10-QPeriod: Q1 FY2010

CME GROUP INC. Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 7, 2010For Securities:CME

Summary

CME Group Inc. reported a strong first quarter for 2010, demonstrating significant revenue and net income growth compared to the prior year. Total revenues increased by 7% to $693.2 million, driven primarily by a 10% rise in clearing and transaction fees, which benefited from increased trading volumes across various product lines, particularly interest rate and foreign exchange futures. Net income attributable to CME Group rose by 21% to $240.2 million, resulting in a diluted earnings per share of $3.62, up from $3.00 in the first quarter of 2009. This performance was supported by effective cost management, evidenced by a stable operating margin of 60%, and a lower effective tax rate. The company also generated robust operating cash flow, increasing by 40% year-over-year. Key strategic moves during the quarter included the formation of Index Services, a joint venture with Dow Jones, and a $612.5 million issuance of fixed-rate notes to fund this venture.

Financial Highlights

44 data points
Beta

Revenue

$693.20M

Net Income

$240.20M

34.7% Net Margin

EPS (Diluted)

$0.72

Total Assets

$35.20B

Cash & Equivalents

$444.20M

Free Cash Flow

$329.40M

Financial Statements
Beta
Revenue$693.20M
Operating Expenses$278.50M
Operating Income$414.70M
Net Income$240.20M
EPS (Basic)$0.73
EPS (Diluted)$0.72
Shares Outstanding (Basic)331.17M
Shares Outstanding (Diluted)332.14M

Key Highlights

  • 1Total revenues increased by 7% to $693.2 million in Q1 2010 compared to Q1 2009.
  • 2Net income attributable to CME Group grew by 21% to $240.2 million.
  • 3Diluted earnings per share (EPS) increased to $3.62 from $3.00 year-over-year.
  • 4Clearing and transaction fees rose by 10% to $578.0 million, driven by a 12% increase in total trading volume.
  • 5Significant growth in interest rate (33%) and foreign exchange (75%) futures volume contributed to higher clearing and transaction fees.
  • 6Operating cash flow increased by 40% to $355.7 million, reflecting improved profitability and trading volumes.
  • 7CME Group formed a joint venture, Index Services, with Dow Jones and issued $612.5 million in fixed-rate notes to fund the venture.

Frequently Asked Questions

The primary driver of revenue growth was the 10% increase in clearing and transaction fees, which reached $578.0 million. This was a direct result of a 12% rise in total trading volume, particularly strong performance in interest rate products (up 33%) and foreign exchange products (up 75%), indicating increased market activity and demand for CME's services.

The formation of Index Services, a joint venture with Dow Jones, was a significant event in the quarter. It led to an increase in professional fees and resulted in the issuance of $612.5 million in fixed-rate notes. A redeemable non-controlling interest of $67.3 million was recognized due to Dow Jones' retained interest. Going forward, Index Services is expected to contribute to revenue streams, though initial formation costs impacted expenses.

While revenue increased, total expenses also rose by 7% to $278.5 million, primarily due to higher professional fees related to the Index Services transaction, increased compensation and benefits, and higher bonus expenses. Despite rising expenses, the company maintained a strong operating margin of 60%, and the effective tax rate decreased due to favorable adjustments related to uncertain tax positions, contributing to a 21% increase in net income. For the full year 2010, CME Group expects the effective tax rate to be between 41% and 42%.

CME Group issued $612.5 million in fixed-rate notes due 2018 to fund its investment in Index Services. This increased its long-term debt. The company also reported commercial paper outstanding of $299.9 million. Despite the new debt issuance, the company maintains strong liquidity, with cash and cash equivalents increasing to $444.2 million. CME Group's credit ratings remained strong with Stable outlooks from both Moody's and S&P.