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

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.

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.

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