01—Abstract
Summary
Summary of the 10-Q filed November 10, 2008. Cited figures are marked; the original filing is the authoritative source.
CME Group Inc. reported strong revenue growth in the third quarter and first nine months of 2008, driven by increased trading volumes across its exchanges, notably due to the acquisition of NYMEX Holdings.
Total revenues increased by 20%a year-over-year for the quarter and 52% for the nine-month period. This growth was primarily in clearing and transaction fees, and quotation data fees, though processing services saw a decline. The company's expenses also increased, largely due to higher amortization of purchased intangibles, compensation, and depreciation, reflecting the impact of recent acquisitions.
Net income for the quarter decreased compared to the prior year, primarily due to increased interest expenses from new debt used to finance the NYMEX merger and certain impairments. The company ended the period with a robust liquidity position, though it faces ongoing challenges from market volatility and credit market disruptions. The significant event during this period was the completion of the merger with NYMEX Holdings in August 2008, which substantially expanded CME Group's product offerings and market presence.
This integration, along with the earlier acquisition of CBOT Holdings, has led to substantial increases in goodwill and intangible assets on the balance sheet. The company has taken on significant new debt to finance these transactions.
Despite increased revenues, the company's net income was impacted by higher operating expenses, increased borrowing costs, and non-operating expenses such as impairments and equity in losses of unconsolidated subsidiaries. Investors should note the substantial increase in long-term debt and the ongoing integration efforts related to the NYMEX acquisition.
02—Key points
Key Highlights
- Total revenues increased by 20% for the quarter ended September 30, 2008, and 52% for the nine months ended September 30, 2008, compared to the same periods in 2007, largely driven by the inclusion of NYMEX Holdings' results and increased trading volumes.
- Clearing and transaction fees, the company's primary revenue driver, saw significant growth, up 17% for the quarter and 56% year-to-date.
- The acquisition of NYMEX Holdings, completed in August 2008, significantly increased the company's assets, including goodwill and intangible assets, and also contributed to a substantial rise in long-term debt.
- Operating expenses rose 18% for the quarter and 44% year-to-date, driven by increased compensation and benefits, amortization of purchased intangibles, and depreciation, reflecting the integration of recent acquisitions.
- Net income decreased to $168.7 million for the quarter, down from $201.6 million in the prior year, impacted by higher interest and other borrowing costs, and a $20.1 million equity in losses of unconsolidated subsidiaries.
- The company ended the period with $582.4 million in cash and cash equivalents, but also carried $2.4 billion in long-term debt, primarily incurred to finance the NYMEX merger.
- Market volatility, particularly due to the credit crisis, led to increased trading volumes in equity and commodity products but negatively impacted interest rate products and investment income.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2008filed November 10, 2008Financial Statements
| Revenue | $680.90M |
| Operating Expenses | $260.20M |
| Operating Income | $420.70M |
| Net Income | $168.70M |
| EPS (Basic) | $0.56 |
| EPS (Diluted) | $0.56 |
| Shares Outstanding (Basic) | 299.35M |
| Shares Outstanding (Diluted) | 300.43M |
05—Questions
Frequently Asked Questions
What was the primary driver of revenue growth in this period?
The primary driver of revenue growth was the inclusion of results from the acquisition of NYMEX Holdings, which was completed in August 2008. This, combined with increased trading volumes across existing and newly acquired products, particularly in clearing and transaction fees, led to a 20% increase in quarterly revenue and a 52% increase year-to-date compared to 2007.
How has the acquisition of NYMEX Holdings impacted the company's balance sheet?
The acquisition of NYMEX Holdings significantly increased CME Group's assets, most notably goodwill and intangible assets, which rose substantially due to purchase accounting. This transaction also led to a significant increase in long-term debt, with $2.4 billion in long-term debt outstanding as of September 30, 2008, largely used to finance the acquisition.
What is the impact of the current credit market volatility on CME Group's operations?
The credit market volatility has had a mixed impact. It has driven increased trading volumes in certain products, like equity and commodity futures, due to higher market volatility. However, it has negatively affected interest rate products and led to a decline in investment income due to lower market interest rates. The company also experienced impairments in its securities lending portfolio due to corporate debt issuer defaults.
What is the outlook for the company's debt levels and profitability given the recent mergers?
The company has taken on significant debt to finance its recent mergers. While revenues have increased, operating expenses and interest expenses have also risen substantially. The company is focused on integration efforts to realize synergies and control costs. Profitability in the short term may be impacted by ongoing integration costs and market volatility, but the expanded product offering and market position post-merger are expected to drive future growth.
06—Continue