.jpg)
- Seventh consecutive year of record volume on a combined basis fueled strong 2007 revenues and net income
- GAAP fourth-quarter earnings per share increased 29 percent to $3.75
- Pro forma non-GAAP fourth-quarter earnings per share increased 41 percent to $3.77
- First quarter dividend of $1.15 declared, up 34 percent compared to prior dividend
CME Group Inc. (NYSE, Nasdaq: CME) today reported total revenues increased 88 percent to $530 million and net income increased 96 percent to $201 million for fourth-quarter 2007 compared with fourth-quarter 2006. Diluted earnings per share rose 29 percent to $3.75. These GAAP results include the operations of both Chicago Mercantile Exchange (CME) and Board of Trade of the City of Chicago, Inc. (CBOT); $12.5 million of merger-related operating expenses consisting of restructuring charges, integration and legal costs, and the acceleration of depreciation related to CBOT data centers; and an $11.3 million reduction to non-operating expenses associated with the guarantee for holders of the Chicago Board Options Exchange (CBOE) exercise right privilege (ERP). The comparative results for 2006 reflect the operations of CME only.
Pro forma non-GAAP revenues increased 23 percent to $530 million and net income increased 37 percent to $202 million for fourth-quarter 2007 compared with fourth-quarter 2006. Pro forma non-GAAP diluted earnings per share in the fourth quarter were $3.77, a 41 percent increase versus fourth-quarter 2006. Fourth-quarter 2007 pro forma results exclude $12.5 million of merger-related operating expenses and the $11.3 million reduction to non-operating expenses associated with the ERP guarantee. The pro forma comparative results for 2006 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.
Total GAAP revenues for 2007 increased 61 percent to $1.8 billion and 2007 net income increased 62 percent to $659 million. Diluted earnings per share for the year, on a GAAP basis, rose 29 percent to $14.93 versus 2006. Full-year 2007 pro forma non-GAAP revenues increased 30 percent to $2.1 billion and net income increased 50 percent to $817 million compared with 2006. Diluted earnings per share, on a pro forma non-GAAP basis, grew 51 percent to $14.96 in 2007 versus 2006. Full-year 2007 pro forma results exclude $76.2 million of merger-related operating expenses and $17.2 million of non-operating expense associated with the ERP guarantee.
"CME Group has consistently delivered strong volume growth and 2007 was no exception, with combined average daily trading volume up 28 percent," said CME Group Executive Chairman Terry Duffy. "This demonstrates the value of our markets for a customer base that is expanding globally. Moreover, our successful merger with the Chicago Board of Trade enables us to serve these customers more efficiently and effectively, as represented by the recent migration of all e-cbot interest rate, equity and agricultural products to the CME Globex electronic platform."
"In a year of extraordinary achievement and strategic growth, CME Group delivered exceptional financial results while executing an historic merger, integrating operations, providing transaction processing services, launching new products and continuing to expand globally in Europe, Asia and South America," said CME Chief Executive Officer Craig Donohue. "During 2007, CME Group combined trading volume surged to nearly 2.8 billion contracts worth more than $1.2 quadrillion. So far in 2008, volumes have grown 65 percent compared with combined volumes during the same period last year. This is evidence that customers are turning to the transparency and liquidity of our diverse product set, and the safety and soundness that a centrally cleared market provides."
All references to volume and rate per contract information in the text of this document exclude our non-traditional TRAKRS products, for which CME Group receives significantly lower clearing fees than other CME Group products, CME Group Auction Markets products, which were available to trade prior to July 2007, and Swapstream products.
CME Group Inc. Fourth-Quarter and Full-Year 2007 Results
Financial Highlights:
GAAP
($s in millions, except per share)
Q4 FY07 Q4 FY06 Y/Y FY07 FY06 Y/Y
Revenues $530 $281 88% $1,756 $1,090 61%
Expenses $217 $123 76% $706 $469 50%
Operating Income $313 $158 97% $1,050 $621 69%
Operating Margin % 59.0% 56.3% 59.8% 57.0%
Net Income $201 $103 96% $659 $407 62%
Diluted EPS $3.75 $2.91 29% $14.93 $11.60 29%
Pro Forma Non-GAAP
($s in millions, except per share)
Q4 FY07 Q4 FY06 Y/Y FY07 FY06 Y/Y
Revenues $530 $431 23% $2,123 $1,636 30%
Expenses $204 $203 1% $836 $793 5%
Operating Income $325 $228 43% $1,287 $843 53%
Operating Margin % 61.4% 52.9% 60.6% 51.5%
Net Income $202 $148 37% $817 $546 50%
Diluted EPS $3.77 $2.68 41% $14.96 $9.94 51%
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 Fourth-Quarter 2007 Financial Results
Fourth-quarter 2007 volume averaged 10.6 million contracts per day, up 23 percent versus the same period in 2006. Total quarterly volume exceeded 676 million contracts, of which a record 81 percent traded electronically. This strong volume drove $439 million in clearing and transaction fee revenue, an increase of 24 percent from $354 million on a pro forma basis in fourth-quarter 2006, assuming CME and CBOT were combined during that time. The average rate per contract was $0.648 for the quarter compared with the pro forma average rate per contract of $0.654 in fourth-quarter 2006.
Keeping in mind that the 2006 CME processing services revenue and related CBOT expense are excluded from the pro-forma non-GAAP results, CME Group processing services revenue for the combined company increased 85 percent from $9 million to $16 million. The fourth quarter was the sixth consecutive quarter of record NYMEX volume on CME Globex. Additionally, quotation data fees were up 11 percent to $50 million.
Fourth-quarter operating income on a pro forma basis was $325 million, an increase of 43 percent from $228 million for the year-ago period. The company's operating margin was 61 percent compared with 53 percent for the same period last year. Operating margin is defined as operating income as a percentage of total revenues.
Pro Forma Non-GAAP Full-Year 2007 Financial Results
On a pro forma basis, CME Group posted its seventh consecutive year of record volume as total volume approached 2.8 billion contracts. Daily volume averaged 11.0 million contracts per day, up 28 percent versus 2006. Total electronic volume averaged 8.5 million contracts per day, up 41 percent from the prior year.
All major product lines have achieved year-over-year growth above 20 percent for two consecutive years. This strong volume trend drove $1.8 billion in clearing and transaction fee revenue during 2007, an increase of 31 percent from $1.3 billion in 2006, assuming CME and CBOT were combined during that time. CME Group processing services revenue for the combined company increased 296 percent from $15 million to $58 million. CME Group's processing services agreement with NYMEX began in June 2006 and average daily volume for the remainder of 2006 was 252,000 contracts. NYMEX energy and metals product volume on CME Globex in 2007 more than tripled that amount, growing to 757,000 contracts per day. Additionally, quotation data fees were up 10 percent to $197 million.
Full-year operating income on a pro forma basis was $1.3 billion, an increase of 53 percent from $843 million for the year-ago period. The company's operating margin was 61 percent compared with 52 percent for last year.
Company Guidance
In 2008, the company expects operating expenses to range from $835 to $850 million. This expense range would represent less than 2 percent growth compared with 2007 pro forma expense levels, driven by normal expense growth rates less merger-related expense synergies. Historically, the company's expense growth has ranged between 11 and 13 percent annually. By the end of 2008, the company expects to achieve run-rate expense synergies of $150 million. In addition, capital expenditures in 2008 are expected to total $225 to $235 million, driven by continued technology and real estate expenditures.
As part of a definitive cross-equity agreement with the Brazilian Mercantile & Futures Exchange, the company expects to issue 1.19 million shares of CME Group common stock, in conjunction with the first-quarter expected close of the transaction, provided that the arrangement is approved by the BM&F shareholders on February 26. At that point, these shares would be averaged into the company's diluted share count.
Dividend
CME Group Inc. declared a first-quarter dividend of $1.15 cents per share, payable March 25, 2008, to shareholders of record as of March 10, 2008. This dividend represents a 34 percent increase from the prior CME Group quarterly dividend of 86 cents per share.
CME Group will hold a conference call to discuss fourth-quarter results at 9:00 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 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/.
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 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 provided to third parties; 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; 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 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; 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 Quarterly Report on Form 10-Q, 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)
December 31, December 31,
ASSETS 2007 2006
Current Assets:
Cash and cash equivalents $845,312 $969,504
Collateral from securities lending 2,862,026 2,130,156
Marketable securities, including
pledged securities 203,308 269,516
Accounts receivable, net of allowance 187,487 121,128
Other current assets 55,900 37,566
Cash performance bonds and
security deposits 833,022 521,180
Total current assets 4,987,055 4,049,050
Property, net of accumulated
depreciation and amortization 377,452 168,755
Intangible assets - trading products 7,987,000 -
Intangible assets - other, net of
accumulated amortization 1,796,789 12,776
Goodwill 5,049,211 11,496
Other assets 108,690 64,428
Total Assets $20,306,197 $4,306,505
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $58,965 $25,552
Payable under securities lending
agreements 2,862,026 2,130,156
Short-term debt 164,435 -
Other current liabilities 157,615 78,466
Cash performance bonds and
security deposits 833,022 521,180
Total current liabilities 4,076,063 2,755,354
Deferred tax liabilities 3,848,240 -
Other liabilities 76,257 32,059
Total Liabilities 8,000,560 2,787,413
Shareholders' equity 12,305,637 1,519,092
Total Liabilities and Shareholders' Equity $20,306,197 $4,306,505
CME Group Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Quarter Ended Year Ended
December 31, December 31,
2007 2006 2007 2006
Revenues
Clearing and transaction
fees $438,517 $219,774 $1,427,320 $866,089
Quotation data fees 49,891 20,100 145,054 80,836
Processing services 16,104 27,929 106,404 90,148
Access and communication
fees 10,459 7,262 35,804 28,742
Building and other 14,568 6,251 41,519 24,132
Total Revenues 529,539 281,316 1,756,101 1,089,947
Expenses
Compensation and benefits 71,756 53,915 263,347 202,966
Communications 13,498 8,096 43,471 31,580
Technology support services 17,196 7,849 50,480 31,226
Professional fees and
outside services 16,814 8,727 53,142 33,184
Amortization of purchased
intangibles 17,287 469 33,878 1,267
Depreciation and
amortization 32,992 19,191 105,653 72,783
Occupancy and building
operations 15,367 7,412 48,202 29,614
Licensing and other fee
agreements 10,351 6,473 35,651 25,728
Restructuring 4,380 - 8,892 -
Marketing and other 17,272 10,873 62,892 40,521
Total Expenses 216,913 123,005 705,608 468,869
Operating Income 312,626 158,311 1,050,493 621,078
Non-Operating Income and Expense
Investment income 15,272 17,003 73,059 55,792
Securities lending
interest income 29,934 23,589 121,494 94,028
Securities lending
interest expense (26,347) (23,294) (114,453) (92,103)
Interest expense (2,185) (56) (3,629) (223)
Guarantee of exercise
right privileges 11,333 - (17,167) -
Equity in losses of
unconsolidated
subsidiaries (3,941) (4,805) (13,995) (6,915)
Total Non-Operating 24,066 12,437 45,309 50,579
Income Before Income Taxes 336,692 170,748 1,095,802 671,657
Income tax provision (135,634) (68,146) (437,269) (264,309)
Net Income $201,058 $102,602 $658,533 $407,348
Earnings per Common Share:
Basic $3.78 $2.95 $15.05 $11.74
Diluted $3.75 $2.91 $14.93 $11.60
Weighted Average Number of
Common Shares:
Basic 53,245 34,812 43,754 34,696
Diluted 53,564 35,199 44,107 35,124
CME Group Inc. and Subsidiaries
Pro Forma Non-GAAP Consolidated Statements of Income
(in thousands, except per share amounts)
Quarter Ended Year Ended
December 31, December 31,
2007 2006 2007 2006
Revenues
Clearing and transaction
fees $438,517 $354,283 $1,766,879 $1,347,337
Quotation data fees 49,891 45,070 197,449 179,443
Processing services 16,104 8,704 58,417 14,739
Access and communication
fees 10,459 8,960 39,064 35,645
Building and other 14,568 14,331 61,186 58,465
Total Revenues 529,539 431,348 2,122,995 1,635,629
Expenses
Compensation and benefits 71,756 74,146 306,776 283,794
Communications 13,498 12,178 51,754 49,058
Technology support
services 17,196 15,718 66,878 63,097
Professional fees and
outside services 14,142 12,742 48,917 49,347
Amortization of purchased
intangibles 17,287 16,694 68,763 66,543
Depreciation and
amortization 29,312 31,443 122,740 127,581
Occupancy and building
operations 15,367 12,584 58,748 49,331
Licensing and other fee
agreements 10,351 9,525 42,524 37,329
Marketing and other 15,517 18,173 68,473 66,440
Total Expenses 204,426 203,203 835,573 792,520
Operating Income 325,113 228,145 1,287,422 843,109
Non-Operating Income and Expense
Investment income 15,272 22,882 87,220 74,899
Securities lending
interest income 29,934 23,590 121,494 94,028
Securities lending
interest expense (26,347) (23,294) (114,453) (92,103)
Interest expense (2,185) (292) (3,874) (1,736)
Equity in losses of
unconsolidated
subsidiaries (3,941) (5,008) (14,765) (7,941)
Total Non-Operating 12,733 17,878 75,622 67,147
Income Before Income Taxes 337,846 246,023 1,363,044 910,256
Income tax provision (136,099) (98,409) (546,178) (364,102)
Net Income $201,747 $147,614 $816,866 $546,154
Earnings per Diluted Common
Share $3.77 $2.68 $14.96 $9.94
Weighted Avg. Number of
Diluted Common Shares* 53,564 55,032 54,599 54,947
Note: Pro Forma Non-GAAP results exclude merger-related costs and include
CBOT operating results for the full quarter. The pro forma comparative
results for 2006 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 Year Ended
December 31, December 31,
2007 2006 2007 2006
GAAP Results
Revenues $529,539 $281,316 $1,756,101 $1,089,947
Expenses 216,913 123,005 705,608 468,869
Operating Income 312,626 158,311 1,050,493 621,078
Non-Operating Income and
Expense 24,066 12,437 45,309 50,579
Income before income taxes 336,692 170,748 1,095,802 671,657
Income tax provision (135,634) (68,146) (437,269) (264,309)
Net Income $201,058 $102,602 $658,533 $407,348
Pro Forma Adjustments
Revenues:
CBOT premerger revenue $- $169,257 $414,881 $621,091
Common clearing service
elimination(1) - (19,225) (47,987) (75,409)
Total Pro Forma Revenue
Adjustment - 150,032 366,894 545,682
Expenses:
CBOT premerger expense - 93,452 219,296 345,054
Common clearing service
elimination(1) - (19,225) (47,987) (75,409)
Amortization of intangibles(2) - 16,357 34,825 65,428
Other(3) (12,487) (10,386) (76,169) (11,422)
Total Pro Forma Expense
Adjustment (12,487) 80,198 129,965 323,651
Adjustment to Operating Income 12,487 69,834 236,929 222,031
Non-Operating Income and
Expense:
CBOT premerger non-operating
income - 5,441 13,146 16,568
Other(4) (11,333) - 17,167 -
Total Pro Forma Non-Operating
Income and Expense Adjustment (11,333) 5,441 30,313 16,568
Adjustment to income before
income taxes 1,154 75,275 267,242 238,599
Adjustment to income tax
provision(5) (465) (30,263) (108,909) (99,793)
Adjustment to Net Income $689 $45,012 $158,333 $138,806
Pro Forma Non-GAAP Results
Revenues $529,539 $431,348 $2,122,995 $1,635,629
Expenses 204,426 203,203 835,573 792,520
Operating Income 325,113 228,145 1,287,422 843,109
Non-Operating Income and
Expense 12,733 17,878 75,622 67,147
Income before income taxes 337,846 246,023 1,363,044 910,256
Income tax provision (136,099) (98,409) (546,178) (364,102)
Net Income $201,747 $147,614 $816,866 $546,154
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,
integration 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) Includes an adjustment to arrive at an average effective tax rate of
40% on pro forma income.
CME Group Inc.
Pro Forma Operating Statistics
4Q 2006 1Q 2007 2Q 2007 3Q 2007 4Q 2007
Trading Days 63 62 64 63 64
Average Daily Volume (ADV)
(in thousands, average daily
volumes combined for entire period)
Product Line 4Q 2006 1Q 2007 2Q 2007 3Q 2007 4Q 2007
Interest Rates 5,470 6,671 6,670 8,060 6,290
Equity E-mini 1,700 2,107 2,127 3,057 2,817
Equity standard-size 156 197 180 202 166
Foreign Exchange 508 555 527 635 561
Commodities & Alternative
Investments 748 789 818 716 740
Total 8,581 10,320 10,322 12,670 10,574
Venue
Open outcry 2,106 2,312 2,297 2,652 1,876
Electronic (excluding TRAKRS) 6,342 7,846 7,838 9,806 8,528
Privately negotiated 133 162 188 212 169
Total 8,581 10,320 10,322 12,670 10,574
Average Rate Per Contract (RPC)
(in thousands, rate per contract generated from combined average daily
volumes for entire period)
Product Line 4Q 2006 1Q 2007 2Q 2007 3Q 2007 4Q 2007
Interest Rates $0.536 $0.519 $0.516 $0.519 $0.530
Equity E-mini 0.714 0.712 0.700 0.673 0.687
Equity standard-size 1.385 1.387 1.334 1.451 1.427
Foreign Exchange 1.085 1.106 1.090 0.951 0.985
Commodities & Alternative
Investments 0.938 0.952 1.034 1.032 1.074
Average RPC (excluding
TRAKRS) $0.654 $0.640 $0.639 $0.622 $0.648
Venue
Open outcry $0.516 $0.498 $0.492 $0.473 $0.517
Electronic (excluding TRAKRS) 0.642 0.630 0.626 0.613 0.629
Privately negotiated 3.389 3.130 2.948 2.878 3.057
Note: All volume and rate per contract data 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.
CME-E
