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SMALL BUSINESS
CME Group Inc. Reports Strong Second-Quarter Revenues and Net Income
Pro forma non-GAAP diluted earnings per share in the second quarter were
"CME Group's product diversity helps customers mitigate risks across a
wide array of asset classes, which is especially important in a challenging
economy," said CME Group Executive Chairman
"The increased revenues and earnings posted by CME Group reflect the
strength and stability of our business model and the continued success of our
global growth plan," said CME Chief Executive Officer
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
CME Group Inc. Second-Quarter 2008 Results
Financial Highlights:
GAAP
($s in millions, except per share) Q2 FY08 Q2 FY07 Y/Y YTD FY08 YTD FY07 Y/Y Revenues $ 563 $ 329 71% $1,188 $ 661 80% Expenses $ 220 $ 137 61% $ 446 $ 268 66% Operating Income $ 343 $ 192 79% $ 742 $ 393 89% Operating Margin % 61.0% 58.4% 62.5% 59.4% Net Income $ 201 $ 126 60% $ 485 $ 256 89% Diluted EPS $ 3.67 $ 3.57 3% $ 8.91 $ 7.26 23%
Pro Forma Non-GAAP
($s in millions, except per share) Q2 FY08 Q2 FY07 Y/Y YTD FY08 YTD FY07 Y/Y Revenues $ 563 $ 510 10% $ 1,188 $ 1,008 18% Expenses $ 213 $ 211 1% $ 427 $ 420 2% Operating Income $ 350 $ 299 17% $ 761 $ 588 30% Operating Margin % 62.2% 58.7% 64.1% 58.3% Net Income $ 215 $ 194 11% $508 $ 379 34% Diluted EPS $ 3.93 $ 3.52 12% $ 9.34 $ 6.89 36%
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. The first quarter 2008 pro forma results are shown as excluding the impact of the company's FX hedge related to the BM&FBOVESPA SA investment.
Pro Forma Non-GAAP Second-Quarter 2008 Financial Results
Second-quarter 2008 volume averaged 11.1 million contracts per day, up 7
percent versus the same period in 2007. This volume growth resulted in
CME Group processing services revenue for the combined company increased
32 percent to
Total pro forma operating expenses increased one percent to
Second-quarter operating income on a pro forma basis was
Company Guidance
CME Group currently expects full-year 2008 pro forma operating expense to
be closer to the bottom end of the previously stated guidance range of
CME Group will hold a conference call to discuss first-quarter results at
CME Group (http://www.cmegroup.com/) is the world's largest and most diverse derivatives 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
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 obtain the required approvals and to satisfy the closing conditions for our proposed merger with NYMEX Holdings, Inc. and our ability to realize the benefits and control the costs of the proposed transaction; 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; 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 or as a result of a combination with the Securities and Exchange Commission and the Commodity Futures Trading Commission; 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 decreased demand or 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; the ability of our compliance and risk management methods to effectively monitor and manage our risks; 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)
June 30, December 31, ASSETS 2008 2007 Current Assets: Cash and cash equivalents $1,067,644 $845,312 Collateral from securities lending - 2,862,026 Marketable securities, including pledged securities 138,484 203,308 Accounts receivable, net of allowance 237,346 187,487 Other current assets 85,858 55,900 Cash performance bonds and security deposits 971,560 833,022 Total current assets 2,500,892 4,987,055 Property, net of accumulated depreciation and amortization 389,828 377,452 Intangible assets - trading products 7,987,000 7,987,000 Intangible assets - other, net of accumulated amortization 1,804,467 1,796,789 Goodwill 5,108,034 5,049,211 Other assets 772,411 108,690 Total Assets $18,562,632 $20,306,197
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $63,198 $58,965 Payable under securities lending agreements - 2,862,026 Short-term debt 164,938 164,435 Other current liabilities 147,074 157,615 Cash performance bonds and security deposits 971,560 833,022 Total current liabilities 1,346,770 4,076,063 Deferred tax liabilities 3,809,926 3,848,240 Other liabilities 77,567 76,257 Total Liabilities 5,234,263 8,000,560 Shareholders' equity 13,328,369 12,305,637 Total Liabilities and Shareholders' Equity $18,562,632 $20,306,197
CME Group Inc. and Subsidiaries Consolidated Statements of Income (in thousands, except per share amounts)
Quarter Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Revenues Clearing and transaction fees $458,492 $252,722 $983,559 $510,963 Quotation data fees 59,872 24,326 116,637 49,342 Processing services 18,552 37,560 36,034 72,319 Access and communication fees 10,761 7,712 21,300 15,375 Other 15,511 6,689 30,768 13,341 Total Revenues 563,188 329,009 1,188,298 661,340
Expenses Compensation and benefits 73,588 56,729 146,877 113,129 Communications 12,850 8,850 27,622 17,929 Technology support services 18,118 8,645 35,112 17,537 Professional fees and outside services 16,074 12,110 30,825 21,282 Amortization of purchased intangibles 17,901 322 34,111 628 Depreciation and amortization 34,467 20,106 68,782 39,789 Occupancy and building operations 17,211 9,361 33,944 18,188 Licensing and other fee agreements 12,049 6,794 25,539 13,829 Restructuring 236 - 2,016 - Other 17,234 13,848 41,349 26,178 Total Expenses 219,728 136,765 446,177 268,489
Operating Income 343,460 192,244 742,121 392,851
Non-Operating Income and Expense Investment income 12,049 19,395 23,423 36,700 Gains (losses) on derivative investments (13,065) - (15,262) - Securities lending interest income - 35,520 23,644 68,410 Securities lending interest expense - (34,331) (18,219) (66,756) Interest expense (1,240) (24) (3,344) (24) Guarantee of exercise right privileges (3,624) - 4,773 - Equity in losses of unconsolidated subsidiaries (3,941) (3,371) (7,870) (6,391) Other non-operating expense (75) - (8,465) - Total Non-Operating (9,896) 17,189 (1,320) 31,939
Income Before Income Taxes 333,564 209,433 740,801 424,790
Income tax provision (132,382) (83,558) (256,071) (168,887) Net Income $201,182 $125,875 $484,730 $255,903
Earnings per Common Share: Basic $3.69 $3.61 $8.96 $7.34 Diluted $3.67 $3.57 $8.91 $7.26
Weighted Average Number of Common Shares: Basic 54,500 34,882 54,125 34,867 Diluted 54,752 35,242 54,390 35,236
CME Group Inc. and Subsidiaries Pro Forma Non-GAAP Consolidated Statements of Income (in thousands, except per share amounts)
Quarter Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Revenues Clearing and transaction fees $458,492 $422,276 $983,559 $832,170 Quotation data fees 59,872 48,502 116,637 98,600 Processing services 18,552 14,100 36,034 27,063 Access and communication fees 10,761 9,334 21,300 18,634 Other 15,511 15,761 30,768 31,778 Total Revenues 563,188 509,973 1,188,298 1,008,245
Expenses Compensation and benefits 73,588 76,319 146,877 154,415 Communications 12,850 12,512 27,622 25,458 Technology support services 18,118 16,340 35,112 33,137 Professional fees and outside services 14,266 12,592 26,573 23,361 Amortization of purchased intangibles 17,901 17,114 34,111 34,239 Depreciation and amortization 30,296 31,957 60,611 63,100 Occupancy and building operations 17,211 14,162 33,944 28,182 Licensing and other fee agreements 12,049 10,030 25,539 20,433 Other 16,719 19,641 36,573 38,191 Total Expenses 212,998 210,667 426,962 420,516
Operating Income 350,190 299,306 761,336 587,729
Non-Operating Income and Expense Investment income 12,115 26,397 23,489 50,079 Gains (losses) on derivative investments - - - - Securities lending interest income - 35,520 23,644 68,410 Securities lending interest expense - (34,331) (18,219) (66,756) Interest expense (1,240) (46) (3,344) (261) Equity in losses of unconsolidated subsidiaries (3,941) (3,638) (7,870) (7,077) Total Non-Operating 6,934 23,902 17,700 44,395
Income Before Income Taxes 357,124 323,208 779,036 632,124
Income tax provision (141,733) (129,283) (271,238) (252,849) Net Income $215,391 $193,925 $507,798 $379,275
Earnings per Diluted Common Share $3.93 $3.52 $9.34 $6.89
Weighted Average Number of Diluted Common Shares* 54,752 55,088 54,390 55,078
Note: Pro Forma Non-GAAP results exclude merger-related costs. The pro forma results for 2007 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. The first quarter 2008 pro forma results are shown as excluding the impact of the company's FX hedge related to the BM&FBOVESPA SA investment.
* 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 Six Months Ended June 30, June 30, 2008 2007 2008 2007 GAAP Results Revenues $563,188 $329,009 $1,188,298 $661,340 Expenses 219,728 136,765 446,177 268,489 Operating income 343,460 192,244 742,121 392,851
Non-operating income and expense (9,896) 17,189 (1,320) 31,939 Income before income taxes 333,564 209,433 740,801 424,790 Income tax provision (132,382) (83,558) (256,071) (168,887) Net Income $201,182 $125,875 $484,730 $255,903
Pro Forma Adjustments Revenues: CBOT pre-merger revenue $- $204,424 $- $392,161 Common clearing service elimination (1) - (23,460) - (45,256) Total Pro Forma Revenue Adjustment - 180,964 - 346,905
Expenses: CBOT pre-merger expense - 109,830 - 208,049 Common clearing service elimination (1) - (23,460) - (45,256) Amortization of intangibles (2) - 16,357 - 32,714 Other (3) (6,730) (28,825) (19,215) (43,480) Total Pro Forma Expense Adjustment (6,730) 73,902 (19,215) 152,027
Adjustment to operating income 6,730 107,062 19,215 194,878
Non-operating income and expense: CBOT pre-merger non-operating income - 6,713 - 12,456 ERP guarantee (4) 3,624 - (4,773) - BM&F (5) 13,206 - 23,793 - Total Pro Forma Non-Operating Income and Expense Adjustment 16,830 6,713 19,020 12,456 Adjustment to income before income taxes 23,560 113,775 38,235 207,334 Adjustment to income tax provision (9,351) (45,725) (15,167) (83,962) Adjustment to net income $14,209 $68,050 $23,068 $123,372
Pro Forma Non-GAAP Results Revenues $563,188 $509,973 $1,188,298 $1,008,245 Expenses 212,998 210,667 426,962 420,516 Operating income 350,910 299,306 761,336 587,729
Non-operating income and expense 6,934 23,902 17,700 44,395 Income before income taxes 357,124 323,208 779,036 632,124 Income tax provision(6) (141,733) (129,283) (271,238) (252,849) Net Income $215,391 $193,925 $507,798 $379,275
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 tr