10-QPeriod: Q1 FY2011

CME GROUP INC. Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 10, 2011For Securities:CME

Summary

CME Group Inc. reported strong financial results for the first quarter of 2011, with total revenues increasing by 20% year-over-year to $831.6 million. This growth was primarily driven by a 20% increase in clearing and transaction fees, fueled by a 21% rise in total contract volume. Net income attributable to CME Group surged by 90% to $456.6 million, leading to a significant 88% increase in diluted earnings per share to $6.81. The company also demonstrated robust operational efficiency, with operating income growing by 26% and the operating margin expanding to 63%. A notable factor contributing to the bottom-line improvement was a substantial decrease in the effective tax rate to 10.7% from 39.8% in the prior year, largely due to a favorable change in state tax apportionment and a reduction in valuation allowances on capital losses. Despite increased operating expenses, mainly driven by higher compensation, benefits, and bonus expenses, CME Group's financial performance remained strong, underscoring its leading position in the derivatives market.

Financial Highlights

44 data points
Beta

Revenue

$831.60M

Net Income

$456.60M

54.9% Net Margin

EPS (Diluted)

$1.36

Total Assets

$34.71B

Cash & Equivalents

$664.70M

Free Cash Flow

$320.70M

Financial Statements
Beta
Revenue$831.60M
Operating Expenses$307.50M
Operating Income$524.10M
Net Income$456.60M
EPS (Basic)$1.37
EPS (Diluted)$1.36
Shares Outstanding (Basic)334.29M
Shares Outstanding (Diluted)335.31M

Key Highlights

  • 1Total revenues increased by 20% to $831.6 million in Q1 2011 compared to Q1 2010.
  • 2Clearing and transaction fees, the primary revenue driver, grew by 20% year-over-year, supported by a 21% increase in total contract volume.
  • 3Net income attributable to CME Group more than doubled, rising 90% to $456.6 million.
  • 4Diluted earnings per share (EPS) saw a substantial increase of 88%, reaching $6.81.
  • 5Operating margin improved to 63% from 60% in the prior year period.
  • 6The effective tax rate significantly decreased to 10.7% from 39.8%, positively impacting net income.
  • 7Cash flows from operating activities remained strong, slightly increasing by 2% to $362.1 million.

Frequently Asked Questions

The primary driver of revenue growth was the increase in clearing and transaction fees, which rose by 20% year-over-year. This was directly attributable to a 21% increase in total contract volume traded across CME Group's exchanges.

The effective tax rate dropped from 39.8% in Q1 2010 to 10.7% in Q1 2011. This substantial decrease was mainly due to a favorable change in state tax apportionment, which reduced the income tax provision by $118.1 million, and a $48.8 million reduction in valuation allowances on unrealized capital losses related to the company's investment in BM&FBOVESPA.

Operating expenses increased by 10% to $307.5 million. Key factors contributing to this rise included higher compensation and benefits expenses due to increased headcount and bonus payouts, as well as increased litigation settlements and associated legal fees, and amortization of purchased intangibles.

CME Group repaid a $420.5 million term loan in January 2011. The company has a $1.0 billion multi-currency revolving senior credit facility maturing in January 2014 and a 364-day fully secured, committed line of credit up to $1.0 billion for its clearing house. As of March 31, 2011, the company had excess borrowing capacity of approximately $1.0 billion for general corporate purposes and was in compliance with all debt covenants.