CME Group Inc. (NYSE, Nasdaq: CME) today reported total revenues increased 88 percent to $625 million and net income increased 118 percent to $284 million for first-quarter 2008 compared with first-quarter 2007. Diluted earnings per share rose 42 percent to $5.25. These GAAP results reflect the operations of both Chicago Mercantile Exchange (CME) and Board of Trade of the City of Chicago (CBOT) and include: $8.7 million of CBOT merger-related operating expenses consisting of restructuring charges, integration and legal costs, and the acceleration of depreciation related to CBOT data centers; $8.4 million of transaction costs related to the definitive cross-equity agreement with the Brazilian Mercantile & Futures Exchange (BM&F); $3.8 million related to the acquisition of Credit Market Analysis Limited (CMA), which was closed during the first quarter; and an $8.4 million reduction to non-operating expenses associated with the guarantee for holders of the Chicago Board Options Exchange (CBOE) exercise right privilege (ERP). In addition, the GAAP and pro forma non-GAAP results include a tax benefit of $38.6 million due to a change in Illinois state tax treatment for apportionment of revenues sourced within the state. The GAAP results for 2007 reflect the operations of CME only.
Pro forma non-GAAP diluted earnings per share in the first quarter were $5.39, a 60 percent increase versus first-quarter 2007. Excluding the tax benefit mentioned above, pro forma diluted EPS would have been $4.67, a 39 percent increase versus first-quarter 2007. Pro forma results for first-quarter 2008 exclude the items listed above related to the CBOT merger, BM&F and CMA transactions, and the CBOE ERP guarantee. Pro forma non-GAAP revenues increased 25 percent to $625 million and net income increased 57 percent to $291 million for first-quarter 2008 compared with first-quarter 2007. The pro forma comparative results for 2007 reflect the operating results of both CME and CBOT as if they were combined. 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 pro forma results is included in the attached tables.
"During what was a challenging environment for many financial services companies, CME Group achieved volume growth of 32 percent in the first quarter, reflecting strength from all product areas," said CME Group Executive Chairman Terry Duffy. "This performance illustrates the benefits of the exchange model for managing risks in diverse global markets. We saw healthy trading activity from algorithmic oriented firms, hedge funds, and proprietary trading desks of investment banks, and from both members and non-member customers of CME Group. These users are attracted to the significant liquidity provided by all our product segments, coupled with the safety and soundness of our marketplace."
"In addition to seeing strong first-quarter activity in our core business, we also laid the groundwork for future growth opportunities," said CME Chief Executive Officer Craig Donohue. "We are on track to deliver the synergies projected from the CME/CBOT merger, which will enable us to operate more efficiently and effectively. We integrated e-CBOT interest rate, equity and agricultural products onto the CME Globex electronic platform, and implemented significant speed improvements that cut processing times in half. Further, as part of our global growth strategy, we completed our first-ever equity swap and strategic partnership with BM&F, the world's fourth largest futures exchange, to enhance our long-term growth opportunities in Latin America, and signed a definitive agreement to purchase NYMEX to provide new trading opportunities for customers around the world."
CME Group Inc. First-Quarter 2008 Results
Financial Highlights:
GAAP
($s in millions, except per share) Q1 FY08 Q1 FY07 Y/Y
Revenues $625 $332 88%
Expenses $226 $132 72%
Operating Income $399 $201 99%
Operating Margin % 63.8% 60.4%
Net Income $284 $130 118%
Diluted EPS $5.25 $3.69 42%
Pro Forma Non-GAAP
($s in millions, except per share) Q1 FY08 Q1 FY07 Y/Y
Revenues $625 $498 25%
Expenses $214 $210 2%
Operating Income $411 $288 43%
Operating Margin % 65.8% 57.9%
Net Income $291 $185 57%
Diluted EPS $5.39 $3.37 60%
NOTE: See the CME Group Inc. Reconciliation of Pro Forma Non-GAAP to GAAP
Measures for detail related to the adjustments made to reach the pro forma
results.
Pro Forma Non-GAAP First-Quarter 2008 Financial Results
First-quarter 2008 volume averaged a record 13.7 million contracts per day, up 32 percent versus the same period in 2007. This strong volume drove $525 million in clearing and transaction fee revenue, an increase of 28 percent from $410 million on a pro forma basis in first-quarter 2007, assuming CME and CBOT were combined during that time. The average rate per contract was $0.630 for the quarter, down 2 percent compared with the pro forma average rate per contract of $0.640 in first-quarter 2007.
CME Group processing services revenue for the combined company increased 35 percent to $17 million for first-quarter 2008 from $13 million for first-quarter 2007. NYMEX volume on CME Globex has increased every quarter since the NYMEX products began trading on CME Globex in June 2006. Additionally, first-quarter 2008 quotation data fees were up 13 percent to $57 million.
First-quarter operating income on a pro forma basis was $411 million, an increase of 43 percent from $288 million for the year-ago period. The company's operating margin was a record 66 percent compared with 58 percent for the same period last year. Operating margin is defined as operating income as a percentage of total revenues.
First-quarter 2008 pro forma non-operating income decreased 58 percent from first-quarter 2007 due primarily to lower interest rates earned on investment balances and the impact of a foreign currency hedge that the company instituted related to the BM&F transaction.
CME Group will hold a conference call to discuss first-quarter 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 http://www.cmegroup.com. An archived recording will be available for up to two months after the call.
CME Group (http://www.cmegroup.com/) is the world's largest and most diverse derivatives exchange. Formed by the 2007 merger of Chicago Mercantile Exchange Holdings Inc. (CME) and CBOT Holdings, Inc. (CBOT), CME Group serves the risk management needs of customers around the globe. As an international marketplace, CME Group brings buyers and sellers together on the CME Globex electronic trading platform and on its trading floors. CME Group offers the widest range of benchmark products available across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, agricultural commodities, and alternative investment products such as weather and real estate. CME Group is traded on the New York Stock Exchange and NASDAQ under the symbol "CME".
The Globe logo, CME, Chicago Mercantile Exchange, CME Group, Globex and E-mini, are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. TRAKRS and Total Return Asset Contracts are trademarks of Merrill Lynch & Co., Inc. These trademarks are used herein under license. All other trademarks are the property of their respective owners. Further information about CME Group and its products can be found at http://www.cmegroup.com/.
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, CME Group Auction Markets products, which were available to trade prior to July 2007, and Swapstream products.
Statements in this news release that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. Among the factors that might affect our performance are: our ability to obtain the required approvals and to satisfy the closing conditions for our proposed merger with NYMEX Holdings, Inc. and our ability to realize the benefits and control the costs of the proposed transaction; our ability to successfully integrate the businesses of CME Holdings and CBOT Holdings, including the fact that such integration may be more difficult, time consuming or costly than expected and revenues following the merger may be lower than expected; increasing competition by foreign and domestic entities, including increased competition from new entrants into our markets and consolidation of existing entities; our ability to keep pace with rapid technological developments, including our ability to complete the development and implementation of the enhanced functionality required by our customers; our ability to continue introducing competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and our ability to maintain the competitiveness of our existing products and services; our ability to adjust our fixed costs and expenses if our revenues decline; our ability to continue to generate revenues from our processing services; our ability to maintain existing customers and attract new ones; our ability to expand and offer our products in foreign jurisdictions; changes in domestic and foreign regulations; changes in government policy, including policies relating to common or directed clearing or as a result of a combination with the Securities and Exchange Commission and the Commodity Futures Trading Commission; the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others; our ability to generate revenue from our market data that may be reduced or eliminated by decreased demand or the growth of electronic trading; changes in our rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one of our various incentive programs) and the impact of our tiered pricing structure; the ability of our financial safeguards package to adequately protect us from the credit risks of clearing members; the ability of our compliance and risk management methods to effectively monitor and manage our risks; changes in price levels and volatility in the derivatives markets and in underlying fixed income, equity, foreign exchange and commodities markets; economic, political, geopolitical and market conditions; natural disasters and other catastrophes, our ability to accommodate increases in trading volume and order transaction traffic without failure or degradation of performance of our systems; our ability to execute our growth strategy and maintain our growth effectively; our ability to manage the risks and control the costs associated with our acquisition, investment and alliance strategy; our ability to continue to generate funds and/or manage our indebtedness to allow us to continue to invest in our business; industry and customer consolidation; decreases in trading and clearing activity; the imposition of a transaction tax on futures and options on futures transactions; and the seasonality of the futures business. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, which is available in the Investor Relations section of the CME Group Web site. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
CME Group Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
March 31, 2008 December 31, 2007
ASSETS
Current Assets:
Cash and cash equivalents $1,066,356 $845,312
Collateral from securities lending - 2,862,026
Marketable securities, including pledged
securities 155,373 203,308
Accounts receivable, net of allowance 251,981 187,487
Other current assets 98,394 55,900
Cash performance bonds and security
deposits 1,610,025 833,022
Total current assets 3,182,129 4,987,055
Property, net of accumulated depreciation
and amortization 379,269 377,452
Intangible assets - trading products 7,987,000 7,987,000
Intangible assets - other, net of
accumulated amortization 1,824,926 1,796,789
Goodwill 5,090,250 5,049,211
Other assets 774,329 108,690
Total Assets $19,237,903 $20,306,197
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $51,804 $58,965
Payable under securities lending agreements - 2,862,026
Short-term debt 164,952 164,435
Other current liabilities 358,447 157,615
Cash performance bonds and security
deposits 1,610,025 833,022
Total current liabilities 2,185,228 4,076,063
Deferred tax liabilities 3,805,598 3,848,240
Other liabilities 70,247 76,257
Total Liabilities 6,061,073 8,000,560
Shareholders' equity 13,176,830 12,305,637
Total Liabilities and Shareholders' Equity $19,237,903 $20,306,197
CME Group Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Quarter Ended
March 31,
2008 2007
Revenues
Clearing and transaction fees $525,067 $258,241
Quotation data fees 56,765 25,016
Processing services 17,482 34,759
Access and communication fees 10,539 7,663
Other 15,257 6,652
Total Revenues 625,110 332,331
Expenses
Compensation and benefits 73,289 56,400
Communications 14,772 9,079
Technology support services 16,994 8,892
Professional fees and outside services 14,751 9,172
Amortization of purchased intangibles 16,210 306
Depreciation and amortization 34,315 19,683
Occupancy and building operations 16,733 8,827
Licensing and other fee agreements 13,490 7,035
Restructuring 1,780 -
Other 24,115 12,330
Total Expenses 226,449 131,724
Operating Income 398,661 200,607
Non-Operating Income and Expense
Investment income 9,177 17,305
Securities lending interest income 23,644 32,890
Securities lending interest expense (18,219) (32,425)
Interest expense (2,104) -
Guarantee of exercise right privileges 8,397 -
Equity in losses of unconsolidated subsidiaries (3,929) (3,020)
Other non-operating expense (8,390) -
Total Non-Operating 8,576 14,750
Income Before Income Taxes 407,237 215,357
Income tax provision (123,689) (85,329)
Net Income $283,548 $130,028
Earnings per Common Share:
Basic $5.28 $3.73
Diluted $5.25 $3.69
Weighted Average Number of Common Shares:
Basic 53,751 34,851
Diluted 54,028 35,229
CME Group Inc. and Subsidiaries
Pro Forma Non-GAAP Consolidated Statements of Income
(in thousands, except per share amounts)
Quarter Ended
March 31,
2008 2007
Revenues
Clearing and transaction fees $525,067 $409,894
Quotation data fees 56,765 50,098
Processing services 17,482 12,963
Access and communication fees 10,539 9,114
Other 15,257 16,203
Total Revenues 625,110 498,272
Expenses
Compensation and benefits 73,289 78,096
Communications 14,772 12,946
Technology support services 16,994 16,797
Professional fees and outside services 12,308 10,769
Amortization of purchased intangibles 16,210 17,125
Depreciation and amortization 30,315 31,143
Occupancy and building operations 16,733 14,020
Licensing and other fee agreements 13,490 10,403
Other 19,854 18,550
Total Expenses 213,965 209,849
Operating Income 411,145 288,423
Non-Operating Income and Expense
Investment income 9,177 23,682
Securities lending interest income 23,644 32,890
Securities lending interest expense (18,219) (32,425)
Interest expense (2,104) (215)
Equity in losses of unconsolidated subsidiaries (3,929) (3,439)
Total Non-Operating 8,569 20,493
Income Before Income Taxes 419,714 308,916
Income tax provision (128,634) (123,566)
Net Income $291,080 $185,350
Earnings per Diluted Common Share $5.39 $3.37
Weighted Average Number of Diluted Common Shares* 54,028 55,067
Note: Pro Forma Non-GAAP results exclude merger-related costs. The pro
forma results for 2007 reflect both the operating results for CME and CBOT
as if they were combined. See CME Group Inc. Reconciliation of GAAP to
Pro Forma Non-GAAP Measures for detail on the adjustments made to reach
the pro forma results.
* Weighted average number of diluted common shares includes CBOT
sharecount for the entire period reported.
CME Group Inc. and Subsidiaries
Reconciliation of GAAP to Pro Forma Non-GAAP Measures
(in thousands)
Quarter Ended
March 31,
2008 2007
GAAP Results
Revenues $625,110 $332,331
Expenses 226,449 131,724
Operating income 398,661 200,607
Non-operating income and expense 8,576 14,750
Income before income taxes 407,237 215,357
Income tax provision (123,689) (85,329)
Net Income $283,548 $130,028
Pro Forma Adjustments
Revenues:
CBOT pre-merger revenue $- $187,737
Common clearing service elimination (1) - (21,796)
Total Pro Forma Revenue Adjustment - 165,941
Expenses:
CBOT pre-merger expense - 98,219
Common clearing service elimination (1) - (21,796)
Amortization of intangibles (2) - 16,357
Other (3) (12,484) (14,655)
Total Pro Forma Expense Adjustment (12,484) 78,125
Adjustment to operating income 12,484 87,816
Non-operating income and expense:
CBOT pre-merger non-operating income - 5,743
ERP guarantee (4) (8,397) -
BM&F (5) 8,390 -
Total Pro Forma Non-Operating Income and
Expense Adjustment (7) 5,743
Adjustment to income before income taxes 12,477 93,559
Adjustment to income tax provision (4,945) (38,237)
Adjustment to net income $7,532 $55,322
Pro Forma Non-GAAP Results
Revenues $625,110 $498,272
Expenses 213,965 209,849
Operating income 411,145 288,423
Non-operating income and expense 8,569 20,493
Income before income taxes 419,714 308,916
Income tax provision(6) (128,634) (123,566)
Net Income $291,080 $185,350
Notes:
(1) Eliminate clearing services provided to CBOT prior to the merger.
(2) Add amortization of intangible assets recorded in purchase of CBOT.
(3) Reverse effect of restructuring, accelerated depreciation, integraton
and legal expenses related to the merger with CBOT. Also removes CBOT
merger-related transaction costs that were expensed.
(4) Reverse impact of exercise right guarantee associated with CBOT
merger.
(5) Transaction costs related to establishing the investment in BM&F
during the first quarter.
(6) Includes tax benefit of $38.6 million due to a change in Illinois
state tax treatment for apportionment of revenues sourced within the
state.
CME Group Inc.
Quarterly Operating Statistics
(Pro forma for periods prior to 4Q 2007)
1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008
Trading Days 62 64 63 64 61
Average Daily Volume (ADV)
(in thousands, average daily volumes combined for entire period)
Product Line 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008
Interest rates 6,671 6,670 8,060 6,290 8,251
Equity E-mini 2,107 2,127 3,057 2,817 3,628
Equity standard-size 197 180 202 166 201
Foreign exchange 555 527 635 561 640
Commodities & alternative investments 789 818 716 740 949
Total 10,320 10,322 12,670 10,574 13,669
Venue
Open outcry 2,312 2,297 2,652 1,876 2,336
Electronic (excluding TRAKRS) 7,846 7,838 9,806 8,528 11,097
Privately negotiated 162 188 212 169 236
Total 10,320 10,322 12,670 10,574 13,669
Average Rate Per Contract (RPC)
(in thousands, rate per contract generated from combined average daily volumes
for entire period)
Product Line 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008
Interest rates $0.519 $0.516 $0.519 $0.530 $0.505
Equity E-mini 0.712 0.700 0.673 0.687 0.684
Equity standard-size 1.387 1.334 1.451 1.427 1.506
Foreign exchange 1.106 1.090 0.951 0.985 0.927
Commodities & alternative
investments 0.952 1.034 1.032 1.074 1.119
Average RPC (excluding TRAKRS) $0.640 $0.639 $0.622 $0.648 $0.630
Venue
Open outcry $0.498 $0.492 $0.473 $0.517 $0.553
Electronic (excluding TRAKRS) 0.630 0.626 0.613 0.629 0.609
Privately negotiated 3.130 2.948 2.878 3.057 2.345
Note: All volume and rate per contract data prior to 4Q 2007 is based
upon pro forma results. 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 and CME Group Auction Markets products while the CME Group
Auction Market products were available prior to July 2007.
