10-QPeriod: Q3 FY2009

CME GROUP INC. Quarterly Report for Q3 Ended Sep 30, 2009

Filed November 6, 2009For Securities:CME

Summary

CME Group Inc. reported its third-quarter and nine-month results for the period ending September 30, 2009. Despite a slight decrease in total operating revenues for the quarter compared to the prior year, the nine-month period showed a 4% increase, largely driven by the inclusion of NYMEX products and services following the 2008 acquisition. Clearing and transaction fees remained the primary revenue driver, showing growth year-over-year, while processing services revenue declined significantly due to the termination of an agreement with NYMEX post-merger. Operating expenses saw an increase year-over-year for the nine-month period, primarily due to higher amortization of purchased intangibles, compensation, and licensing fees related to the NYMEX integration. However, quarterly operating expenses decreased due to a prior year goodwill impairment charge. Net income for the quarter rose by 20% to $202.3 million, but for the nine-month period, it declined by 5% to $623.2 million, impacted by the increased share count post-merger and higher borrowing costs. The company maintained a strong liquidity position with $204.1 million in cash and cash equivalents and available borrowing capacity.

Financial Highlights

45 data points
Beta

Revenue

$650.40M

Net Income

$202.30M

31.1% Net Margin

EPS (Diluted)

$0.61

Total Assets

$36.52B

Cash & Equivalents

$204.10M

Free Cash Flow

$265.50M

Financial Statements
Beta
Revenue$650.40M
Operating Expenses$249.00M
Operating Income$401.40M
Net Income$202.30M
EPS (Basic)$0.61
EPS (Diluted)$0.61
Shares Outstanding (Basic)331.92M
Shares Outstanding (Diluted)332.87M

Key Highlights

  • 1Total operating revenues for the nine months ended September 30, 2009, increased by 4% to $1.95 billion, primarily driven by the inclusion of NYMEX products and services and growth in quotation data fees.
  • 2Clearing and transaction fees, the largest revenue segment, saw a 4% increase for the nine-month period to $1.61 billion, despite a slight decrease in quarterly revenue, due to higher average rates per contract and incremental NYMEX volumes.
  • 3Operating expenses for the nine-month period increased by 8% to $758.7 million, largely due to higher amortization of purchased intangibles, compensation, and licensing fees associated with the NYMEX integration.
  • 4Net income for the third quarter increased by 20% to $202.3 million ($3.04 per diluted share), but for the nine months ended September 30, 2009, it decreased by 5% to $623.2 million ($9.37 per diluted share) compared to the prior year.
  • 5Interest and other borrowing costs significantly increased by 80% in the third quarter and were up substantially for the nine-month period due to higher average debt levels from the 2008 NYMEX acquisition financing.
  • 6The company recorded an impairment loss of $22.4 million on its long-term investment in IMAREX ASA during the quarter due to a significant decline in market value.
  • 7Cash flow from operations for the nine months ended September 30, 2009, was $737.8 million, a decrease from $862.7 million in the prior year, reflecting lower revenues and changes in working capital.
  • 8As of September 30, 2009, CME Group had $204.1 million in cash and cash equivalents and $620.5 million in excess borrowing capacity on its senior credit facility.

Frequently Asked Questions

The primary driver of revenue growth in the first nine months of 2009 was the inclusion of NYMEX products and services following the August 2008 acquisition, along with an increase in quotation data fees. Clearing and transaction fees also contributed positively due to higher average rates per contract.

Operating expenses increased due to higher amortization of purchased intangibles, increased compensation and benefits, and higher licensing and other fee agreements, all largely attributed to the integration of NYMEX Holdings and related costs.

The NYMEX merger significantly impacted financial results. While it boosted revenues due to the addition of new product lines, it also increased operating expenses (integration, amortization) and interest expenses due to related debt financing. The higher number of outstanding shares post-merger also contributed to a lower diluted EPS for the nine-month period despite a rise in quarterly net income. Cash flow from operations decreased compared to the prior year, partly due to changes in working capital and lower net income.

CME Group maintained a solid liquidity position with $204.1 million in cash and cash equivalents as of September 30, 2009. The company has access to a $1.4 billion senior credit facility, with approximately $620.5 million in excess borrowing capacity. Following the NYMEX merger financing, the company has focused on debt reduction, with net debt repayments of $675.3 million in the first nine months of 2009.