CME Group Inc. Reports Third-Quarter 2012 Financial Results

25/10/2012

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.