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Pro forma non-GAAP diluted earnings per share in the third quarter were $4.31, a 68 percent increase from $2.56 in the third-quarter 2006. Third-quarter 2007 pro forma results exclude merger-related costs consisting of restructuring charges, integration and legal costs, acceleration of depreciation related to CBOT data centers, and include CBOT operating results for the full third quarter. The pro forma comparative results for 2006 reflect the operating results of both CME and CBOT as if they were combined. Using this methodology, total pro forma revenues were $585 million, a 41 percent increase compared with the same period a year ago, and pro forma net income was $236 million, a 68 percent increase. Pro forma measures do not replace and are not a substitute for GAAP financial results, but are provided to improve overall understanding of current financial performance and to provide a meaningful comparison to prior periods. A full reconciliation of these pro forma results is included in the attached tables.
"CME Group finished a record quarter with an unprecedented volume increase of nearly 50 percent," said CME Group Executive Chairman Terry Duffy. "Our successful merger with the Chicago Board of Trade has positioned us as a leader in all major asset classes, and we saw robust growth in our agricultural, equity index, foreign exchange and interest rate products, as well as in our energy and metals derivatives processing business. Looking ahead, we are intensely focused on successfully completing our integration with CBOT and serving our expanding customer base around the world."
"In addition to delivering outstanding third-quarter results, we are building on our robust core business by serving customers in over-the-counter derivatives markets and launching innovative new products across existing and new asset classes," said CME Group Chief Executive Officer Craig Donohue. "We also are poised to drive further growth through expanding our global distribution and processing capabilities, as exemplified by our proposed agreements with the Brazilian Mercantile & Futures Exchange, the largest derivatives exchange in South America, and the Korea Exchange, a premier capital marketplace for Northeast Asia."
All references to volume and rate per contract information in the text of this document exclude our non-traditional TRAKRS products, for which CME Group receives significantly lower clearing fees than other CME Group products, CME Group Auction Markets products, which were available to trade prior to July 2007, and Swapstream products.
CME Group Inc. Third-Quarter 2007 Results
Financial Highlights:
GAAP
----
($s in millions, Q3 FY07 Q3 FY06 Y/Y YTD FY07 YTD FY06 Y/Y
except per share) ------- ------- --- -------- -------- ---
Revenues $565 $275 106% $1,227 $809 52%
Expenses $220 $118 87% $489 $346 41%
Operating Income $345 $157 120% $738 $463 59%
Operating Margin % 61.0% 57.2% 60.2% 57.2%
Net Income $202 $104 94% $457 $305 50%
Diluted EPS $3.87 $2.95 31% $11.18 $8.68 29%
Pro Forma Non-GAAP
------------------
($s in millions, Q3 FY07 Q3 FY06 Y/Y YTD FY07 YTD FY06 Y/Y
except per share) ------- ------- --- -------- -------- ---
Revenues $585 $414 41% $1,593 $1,204 32%
Expenses $211 $197 7% $631 $589 7%
Operating Income $375 $216 73% $962 $615 56%
Operating Margin % 64.0% 52.3% 60.4% 51.1%
Net Income $236 $141 68% $615 $399 54%
Diluted EPS $4.31 $2.56 68% $11.19 $7.26 54%
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 Financial Results Detail
Third-quarter 2007 volume averaged a record 12.7 million contracts per day, up 49 percent, assuming combined CME/CBOT volumes for the entire quarter. Total quarterly volume exceeded 798 million contracts, of which 77 percent traded electronically. This strong volume drove $496 million of CME Group clearing and transaction fee revenue, an increase of 46 percent from $340 million in third-quarter 2006, assuming the CME and CBOT were combined at that time. The pro forma average rate per contract was $0.622 for the quarter compared with $0.632 in the third quarter of 2006. This 2 percent rate decrease was primarily driven by volume discounts due to significantly higher volumes.
Keeping in mind that the historical CME clearing business revenue and related CBOT expense are excluded from the pro-forma non-GAAP results, CME Group processing services revenue for the combined company tripled from $5 million to $15 million. The third quarter was the fifth consecutive record quarter of NYMEX volume on CME Globex. Additionally, quotation data fees were up 12 percent to $49 million.
Total pro forma expenses increased 7 percent to $211 million. The majority of this increase was driven by an increase in volume-related expenses including license fees and the bonus component of compensation, which is tied to performance.
Third-quarter operating income on a combined pro forma basis was $375 million, an increase of 73 percent from $216 million for the year-ago period. The company's operating margin was 64 percent compared with 52 percent for the same period last year. Operating margin is defined as operating income as a percentage of total revenues.
CME Group will hold a conference call to discuss third-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 exchange. Formed by the 2007 merger of the 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. 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 and market conditions; 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)
September 30, 2007 December 31, 2006
------------------ -----------------
ASSETS
Current Assets:
Cash and cash equivalents $677,034 $969,504
Collateral from securities
lending 2,543,648 2,130,156
Marketable securities, including
pledged securities 220,516 269,516
Accounts receivable, net of
allowance 198,853 121,128
Other current assets 68,275 37,566
Cash performance bonds and
security deposits 746,990 521,180
--------- ---------
Total current assets 4,455,316 4,049,050
Property, net of accumulated
depreciation and amortization 347,910 168,755
Intangible assets - trading products 7,937,000 -
Intangible assets - other, net of
accumulated amortization 1,809,316 12,776
Goodwill 5,044,081 11,496
Other assets 106,051 64,428
--------- ---------
Total Assets $19,699,674 $4,306,505
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $52,823 $25,552
Payable under securities lending
agreements 2,543,648 2,130,156
Short-term debt 164,675 -
Other current liabilities 192,513 78,466
Cash performance bonds and
security deposits 746,990 521,180
--------- ---------
Total current liabilities 3,700,649 2,755,354
Deferred tax liabilities 3,796,699 -
Other liabilities 90,931 32,059
--------- ---------
Total Liabilities 7,588,279 2,787,413
Shareholders' equity 12,111,395 1,519,092
--------- ---------
Total Liabilities and Shareholders'
Equity $19,699,674 $4,306,505
=========== ==========
CME Group Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
Quarter Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
------- -------- -------- --------
Revenues
Clearing and transaction
fees $477,839 $216,999 $988,803 $646,315
Quotation data fees 45,821 20,057 95,163 60,736
Processing services 17,981 23,910 90,300 62,219
Access and communication
fees 10,325 7,328 25,345 21,480
Building and other 13,256 6,411 26,951 17,881
------- ------- ------- -------
Total Revenues 565,222 274,705 1,226,562 808,631
Expenses
Compensation and benefits 78,462 51,159 191,591 149,051
Communications 12,044 7,691 29,973 23,484
Technology support services 15,747 8,459 33,284 23,377
Professional fees and
outside services 15,046 7,178 36,328 24,457
Amortization of purchased
intangibles 15,963 324 16,591 798
Depreciation and
amortization 32,872 18,609 72,661 53,592
Occupancy and building
operations 14,647 7,731 32,835 22,202
Licensing and other fee
agreements 11,471 6,394 25,300 19,255
Restructuring 4,512 - 4,512 -
Marketing and other 19,443 10,123 45,620 29,648
------- ------- ------- -------
Total Expenses 220,207 117,668 488,695 345,864
Operating Income 345,015 157,037 737,867 462,767
Non-Operating Income and Expense
Investment income 21,088 14,654 57,787 38,789
Securities lending interest
income 23,150 19,343 91,560 70,439
Securities lending interest
expense (21,350) (18,943) (88,106) (68,809)
Interest expense (1,420) (75) (1,444) (167)
Guarantee of exercise right
privileges (28,500) - (28,500) -
Equity in losses of
unconsolidated subsidiaries (3,663) (1,502) (10,054) (2,110)
------- ------- ------- -------
Total Non-Operating (10,695) 13,477 21,243 38,142
Income Before Income Taxes 334,320 170,514 759,110 500,909
Income tax provision (132,748) (66,714) (301,635) (196,163)
------- ------- ------- -------
Net Income $201,572 $103,800 $457,475 $304,746
======== ======== ======== ========
Earnings per Common Share:
Basic $3.90 $2.99 $11.28 $8.79
Diluted $3.87 $2.95 $11.18 $8.68
Weighted Average Number of Common
Shares:
Basic 51,748 34,749 40,556 34,657
Diluted 52,103 35,153 40,920 35,098
CME Group Inc. and Subsidiaries
Pro Forma Non-GAAP Consolidated Statements of Income
(in thousands, except per share amounts)
Quarter Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
-------- -------- -------- --------
Revenues
Clearing and transaction
fees $496,192 $340,167 $1,328,362 $993,054
Quotation data fees 48,958 43,765 147,558 134,373
Processing services 15,250 5,239 42,313 6,035
Access and communication
fees 10,325 9,120 28,605 26,685
Building and other 14,486 15,368 46,618 44,134
------- ------- ------- -------
Total Revenues 585,211 413,659 1,593,456 1,204,281
Expenses
Compensation and benefits 80,605 71,307 235,020 209,648
Communications 12,798 13,010 38,256 36,880
Technology support
services 16,545 16,423 49,682 47,379
Professional fees and
outside services 11,414 10,838 34,775 36,605
Amortization of purchased
intangibles 17,237 16,652 51,476 49,849
Depreciation and
amortization 30,328 32,280 93,428 96,138
Occupancy and building
operations 15,199 12,012 43,381 36,747
Licensing and other fee
agreements 11,740 9,172 32,173 27,804
Marketing and other 14,766 15,526 52,956 48,267
------- ------- ------- -------
Total Expenses 210,632 197,220 631,147 589,317
Operating Income 374,579 216,439 962,309 614,964
Non-Operating Income and
Expense
Investment income 21,869 20,036 71,948 52,017
Securities lending
interest income 23,150 19,342 91,560 70,438
Securities lending
interest expense (21,350) (18,943) (88,106) (68,809)
Interest expense (1,427) (379) (1,689) (1,444)
Equity in losses of
unconsolidated
subsidiaries (3,747) (1,842) (10,824) (2,933)
------- ------- ------- -------
Total Non-Operating 18,495 18,214 62,889 49,269
Income Before Income Taxes 393,074 234,653 1,025,198 664,233
Income tax provision (157,230) (93,861) (410,079) (265,693)
------- ------- ------- -------
Net Income $235,844 $140,792 $615,119 $398,540
======== ======== ======== ========
Earnings per Diluted Common
Share $4.31 $2.56 $11.19 $7.26
Weighted Avg. Number of Diluted
Common Shares* 54,693 54,977 54,948 54,917
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 Pro Forma Non-GAAP to 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 Pro Forma Non-GAAP to GAAP Measures
(in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
-------- -------- -------- --------
GAAP Results
Revenues $565,222 $274,705 $1,226,562 $808,631
Expenses 220,207 117,668 488,695 345,864
------- ------- ------- -------
Operating Income 345,015 157,037 737,867 462,767
Non-Operating Income and
Expense (10,695) 13,477 21,243 38,142
------- ------- ------- -------
Income before income taxes 334,320 170,514 759,110 500,909
Income tax provision (132,748) (66,714) (301,635) (196,163)
------- ------- ------- -------
Net Income $201,572 $103,800 $457,475 $304,746
======== ======== ======== ========
Pro Forma Adjustments
Revenues:
CBOT premerger revenue $22,720 $157,625 $414,881 $451,834
Common clearing service
elimination (1) (2,731) (18,671) (47,987) (56,184)
------- ------- ------- -------
Total Pro Forma Revenue
Adjustment 19,989 138,954 366,894 395,650
Expenses:
CBOT premerger expense 11,247 81,866 219,296 251,602
Common clearing service
elimination (1) (2,731) (18,671) (47,987) (56,184)
Amortization of intangibles (2) 2,111 16,357 34,825 49,071
Other (3) (20,202) - (63,682) (1,036)
------- ------- ------- -------
Total Pro Forma Expense
Adjustment (9,575) 79,552 142,452 243,453
------- ------- ------- -------
Adjustment to Operating Income 29,564 59,402 224,442 152,197
Non-Operating Income and
Expense:
CBOT premerger non-operating
income 690 4,737 13,146 11,127
Other (4) 28,500 - 28,500 -
------- ------- ------- -------
Total Pro Forma Non-Operating
Income and Expense Adjustment 29,190 4,737 41,646 11,127
------- ------- ------- -------
Adjustment to income before
income taxes 58,754 64,139 266,088 163,324
Adjustment to income tax
provision (5) (24,482) (27,147) (108,444) (69,530)
------- ------- ------- -------
Adjustment to Net Income $34,272 $36,992 $157,644 $93,794
======== ======== ======== ========
Pro Forma Non-GAAP Results
Revenues $585,211 $413,659 $1,593,456 $1,204,281
Expenses 210,632 197,220 631,147 589,317
------- ------- ------- -------
Operating Income 374,579 216,439 962,309 614,964
Non-Operating Income and
Expense 18,495 18,214 62,889 49,269
------- ------- ------- -------
Income before income taxes 393,074 234,653 1,025,198 664,233
Income tax provision (157,230) (93,861) (410,079) (265,693)
------- ------- ------- -------
Net Income $235,844 $140,792 $615,119 $398,540
======== ======== ======== ========
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
includes CBOT merger-related transaction costs that were expensed.
(4) Reverse impact of exercise right guarantee associated with CBOT
merger.
(5) Adjust income taxes to arrive at an average effective tax rate of 40%
on pro forma income.
CME Group Inc.
Pro Forma Operating Statistics
Trading Days
3Q 2006 4Q 2006 1Q 2007 2Q 2007 3Q 2007
------- ------- ------- ------- -------
Trading Days 63 63 62 64 63
Average Daily Volume (ADV)
(in thousands, average daily volumes combined for entire period)
Product Line 3Q 2006 4Q 2006 1Q 2007 2Q 2007 3Q 2007
------------ ------- ------- ------- ------- -------
Interest Rates 5,655 5,470 6,671 6,670 8,060
Equity E-mini 1,667 1,700 2,107 2,127 3,057
Equity standard-size 161 156 197 180 202
Foreign Exchange 423 508 555 527 635
Commodities & Alternative
Investments 624 748 789 818 716
----- ----- ----- ----- -----
Total 8,530 8,581 10,320 10,322 12,670
TRAKRS 116 294 145 98 114
Venue
-----
Open outcry 2,367 2,106 2,312 2,297 2,652
Electronic (excluding TRAKRS) 6,033 6,342 7,846 7,838 9,806
Privately negotiated 130 133 162 188 212
----- ----- ----- ----- -----
Total 8,530 8,581 10,320 10,322 12,670
Average Rate Per Contract (RPC)
(in thousands, rate per contract generated from combined average
daily volumes for entire period)
Product Line 3Q 2006 4Q 2006 1Q 2007 2Q 2007 3Q 2007
------------ ------- ------- ------- ------- -------
Interest Rates $0.528 $0.536 $0.519 $0.516 $0.519
Equity E-mini 0.717 0.714 0.712 0.700 0.673
Equity standard-size 1.303 1.385 1.387 1.334 1.451
Foreign Exchange 1.146 1.085 1.106 1.090 0.951
Commodities & Alternative
Investments 0.832 0.938 0.952 1.034 1.032
----- ----- ----- ----- -----
Average RPC (excluding
TRAKRS) $0.632 $0.654 $0.640 $0.639 $0.622
TRAKRS 0.033 0.019 0.020 0.028 0.023
Venue
-----
Open outcry $0.493 $0.516 $0.498 $0.492 $0.473
Electronic (excluding TRAKRS) 0.629 0.642 0.630 0.626 0.613
Privately negotiated 3.315 3.389 3.130 2.948 2.878
Note: All volume and rate per contract data is based upon pro forma
results. Aside from the rows specifically titled "TRAKRS", 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.
