10-QPeriod: Q1 FY2002

CME GROUP INC. Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 8, 2002For Securities:CME

Summary

CME Group Inc. reported revenues of $104.1 million for the three months ended March 31, 2002, an increase of 12.9% compared to $92.2 million in the same period of 2001. This growth was primarily driven by a significant 34.3% increase in average daily trading volume, particularly in interest rate and equity products, and a substantial rise in electronic trading volume. Despite revenue growth, net income for the quarter decreased to $17.1 million from $20.0 million in the prior year. This decline was largely due to a significant non-cash stock-based compensation expense of $4.1 million in 2002, compared to only $42,000 in 2001, driven by changes in the valuation of Class B common stock trading rights. Excluding this one-time expense, adjusted net income would show a slight decrease. The company also faced increased operating expenses related to salaries, benefits, legal fees, and advertising.

Key Highlights

  • 1Total revenues increased by 12.9% to $104.1 million for Q1 2002 compared to Q1 2001.
  • 2Average daily trading volume surged by 34.3%, reaching a record 2.01 million contracts in Q1 2002.
  • 3Electronic trading (GLOBEX) volume more than doubled, increasing by 94.5% to an average of 507,891 contracts per day.
  • 4Net income decreased by 14.5% to $17.1 million due to a significant increase in non-cash stock-based compensation expenses.
  • 5Securities lending activities were initiated in Q3 2001, generating $3.5 million in interest income in Q1 2002.
  • 6The company contributed $3.1 million in additional capital to its joint venture, OneChicago, LLC, which trades single-stock futures.
  • 7Total assets grew slightly to $2.09 billion as of March 31, 2002, from $2.07 billion as of December 31, 2001, with a notable increase in cash performance bonds and security deposits.

Frequently Asked Questions

Revenue growth was primarily driven by a significant increase in trading volume, up 34.3% year-over-year, and a substantial rise in electronic trading (GLOBEX) volume, which grew by 94.5%. This increased activity was particularly strong in interest rate and equity products, reflecting market volatility and investor demand for hedging.

The decrease in net income, from $20.0 million in Q1 2001 to $17.1 million in Q1 2002, was primarily due to a substantial increase in non-cash stock-based compensation expenses. This expense rose from $42,000 to $4.1 million, largely driven by the valuation of Class B common stock included in an executive stock option. Excluding this item, net income would have been closer to the prior year's level, though still slightly lower due to increased operating expenses.

OneChicago, LLC is a joint venture formed with the Chicago Board Options Exchange and the Chicago Board of Trade to trade single-stock futures. CME Group holds a 42% interest. In the first quarter of 2002, CME contributed an additional $3.1 million in capital to this venture, which reported a net loss of $0.5 million for the period, impacting CME's 'Other operating revenue'.

Cash and cash equivalents decreased slightly to $65.9 million from $69.1 million. Total assets saw a modest increase to $2.09 billion, with a notable rise in cash performance bonds and security deposits to $1.0 billion. While net cash provided by operating activities decreased, the company continues to fund its capital expenditures and investments from its operations, indicating a stable liquidity position.