAPS options, FLEX options, and benchmark products such as the CBOE S&P 500 BuyWrite Index (BXM). CBOE’s Hybrid Trading System incorporates electronic and open-outcry trading and is powered by CBOEdirect, a proprietary, state-of-the-art electronic platform that also supports the C2 Options Exchange (C2), CBOE Futures Exchange (CFE), CBOE Stock Exchange (CBSX) and OneChicago. CBOE is home to the world-renowned Options Institute and www.cboe.com, named “Best of the Web” for options information and education. CBOE is regulated by the Securities and Exchange Commission (SEC), with all trades cleared by the OCC.
Forward-Looking Statements
This press release may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those statements that reflect our expectations, assumptions or projections about the future and involve a number of risks and uncertainties. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause actual results to differ materially from that expressed or implied by the forward-looking statements, including: legislative or regulatory changes; changes in law or government policy; increasing competition; loss of our exclusive licenses; decrease in trading volumes; an inability to introduce competitive new products and services; competitive pressures on our existing products, services and trading access fees; changes in price levels and volatility in the derivatives and equity markets; economic, political and market conditions; increases in our fixed costs and expenses; loss of existing customers; difficulty developing strategic relationships and attracting new customers; increased costs related to, or the loss of, intellectual property; rapid technological developments; increases in trading volume and order transaction traffic that we cannot accommodate; our ability to maintain our growth effectively; damage to our reputation and brand name; loss of market data revenue; detrimental changes to our fee structure; failure to effectively monitor and manage our risks; customer consolidation; and changes to the tax treatment for options trading.
More detailed information about factors that may affect our performance may be found in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended December 31, 2010 and other filings made from time to time with the SEC.
The condensed consolidated statements of income, balance sheets and statements of cash flows are unaudited and subject to reclassification.
CBOE Media Contacts: |
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| Analyst Contact: |
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Gail Osten |
| Gary Compton |
| Debbie Koopman |
(312) 786-7123 |
| (312) 786-7612 |
| (312) 786-7136 |
osten@cboe.com |
| comptong@cboe.com |
| koopman@cboe.com |
Trademarks:
CBOE®, Chicago Board Options Exchange®, CBOEdirect®, CBOE Volatility Index®, VIX®, FLEX®, Hybrid®, LEAPS®, CFE®, CBSX® and CBOE Stock Exchange® are registered trademarks and SPXSM, BXMSM, BuyWriteSM, The Options InstituteSM, CBOE Futures ExchangeSM, and VXEEMSM and VXEMSM are service marks of CBOE. Standard & Poor’s®, S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC and have been licensed for use by CBOE and C2. C2SM, C2 Options Exchange SM and SPXpmSM are service marks of C2 Options Exchange, Incorporated. All other trademarks and service marks are the property of their respective owners.
CBOE Holdings, Inc.
Selected Quarterly Operating Statistics
Average Daily Volume by Product (in thousands)
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| 4Q 2011 |
| 3Q 2011 |
| 2Q 2011 |
| 1Q 2011 |
| 4Q 2010 |
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Trading Days |
| 63 |
| 64 |
| 63 |
| 62 |
| 64 |
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PRODUCT: |
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Equities |
| 1,695 |
| 1,968 |
| 1,936 |
| 2,604 |
| 2,260 |
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Indexes |
| 1,202 |
| 1,590 |
| 1,114 |
| 1,172 |
| 984 |
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Exchange-traded funds |
| 1,366 |
| 1,861 |
| 1,349 |
| 1,263 |
| 990 |
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Total Options Average |
| 4,263 |
| 5,419 |
| 4,399 |
| 5,039 |
| 4,234 |
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Futures |
| 38 |
| 62 |
| 48 |
| 42 |
| 28 |
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Total Average Daily Volume |
| 4,301 |
| 5,481 |
| 4,447 |
| 5,081 |
| 4,262 |
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Average Transaction Fee Per Contract by Product
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| 4Q 2011 |
| 3Q 2011 |
| 2Q 2011 |
| 1Q 2011 |
| 4Q 2010 |
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PRODUCT: |
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Equities |
| $ | 0.167 |
| $ | 0.159 |
| $ | 0.169 |
| $ | 0.160 |
| $ | 0.177 |
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Indexes |
| 0.631 |
| 0.605 |
| 0.627 |
| 0.604 |
| 0.590 |
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Exchange-traded funds |
| 0.212 |
| 0.192 |
| 0.202 |
| 0.207 |
| 0.224 |
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Total Options Average Transaction Fee |
| 0.312 |
| 0.301 |
| 0.295 |
| 0.275 |
| 0.284 |
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Futures |
| 1.329 |
| 1.371 |
| 1.477 |
| 1.507 |
| 1.679 |
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Total Average Transaction Fee Per Contract |
| $ | 0.321 |
| $ | 0.313 |
| $ | 0.308 |
| $ | 0.285 |
| $ | 0.293 |
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Transaction Fees by Product (in thousands)
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| 4Q 2011 |
| 3Q 2011 |
| 2Q 2011 |
| 1Q 2011 |
| 4Q 2010 |
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PRODUCT: |
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Equities |
| $ | 17,860 |
| $ | 20,019 |
| $ | 20,582 |
| $ | 25,820 |
| $ | 25,570 |
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Indexes |
| 47,808 |
| 61,524 |
| 44,028 |
| 43,936 |
| 37,151 |
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Exchange-traded funds |
| 18,230 |
| 22,836 |
| 17,120 |
| 16,215 |
| 14,165 |
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Total Options Fees |
| $ | 83,898 |
| $ | 104,379 |
| $ | 81,730 |
| $ | 85,971 |
| $ | 76,886 |
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Futures |
| 3,149 |
| 5,461 |
| 4,510 |
| 3,968 |
| 3,000 |
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Total Transaction Fees |
| $ | 87,047 |
| $ | 109,840 |
| $ | 86,240 |
| $ | 89,939 |
| $ | 79,886 |
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Non-GAAP Information
In addition to disclosing results determined in accordance with GAAP, CBOE Holdings has disclosed certain non-GAAP measures of operating performance. The non-GAAP measures provided in this press release include core operating expenses, adjusted operating revenues, adjusted operating expenses, adjusted operating income, adjusted operating margin, adjusted effective tax rate, adjusted net income, adjusted net income allocated to common stockholders and adjusted diluted earnings per share.
Management believes that the non-GAAP financial measures presented in this press release, including adjusted net income and core operating expenses, provide useful and comparative information to assess trends in our core operations and a means to evaluate period-to-period comparisons. Non-GAAP financial measures disclosed by management, including adjusted diluted EPS, are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies.
The table below shows core operating expenses, which is the company’s operating expenses after excluding (i) volume-based expenses, (ii) depreciation and amortization expense, (iii) accelerated stock-based compensation expense and (iv) other unusual or one-time expenses.
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| Three months ended December 31 |
| Twelve months ended December 31 |
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(in thousands) |
| 2011 |
| 2010 |
| 2011 |
| 2010 |
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Total Operating Expenses |
| $ | 67,529 |
| $ | 65,537 |
| $ | 266,512 |
| $ | 269,763 |
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Less: |
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Depreciation and amortization |
| 7,506 |
| 8,190 |
| 34,094 |
| 29,891 |
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Accelerated stock-based compensation expense |
| — |
| 2,004 |
| 453 |
| 12,968 |
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Severance expense pursuant to executive employment agreement |
| 3,709 |
| — |
| 3,709 |
| — |
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Volume-based expenses: |
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Royalty fees |
| 12,346 |
| 9,710 |
| 47,822 |
| 41,353 |
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Trading volume incentives |
| 2,440 |
| 5,665 |
| 14,239 |
| 21,294 |
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Core Operating Expenses (non-GAAP): |
| $ | 41,528 |
| $ | 39,968 |
| $ | 166,195 |
| $ | 164,257 |
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Less: Continuing stock-based compensation expense |
| (3,010 | ) | (3,233 | ) | (12,166 | ) | (7,833 | ) | ||||
Core Operating Expenses Excluding Continuing Stock-Based Compensation (non-GAAP) |
| $ | 38,518 |
| $ | 36,735 |
| $ | 154,029 |
| $ | 156,424 |
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Detail of Core Operating Expenses Excluding Continuing Stock-Based Compensation (non-GAAP) |
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Employee costs |
| $ | 21,550 |
| $ | 20,586 |
| $ | 88,126 |
| $ | 85,442 |
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Data processing |
| 4,263 |
| 4,960 |
| 17,933 |
| 19,501 |
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Outside services |
| 6,657 |
| 6,788 |
| 27,310 |
| 31,245 |
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Travel and promotional expenses |
| 3,345 |
| 1,672 |
| 9,812 |
| 9,569 |
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Facilities costs |
| 1,426 |
| 1,662 |
| 5,400 |
| 5,801 |
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Other expenses |
| 1,277 |
| 1,067 |
| 5,448 |
| 4,866 |
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Total |
| $ | 38,518 |
| $ | 36,735 |
| $ | 154,029 |
| $ | 156,424 |
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The table below shows the reconciliation of each financial measure from GAAP to non-GAAP. The non-GAAP financial measures exclude the impact of those items detailed in the footnotes below and are referred to as adjusted financial measures.
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| Three months ended December 31, 2011 |
| Three months ended December 31, 2010 |
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| Items Impacting Results |
| After |
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| Items Impacting Results |
| After |
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(in thousands, except per share amounts) |
| Reported |
| Operating |
| Income Tax (2) |
| Items (non- |
| Reported |
| Operating |
| Operating |
| Other |
| Items (non- |
| |||||||||
Total Operating Revenues |
| $ | 120,208 |
|
|
|
|
| $ | 120,208 |
| $ | 117,391 |
| (4,406 | ) |
|
|
|
| $ | 112,985 |
| |||||
Total Operating Expenses |
| 67,529 |
| (3,709 | ) |
|
| 63,820 |
| 65,537 |
|
|
| (2,004 | ) |
|
| 63,533 |
| |||||||||
Operating Income |
| 52,679 |
| 3,709 |
|
|
| 56,388 |
| 51,854 |
| (4,406 | ) | 2,004 |
|
|
| 49,452 |
| |||||||||
Operating Margin |
| 43.8 | % |
|
|
|
| 46.9 | % | 44.2 | % |
|
|
|
|
|
| 43.8 | % | |||||||||
Total Other Income /(Expense) |
| (343 | ) |
|
|
|
| (343 | ) | (1,898 | ) |
|
|
|
| 1,620 |
| (278 | ) | |||||||||
Income Before Income Taxes |
| 52,336 |
| 3,709 |
|
|
| 56,045 |
| 49,956 |
| (4,406 | ) | 2,004 |
| 1,620 |
| 49,174 |
| |||||||||
Income Tax Provision |
| 20,529 |
| 1,478 |
| 322 |
| 22,329 |
| 18,579 |
| (1,638 | ) | 745 |
| 602 |
| 18,288 |
| |||||||||
Effective Income Tax Rate |
| 39.2 | % |
|
| 0.6 | % | 39.8 | % | 37.2 | % |
|
|
|
|
|
| 37.2 | % | |||||||||
Net Income |
| $ | 31,807 |
| $ | 2,231 |
| $ | (322 | ) | $ | 33,716 |
| $ | 31,377 |
| $ | (2,768 | ) | $ | 1,259 |
| $ | 1,018 |
| $ | 30,886 |
|
Net Income Allocated to Participating Securities |
| (520 | ) | (37 | ) | 5 |
| (552 | ) | (690 | ) | 61 |
| (28 | ) | (22 | ) | (679 | ) | |||||||||
Net Income Allocated to Common Stockholders |
| $ | 31,287 |
| $ | 2,194 |
| $ | (317 | ) | $ | 33,164 |
| $ | 30,687 |
| $ | (2,707 | ) | $ | 1,231 |
| $ | 996 |
| $ | 30,207 |
|
Diluted Net Income per Share Allocated to Common Stockholders |
| $ | 0.35 |
| $ | 0.02 |
| $ | — |
| $ | 0.37 |
| $ | 0.31 |
| $ | (0.03 | ) | $ | 0.01 |
| $ | 0.01 |
| $ | 0.31 |
|
|
| Twelve months ended December 31, 2011 |
| Twelve months ended December 31, 2010 |
|
| ||||||||||||||||||||||||||||||
|
|
|
| Items Impacting Results |
| After |
|
|
| Items Impacting Results |
| After |
|
| ||||||||||||||||||||||
(in thousands, except per share amounts) |
| Reported |
| Operating |
| Other |
| Income |
| Items (non- |
| Reported |
| Operating |
| Operating |
| Other Expense |
| Items (non- |
|
| ||||||||||||||
Total Operating Revenues |
| $ | 508,144 |
|
|
|
|
|
|
| $ | 508,144 |
| $ | 437,104 |
| (4,406 | ) |
|
|
|
| $ | 432,698 |
|
| ||||||||||
Total Operating Expenses |
| 266,512 |
| (4,162 | ) |
|
|
|
| 262,350 |
| 269,763 |
|
|
| (12,968 | ) |
|
| 256,795 |
|
| ||||||||||||||
Operating Income |
| 241,632 |
| 4,162 |
|
|
|
|
| 245,794 |
| 167,341 |
| (4,406 | ) | 12,968 |
|
|
| 175,903 |
|
| ||||||||||||||
Operating Margin |
| 47.6 | % |
|
|
|
|
|
| 48.4 | % | 38.3 | % |
|
|
|
|
|
| 40.7 | % |
| ||||||||||||||
Total Other Income /(Expense) |
| (1,548 | ) |
|
| 460 |
|
|
| (1,088 | ) | (2,718 | ) |
|
|
|
| 1,620 |
| (1,098 | ) |
| ||||||||||||||
Income Before Income Taxes |
| 240,084 |
| 4,162 |
| 460 |
|
|
| 244,706 |
| 164,623 |
| (4,406 | ) | 12,968 |
| 1,620 |
| 174,805 |
|
| ||||||||||||||
Income Tax Provision |
| 100,678 |
| 1,677 |
| 185 |
| (3,901 | ) | 98,639 |
| 65,227 |
| (1,746 | ) | 5,138 |
| 642 |
| 69,261 |
|
| ||||||||||||||
Effective Income Tax Rate |
| 41.9 | % |
|
|
|
| (1.6 | )% | 40.3 | % | 39.6 | % |
|
|
|
|
|
| 39.6 | % |
| ||||||||||||||
Net Income |
| $ | 139,406 |
| $ | 2,485 |
| $ | 275 |
| $ | 3,901 |
| $ | 146,067 |
| $ | 99,396 |
| $ | (2,660 | ) | $ | 7,830 |
| $ | 978 |
| $ | 105,544 |
| |||||
Net Income Allocated to Participating Securities |
| (2,263 | ) | (40 | ) | (6 | ) | (63 | ) | (2,372 | ) | (1,230 | ) | 33 |
| (97 | ) | (12 | ) | (1,306 | ) |
| ||||||||||||||
Net Income Allocated to Common Stockholders |
| $ | 137,143 |
| $ | 2,445 |
| $ | 269 |
| $ | 3,838 |
| $ | 143,695 |
| $ | 98,166 |
| $ | (2,627 | ) | $ | 7,733 |
| $ | 966 |
| $ | 104,238 |
| |||||
Diluted Net Income per Share Allocated to Common Stockholders |
| $ | 1.52 |
| $ | 0.03 |
| $ | — |
| $ | 0.04 |
| $ | 1.60 |
| $ | 1.03 |
| $ | (0.03 | ) | $ | 0.08 |
| $ | 0.01 |
| $ | 1.09 |
| |||||
NOTES: Amounts may not foot due to rounding.
1) In the fourth quarter of 2011, the company recorded severance expense of $3.7 million pursuant to an executive employment agreement. In the first and second quarters of 2011, the company accelerated the recognition of stock-based compensation expense of $0.3 million and $0.2 million, respectively, to recognize the remaining fair value of the stock-based compensation awards granted to three board members who left the Board in May 2011. During the third and fourth quarters of 2010, the company accelerated the recognition of stock-based compensation expense of $11.0 million and $2.0 million, respectively, to recognize the remaining fair value of the stock-based compensation awards granted to certain executives due to provisions contained in their employment agreements.
2) In the fourth quarter of 2011, the company recorded a benefit of $0.3 million for research and development credits pertaining to prior years. In the third quarter of 2011, the company recorded a charge of $4.2 million for additional income tax expense due to potential additional tax liabilities for prior periods dating back to 2007 as a result of an advisory opinion from New York State taxing authorities issued during the quarter.
3) In the fourth quarter of 2010, the company recognized $4.4 million of prior period transaction fees to adjust for coding errors made by a CBOE exchange participant. The coding errors were identified through a review conducted by the company’s regulatory division. The amount was included in other revenue.
4) In the first quarter of 2011, the company recorded an impairment charge to write off its investment in NSX Holdings, Inc totaling $0.5 million. In the fourth quarter of 2010, the company recorded an impairment charge of $1.6 million to write off its investment in OneChicago.
CBOE Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
Three and Twelve Months Ended December 31, 2011 and 2010
|
| Three Months Ended December |
| Twelve Months Ended |
| ||||||||
(in thousands, except per share amounts) |
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Revenues: |
|
|
|
|
|
|
|
|
| ||||
Transaction fees |
| $ | 87,047 |
| $ | 79,886 |
| $ | 373,065 |
| $ | 330,264 |
|
Access fees |
| 17,128 |
| 18,399 |
| 68,693 |
| 41,384 |
| ||||
Exchange services and other fees |
| 4,684 |
| 4,028 |
| 18,181 |
| 16,845 |
| ||||
Market data fees |
| 5,059 |
| 5,087 |
| 19,906 |
| 21,343 |
| ||||
Regulatory fees |
| 4,249 |
| 3,906 |
| 19,243 |
| 15,315 |
| ||||
Other revenue |
| 2,041 |
| 6,085 |
| 9,056 |
| 11,953 |
| ||||
Total Operating Revenues |
| 120,208 |
| 117,391 |
| 508,144 |
| 437,104 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Expenses: |
|
|
|
|
|
|
|
|
| ||||
Employee costs |
| 28,269 |
| 25,823 |
| 104,454 |
| 106,243 |
| ||||
Depreciation and amortization |
| 7,506 |
| 8,190 |
| 34,094 |
| 29,891 |
| ||||
Data processing |
| 4,263 |
| 4,960 |
| 17,933 |
| 19,501 |
| ||||
Outside services |
| 6,657 |
| 6,788 |
| 27,310 |
| 31,245 |
| ||||
Royalty fees |
| 12,346 |
| 9,710 |
| 47,822 |
| 41,353 |
| ||||
Trading volume incentives |
| 2,440 |
| 5,665 |
| 14,239 |
| 21,294 |
| ||||
Travel and promotional expenses |
| 3,345 |
| 1,672 |
| 9,812 |
| 9,569 |
| ||||
Facilities costs |
| 1,426 |
| 1,662 |
| 5,400 |
| 5,801 |
| ||||
Other expenses |
| 1,277 |
| 1,067 |
| 5,448 |
| 4,866 |
| ||||
Total Operating Expenses |
| 67,529 |
| 65,537 |
| 266,512 |
| 269,763 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Income |
| 52,679 |
| 51,854 |
| 241,632 |
| 167,341 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other Income / (Expense): |
|
|
|
|
|
|
|
|
| ||||
Investment income |
| 24 |
| 82 |
| 142 |
| 475 |
| ||||
Net loss from investment in affiliates |
| (161 | ) | (1,755 | ) | (811 | ) | (2,297 | ) | ||||
Interest and other borrowing costs |
| (206 | ) | (225 | ) | (879 | ) | (896 | ) | ||||
Total Other Income / (Expense) |
| (343 | ) | (1,898 | ) | (1,548 | ) | (2,718 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income Before Income Taxes |
| 52,336 |
| 49,956 |
| 240,084 |
| 164,623 |
| ||||
Income Tax Provision |
| 20,529 |
| 18,579 |
| 100,678 |
| 65,227 |
| ||||
Net Income |
| 31,807 |
| 31,377 |
| 139,406 |
| 99,396 |
| ||||
Net Income allocated to participating securities |
| (520 | ) | (690 | ) | (2,263 | ) | (1,230 | ) | ||||
Net Income allocated to common stockholders |
| $ | 31,287 |
| $ | 30,687 |
| $ | 137,143 |
| $ | 98,166 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income per share allocated to common stockholders |
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.35 |
| $ | 0.31 |
| $ | 1.52 |
| $ | 1.03 |
|
Diluted |
| 0.35 |
| 0.31 |
| 1.52 |
| 1.03 |
| ||||
Weighted average shares used in computing income per share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
| 89,397 |
| 97,802 |
| 89,994 |
| 95,754 |
| ||||
Diluted |
| 89,397 |
| 97,802 |
| 89,994 |
| 95,754 |
| ||||
CBOE Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
December 31, 2011 and December 31, 2010
(in thousands, except share amounts) |
| December 31, |
| December 31, |
| ||
Assets |
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 134,936 |
| $ | 53,789 |
|
Accounts receivable - net of allowances of $304 and $108 |
| 37,578 |
| 37,746 |
| ||
Marketing fee receivable |
| 5,195 |
| 7,815 |
| ||
Income taxes receivable |
| 6,756 |
| 5,537 |
| ||
Other prepaid expenses |
| 4,152 |
| 4,510 |
| ||
Other current assets |
| 1,065 |
| 537 |
| ||
Total Current Assets |
| 189,682 |
| 109,934 |
| ||
Investments in Affiliates |
| 14,305 |
| 12,615 |
| ||
Land |
| 4,914 |
| 4,914 |
| ||
Property and Equipment: |
|
|
|
|
| ||
Construction in progress |
| 1,264 |
| 1,729 |
| ||
Building |
| 60,917 |
| 60,917 |
| ||
Furniture and equipment |
| 252,905 |
| 240,711 |
| ||
Less accumulated depreciation and amortization |
| (238,288 | ) | (221,273 | ) | ||
Total Property and Equipment—Net |
| 76,798 |
| 82,084 |
| ||
Other Assets: |
|
|
|
|
| ||
Software development work in progress |
| 6,168 |
| 1,131 |
| ||
Data processing software and other assets (less accumulated amortization of $121,173 and $107,770) |
| 36,001 |
| 43,434 |
| ||
Total Other Assets—Net |
| 42,169 |
| 44,565 |
| ||
Total |
| $ | 327,868 |
| $ | 254,112 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Accounts payable and accrued expenses |
| $ | 46,071 |
| $ | 40,084 |
|
Marketing fee payable |
| 5,765 |
| 8,349 |
| ||
Deferred revenue |
| 351 |
| 280 |
| ||
Post-retirement medical benefits |
| 100 |
| 103 |
| ||
Total Current Liabilities |
| 52,287 |
| 48,816 |
| ||
|
|
|
|
|
| ||
Long-term Liabilities: |
|
|
|
|
| ||
Post-retirement medical benefits |
| 1,781 |
| 1,782 |
| ||
Income taxes payable |
| 12,185 |
| 3,165 |
| ||
Other long-term liabilities |
| 3,906 |
| 3,993 |
| ||
Deferred income taxes |
| 21,439 |
| 20,482 |
| ||
Total Long-term Liabilities |
| 39,311 |
| 29,422 |
| ||
Total Liabilities |
| 91,598 |
| 78,238 |
| ||
Commitments and Contingencies |
|
|
|
|
| ||
Stockholders’ Equity |
|
|
|
|
| ||
Preferred Stock, $0.01 par value: 20,000,000 shares authorized, no shares issued and outstanding at December 31, 2011 and December, 31, 2010 |
| — |
| — |
| ||
Unrestricted Common Stock, $0.01 par value: 325,000,000 shares authorized, 90,781,222 issued and 88,768,885 outstanding at December 31, 2011; 51,786,717 shares issued and outstanding at December 31, 2010 |
| 908 |
| 518 |
| ||
Class A-2 Common Stock, $0.01 par value: 45,366,690 shares authorized, none and 38,297,994 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively |
| — |
| 383 |
| ||
Additional paid-in-capital |
| 55,469 |
| 42,858 |
| ||
Retained Earnings |
| 232,121 |
| 133,087 |
| ||
Treasury Stock, at cost: 2,012,337 shares at December 31, 2011 |
| (51,329 | ) | — |
| ||
Accumulated other comprehensive loss |
| (899 | ) | (972 | ) | ||
Total Stockholders’ Equity |
| 236,270 |
| 175,874 |
| ||
|
|
|
|
|
| ||
Total |
| $ | 327,868 |
| $ | 254,112 |
|
CBOE Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Twelve Months Ended December 31, 2011 and 2010
|
| Twelve Months Ended December 31, |
| ||||
(in thousands) |
| 2011 |
| 2010 |
| ||
Cash Flows from Operating Activities: |
|
|
|
|
| ||
Net Income |
| $ | 139,406 |
| $ | 99,396 |
|
Adjustments to reconcile net income to net cash flows from operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 34,094 |
| 29,891 |
| ||
Other amortization |
| 90 |
| 69 |
| ||
Provision for deferred income taxes |
| 940 |
| 21 |
| ||
Stock-based compensation |
| 12,618 |
| 20,801 |
| ||
Loss on disposition of property |
| 1,225 |
| 139 |
| ||
Loss on investment in affiliates |
| 352 |
| 677 |
| ||
Impairment of investment in affiliates and other assets |
| 459 |
| 1,620 |
| ||
Changes in assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
| 168 |
| (7,309 | ) | ||
Marketing fee receivable |
| 2,620 |
| 1,156 |
| ||
Income taxes receivable |
| (1,219 | ) | (3,954 | ) | ||
Prepaid expenses |
| 704 |
| 535 |
| ||
Other receivable |
| — |
| 2,086 |
| ||
Other current assets |
| (528 | ) | (85 | ) | ||
Accounts payable and accrued expenses |
| 5,784 |
| (3,334 | ) | ||
Marketing fee payable |
| (2,584 | ) | (1,437 | ) | ||
Deferred revenue and other long-term liabilities |
| (16 | ) | (12 | ) | ||
Post-retirement benefit obligation |
| (4 | ) | (9 | ) | ||
Income taxes payable |
| 9,020 |
| 350 |
| ||
Settlement with appellants |
| — |
| (3,000 | ) | ||
Access fees subject to fee-based payment |
| — |
| (2,688 | ) | ||
Net Cash Flows provided by Operating Activities |
| 203,129 |
| 134,913 |
| ||
Cash Flows from Investing Activities: |
|
|
|
|
| ||
Capital and other assets expenditures |
| (29,143 | ) | (23,556 | ) | ||
Investment in affiliates |
| (1,250 | ) | (7,990 | ) | ||
Other |
| 112 |
| (998 | ) | ||
Net Cash Flows used in Investing Activities |
| (30,281 | ) | (32,544 | ) | ||
Cash Flows from Financing Activities: |
|
|
|
|
| ||
Payments for debt issuance costs |
| — |
| (23 | ) | ||
Payment of dividends |
| (40,372 | ) | (133,078 | ) | ||
Purchase of unrestricted stock from employees |
| (4,339 | ) | — |
| ||
Purchase of unrestricted stock under repurchase program |
| (46,990 | ) | — |
| ||
Exercise right privilege settlement payable |
| — |
| (300,000 | ) | ||
IPO proceeds - net |
| — |
| 301,238 |
| ||
Tender offer for Class A-1 and Class A-2 common stock |
| — |
| (299,190 | ) | ||
Other stock repurchases |
| — |
| (1,257 | ) | ||
Net Cash Flows used in Financing Activities |
| (91,701 | ) | (432,310 | ) | ||
|
|
|
|
|
| ||
Net Increase (Decrease) in Cash and Cash Equivalents |
| 81,147 |
| (329,941 | ) | ||
|
|
|
|
|
| ||
Cash and Cash Equivalents at Beginning of Period |
| $ | 53,789 |
| $ | 383,730 |
|
Cash and Cash Equivalents at End of Period |
| $ | 134,936 |
| $ | 53,789 |
|
|
|
|
|
|
| ||
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
| ||
Cash paid for income taxes |
| $ | 93,224 |
| $ | 70,289 |
|
Non-cash activities: |
|
|
|
|
| ||
Change in post-retirement benefit obligation |
| $ | (90 | ) | $ | 289 |
|
Unpaid liability to acquire equipment and software |
| $ | 1,537 |
| $ | 2,744 |
|
Unpaid liabilities related to investments |
| $ | 1,250 |
| $ | 3,833 |
|