CME Group Inc. Reports Third-Quarter 2012 Financial Results

CME Group Inc. (NASDAQ: CME) today reported revenues of $683 million and operating income of $396 million for the third quarter 2012. Net income attributable to CME Group was $218 million and diluted earnings per share were $0.66.

Third-quarter 2012 results included a non-recurring $16 million increase to the company's income tax provision related to increases in deferred income tax liabilities associated with S&P Dow Jones Indices and the company's acquisition of Pivot, Inc. On a non-GAAP basis, third-quarter diluted EPS would have been $0.70.¹

"Given the dynamic and changing global environment, we continue to advocate on behalf of our customers, businesses and the futures industry as new regulations are being implemented," said CME Group Executive Chairman and President Terry Duffy. "At the same time, we remain focused on expanding our business to meet the needs of our global customers. We applied to the Financial Services Authority for approval to create a London-based exchange that will initially offer trading of foreign exchange futures products and ultimately expand into other products. We also announced an agreement to acquire the Kansas City Board of Trade, which gives us the opportunity to expand and diversify our wheat product portfolio and provide capital and operational efficiencies for our customers. Growth, efficiency and returning excess cash to shareholders continue to be our priorities."

"During the quarter, we continued to expand our industry-leading portfolio of diverse products as part of growing our global footprint," said CME Group Chief Executive Officer Phupinder Gill. "We strengthened our OTC product offering by announcing the launch of a deliverable interest rate swap futures product and portfolio margining of interest rate swaps and futures positions for customer accounts. With Dodd-Frank regulation driving changes in OTC energy markets, we also are working on providing flexible means of execution for participants in these markets. Overall, we are collaborating with buy-side and sell-side customers to provide the innovative products and services they need to manage their risk effectively in a continuously evolving marketplace."

Third-quarter 2012 average daily volume was 10.8 million contracts, down 26 percent from an exceptionally strong third-quarter 2011 which included the all-time record August 2011 average daily volume of 17.1 million contracts. This drove a 23 percent decrease in clearing and transaction fee revenues to $562 million. Third-quarter total average rate per contract was 82.2 cents, up 6 percent compared with third-quarter 2011.

Third-quarter 2012 operating expense was $287 million, below recent quarters and partially driven by the removal of expenses previously associated with the Dow Jones Indices business. This highlights the company's continued focus on managing the organization as efficiently as possible while still progressing with key longer-term growth initiatives. Third-quarter 2012 operating margin was 58 percent. Operating margin is defined as operating income as a percentage of total revenues.

During the third quarter, the effective tax rate was 40.7 percent[^1], excluding the non-recurring item discussed earlier. As of September 30, the company had $2.1 billion of cash and marketable securities and $2.9 billion of debt.

CME Group will hold a conference call to discuss third-quarter 2012 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.

1. A reconciliation of the non-GAAP financial results mentioned to the respective GAAP figures can be found within the Reconciliation of GAAP to Non-GAAP Measures chart at the end of the financial statements.

CME Group Inc. and Subsidiaries
Consolidated Balance Sheets
(in millions)

	September 30, 2012		December 31, 2011
ASSETS
Current Assets:
Cash and cash equivalents	$	2,016.9	$	1,042.3
Marketable securities	62.0		47.6
Accounts receivable, net of allowance	296.9		289.4
Other current assets (includes $40.0 in restricted cash)	245.7		232.6
Cash performance bonds and guaranty fund contributions	7,395.3		9,333.9
Total current assets	10,016.8		10,945.8
Property, net of accumulated depreciation and amortization	705.4		821.9
Intangible assets—trading products	17,040.5		17,040.5
Intangible assets—other, net	2,879.5		3,312.8
Goodwill	7,538.3		7,984.0
Other assets (includes $20.5 in restricted cash)	1,677.5		653.7
Total Assets	$	39,858.0	$	40,758.7

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	44.5	$	31.1
Short-term debt	749.6		—
Other current liabilities	200.1		250.2
Cash performance bonds and guaranty fund contributions	7,395.3		9,333.9
Total current liabilities	8,389.5		9,615.2
Long-term debt	2,106.4		2,106.8
Deferred income tax liabilities, net	7,319.8		7,226.8
Other liabilities	254.1		187.6
Total Liabilities	18,069.8		19,136.4
Redeemable non-controlling interest	79.4		70.3
Shareholders' equity	21,708.8		21,552.0
Total Liabilities and Shareholders' Equity	$	39,858.0	$	40,758.7

CME Group Inc. and Subsidiaries
Consolidated Statements of Income
(dollars in millions, except per share amounts; shares in thousands)

	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Revenues
Clearing and transaction fees	$	562.2	$	732.7	1,826.9		$	2,111.8
Market data and information services	82.8		107.0		307.8		321.9
Access and communication fees	23.2		12.0		65.5		34.8
Other	15.0		22.5		53.5		75.6
Total Revenues	683.2		874.2		2,253.7		2,544.1
Expenses
Compensation and benefits	117.5		119.9		383.7		359.7
Communications	9.8		11.0		30.8		31.7
Technology support services	11.8		13.3		36.7		38.7
Professional fees and outside services	26.7		29.0		99.2		90.4
Amortization of purchased intangibles	26.2		33.0		90.3		99.2
Depreciation and amortization	34.5		32.4		103.0		95.1
Occupancy and building operations	18.8		18.5		57.8		56.9
Licensing and other fee agreements	19.2		22.6		63.2		64.7
Other	22.7		22.4		72.6		77.0
Total Expenses	287.2		302.1		937.3		913.4
Operating Income	396.0		572.1		1,316.4		1,630.7

Non-Operating Income (Expense)
Investment income	13.1		3.7		31.3		27.1
Gains (losses) on derivative investments	—		—		—		(0.1)
Interest and other borrowing costs	(30.2)		(29.0)		(88.2)		(87.8)
Equity in net gains (losses) of unconsolidated subsidiaries	16.5		(0.9)		14.8		(3.1)
Other non-operating income (expense)	0.4		—		65.6		—
Total Non-Operating	(0.2)		(26.2)		23.5		(63.9)
Income before Income Taxes	395.8		545.9		1,339.9		1,566.8
Income tax provision	176.9		230.9		601.3		499.1
Net Income	218.9		315.0		738.6		1,067.7
Less: net income (loss) attributable to redeemable non-controlling interest	0.9		(1.1)		9.1		1.3
Net Income Attributable to CME Group	$	218.0	$	316.1	$	729.5	$	1,066.4

Earnings per Common Share Attributable to CME Group:
Basic	$	0.66	$	0.95	$	2.20	$	3.20
Diluted	0.66		0.95		2.20		3.19
Weighted Average Number of Common Shares:
Basic	331,377		332,289		331,091		333,449
Diluted	332,458		333,337		332,147		334,507

CME Group Inc. and Subsidiaries
Quarterly Operating Statistics

	3Q 2011		4Q 2011		1Q 2012		2Q 2012		3Q 2012
Trading Days	64		63		62		64		63

Quarterly Average Daily Volume (ADV)

CME Group ADV (in thousands)

Product Line	3Q 2011		4Q 2011		1Q 2012		2Q 2012		3Q 2012
Interest rates	6,518		4,729		5,613		5,136		4,514
Equities	4,040		3,147		2,390		2,919		2,391
Foreign exchange	988		820		846		920		846
Energy	1,670		1,704		1,952		1,741		1,590
Agricultural commodities	1,032		1,004		1,122		1,288		1,171
Metals	454		315		385		372		327
Total	14,702		11,719		12,308		12,376		10,839

Venue
Electronic	12,463		9,864		10,177		10,595		9,293
Open outcry	1,557		1,173		1,348		1,109		979
Privately negotiated	257		204		229		238		208
Exchange-traded Total	14,276		11,240		11,754		11,942		10,481
CME ClearPort	426		479		554		434		358
Total	14,702		11,719		12,308		12,376		10,839


Average Rate Per Contract (RPC)

CME Group RPC

Product Line	3Q 2011		4Q 2011		1Q 2012		2Q 2012		3Q 2012
Interest rates	$	0.479	$	0.480	$	0.475	$	0.485	$	0.481
Equities	0.703		0.705		0.692		0.674		0.685
Foreign exchange	0.801		0.828		0.841		0.807		0.808
Energy	1.580		1.507		1.517		1.496		1.473
Agricultural commodities	1.264		1.230		1.216		1.264		1.301
Metals	1.649		1.706		1.647		1.649		1.693
Average RPC	$	0.779	$	0.811	$	0.811	$	0.812	$	0.822

Venue
Exchange-traded	$	0.724	$	0.748	$	0.737	$	0.750	$	0.757
CME ClearPort	2.621		2.290		2.388		2.510		2.719

CME Group Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
(dollars in millions, except per share amounts; shares in thousands)

	Quarter Ended
	September 30, 2012
GAAP Results
Revenues	$	683.2
Expenses	287.2
Operating income	396.0

Operating margin	58.0%

Non-Operating income (expense)	(0.2)
Income before income taxes	395.8

Income tax provision (benefit)	176.9

Effective tax rate	44.7%

Net income	218.9
Less: Net income attributable to redeemable non-controlling interest	0.9
Net Income Attributable to CME Group	$	218.0

Earnings per Common Share Attributable to CME Group:
Basic	$	0.66
Diluted	0.66

Adjustments


Reduction to income tax provision¹	(15.7)

Addition to net income	15.7


Non-GAAP results, excluding adjustments
Revenues	$	683.2
Expenses	287.2
Operating income	396.0

Operating margin	58.0%

Non-Operating income (expense)	(0.2)
Income before income taxes	395.8

Income tax provision (benefit)	161.2

Effective tax rate	40.7%

Net income	234.6
Less: Net income attributable to redeemable non-controlling interest	0.9
Net Income Attributable to CME Group	$	233.7

Adjusted earnings per Common Share Attributable to CME Group:
Basic	$	0.71
Diluted	0.70

Weighted Average Number of Common Shares:
Basic	331,377
Diluted	332,458

1) Adjustment to tax expense relates to increases in deferred income tax liabilities on S&P Dow Jones Indices due to tax filings as well as increases in deferred tax liabilities related to the acquisition of Pivot, Inc.