Nyse Euronext (NYX) today reported net income of $195 million, or $0.73 per diluted share, for the quarter ended June 30, 2008, a $34 million or 21% increase as compared to net income of $161 million, or $0.62 per diluted share, for the quarter ended June 30, 2007.
These results are presented in accordance with U.S. generally accepted accounting principles (GAAP).
"Building on a record first quarter, we continued to experience strong customer demand across our core businesses and to execute well against our corporate strategy," said Duncan L. Niederauer, Chief Executive Officer, NYSE Euronext. "Our results reflect the strength and earnings potential of our highly diverse business model and our ability to post gains even in the most challenging times. While maintaining our focus on expense management, we have strengthened our trading infrastructure and competitive position with investments in new technology. We have also made strategic investments to extend our global footprint, including the 25% stake in Qatar's Doha Securities Market, and have laid the groundwork for our U.S. futures businesses."
On a pro forma non-GAAP basis, excluding merger expenses, exit costs and other non-recurring items, net income of NYSE Euronext for the quarter ended June 30, 2008 would have been $200 million, or $0.75 per diluted share, a $29 million or 17% increase versus non-GAAP net income of $171 million, or $0.64 per diluted share, for the quarter ended June 30, 2007. A full reconciliation of these non-GAAP results is included in the attached tables.
Taking pro forma non-GAAP results and excluding the impact of exchange rates, as well as acquisitions and dispositions of businesses and equity investments for the period, NYSE Euronext's revenues, net of activity assessment fees, for the quarter ended June 30, 2008 increased $114 million, or 12%, compared to the quarter ended June 30, 2007. On the same basis, NYSE Euronext's operating income increased $28 million, or 10%. Fixed operating expenses (defined as operating expenses, net of Section 31 fees, merger expenses, exit costs, liquidity payments, routing and clearing fees, and excluding regulatory fine income) decreased $19 million, or 4%, compared to the quarter ended June 30, 2007. Please refer to the table entitled "Normalized operating income including non-GAAP financial measures."
"NYSE Euronext remains on track to achieve technology and non-technology savings' targets related to the NYSE-Euronext merger, and we expect to realize future synergy opportunities from the pending AEMS and American Stock Exchange transactions," said Michael S. Geltzeiler, Group Executive Vice President and Chief Financial Officer, NYSE Euronext. "Beyond the cost saves, we are also committed to investing in growth, which includes broadening our product and service portfolio in both core businesses and new ventures. Our capital allocation will be appropriately balanced between investing in our future and returning capital to our shareholders, as evidenced by our $1 billion stock repurchase program."
Other Financial Highlights
- Included in the GAAP results for the quarter ended June 30, 2008 were $38 million of pre-tax merger expenses and exit costs (primarily severance charges incurred in connection with a voluntary resignation incentive program), as compared to $16 million in the comparable period a year ago. In addition, the GAAP results for the quarter ended June 30, 2008 were favorably impacted by the reversal of a $36 million accrual relating to certain litigation between a former Chairman & CEO and the NYSE, which was finally terminated on July 31, 2008.
- On a non-GAAP basis, net transaction revenues (defined as cash and derivatives trading revenues net of liquidity payments and routing and clearing expenses) increased $60 million or 17% for the three months ended June 30, 2008 versus the year ago period and are up 28% on a year-to-date basis.
- In May, NYSE Euronext completed the statutory buy-out of the remaining minority Euronext shareholders who held approximately 2% of the shares of Euronext N.V. for an aggregate consideration of EUR 252 million ($389 million). As a result of this buy-out, Euronext N.V. and its subsidiaries are now wholly-owned by NYSE Euronext.
- As a result of the Euronext transaction, and following the reorganization of certain of our businesses, the effective tax rate of NYSE Euronext on a non-GAAP basis was 27% for the three months ended June 30, 2008 as compared to 32% for the same period a year ago. For the balance of the year, NYSE Euronext anticipates providing income taxes at an effective tax rate of 29%.
- As of June 30, 2008, NYSE Euronext had a strong financial position with $1.3 billion of cash, cash equivalents, investment and other securities (including $155 million related to Section 31 fees collected from market participants and due to the SEC) and $3.0 billion in debt obligations.
- On April 11 and May 21, NYSE Euronext successfully launched a 7-year EUR 750 million ($1,181 million) bond issue in the Euro market and priced a 5-year $750 million underwritten public offering of senior notes in the U.S., respectively. These offerings enabled NYSE Euronext to lengthen the maturity profile of its debt and to fix approximately 65% of its total debt at a weighted average interest rate of 5.1%. This compares to NYSE Euronext's average variable borrowing rate of 3.7% on commercial paper for the quarter.
- American Stock Exchange (Amex) members overwhelmingly approved the proposed merger with NYSE Euronext. The transaction is expected to close in the third quarter of 2008 following SEC approval. While we anticipate Amex to generate operating losses for the balance of this year, we expect the transaction to produce $100 million in run-rate savings and to be accretive by the end of 2009.
- Following the close of the Amex transaction, NYSE Euronext intends to implement the previously announced $1 billion stock repurchase program, in accordance with SEC rules and subject to strategic and credit considerations.
- On July 31, 2008, the NYSE Euronext Board of Directors approved a resolution to remove the transfer restrictions on approximately 42 million common shares issued in connection with the merger of NYSE and Archipelago, effective upon closing of the Amex transaction. The restrictions on these shares, which represent approximately 16% of the 266 million total common shares outstanding as of June 30, 2008, were originally scheduled to lapse on March 7, 2009.
- NYSE Euronext will make a $0.30 quarterly dividend payment on September 30, 2008 to shareholders of record as of September 15, 2008.
Key Business Highlights
- The SEC published NYSE's proposal to provide customers with a competitive trading experience and the highest level of market quality that is currently available in U.S. markets. The next generation NYSE will offer a balanced combination of high-tech for fast, automated and anonymous order execution, and high-touch for discovering and improving prices, dampening volatility, adding liquidity and enhancing value to customers.
- Within an increasingly competitive European landscape, Euronext has launched a new pricing package, which enables its high frequency traders to save up to 30% of trading fees and introduced co-location service, internalization service within the central orderbook and sub-cent trading.
- The Universal Trading Platform (UTP), planned for introduction later this year for European cash equities trading, will be one of the newest and most advanced trading platforms in the industry and provide scalability, greater capacity, very low latency and higher speed trading for customers.
- In the third quarter, Euronext - together with BNP Paribas and HSBC - will launch "SmartPool." The New York Block Exchange, NYSE Euronext's joint venture with BIDS Trading, is expected to launch in the fourth quarter. These ventures are both designed to improve execution quality and access to liquidity in block trading on NYSE Euronext's markets.
- The State of Qatar and NYSE Euronext entered a strategic partnership to build a new, internationally integrated cash and derivatives exchange in Doha, providing NYSE Euronext with a valuable presence in the Middle East. As part of the agreement, projected to close in the fourth quarter of 2008, NYSE Euronext will purchase a 25% stake in the Doha Securities Market (DSM) for $250 million and will provide the technology platform and management services for both the DSM's equities and derivatives markets on agreed upon commercial terms.
- In August 2008, NYSE Euronext expects to close the acquisition of the remaining 50% stake in Atos Euronext Market Solutions (AEMS) owned by Atos Origin, effectively completing the insourcing of its European technology operations and enabling the integration of AEMS into NYSE Euronext Advanced Trading Solutions.
- NYSE Euronext Advanced Trading Solutions, which also includes TransactTools, Wombat and SFTI, announced agreements to build and implement exchange technology for Bursa Malaysia, Tokyo Stock Exchange, and the Philippine Stock Exchange.
- Following the purchase of CME Group's precious metals business, NYSE Euronext hired Thomas Callahan to head its US futures business, NYSE Liffe. NYSE Euronext is further advancing the growth of this platform by meeting with current and prospective customers and committing to a significant investment to establish the business. The CFTC is expected to approve NYSE Liffe as a Designated Contract Market (DCM) in the third quarter.
- The SEC approved a NYSE plan for a new data product, NYSE Realtime Reference Prices, which allows media and Internet organizations to buy real-time, last-sale market data and provide it broadly and free of charge to the public. CNBC, Google Finance and nyse.com are now displaying NYSE Realtime stock prices on their respective websites.
- Liffe, the international derivatives business of NYSE Euronext, announced plans to launch Credit Default Swap (CDS) contracts on BClear in the fourth quarter of 2008, which will allow OTC transactions to be negotiated and booked into a secure exchange and clearing house environment, thereby reducing counter-party risk.
NYSE Euronext Market Summary
Global Cash Equities: NYSE Euronext's cash markets trade more shares than any other equities marketplace in the world, representing over one-third of all cash equities trading globally.
- During the second quarter of 2008, NYSE Euronext's European cash markets experienced record trading volume of 88 million trades, and a total volume growth of 17% over the same period a year ago.
- Year-to-date, our European exchanges experienced an increase of 28% in total trade volume supported by cash equities up 29%, ETFs up 47% and structured products (warrants and certificates) up 3%, compared to the same period a year ago.
- During the second quarter of 2008, NYSE Euronext's U.S. cash markets experienced total volume growth of 7% over the same period a year ago.
- Market share of matched transactions for NYSE-listed securities was 47%, compared to Nasdaq at 22% during the second quarter of 2008. Market share of matched transactions for NYSE-listed securities was 52% for the first quarter of 2008.
- NYSE Euronext's U.S. cash markets also produced a year-to-date handled volume increase of 20% in overall equities trading, which included increases of 16% in NYSE listed securities, 114% in NYSE Arca & Amex listed securities and 68% in ETFs.
- In June 2008, NYSE Euronext's U.S. cash markets traded more volume than any other U.S. exchange, including Nasdaq, in 99.4% of the individual NYSE-listed issues.
Global Derivatives: Liffe and NYSE Arca Options had exceptional growth in the second quarter and first half of 2008.
- In the second quarter of 2008, total Liffe transaction volume increased 22% compared to the same period a year ago. Year-to-date, Liffe continued its strong performance with new trading records, increasing total contracts traded by 25% compared to the year ago period. Volumes in interest rate products rose 33%, equity products (single stocks and indices) up 16% and commodities grew 20%.
- In the second quarter of 2008, NYSE Arca Options experienced total volume growth of 38% compared to the second quarter of 2007. Year-to-date, NYSE Arca continues to outpace broader industry volumes with a volume growth of 54% over the same period last year compared to total consolidated volume growth of 41%.
- Global Listings: Through first half of 2008, NYSE Euronext remained by far the world's leading exchange group with nearly 4,100 listed issuers representing approximately $26.7 / EUR 17.1 trillion in total global market capitalization.
- Year-to-date, NYSE Euronext is the global leader in IPO proceeds with capital raised on our markets totaling $26.4 billion/EUR 16.7 billion, more than any exchange group in the world. In the second quarter of 2008, IPOs by operating companies raised a total of $6.7 billion//EUR 4.3 billion on NYSE Euronext markets.
- NYSE Euronext added 196 new listings and IPOs during the first half of 2008, including Visa (V), the largest IPO in U.S. history and EDP Renovaveis (EDPR), the largest European IPO in terms of funds raised during the first half of 2008.
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