10-QPeriod: Q2 FY2009

CME GROUP INC. Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 6, 2009For Securities:CME

Summary

CME Group Inc. reported its second-quarter and first-half 2009 financial results, demonstrating resilience and growth despite the ongoing economic climate. Total revenues saw an increase, driven by strong performance in clearing and transaction fees, and a significant boost from quotation data fees, partly due to the inclusion of NYMEX results post-merger. While operating expenses also rose, largely attributed to integration costs and amortization of acquired intangibles from the NYMEX acquisition, the company managed to improve its operating margin in the second quarter. Despite a challenging interest rate environment impacting trading volumes, CME Group successfully leveraged its expanded product offering, particularly from the NYMEX integration, to drive revenue growth. Diluted earnings per share experienced a decline compared to the prior year, primarily due to common stock issuances related to the NYMEX merger. The company maintained a strong liquidity position, with substantial cash flows from operations and a well-managed debt structure.

Financial Highlights

45 data points
Beta

Revenue

$647.80M

Net Income

$221.80M

34.2% Net Margin

EPS (Diluted)

$0.67

Total Assets

$38.53B

Cash & Equivalents

$448.70M

Free Cash Flow

$140.00M

Financial Statements
Beta
Revenue$647.80M
Operating Expenses$249.00M
Operating Income$398.80M
Net Income$221.80M
EPS (Basic)$0.67
EPS (Diluted)$0.67
Shares Outstanding (Basic)331.64M
Shares Outstanding (Diluted)332.63M

Key Highlights

  • 1Total revenues increased by 15% to $647.8 million for the quarter and 9% to $1,294.9 million for the six months ended June 30, 2009, driven by clearing and transaction fees and quotation data fees.
  • 2Clearing and transaction fees revenue grew 17% year-over-year for the quarter, aided by higher average rates per contract and incremental volume from NYMEX products.
  • 3Quotation data fees increased significantly by 37% for the quarter, largely due to revenue from NYMEX services and an increase in device screen counts.
  • 4Operating expenses rose 13% for the quarter and 15% for the six months, primarily due to increased compensation, benefits, and amortization of purchased intangibles related to the NYMEX acquisition.
  • 5Despite a challenging environment, operating margin improved slightly to 62% in Q2 2009 from 61% in Q2 2008.
  • 6Diluted earnings per common share decreased by 9% to $3.33 for the quarter and 29% to $6.33 for the six months, impacted by increased common stock issuances from the NYMEX merger.
  • 7Net cash provided by operating activities was $438.4 million for the six months ended June 30, 2009, demonstrating strong operational cash generation.

Frequently Asked Questions

The acquisition of NYMEX Holdings, completed in August 2008, significantly impacted CME Group's financial performance. It contributed to increased revenues, particularly in clearing and transaction fees and quotation data fees, due to the inclusion of NYMEX products and services. However, it also led to higher operating expenses, including amortization of purchased intangibles and integration-related costs. The merger also resulted in a higher number of outstanding shares, which consequently reduced diluted earnings per share compared to the prior year.

The decline in trading volumes for interest rate products, such as Eurodollar futures and options and U.S. Treasury futures, was attributed to the global credit crisis and the Federal Reserve's zero interest rate policy. These factors reduced customers' ability or need to assume and maintain positions and lowered market participants' need to hedge interest rate risk. While there was some improvement in Q2 2009 compared to Q1 2009 due to steepening yield curves and increased debt issuances, the year-over-year comparison showed a significant decrease.

CME Group maintained a strong liquidity position with $448.7 million in cash and cash equivalents. Net cash provided by operating activities for the first six months of 2009 was $438.4 million. The company had total debt of $2.7 billion, comprising both short-term and long-term obligations, and reported a senior credit facility with a revolving credit component of $995.5 million. At June 30, 2009, the company had approximately $420.0 million in excess borrowing capacity available.

CME Group is involved in several legal proceedings, including class-action lawsuits related to the NYMEX merger and an antitrust lawsuit filed by Eurex U.S. The company also has ongoing litigation regarding exercise right privileges (ERPs) stemming from the CBOT merger. While the company believes these suits are without merit and intends to defend them vigorously, it also stated that the resolution of these matters is not expected to have a material adverse effect on its consolidated financial position or results of operations.