CME Group Q2 net income falls

Source: CME Group

CME Group (NASDAQ: CME) today reported revenues of $796 million and operating income of $469 million. Second-quarter net income attributable to CME Group was $245 million and diluted earnings per share were $0.74.

On July 20, CME Group Class A common stock split 5 for 1. All share and per-share data in this release have been adjusted to reflect the stock split.

Second-quarter 2012 results included $65 million in non-operating income partially offset by $8 million in non-controlling interest related to the de-consolidation of our business contributed into S&P Dow Jones Indices, the company's joint venture with The McGraw-Hill Companies; $12 million of compensation expenses made up of costs associated with accelerated vesting of stock-based compensation pertaining to the recent CEO transition, the company's voluntary exit incentive plan termination payments as well as transaction related severance payments; and $9 million one-time and up-front operating expenses associated with the closing of S&P Dow Jones Indices.

Our income tax provision on a non-GAAP basis was $87 million lower than our GAAP income tax provision due primarily to a non-cash $132 million GAAP charge for establishment of deferred tax liabilities associated with the closing of S&P Dow Jones Indices. In addition, our GAAP income tax provision included other non-recurring reductions to tax expense of $36 million also primarily related to the closing. Finally, our income tax provision on a non-GAAP basis included the tax effect of the $12 million and $9 million adjustments noted above. On a non-GAAP basis, second-quarter diluted EPS would have been $0.89. 1

"It has been a challenging year for the financial industry," said CME Group Executive Chairman and President Terry Duffy. "In light of recent events, we have intensified our efforts in working closely with Congress, regulators and the entire futures industry to strengthen customer protections and ensure the integrity of these critical markets. In addition, our primary focus is to position the company well over the long term in both exchange trading and over-the-counter clearing. We continue to gain momentum in our OTC clearour OTC clearing business, with several new buy- side firms clearing their first OTC swaps with CME over the last two weeks."

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.

"We are dedicated to running the business as efficiently as possible and took several strategic steps during the second quarter," said CME Group Chief Executive Officer Phupinder Gill. "As a result of these actions, adjusted expenses1 were down more than five percent compared with the first quarter, while revenues were up three percent, reflecting growth in equities, foreign exchange and agricultural products and our co-location business. This resulted in improved profitability and significant cash flow generation, which positions us to continue returning excess cash to our shareholders. Going forward, we will take aggressive steps to build products and services that address evolving customer needs and expand our industry leading business."

Second-quarter 2012 average daily volume was 12.4 million contracts, down 9 percent from second-quarter 2011, but up 1 percent compared with the first quarter of 2012. Clearing and transaction fee revenues of $644 million were down 6 percent from second-quarter 2011, but up 4 percent from first-quarter 2012. Second-quarter total average rate per contract was 81.2 cents, up 1 percent compared with second-quarter 2011, and up slightly from first-quarter 2012.

Second-quarter 2012 GAAP operating expense was $327 million. Excluding the non-recurring items discussed earlier, second-quarter operating expense would have been $306 million1, well below first-quarter operating expenses.

During the second quarter the effective tax rate was 36.4 percent, excluding the non-recurring items discussed earlier. As of June 30, the company had $1.3 billion of cash and marketable securities and $2.1 billion of long-term debt. 

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