CME Group Inc. Reports Third-Quarter 2014 Financial Results

CME Group Inc. (NASDAQ: CME) today reported revenues of $762 million and operating income of $430 million for the third quarter of 2014. Net income attributable to CME Group was $290 million and diluted earnings per share were $0.86. Excluding the items noted in the reconciliation, adjusted earnings per share would have been $0.84[^1].

"Our core business performed very well during the third quarter, with our record overall options volume and record volume from outside the United States accounting for 60 percent of the quarterly volume growth," said CME Group Executive Chairman and President Terry Duffy. "In addition, the momentum has continued, and October is on track to have the highest monthly volume in our history. In particular, on October 15 we set an all-time daily record with volume approaching 40 million contracts. This reflects the significant client demand during a more volatile period, supported by the company's unmatched liquidity, tight bid-ask spreads, system reliability and capital efficiency. Bottom line, with nearly 9 million contracts traded that day from Europe, Asia and Latin America, we truly are the place where the world comes to manage risk."

"During the third quarter, we streamlined our organizational structure to better meet the needs of our global client base and accelerate future earnings growth and cash flow," said CME Group Chief Executive Officer Phupinder Gill. "With increased agility from an operational perspective, we are aggressively focused on improving execution, enhancing efficiency and increasing our speed to market throughout the world. If we are successful, revenues will increase and expenses decrease, and our shareholders will be rewarded as we further strengthen our position in the evolving global marketplace. Based on our current plans, we expect to keep operating expenses essentially flat in 2015 relative to this year."

Third-quarter 2014 average daily volume was 13.5 million contracts, up 12 percent from third-quarter 2013. Clearing and transaction fee revenues were $641.8 million, up 7 percent compared with third-quarter 2013. Third-quarter 2014 total average rate per contract was 72.5 cents, down from 74.9 cents in second-quarter 2014, driven primarily by the 7 percent growth in total volume made up of a higher proportion of lower priced financial products.

As of September 30, 2014, the company had $1.2 billion of cash and marketable securities and $2.1 billion of long-term debt.

Guidance

CME Group full-year 2014 adjusted operating expenses are expected to be approximately $1.3 billion, at the low-end of the previously stated range. Based upon the impact related to the recent reorganization and other expense management initiatives, the company's current estimate of 2015 operating expenses is the same as 2014, at approximately $1.3 billion. The estimate excludes the impact of the pending transaction with GFI Group.

CME Group will hold a conference call to discuss third-quarter 2014 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, 2014		December 31, 2013
ASSETS
Current Assets:
Cash and cash equivalents	$	1,087.9	$	2,469.7
Marketable securities	72.8		68.4
Accounts receivable, net of allowance	344.8		302.7
Other current assets (includes $37.0 and $40.0 in restricted cash)	275.6		209.7
Performance bonds and guaranty fund contributions	32,385.3		21,355.1
Total current assets	34,166.4		24,405.6
Property, net of accumulated depreciation and amortization	498.7		513.4
Intangible assets—trading products	17,175.3		17,175.3
Intangible assets—other, net	2,662.3		2,741.2
Goodwill	7,569.0		7,569.0
Other assets (includes $74.7 and $74.0 in restricted cash)	1,898.6		1,873.3
Total Assets	$	63,970.3	$	54,277.8
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	35.0	$	36.2
Short-term debt	—		749.9
Other current liabilities	207.6		1,169.8
Performance bonds and guaranty fund contributions	32,385.3		21,355.1
Total current liabilities	32,627.9		23,311.0
Long-term debt	2,107.7		2,107.2
Deferred income tax liabilities, net	7,308.4		7,249.7
Other liabilities	389.2		449.4
Total Liabilities	42,433.2		33,117.3
CME Group shareholders' equity	21,537.1		21,154.8
Non-controlling interest	—		5.7
Total Equity	21,537.1		21,160.5
Total Liabilities and Equity	$	63,970.3	$	54,277.8

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

	Quarter Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Revenues
Clearing and transaction fees	$	641.8	$	597.9	$	1,903.3	$	1,883.6
Market data and information services	87.7		78.6		266.7		238.9
Access and communication fees	20.8		20.3		61.6		62.4
Other	12.1		17.8		39.8		64.4
Total Revenues	762.4		714.6		2,271.4		2,249.3
Expenses
Compensation and benefits	132.1		134.0		407.3		392.3
Communications	7.8		9.2		24.3		26.7
Technology support services	13.8		13.4		42.3		39.6
Professional fees and outside services	32.2		35.6		99.3		85.4
Amortization of purchased intangibles	25.3		25.6		75.7		77.4
Depreciation and amortization	32.7		35.0		101.1		100.8
Occupancy and building operations	24.7		19.2		71.1		56.7
Licensing and other fee agreements	25.5		25.7		80.2		73.8
Other	37.9		16.4		73.2		82.8
Total Expenses	332.0		314.1		974.5		935.5
Operating Income	430.4		400.5		1,296.9		1,313.8
Non-Operating Income (Expense)
Investment income	7.4		12.6		25.7		34.9
Interest and other borrowing costs	(28.7)		(34.6)		(90.7)		(112.8)
Equity in net gains (losses) of unconsolidated subsidiaries	20.0		20.4		63.9		58.1
Other non-operating income (expense)	—		—		1.8		—
Total Non-Operating	(1.3)		(1.6)		0.7		(19.8)
Income before Income Taxes	429.1		398.9		1,297.6		1,294.0
Income tax provision	139.1		162.6		477.2		509.0
Net Income	290.0		236.3		820.4		785.0
Less: net income (loss) attributable to non-controlling interests	—		(0.4)		(0.2)		1.3
Net Income Attributable to CME Group	$	290.0	$	236.7	$	820.6	$	783.7
Earnings per Common Share Attributable to CME Group:
Basic	$	0.87	$	0.71	$	2.46	$	2.36
Diluted	0.86		0.71		2.44		2.35
Weighted Average Number of Common Shares:
Basic	334,424		332,763		334,144		332,355
Diluted	336,172		334,674		335,820		334,055

CME Group Inc. and Subsidiaries Quarterly Operating Statistics

	3Q 2013		4Q 2013		1Q 2014		2Q 2014		3Q 2014
Trading Days	64		64		61		63		64



Quarterly Average Daily Volume (ADV) CME Group ADV (in thousands)

Product Line	3Q 2013		4Q 2013		1Q 2014		2Q 2014		3Q 2014
Interest rate	5,839		5,274		6,725		6,668		7,181
Equity	2,408		2,471		2,890		2,465		2,586
Foreign exchange	792		705		817		638		797
Energy	1,609		1,571		1,705		1,457		1,562
Agricultural commodity	1,009		992		1,168		1,084		1,058
Metal	360		317		355		323		308
Total	12,018		11,331		13,659		12,636		13,493
Venue
Electronic	10,199		9,723		11,703		10,888		11,627
Open outcry	1,173		957		1,179		1,100		1,208
Privately negotiated*	646		651		778		647		657
Total	12,018		11,331		13,659		12,636		13,493


Average Rate Per Contract (RPC) CME Group RPC

Product Line	3Q 2013		4Q 2013		1Q 2014		2Q 2014		3Q 2014
Interest rate	$	0.484	$	0.504	$	0.481	$	0.473	$	0.473
Equity	0.695		0.702		0.712		0.714		0.687
Foreign exchange	0.819		0.835		0.804		0.861		0.788
Energy	1.300		1.279		1.364		1.298		1.291
Agricultural commodity	1.323		1.327		1.369		1.430		1.362
Metal	1.626		1.682		1.707		1.715		1.707
Average RPC	$	0.762	$	0.780	$	0.767	$	0.749	$	0.725

*The privately negotiated venue average daily volume includes both traditional block trades as well as what was historically categorized as CME ClearPort. Going forward there will no longer be a break out for CME ClearPort.

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, 2014
GAAP Net Income Attributable to CME Group	$	290.0

Foreign exchange transaction losses¹	12.8

Acquisition-related costs	2.7

Income tax effect related to above	(5.8)

Other income tax items²	(18.9)

Adjusted Net Income Attributable to CME Group	$	280.8

GAAP Earnings per Common Share Attributable to CME Group:
Basic	$	0.87
Diluted	0.86

Adjusted earnings per Common Share Attributable to CME Group:
Basic	$	0.84
Diluted	0.84

Weighted Average Number of Common Shares:
Basic	334,424
Diluted	336,172

1. Third-quarter 2014 results included foreign exchange transaction net losses principally related to cash held in British pounds within foreign entities whose functional currency is the U.S. dollar.

2. Other income tax items include the impact of a change in state and local tax apportionment factors and a favorable settlement of various tax audits.

SOURCE CME Group Inc.