01—Abstract
Summary
Summary of the 10-Q filed November 8, 2012. Cited figures are marked; the original filing is the authoritative source.
CME Group Inc. reported its third quarter and first nine months results for 2012, reflecting a notable decrease in revenues primarily driven by lower clearing and transaction fees due to reduced contract volumes across several key product lines, including interest rate and equity futures.
Despite the revenue decline, the company managed to decrease total expenses in the third quarter compared to the prior year, largely due to a reduction in amortization of purchased intangibles following strategic asset divestitures and the formation of a new index business venture. However, for the first nine months, total expenses saw a slight increase driven by higher compensation and benefits, including stock-based compensation and separation costs, along with expenses related to the new index venture. The company also highlighted a significant increase in its effective tax rate, particularly in the nine-month period, influenced by deferred tax liabilities from the formation of the S&P/Dow Jones Indices LLC.
Financially, CME Group demonstrated solid liquidity with cash and cash equivalents of $2.0 billiona at the end of the quarter, and it actively managed its debt, issuing new notes while planning to retire existing ones. The company also declared a quarterly dividend, underscoring its commitment to returning value to shareholders.
02—Key points
Key Highlights
- Total revenues decreased by 22% in Q3 2012 and 11% in the first nine months of 2012 compared to the prior year, primarily due to a 23% and 13% decline in clearing and transaction fees, respectively, driven by lower contract volumes.
- Total expenses decreased by 5% in Q3 2012 but increased by 3% in the first nine months of 2012, with Q3's decrease attributed to lower amortization of purchased intangibles from business divestitures, while the nine-month increase was driven by higher compensation and benefits.
- Net income attributable to CME Group fell by 31% in Q3 2012 and 32% in the first nine months of 2012, mirroring the revenue decline.
- Contract volume saw a significant reduction, with an aggregate average daily volume decrease of 26% in Q3 2012 and 15% in the first nine months of 2012 year-over-year.
- Interest rate and equity product volumes experienced substantial declines, attributed to low market volatility.
- The company issued $750.0 million in 3.00% fixed rate notes due September 2022, and ended the period with $2.0 billion in cash and cash equivalents.
- CME Group is involved in several ongoing legal matters, including intellectual property disputes and a class action lawsuit related to MF Global, though the company believes these matters are without merit and intends to defend itself vigorously.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2012filed November 8, 2012Financial Statements
Q3 FY2012 against Q3 FY2011
| Line item | Q3 FY2012Q3 FY2011 | Change |
|---|---|---|
| Revenue | $683.20M$874.20M | −21.8% |
| Operating Expenses | $287.20M$302.10M | −4.9% |
| Operating Income | $396.00M$572.10M | −30.8% |
| Net Income | $218.00M$316.10M | −31.0% |
| EPS (Basic) | $0.66$0.95 | −30.5% |
| EPS (Diluted) | $0.66$0.95 | −30.5% |
| Shares Outstanding (Basic) | 331.38M332.29M | −0.3% |
| Shares Outstanding (Diluted) | 332.46M333.34M | −0.3% |
05—Questions
Frequently Asked Questions
What is the primary driver behind the decrease in CME Group's revenues?
The primary driver behind the decrease in CME Group's revenues for the reported periods was a significant decline in clearing and transaction fees. This decline was directly linked to lower contract volumes across various product lines, particularly in interest rates and equity futures, which are sensitive to market volatility.
How did CME Group manage its expenses during this period of declining revenue?
CME Group managed its expenses differently in the short-term versus the longer-term view. In the third quarter of 2012, total expenses decreased due to lower amortization of purchased intangibles resulting from strategic divestitures and the formation of a new index venture. However, for the first nine months of 2012, total expenses increased slightly, impacted by higher compensation and benefits costs, including stock-based compensation and separation costs, as well as new expenses related to the index business venture.
What is the company's current liquidity position?
CME Group maintained a strong liquidity position, reporting cash and cash equivalents of $2.0 billion as of September 30, 2012. This provides the company with significant financial flexibility.
Are there any significant legal or regulatory issues impacting CME Group?
Yes, CME Group is subject to several legal proceedings, including intellectual property disputes and a class-action lawsuit concerning MF Global. While the company believes these matters are without merit and intends to defend itself vigorously, they represent potential risks and uncertainties that investors should be aware of.
06—Continue