CME Group (Nasdaq: CME) today reported that third-quarter GAAP total revenues were $650 million, and GAAP operating income was $401 million from the third quarter of 2008.
Third-quarter net income on a GAAP basis was $202 million and diluted earnings per share on a GAAP basis were $3.04.
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 reductions in net income of $21 million, consisting of an impairment charge on our investment in IMAREX of $19 million and merger-related items of $2 million. The charge for IMAREX, a Norwegian-based freight and energy exchange and interdealer broker, was due to a decline in IMAREX fair value relative to the fair value established at the time of CME Group's acquisition of NYMEX in August 2008. The 2008 GAAP results reflect the operations of both CME and CBOT, as well as the results of NYMEX after August 22, 2008, when the acquisition closed.
Third-quarter pro forma non-GAAP diluted earnings per share were $3.35, down 19 percent compared with the prior-year period. All pro forma results reflect the operations of both CME Group and NYMEX as if they were combined for all periods reported, and third-quarter 2009 pro forma non-GAAP results exclude the impairment charge and merger-related items mentioned above. Total pro forma revenues decreased 17 percent from the prior year to $650 million and increased $2.6 million from second-quarter 2009 revenues. Pro forma operating expenses decreased 10 percent to $244 million, compared with the same period last year. Third-quarter pro forma operating income was $407 million, a decrease of 21 percent from $515 million for the year-ago period.
The company's significant focus on expense management during ongoing challenging market conditions helped drive a strong pro forma operating margin of 63 percent, in line with second-quarter 2009 operating margin, and down from 65 percent from the same period a year ago. Operating margin is defined as operating income as a percentage of total revenues. Third-quarter 2009 pro forma net income decreased 20 percent to $223 million, compared with third-quarter 2008.
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, Swapstream, and HuRLO products.
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 third-quarter and first-nine-months 2009 pro forma results to GAAP results is included with the attached financial statements.
"Building on solid third-quarter results, October has been a strong volume month, particularly in foreign exchange and energy," said CME Group Executive Chairman Terry Duffy. "As the economy continues to stabilize, there is room for further organic growth in our core business. At the same time, we are actively working to ensure that the benefits our business model brings to the financial system are communicated to the legislators and regulators who are charged with regulatory reform."
"As part of our global growth strategy, we have continued to invest in enhancing our global marketing and sales staff and expanding our CME ClearPort OTC clearing services across all asset classes," said CME Chief Executive Officer Craig Donohue. "During the quarter we also announced a partnership with Bursa Malaysia to extend our ability to deliver products and services to Asian customers. The strength of our core business and our capacity to deliver high quality, cleared-only offerings, coupled with strategic partnerships around the globe, such as Bursa Malaysia and BM&F Bovespa, position CME Group to compete effectively where, when, and how our customers want."
Third-quarter 2009 average daily volume was 10.1 million contracts, down 23 percent compared with third-quarter 2008. Pro forma clearing and transaction fee revenue was $541 million, down from $665 million in third-quarter 2008, but up one percent from second-quarter 2009. The total pro forma average rate per contract for CME Group increased six percent from third-quarter 2008 to 83 cents, and increased one percent compared with 82 cents in second-quarter 2009. Quotation data fees were down 11 percent to $81 million in the third quarter due primarily to a decrease in screen counts associated with cost-cutting initiatives at customer firms.
Third-quarter 2009 pro forma non-operating expense was $26 million, driven primarily by interest expense and borrowing costs of $32 million related to the NYMEX acquisition, which was partially offset by $8 million of investment income. Additionally, the third-quarter 2009 effective tax rate was 41.4 percent, down from 43.3 percent in third-quarter 2008.
As of September 30, the company had $298 million of cash and marketable securities and $2.5 billion of debt. During the quarter, the company paid down approximately $450 million of debt.