CME Group Inc. (Nasdaq: CME) today reported that total first-quarter GAAP revenues increased 4 percent to $647 million, and GAAP operating income decreased 3 percent to $386 million. Net income for the first quarter was $199 million and diluted earnings per share on a GAAP basis were $3.00. The 2009 GAAP results reflect the operations of Chicago Mercantile Exchange (CME), Board of Trade of the City of Chicago (CBOT), and New York Mercantile Exchange (NYMEX), and include a reduction in net income of $13.4 million for merger-related items. The GAAP results for first-quarter 2008 reflect the operations of CME and CBOT only.
First-quarter pro forma non-GAAP diluted earnings per share were $3.20, down 30 percent compared with the prior year period. All pro forma results reflect the operations of both CME Group Inc. and NYMEX, as if they were combined for all periods reported, and first-quarter 2009 pro forma non-GAAP results exclude the $13.4 million of merger-related items mentioned above.
Total revenues decreased 21 percent to $647 million, and the combined average rate per contract increased 12 percent to 83 cents, up from 74 cents in first-quarter 2008, due to a shift in product mix. Pro forma total operating expenses decreased 9 percent to $252 million, compared with the same period last year, due to ongoing expense discipline during the quarter. First-quarter pro forma operating income was $395 million, a decrease of 27 percent from $540 million for the year-ago period.
Despite challenging market conditions, the company maintained a strong pro forma operating margin of 61 percent, compared with a record 66 percent for first-quarter 2008. Operating margin is defined as operating income as a percentage of total revenues. Pro forma net income decreased 30 percent to $213 million for first-quarter 2009.
Pro forma measures do not replace and are not a substitute for GAAP financial results. They are provided to improve overall understanding of current financial performance and to provide a meaningful comparison with prior periods. A full reconciliation of these first-quarter 2009 pro forma results is included with the attached financial statements.
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, and Swapstream products.
"Extraordinarily challenging economic conditions characterized the first quarter, as heightened uncertainty led to a crisis of confidence among investors across the globe," said CME Group Executive Chairman Terry Duffy. "Our markets continued to perform flawlessly throughout the quarter - once again proving their effectiveness in all environments. CME Group maintained solid profitability levels, while generating significant free cash flow. Looking ahead, we can expect continued short-term choppiness, but we are encouraged by initial signs of stabilization in the financial marketplace. Long-term, we remain optimistic about our opportunities to extend our renowned clearing services to new customers and markets, expand our technology and sales efforts globally, and cross-sell our diverse product set."
"We continued to focus intensely on expense discipline throughout our organization during the first quarter, including delivering synergies from the NYMEX integration, while also continuing to invest in meaningful future growth areas," said CME Group Chief Executive Officer Craig Donohue. "Our record OTC revenue generated through CME ClearPort, for example, is a testament both to strong customer demand and to our clearing capability. The critical function performed by central counterparty clearing has been highlighted during the past year, and we are actively engaged in multiple initiatives to bring the safety and soundness of centralized clearing to the over-the-counter markets. In addition, we continue to meet customer needs through innovative product offerings such as three-year treasuries, FX e-minis, and our suite of MSCI equity index offerings, all of which gained traction during the first quarter."
CME Group Inc. First-Quarter 2009 Results Financial Highlights: GAAP ($s in millions, except per share) Q1 FY09 Q1 FY08 Y/Y Revenues $647 $625 4% Expenses $261 $225 15% Operating Income $386 $400 -3% Operating Margin % 59.7% 63.8% Net Income $199 $284 -30% Diluted EPS $3.00 $5.25 -43% Pro Forma Non-GAAP ($s in millions, except per share) Q1 FY09 Q1 FY08 Y/Y Revenues $647 $817 -21% Expenses $252 $277 -9% Operating Income $395 $540 -27% Operating Margin % 61.1% 66.1% Net Income $213 $302 -30% Diluted EPS $3.20 $4.54 -30% NOTE: See the CME Group Inc. Reconciliation of GAAP to Pro Forma Non-GAAP Measures for detail related to the adjustments made to reach the pro forma results.
Pro Forma Non-GAAP First-Quarter 2009 Financial Results
First-quarter 2009 average daily volume was 10.4 million contracts, in line with fourth-quarter 2008 volume. Pro forma clearing and transaction fee revenue was $528 million, down from a record $704 million in first-quarter 2008. Quotation data fees were up 3 percent to $86 million in the first quarter. The total pro forma average rate per contract for CME Group increased 12 percent from first-quarter 2008 to 83 cents, but decreased three percent compared with 86 cents in fourth-quarter 2008, due to a higher proportion of lower priced member volume.
First-quarter 2009 pro forma non-operating expense was $36 million, driven primarily by interest expense and borrowing costs of $39 million related to the NYMEX acquisition. Total interest expense included a one-time, non-cash $5 million charge due to the acceleration of the upfront fees and expenses related to the origination of the company's bridge financing when it was replaced. Additionally, the first-quarter 2009 effective tax rate was 40.9 percent, relatively unchanged from 41.6 percent in first-quarter 2008.
Balance Sheet Highlights
As of March 31, the company had $588 million of cash and marketable securities and $3.1 billion of debt. During the quarter, the company completed a public debt offering of $750 million of 5.75% fixed rate notes due in 2014. The net proceeds from the offering were used to repay any outstanding commercial paper borrowings that were backstopped by the 364-day revolving bridge facility. The company terminated the bridge facility on February 10, 2009. During the quarter, the company paid down approximately $115 million in debt.
CME Group will hold a conference call to discuss first-quarter 2009 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.
CME Group Inc. and Subsidiaries Consolidated Balance Sheets (dollars in millions) March 31, December 31, 2009 2008 --------- ------------ ASSETS Current Assets: Cash and cash equivalents $339.2 $297.9 Collateral from securities lending 155.4 426.9 Marketable securities, including pledged securities 248.5 310.1 Accounts receivable, net of allowance 279.5 234.0 Other current assets 112.7 189.1 Cash performance bonds and security deposits 9,765.6 17,653.5 ------- -------- Total current assets 10,900.9 19,111.5 Property, net of accumulated depreciation and amortization 711.4 707.2 Intangible assets - trading products 16,982.0 16,982.0 Intangible assets - other, net of accumulated amortization 3,335.4 3,369.4 Goodwill 7,517.0 7,519.2 Other assets 468.9 469.4 ----- ----- Total Assets $39,915.6 $48,158.7 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $46.5 $71.0 Payable under securities lending agreements 157.1 456.8 Short-term debt 249.9 249.9 Other current liabilities 255.5 211.8 Cash performance bonds and security deposits 9,765.6 17,653.5 ------- -------- Total current liabilities 10,474.6 18,643.0 Long-term debt 2,848.2 2,966.1 Deferred tax liabilities 7,660.5 7,728.3 Other liabilities 133.1 132.7 ----- ----- Total Liabilities 21,116.4 29,470.1 Shareholders' equity 18,799.2 18,688.6 -------- -------- Total Liabilities and Shareholders' Equity $39,915.6 $48,158.7 ========= ========= CME Group Inc. and Subsidiaries Consolidated Statements of Income (dollars in millions, except per share amounts, and sharecounts in thousands) Quarter Ended March 31, 2009 2008 ---- ---- Revenues Clearing and transaction fees $527.8 $525.1 Quotation data fees 85.5 56.8 Processing services 0.1 17.5 Access and communication fees 11.6 10.5 Other 22.1 15.2 ---- ---- Total Revenues 647.1 625.1 Expenses Compensation and benefits 86.7 73.3 Communications 12.4 14.8 Technology support services 11.8 17.0 Professional fees and outside services 22.3 14.8 Amortization of purchased intangibles 33.3 16.2 Depreciation and amortization 31.0 34.3 Occupancy and building operations 19.4 16.7 Licensing and other fee agreements 24.6 13.5 Restructuring 3.2 1.8 Other 16.0 22.8 ---- ---- Total Expenses 260.7 225.2 Operating Income 386.4 399.9 Non-Operating Income and Expense Investment income 1.8 11.4 Gains (losses) on derivative investments - (2.2) Securities lending interest income 2.4 23.6 Securities lending interest and other costs (0.4) (19.3) Interest and other borrowing costs (38.5) (2.3) Guarantee of exercise right privileges - 8.4 Equity in losses of unconsolidated subsidiaries (1.2) (3.9) Other non-operating expense - (8.4) -- ---- Total Non-Operating (35.9) 7.3 Income Before Income Taxes 350.5 407.2 Income tax provision (151.4) (123.7) ------ ------ Net Income $199.1 $283.5 ====== ====== Earnings per Common Share: Basic $3.00 $5.28 Diluted 3.00 5.25 Weighted Average Number of Common Shares: Basic 66,302 53,751 Diluted 66,439 54,028 CME Group Inc. and Subsidiaries Pro Forma Non-GAAP Consolidated Statements of Income (dollars in millions, except per share amounts, and sharecounts in thousands) Quarter Ended March 31, 2009 2008 ---- ---- Revenues Clearing and transaction fees $527.8 $704.1 Quotation data fees 85.5 83.0 Processing services 0.1 0.5 Access and communication fees 11.6 10.8 Other 22.1 18.6 ---- ---- Total Revenues 647.1 817.0 Expenses Compensation and benefits 86.7 91.1 Communications 12.4 16.0 Technology support services 11.8 19.0 Professional fees and outside services 20.1 17.0 Amortization of purchased intangibles 30.4 29.7 Depreciation and amortization 31.0 35.3 Occupancy and building operations 19.4 21.1 Licensing and other fee agreements 24.6 24.6 Other 15.6 22.8 ---- ---- Total Expenses 252.0 276.6 Operating Income 395.1 540.4 Non-Operating Income and Expense Investment income 1.8 15.2 Gains (losses) on derivative investments - - Securities lending interest income 2.4 31.4 Securities lending interest and other costs (0.4) (25.4) Interest and other borrowing costs (38.5) (38.1) Equity in losses of unconsolidated subsidiaries (1.2) (6.1) ---- ---- Total Non-Operating (35.9) (23.0) Income Before Income Taxes 359.2 517.4 Income tax provision (146.7) (215.5) ------ ------ Net Income $212.5 $301.9 ====== ====== Earnings per Diluted Common Share $3.20 $4.54 Weighted Average Number of Diluted Common Shares* 66,439 66,568 Note: All pro forma results for CME Group assume the merger with CBOT and the acquisition of NYMEX were completed as of the beginning of the period presented. See CME Group Inc. Reconciliation of GAAP to Pro Forma Non-GAAP Measures for detail on all of the adjustments made to reach the pro forma results. *Weighted average number of diluted common shares includes merger-related shares converted or issued for the entire period reported. CME Group Inc. and Subsidiaries Reconciliation of GAAP to Pro Forma Non-GAAP Measures (in millions) Quarter Ended March 31, 2009 2008 ---- ---- GAAP Results Revenues $647.1 $625.1 Expenses 260.7 225.2 ----- ----- Operating income 386.4 399.9 Non-operating income and expense (35.9) 7.3 ----- --- Income before income taxes 350.5 407.2 Income tax provision (151.4) (123.7) ------ ------ Net Income $199.1 $283.5 ====== ====== Pro Forma Adjustments Revenues: NYMEX pre-merger revenue $- $208.9 Intercompany revenue elimination(1) - (17.0) FXMarketSpace write down - -- ----- Total Pro Forma Revenue Adjustment - 191.9 Expenses: NYMEX pre-merger expense - 76.1 Intercompany expense elimination (1) - (17.0) Amortization of intangibles (2) (2.9) 13.5 Depreciation adjustment from building life change (3) - 1.5 Other (4) (5.8) (22.7) ---- ----- Total Pro Forma Expense Adjustment (8.7) 51.4 ---- ---- Adjustment to operating income 8.7 140.5 Non-operating income and expense: NYMEX premerger non-operating income - 1.7 Interest on debt acquired for NYMEX deal - (34.2) ERP Guarantee (5) - (8.4) BM&F Bovespa (6) - 10.6 -- ---- Total Pro Forma Non-Operating Income and Expense Adjustment - (30.3) -- ----- Adjustment to income before income taxes 8.7 110.2 Adjustment to income tax provision 4.7 (91.8) --- ----- Adjustment to net income $13.4 18.4 ===== ==== Pro Forma Non-GAAP Results Revenues $647.1 $817.0 Expenses $252.0 $276.6 ------ ------ Operating income $395.1 $540.4 Non-operating income and expense (35.9) $(23.0) ----- ------ Income before income taxes 359.2 $517.4 Income tax provision(7) (146.7) $(215.5) ------ ------- Net Income 212.5 $301.9 ===== ====== Notes: (1) Eliminate processing services provided prior to the NYMEX acquisition. (2) Add amortization of intangible assets recorded in purchase of NYMEX. (3) Adjust depreciation for changes in value and useful life of building acquired from NYMEX. (4) Reverse effect of restructuring, accelerated depreciation, integration and legal expenses related to the merger with CBOT and acquisition of NYMEX. Also removes other merger-related transaction costs that were expensed and transaction costs related to the acquisition of CMA. (5) Reverse impact of exercise right privilege guarantee. (6) Reverse transaction costs related to the BM&F/Bovespa investment. (7) Pro forma adjustments are tax affected at CME Group's estimated statutory tax rate. A first quarter 2008 tax benefit of $38.6 million due to a change in Illinois state tax treatment for apportionment of revenues sourced within the state has been removed for proforma purposes. First- quarter 2009 includes a pro forma tax adjustment for certain merger related items. CME Group Inc. Quarterly Operating Statistics 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 ------- ------- ------- ------- ------- Trading Days 61 64 64 64 61 Quarterly Average Daily Volume (ADV) CME Group Pro Forma ADV (Legacy CME, CBOT and NYMEX combined, in thousands) 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 ------- ------- ------- ------- ------- Total 15,540 12,876 13,236 10,441 10,389 ----- CME Group ADV (Legacy CME and CBOT combined for entire periods reported, in thousands) Product Line 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 ------------ ------- ------- ------- ------- ------- Interest rates 8,251 6,467 6,030 3,692 3,843 Equity E-mini 3,628 2,833 3,638 3,799 3,378 Equity standard-size 201 161 204 194 159 Foreign exchange 640 665 710 481 507 Commodities & alternative investments 949 933 822 691 685 --- --- --- --- --- Total 13,669 11,060 11,404 8,857 8,572 Venue ----- Open outcry 2,336 1,836 1,602 1,275 1,188 Electronic (excluding TRAKRS) 11,097 9,054 9,641 7,447 7,255 Privately negotiated 236 170 161 136 130 --- --- --- --- --- Total 13,669 11,060 11,404 8,857 8,572 NYMEX/COMEX ADV (in thousands) 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 ------- ------- ------- ------- ------- NYMEX floor 257 238 193 166 135 NYMEX electronic 814 865 831 682 798 COMEX floor 47 38 36 29 30 COMEX electronic 205 172 214 144 170 NYMEX ClearPort 473 418 492 489 629 Other 75 85 65 75 54 -- -- -- -- -- Total 1,870 1,816 1,831 1,584 1,816 Average Rate Per Contract (RPC) CME Group Pro Forma Average RPC (Legacy CME, CBOT and NYMEX combined) 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 ------- ------- ------- ------- ------- Total $0.743 $0.775 $0.785 $0.858 $0.833 ----- CME Group RPC (Legacy CME and CBOT combined for entire periods reported) Product Line 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 ------------ ------- ------- ------- ------- ------- Interest rates $0.505 $0.522 $0.521 $0.569 $0.532 Equity E-mini 0.684 0.668 0.677 0.706 0.677 Equity standard-size 1.506 1.453 1.486 1.582 1.543 Foreign exchange 0.927 0.907 0.936 0.894 0.918 Commodities & alternative investments 1.119 1.134 1.154 1.154 1.108 ----- ----- ----- ----- ----- Average RPC (excluding TRAKRS) $0.630 $0.648 $0.659 $0.713 $0.677 Venue ----- Open outcry $0.553 $0.572 $0.607 $0.663 $0.607 Electronic (excluding TRAKRS) 0.609 0.629 0.637 0.691 0.659 Privately negotiated 2.345 2.427 2.526 2.558 2.460 NYMEX/COMEX RPC 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 ------- ------- ------- ------- ------- NYMEX floor $1.594 $1.607 $1.386 $1.600 $1.375 NYMEX electronic 1.324 1.304 1.315 1.308 1.347 COMEX floor 1.641 1.712 1.626 1.801 1.776 COMEX electronic 1.630 1.706 1.719 1.781 1.797 NYMEX ClearPort 1.875 1.905 1.933 2.099 1.745 Other 1.923 1.854 1.928 2.038 2.460 ----- ----- ----- ----- ----- Total Pro Forma Average Gross Rate $1.570 $1.556 $1.567 $1.671 $1.569 Total Pro Forma Average Net Rate $1.472 $1.479 $1.488 $1.569 $1.466 Note: All CME Group volume and rate per contract data is based upon pro forma results, including the operations of CME Group and NYMEX as if they were combined for the entire period reported. 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.