10-QPeriod: Q3 FY2006

CME GROUP INC. Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 6, 2006For Securities:CME

Summary

CME Group Inc.'s (CME) third quarter and nine-month period ending September 30, 2006, showcased robust financial performance driven by significant revenue growth, particularly in clearing and transaction fees. Total revenues saw a 22% increase in Q3 and 21% year-to-date, fueled by higher trading volumes across various product lines, including interest rates, equities, and foreign exchange. This growth was attributed to technological enhancements, market volatility, and strategic agreements. Despite increased expenses related to compensation, technology, and licensing, CME maintained strong operating income and profitability. The company also announced a significant development with the signing of a definitive merger agreement with CBOT Holdings, Inc., expected to close by mid-year 2007. This strategic move signals a focus on expansion and market consolidation. CME's liquidity remains strong, with substantial cash and cash equivalents, supported by robust operating cash flows and a renewed credit facility.

Key Highlights

  • 1Total revenues increased by 22% in Q3 2006 and 21% year-to-date, primarily driven by a 23% increase in clearing and transaction fees in Q3 and 24% year-to-date.
  • 2Average daily trading volume increased by 28% year-to-date, with significant growth observed in interest rate (28%), equity (27%), and foreign exchange (35%) product lines.
  • 3The company's net income grew to $103.8 million in Q3 2006 from $77.5 million in Q3 2005, and $304.7 million year-to-date from $230.6 million in the prior year.
  • 4Total expenses increased by 11% in Q3 and 13% year-to-date, largely due to higher compensation and benefits, technology support services, and licensing fees.
  • 5CME Group announced a definitive merger agreement with CBOT Holdings, Inc. on October 17, 2006, subject to regulatory and shareholder approvals.
  • 6Cash and cash equivalents increased to $868.6 million at September 30, 2006, from $610.9 million at December 31, 2005, indicating strong liquidity.
  • 7The company renewed and increased its credit facility to $800.0 million, providing continued financial flexibility.

Frequently Asked Questions

Revenue growth is primarily driven by increases in clearing and transaction fees, which are directly correlated with higher trading volumes across various product lines like interest rates, equities, and foreign exchange. Growth in processing services and quotation data fees also contributed.

The most significant announcement was the signing of a definitive merger agreement with CBOT Holdings, Inc. on October 17, 2006. This merger, if completed, aims to combine the operations of the two major exchanges.

Total expenses increased due to higher compensation and benefits costs (driven by increased headcount and stock-based compensation), increased technology support services (due to higher transaction volumes and infrastructure investments), and higher licensing fees for S&P and NASDAQ products. Investments in business expansion and ongoing litigation also contributed to higher professional fees.

CME Group maintained a strong liquidity position, with a significant increase in cash and cash equivalents year-over-year. The company also renewed and expanded its credit facility, providing ample resources to meet operational needs and pursue strategic growth opportunities, including potential future acquisitions.