10-QPeriod: Q3 FY2011

CME GROUP INC. Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 9, 2011For Securities:CME

Summary

CME Group Inc. reported strong financial results for the nine months ended September 30, 2011, with total revenues increasing by 14% to $2.54 billion and net income attributable to CME Group rising by 41% to $1.07 billion. This growth was primarily driven by a 13% increase in clearing and transaction fees, fueled by a 15% rise in overall contract volume, particularly in interest rate and equity products. The company also saw improvements in operating margin and a significant decrease in its effective tax rate due to a state tax apportionment change and a reduction in valuation allowances. While operating expenses saw a modest increase of 5%, largely due to higher compensation and benefits and headcount related to the formation of CME Group Index Services LLC, the company managed its costs effectively. Non-operating expenses decreased due to lower interest and borrowing costs, stemming from debt repayments. CME Group's liquidity remains strong, with $829.3 million in cash and cash equivalents and an undrawn $1.0 billion revolving credit facility, positioning it well to manage its operations and capital allocation strategies.

Financial Highlights

46 data points
Beta

Revenue

$874.20M

Net Income

$316.10M

36.2% Net Margin

EPS (Diluted)

$0.95

Total Assets

$38.89B

Cash & Equivalents

$829.30M

Free Cash Flow

$382.70M

Financial Statements
Beta
Revenue$874.20M
Operating Expenses$302.10M
Operating Income$572.10M
Net Income$316.10M
EPS (Basic)$0.95
EPS (Diluted)$0.95
Shares Outstanding (Basic)332.29M
Shares Outstanding (Diluted)333.34M

Key Highlights

  • 1Total revenues increased 14% to $2.54 billion for the nine months ended September 30, 2011, compared to the prior year period.
  • 2Net income attributable to CME Group surged 41% to $1.07 billion for the nine months ended September 30, 2011.
  • 3Clearing and transaction fees grew 13% to $2.11 billion, driven by a 15% increase in total contract volume.
  • 4Interest rate and equity products showed significant volume growth, with interest rate volume up 20% and equity volume up 8% for the nine months ended September 30, 2011.
  • 5The effective tax rate for the nine months ended September 30, 2011, decreased to 31.9% from 41.6% in the prior year, primarily due to a state tax apportionment change and reduced valuation allowances.
  • 6Operating expenses increased 5% to $913.4 million, largely due to higher compensation and benefits and increased headcount related to Index Services.
  • 7The company maintained a strong liquidity position with $829.3 million in cash and cash equivalents as of September 30, 2011.

Frequently Asked Questions

The primary driver for the revenue increase was a 13% rise in clearing and transaction fees, which climbed to $2.11 billion. This was directly supported by a 15% increase in overall contract volume traded across CME Group's exchanges. Interest rate and equity products, in particular, saw substantial volume growth during this period.

Operating expenses increased by 5% to $913.4 million. This rise was mainly attributed to higher compensation and benefits costs and increased employee headcount related to the formation of CME Group Index Services LLC. Despite this, profitability was enhanced by a significant reduction in the effective tax rate to 31.9%, down from 41.6% in the prior year. This tax rate reduction was due to a favorable change in state tax apportionment and a decrease in valuation allowances on capital losses. Additionally, lower interest and borrowing costs due to debt repayment also contributed positively to net income.

CME Group maintained a strong liquidity position with $829.3 million in cash and cash equivalents as of September 30, 2011. The company had no borrowings outstanding under its $1.0 billion multi-currency revolving senior credit facility, indicating significant available borrowing capacity for general corporate purposes. Long-term debt remained stable at approximately $2.1 billion, consisting of fixed-rate notes.

The filing highlights the risk of cyber attacks and cybersecurity threats, noting that the company's role in the global marketplace could make it a target. It also mentions a recent indictment of a former employee for theft of trade secrets, though customer data was not believed to be compromised. A significant subsequent event disclosed is an agreement to establish a new index business venture with McGraw-Hill, where CME Group will contribute assets and retain a 24.4% interest, while selling its company CMA to McGraw-Hill.