CME Group Inc. (Nasdaq: CME) today reported that total first-quarter GAAP revenues increased 4 percent to $647 million, and GAAP operating income decreased 3 percent to $386 million. Net income for the first quarter was $199 million and diluted earnings per share on a GAAP basis were $3.00. The 2009 GAAP results reflect the operations of Chicago Mercantile Exchange (CME), Board of Trade of the City of Chicago (CBOT), and New York Mercantile Exchange (NYMEX), and include a reduction in net income of $13.4 million for merger-related items. The GAAP results for first-quarter 2008 reflect the operations of CME and CBOT only.
First-quarter pro forma non-GAAP diluted earnings per share were $3.20, down 30 percent compared with the prior year period. All pro forma results reflect the operations of both CME Group Inc. and NYMEX, as if they were combined for all periods reported, and first-quarter 2009 pro forma non-GAAP results exclude the $13.4 million of merger-related items mentioned above.
Total revenues decreased 21 percent to $647 million, and the combined average rate per contract increased 12 percent to 83 cents, up from 74 cents in first-quarter 2008, due to a shift in product mix. Pro forma total operating expenses decreased 9 percent to $252 million, compared with the same period last year, due to ongoing expense discipline during the quarter. First-quarter pro forma operating income was $395 million, a decrease of 27 percent from $540 million for the year-ago period.
Despite challenging market conditions, the company maintained a strong pro forma operating margin of 61 percent, compared with a record 66 percent for first-quarter 2008. Operating margin is defined as operating income as a percentage of total revenues. Pro forma net income decreased 30 percent to $213 million for first-quarter 2009.
Pro forma measures do not replace and are not a substitute for GAAP financial results. They are provided to improve overall understanding of current financial performance and to provide a meaningful comparison with prior periods. A full reconciliation of these first-quarter 2009 pro forma results is included with the attached financial statements.
All references to volume and rate per contract information in the text of this document exclude our non-traditional TRAKRS products, for which CME Group receives significantly lower clearing fees than other CME Group products, and Swapstream products.
"Extraordinarily challenging economic conditions characterized the first quarter, as heightened uncertainty led to a crisis of confidence among investors across the globe," said CME Group Executive Chairman Terry Duffy. "Our markets continued to perform flawlessly throughout the quarter - once again proving their effectiveness in all environments. CME Group maintained solid profitability levels, while generating significant free cash flow. Looking ahead, we can expect continued short-term choppiness, but we are encouraged by initial signs of stabilization in the financial marketplace. Long-term, we remain optimistic about our opportunities to extend our renowned clearing services to new customers and markets, expand our technology and sales efforts globally, and cross-sell our diverse product set."
"We continued to focus intensely on expense discipline throughout our organization during the first quarter, including delivering synergies from the NYMEX integration, while also continuing to invest in meaningful future growth areas," said CME Group Chief Executive Officer Craig Donohue. "Our record OTC revenue generated through CME ClearPort, for example, is a testament both to strong customer demand and to our clearing capability. The critical function performed by central counterparty clearing has been highlighted during the past year, and we are actively engaged in multiple initiatives to bring the safety and soundness of centralized clearing to the over-the-counter markets. In addition, we continue to meet customer needs through innovative product offerings such as three-year treasuries, FX e-minis, and our suite of MSCI equity index offerings, all of which gained traction during the first quarter."
CME Group Inc. First-Quarter 2009 Results
Financial Highlights:
GAAP
($s in millions, except
per share) Q1 FY09 Q1 FY08 Y/Y
Revenues $647 $625 4%
Expenses $261 $225 15%
Operating Income $386 $400 -3%
Operating Margin % 59.7% 63.8%
Net Income $199 $284 -30%
Diluted EPS $3.00 $5.25 -43%
Pro Forma Non-GAAP
($s in millions, except
per share) Q1 FY09 Q1 FY08 Y/Y
Revenues $647 $817 -21%
Expenses $252 $277 -9%
Operating Income $395 $540 -27%
Operating Margin % 61.1% 66.1%
Net Income $213 $302 -30%
Diluted EPS $3.20 $4.54 -30%
NOTE: See the CME Group Inc. Reconciliation of GAAP to Pro Forma Non-GAAP
Measures for detail related to the adjustments made to reach the pro
forma results.
Pro Forma Non-GAAP First-Quarter 2009 Financial Results
First-quarter 2009 average daily volume was 10.4 million contracts, in line with fourth-quarter 2008 volume. Pro forma clearing and transaction fee revenue was $528 million, down from a record $704 million in first-quarter 2008. Quotation data fees were up 3 percent to $86 million in the first quarter. The total pro forma average rate per contract for CME Group increased 12 percent from first-quarter 2008 to 83 cents, but decreased three percent compared with 86 cents in fourth-quarter 2008, due to a higher proportion of lower priced member volume.
First-quarter 2009 pro forma non-operating expense was $36 million, driven primarily by interest expense and borrowing costs of $39 million related to the NYMEX acquisition. Total interest expense included a one-time, non-cash $5 million charge due to the acceleration of the upfront fees and expenses related to the origination of the company's bridge financing when it was replaced. Additionally, the first-quarter 2009 effective tax rate was 40.9 percent, relatively unchanged from 41.6 percent in first-quarter 2008.
Balance Sheet Highlights
As of March 31, the company had $588 million of cash and marketable securities and $3.1 billion of debt. During the quarter, the company completed a public debt offering of $750 million of 5.75% fixed rate notes due in 2014. The net proceeds from the offering were used to repay any outstanding commercial paper borrowings that were backstopped by the 364-day revolving bridge facility. The company terminated the bridge facility on February 10, 2009. During the quarter, the company paid down approximately $115 million in debt.
CME Group will hold a conference call to discuss first-quarter 2009 results at 8:30 a.m. Eastern Time today. A live audio Webcast of the call will be available on the Investor Relations section of CME Group's Web site at www.cmegroup.com. An archived recording will be available for up to two months after the call.
CME Group Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in millions)
March 31, December 31,
2009 2008
--------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $339.2 $297.9
Collateral from securities lending 155.4 426.9
Marketable securities, including pledged
securities 248.5 310.1
Accounts receivable, net of allowance 279.5 234.0
Other current assets 112.7 189.1
Cash performance bonds and security deposits 9,765.6 17,653.5
------- --------
Total current assets 10,900.9 19,111.5
Property, net of accumulated depreciation and
amortization 711.4 707.2
Intangible assets - trading products 16,982.0 16,982.0
Intangible assets - other, net of accumulated
amortization 3,335.4 3,369.4
Goodwill 7,517.0 7,519.2
Other assets 468.9 469.4
----- -----
Total Assets $39,915.6 $48,158.7
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $46.5 $71.0
Payable under securities lending agreements 157.1 456.8
Short-term debt 249.9 249.9
Other current liabilities 255.5 211.8
Cash performance bonds and security deposits 9,765.6 17,653.5
------- --------
Total current liabilities 10,474.6 18,643.0
Long-term debt 2,848.2 2,966.1
Deferred tax liabilities 7,660.5 7,728.3
Other liabilities 133.1 132.7
----- -----
Total Liabilities 21,116.4 29,470.1
Shareholders' equity 18,799.2 18,688.6
-------- --------
Total Liabilities and Shareholders' Equity $39,915.6 $48,158.7
========= =========
CME Group Inc. and Subsidiaries
Consolidated Statements of Income
(dollars in millions, except per share amounts, and
sharecounts in thousands)
Quarter Ended
March 31,
2009 2008
---- ----
Revenues
Clearing and transaction fees $527.8 $525.1
Quotation data fees 85.5 56.8
Processing services 0.1 17.5
Access and communication fees 11.6 10.5
Other 22.1 15.2
---- ----
Total Revenues 647.1 625.1
Expenses
Compensation and benefits 86.7 73.3
Communications 12.4 14.8
Technology support services 11.8 17.0
Professional fees and outside services 22.3 14.8
Amortization of purchased intangibles 33.3 16.2
Depreciation and amortization 31.0 34.3
Occupancy and building operations 19.4 16.7
Licensing and other fee agreements 24.6 13.5
Restructuring 3.2 1.8
Other 16.0 22.8
---- ----
Total Expenses 260.7 225.2
Operating Income 386.4 399.9
Non-Operating Income and Expense
Investment income 1.8 11.4
Gains (losses) on derivative
investments - (2.2)
Securities lending interest income 2.4 23.6
Securities lending interest and other
costs (0.4) (19.3)
Interest and other borrowing costs (38.5) (2.3)
Guarantee of exercise right privileges - 8.4
Equity in losses of unconsolidated
subsidiaries (1.2) (3.9)
Other non-operating expense - (8.4)
-- ----
Total Non-Operating (35.9) 7.3
Income Before Income Taxes 350.5 407.2
Income tax provision (151.4) (123.7)
------ ------
Net Income $199.1 $283.5
====== ======
Earnings per Common Share:
Basic $3.00 $5.28
Diluted 3.00 5.25
Weighted Average Number of Common Shares:
Basic 66,302 53,751
Diluted 66,439 54,028
CME Group Inc. and Subsidiaries
Pro Forma Non-GAAP Consolidated Statements of Income
(dollars in millions, except per share amounts, and
sharecounts in thousands)
Quarter Ended
March 31,
2009 2008
---- ----
Revenues
Clearing and transaction fees $527.8 $704.1
Quotation data fees 85.5 83.0
Processing services 0.1 0.5
Access and communication fees 11.6 10.8
Other 22.1 18.6
---- ----
Total Revenues 647.1 817.0
Expenses
Compensation and benefits 86.7 91.1
Communications 12.4 16.0
Technology support services 11.8 19.0
Professional fees and outside services 20.1 17.0
Amortization of purchased intangibles 30.4 29.7
Depreciation and amortization 31.0 35.3
Occupancy and building operations 19.4 21.1
Licensing and other fee agreements 24.6 24.6
Other 15.6 22.8
---- ----
Total Expenses 252.0 276.6
Operating Income 395.1 540.4
Non-Operating Income and Expense
Investment income 1.8 15.2
Gains (losses) on derivative investments - -
Securities lending interest income 2.4 31.4
Securities lending interest and other
costs (0.4) (25.4)
Interest and other borrowing costs (38.5) (38.1)
Equity in losses of unconsolidated
subsidiaries (1.2) (6.1)
---- ----
Total Non-Operating (35.9) (23.0)
Income Before Income Taxes 359.2 517.4
Income tax provision (146.7) (215.5)
------ ------
Net Income $212.5 $301.9
====== ======
Earnings per Diluted Common Share $3.20 $4.54
Weighted Average Number of Diluted Common
Shares* 66,439 66,568
Note: All pro forma results for CME Group assume the merger
with CBOT and the acquisition of NYMEX were completed as of
the beginning of the period presented. See CME Group Inc.
Reconciliation of GAAP to Pro Forma Non-GAAP Measures for
detail on all of the adjustments made to reach the pro forma
results.
*Weighted average number of diluted common shares includes
merger-related shares converted or issued for the entire
period reported.
CME Group Inc. and Subsidiaries
Reconciliation of GAAP to Pro Forma Non-GAAP Measures
(in millions)
Quarter Ended
March 31,
2009 2008
---- ----
GAAP Results
Revenues $647.1 $625.1
Expenses 260.7 225.2
----- -----
Operating income 386.4 399.9
Non-operating income and expense (35.9) 7.3
----- ---
Income before income taxes 350.5 407.2
Income tax provision (151.4) (123.7)
------ ------
Net Income $199.1 $283.5
====== ======
Pro Forma Adjustments
Revenues:
NYMEX pre-merger revenue $- $208.9
Intercompany revenue elimination(1) - (17.0)
FXMarketSpace write down -
-- -----
Total Pro Forma Revenue Adjustment - 191.9
Expenses:
NYMEX pre-merger expense - 76.1
Intercompany expense elimination (1) - (17.0)
Amortization of intangibles (2) (2.9) 13.5
Depreciation adjustment from building life
change (3) - 1.5
Other (4) (5.8) (22.7)
---- -----
Total Pro Forma Expense Adjustment (8.7) 51.4
---- ----
Adjustment to operating income 8.7 140.5
Non-operating income and expense:
NYMEX premerger non-operating income - 1.7
Interest on debt acquired for NYMEX deal - (34.2)
ERP Guarantee (5) - (8.4)
BM&F Bovespa (6) - 10.6
-- ----
Total Pro Forma Non-Operating Income and
Expense Adjustment - (30.3)
-- -----
Adjustment to income before income taxes 8.7 110.2
Adjustment to income tax provision 4.7 (91.8)
--- -----
Adjustment to net income $13.4 18.4
===== ====
Pro Forma Non-GAAP Results
Revenues $647.1 $817.0
Expenses $252.0 $276.6
------ ------
Operating income $395.1 $540.4
Non-operating income and expense (35.9) $(23.0)
----- ------
Income before income taxes 359.2 $517.4
Income tax provision(7) (146.7) $(215.5)
------ -------
Net Income 212.5 $301.9
===== ======
Notes:
(1) Eliminate processing services provided prior to the
NYMEX acquisition.
(2) Add amortization of intangible assets recorded in
purchase of NYMEX.
(3) Adjust depreciation for changes in value and useful
life of building acquired from NYMEX.
(4) Reverse effect of restructuring, accelerated
depreciation, integration and legal expenses related
to the merger with CBOT and acquisition of NYMEX.
Also removes other merger-related transaction costs
that were expensed and transaction costs related to
the acquisition of CMA.
(5) Reverse impact of exercise right privilege guarantee.
(6) Reverse transaction costs related to the BM&F/Bovespa
investment.
(7) Pro forma adjustments are tax affected at CME Group's
estimated statutory tax rate. A first quarter 2008 tax
benefit of $38.6 million due to a change in Illinois state
tax treatment for apportionment of revenues sourced within
the state has been removed for proforma purposes. First-
quarter 2009 includes a pro forma tax adjustment for
certain merger related items.
CME Group Inc.
Quarterly Operating Statistics
1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
------- ------- ------- ------- -------
Trading Days 61 64 64 64 61
Quarterly Average Daily Volume (ADV)
CME Group Pro Forma ADV (Legacy CME, CBOT and NYMEX combined, in
thousands)
1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
------- ------- ------- ------- -------
Total 15,540 12,876 13,236 10,441 10,389
-----
CME Group ADV (Legacy CME and CBOT combined for entire periods reported,
in thousands)
Product Line 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
------------ ------- ------- ------- ------- -------
Interest rates 8,251 6,467 6,030 3,692 3,843
Equity E-mini 3,628 2,833 3,638 3,799 3,378
Equity standard-size 201 161 204 194 159
Foreign exchange 640 665 710 481 507
Commodities & alternative
investments 949 933 822 691 685
--- --- --- --- ---
Total 13,669 11,060 11,404 8,857 8,572
Venue
-----
Open outcry 2,336 1,836 1,602 1,275 1,188
Electronic (excluding TRAKRS) 11,097 9,054 9,641 7,447 7,255
Privately negotiated 236 170 161 136 130
--- --- --- --- ---
Total 13,669 11,060 11,404 8,857 8,572
NYMEX/COMEX ADV (in thousands)
1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
------- ------- ------- ------- -------
NYMEX floor 257 238 193 166 135
NYMEX electronic 814 865 831 682 798
COMEX floor 47 38 36 29 30
COMEX electronic 205 172 214 144 170
NYMEX ClearPort 473 418 492 489 629
Other 75 85 65 75 54
-- -- -- -- --
Total 1,870 1,816 1,831 1,584 1,816
Average Rate Per Contract (RPC)
CME Group Pro Forma Average RPC (Legacy CME, CBOT and NYMEX combined)
1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
------- ------- ------- ------- -------
Total $0.743 $0.775 $0.785 $0.858 $0.833
-----
CME Group RPC (Legacy CME and CBOT combined for entire periods reported)
Product Line 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
------------ ------- ------- ------- ------- -------
Interest rates $0.505 $0.522 $0.521 $0.569 $0.532
Equity E-mini 0.684 0.668 0.677 0.706 0.677
Equity standard-size 1.506 1.453 1.486 1.582 1.543
Foreign exchange 0.927 0.907 0.936 0.894 0.918
Commodities & alternative
investments 1.119 1.134 1.154 1.154 1.108
----- ----- ----- ----- -----
Average RPC (excluding
TRAKRS) $0.630 $0.648 $0.659 $0.713 $0.677
Venue
-----
Open outcry $0.553 $0.572 $0.607 $0.663 $0.607
Electronic (excluding TRAKRS) 0.609 0.629 0.637 0.691 0.659
Privately negotiated 2.345 2.427 2.526 2.558 2.460
NYMEX/COMEX RPC
1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
------- ------- ------- ------- -------
NYMEX floor $1.594 $1.607 $1.386 $1.600 $1.375
NYMEX electronic 1.324 1.304 1.315 1.308 1.347
COMEX floor 1.641 1.712 1.626 1.801 1.776
COMEX electronic 1.630 1.706 1.719 1.781 1.797
NYMEX ClearPort 1.875 1.905 1.933 2.099 1.745
Other 1.923 1.854 1.928 2.038 2.460
----- ----- ----- ----- -----
Total Pro Forma Average Gross
Rate $1.570 $1.556 $1.567 $1.671 $1.569
Total Pro Forma Average Net
Rate $1.472 $1.479 $1.488 $1.569 $1.466
Note: All CME Group volume and rate per contract data is based upon pro
forma results, including the operations of CME Group and NYMEX as if they
were combined for the entire period reported. All data excludes our
non-traditional TRAKRS products, for which CME Group receives
significantly lower clearing fees than other CME Group products.
Additionally, all data excludes Swapstream products.
