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Press release from PR Newswire

CME Group Inc. Reports Third-Quarter 2012 Financial Results

Thursday, October 25, 2012

CME Group Inc. Reports Third-Quarter 2012 Financial Results07:00 EDT Thursday, October 25, 2012CHICAGO, Oct. 25, 2012 /PRNewswire/ -- 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 percent1, 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  An archived recording will be available for up to two months after the call.As the world's leading and most diverse derivatives marketplace, CME Group ( is where the world comes to manage risk. CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate. CME Group brings buyers and sellers together through its CME Globex® electronic trading platform and its trading facilities in New York and Chicago. CME Group also operates CME Clearing, one of the world's leading central counterparty clearing providers, which offers clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives transactions through CME ClearPort®. These products and services ensure that businesses everywhere can substantially mitigate counterparty credit risk in both listed and over-the-counter derivatives markets.CME Group is a trademark of CME Group Inc. The Globe logo, CME, Chicago Mercantile Exchange, Globex and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc.  Dow Jones, Dow Jones Industrial Average, S&P 500, and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor's Financial Services LLC, and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc.  Green Exchange, The Green Exchange and Design, and GreenX are trademarks of Green Exchange LLC.  All other trademarks are the property of their respective owners.  Further information about CME Group (NASDAQ: CME) and its products can be found at in this press 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: 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, implementation and maintenance 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, including our ability to provide effective services to the over-the-counter market; our ability to adjust our fixed costs and expenses if our revenues decline; our ability to maintain existing customers, develop strategic relationships and attract new customers; our ability to expand and offer our products outside the United States; changes in domestic and non-U.S. regulations; changes in government policy, including policies relating to common or directed clearing and changes as a result of legislation stemming from the implementation of the Dodd-Frank Act; 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, the state of the overall economy or declines in subscriptions; changes in our average 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, including our ability to prevent errors and misconduct and protect our infrastructure against security breaches and misappropriation of our intellectual property assets; changes in price levels and volatility in the derivatives markets and in underlying fixed income, equity, foreign exchange, interest rate and commodities markets; economic, political and market conditions, including the volatility of the capital and credit markets and the impact of economic conditions on the trading activity of our current and potential customers stemming from the financial crisis that began in 2008 and any other future crises; our ability to accommodate increases in trading volume and order transaction traffic without failure or degradation of performance of our trading and clearing 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 or user fee on futures and options on futures transactions and/or the repeal of the 60/40 tax treatment of such transactions; the unfavorable resolution of material legal proceedings 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 periodic reports filed on Form 10-K and Form 10-Q, which are 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. 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 SubsidiariesConsolidated Balance Sheets(in millions)September 30, 2012December 31, 2011ASSETSCurrent Assets:Cash and cash equivalents$2,016.9$1,042.3Marketable securities62.047.6Accounts receivable, net of allowance296.9289.4Other current assets (includes $40.0 in restricted cash)245.7232.6Cash performance bonds and guaranty fund contributions7,395.39,333.9Total current assets10,016.810,945.8Property, net of accumulated depreciation and amortization 705.4821.9Intangible assets?trading products17,040.517,040.5Intangible assets?other, net2,879.53,312.8Goodwill7,538.37,984.0Other assets (includes $20.5 in restricted cash)1,677.5653.7Total Assets$39,858.0$40,758.7LIABILITIES AND SHAREHOLDERS' EQUITYCurrent Liabilities:Accounts payable$44.5$31.1Short-term debt749.6?Other current liabilities200.1250.2Cash performance bonds and guaranty fund contributions7,395.39,333.9Total current liabilities8,389.59,615.2Long-term debt2,106.42,106.8Deferred income tax liabilities, net7,319.87,226.8Other liabilities254.1187.6Total Liabilities18,069.819,136.4Redeemable non-controlling interest79.470.3Shareholders' equity21,708.821,552.0Total Liabilities and Shareholders' Equity$39,858.0$40,758.7CME Group Inc. and SubsidiariesConsolidated Statements of Income(dollars in millions, except per share amounts; shares in thousands)Quarter EndedNine Months EndedSeptember 30,September 30,2012201120122011RevenuesClearing and transaction fees$562.2$732.71,826.9$2,111.8Market data and information services82.8107.0307.8321.9Access and communication fees23.212.065.534.8Other15.022.553.575.6Total Revenues683.2874.22,253.72,544.1ExpensesCompensation and benefits117.5119.9383.7359.7Communications9.811.030.831.7Technology support services11.813.336.738.7Professional fees and outside services26.729.099.290.4Amortization of purchased intangibles26.233.090.399.2Depreciation and amortization34.532.4103.095.1Occupancy and building operations18.818.557.856.9Licensing and other fee agreements19.222.663.264.7Other22.722.472.677.0Total Expenses287.2302.1937.3913.4Operating Income396.0572.11,316.41,630.7Non-Operating Income (Expense)Investment income13.13.731.327.1Gains (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 subsidiaries16.5(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 Taxes395.8545.91,339.91,566.8Income tax provision176.9230.9601.3499.1Net Income218.9315.0738.61,067.7Less: net income (loss) attributable to redeemable non-controlling interest0.9(1.1)9.11.3Net Income Attributable to CME Group$218.0$316.1$729.5$1,066.4Earnings per Common Share Attributable to CME Group:Basic$0.66$0.95$2.20$3.20Diluted0.660.952.203.19Weighted Average Number of Common Shares:Basic331,377332,289331,091333,449Diluted332,458333,337332,147334,507CME Group Inc. and SubsidiariesQuarterly Operating Statistics3Q 20114Q 20111Q 20122Q 20123Q 2012Trading Days6463626463Quarterly Average Daily Volume (ADV)CME Group ADV (in thousands)Product Line3Q 20114Q 20111Q 20122Q 20123Q 2012Interest rates6,5184,7295,6135,1364,514Equities4,0403,1472,3902,9192,391Foreign exchange988820846920846Energy1,6701,7041,9521,7411,590Agricultural commodities1,0321,0041,1221,2881,171Metals454315385372327Total14,70211,71912,30812,37610,839VenueElectronic12,4639,86410,17710,5959,293Open outcry1,5571,1731,3481,109979Privately negotiated257204229238208Exchange-traded Total14,27611,24011,75411,94210,481CME ClearPort426479554434358Total14,70211,71912,30812,37610,839Average Rate Per Contract (RPC)CME Group RPCProduct Line3Q 20114Q 20111Q 20122Q 20123Q 2012Interest rates$0.479$0.480$0.475$0.485$0.481Equities0.7030.7050.6920.6740.685Foreign exchange0.8010.8280.8410.8070.808Energy1.5801.5071.5171.4961.473Agricultural commodities1.2641.2301.2161.2641.301Metals1.6491.7061.6471.6491.693Average RPC$0.779$0.811$0.811$0.812$0.822VenueExchange-traded$0.724$0.748$0.737$0.750$0.757CME ClearPort2.6212.2902.3882.5102.719CME Group Inc. and SubsidiariesReconciliation of GAAP to Non-GAAP Measures(dollars in millions, except per share amounts; shares in thousands)Quarter EndedSeptember 30, 2012GAAP ResultsRevenues$683.2Expenses287.2Operating income396.0Operating margin58.0%Non-Operating income (expense)(0.2)Income before income taxes395.8Income tax provision (benefit)176.9Effective tax rate44.7%Net income218.9Less: Net income attributable to redeemable non-controlling interest0.9Net Income Attributable to CME Group$218.0Earnings per Common Share Attributable to CME Group:Basic$0.66Diluted0.66AdjustmentsReduction to income tax provision1(15.7)Addition to net income15.7Non-GAAP results, excluding adjustmentsRevenues$683.2Expenses287.2Operating income396.0Operating margin58.0%Non-Operating income (expense)(0.2)Income before income taxes395.8Income tax provision (benefit)161.2Effective tax rate40.7%Net income234.6Less: Net income attributable to redeemable non-controlling interest0.9Net Income Attributable to CME Group$233.7Adjusted earnings per Common Share Attributable to CME Group:Basic$0.71Diluted0.70Weighted Average Number of Common Shares:Basic331,377Diluted332,4581) 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.CME-ESOURCE CME Group Inc.For further information: Anita Liskey, +1-312-466-4613; John Peschier, +1-312-930-8491; William Parke, +1-312-930-3467;,