10-QPeriod: Q1 FY2012

CME GROUP INC. Quarterly Report for Q1 Ended Mar 31, 2012

Filed May 8, 2012For Securities:CME

Summary

CME Group Inc. reported its first quarter 2012 financial results, showing a decrease in total revenues to $774.6 million from $831.6 million in the prior year period, primarily driven by lower clearing and transaction fees due to reduced contract volume. Despite the revenue decline, the company's operating margin remained strong at 58%. Operating expenses increased by 5% to $323.4 million, mainly due to higher compensation and benefits, and depreciation related to co-location services. Net income attributable to CME Group fell significantly to $266.6 million ($4.02 per diluted share) from $456.6 million ($6.81 per diluted share) in the first quarter of 2011, impacted by lower revenues and a higher effective tax rate. Key financial adjustments include a $19.4 million increase in cash and cash equivalents during the quarter, ending at $1.1 billion. The company also made significant dividend payments totaling $346.5 million. Despite the decline in net income, the company's liquidity remains robust with approximately $1.0 billion available under its multi-currency revolving senior credit facility. Investors should note the ongoing legal proceedings, particularly those related to MF Global and intellectual property disputes, although management believes these are without merit and will not materially impact the company's financial position.

Financial Highlights

44 data points
Beta

Revenue

$774.60M

Net Income

$266.60M

34.4% Net Margin

EPS (Diluted)

$0.80

Total Assets

$39.29B

Cash & Equivalents

$1.06B

Free Cash Flow

$368.90M

Financial Statements
Beta
Revenue$774.60M
Operating Expenses$323.40M
Operating Income$451.20M
Net Income$266.60M
EPS (Basic)$0.81
EPS (Diluted)$0.80
Shares Outstanding (Basic)330.81M
Shares Outstanding (Diluted)331.85M

Key Highlights

  • 1Total revenues decreased by 7% to $774.6 million in Q1 2012 compared to Q1 2011, primarily due to a 10% decline in clearing and transaction fees driven by lower contract volumes.
  • 2Net income attributable to CME Group decreased by 42% to $266.6 million ($4.02 per diluted share) in Q1 2012 from $456.6 million ($6.81 per diluted share) in Q1 2011.
  • 3Operating expenses increased by 5% to $323.4 million, largely due to higher compensation and benefits and increased depreciation related to co-location services.
  • 4Total contract volume declined by 11% year-over-year, with significant drops in interest rate (13%) and equity (18%) products, influenced by low short-term interest rate volatility and reduced equity market volatility.
  • 5Market data and information services revenue saw a 7% increase, attributed to a rise in the basic device monthly service fee.
  • 6The company maintained strong liquidity, with cash and cash equivalents at $1.1 billion as of March 31, 2012, and an available credit facility of $1.0 billion.
  • 7The effective tax rate increased significantly to 38.6% in Q1 2012 from 10.7% in Q1 2011, impacting net income.

Frequently Asked Questions

The primary driver for the 7% decrease in total revenues to $774.6 million was a 10% decline in clearing and transaction fees, which fell to $621.1 million. This reduction was mainly due to an 11% decrease in overall contract volume, particularly in interest rate and equity products, influenced by factors like low interest rate volatility and reduced equity market fluctuations.

CME Group is involved in several legal matters, including patent infringement claims and lawsuits related to the MF Global bankruptcy. While management believes these suits are without merit and intends to defend itself vigorously, it's important to note that the potential outcomes are uncertain and could involve significant damages. However, for some matters, management believes any resolution will not have a material impact on the company's financial position or results of operations.

Total expenses increased by 5% to $323.4 million. The main contributors to this increase were higher compensation and benefits expenses, driven by salary increases, rising healthcare costs, and increased expenses related to deferred compensation plans, as well as expanded headcount for OTC clearing and globalization efforts. Additionally, depreciation expense related to the build-out of co-location services also contributed to the rise.

CME Group maintained a strong liquidity position. Cash and cash equivalents stood at $1.1 billion. The company also has access to a $1.0 billion multi-currency revolving senior credit facility for general corporate purposes and a separate $3.0 billion secured revolving line of credit for its clearing houses, demonstrating its ability to meet its financial obligations.