CME Group Inc. — 2015 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2015; the filing also provides unaudited fourth-quarter results. CME Group operates futures and options exchanges, clearing houses, swap services, and market-data businesses across major asset classes. It reports as one operating segment.
Financial performance
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $3,326.8 million | $3,112.5 million | +7% |
| Operating income | $1,988.7 million | $1,768.4 million | +12% |
| Operating margin | 60% | 57% | +3 percentage points |
| Net income attributable to CME Group | $1,247.0 million | $1,127.1 million | +11% |
| Diluted EPS | $3.69 | $3.35 | +10% |
| Operating cash flow | $1,515.3 million | $1,291.4 million | +17% |
- Clearing and transaction fees were $2,783.9 million, up 6%; market-data revenue was $399.4 million, up 12%. Revenue gains reflected higher contract volume, improved average rates per contract, market-data fee changes, and stronger energy and agricultural activity.
- Total contract volume rose 3% to 3.53 billion round turns; average daily volume increased 2% to 13.96 million. Average rate per contract rose 4%, partly due to product mix and February 2015 price increases.
- Reported fourth-quarter revenue was $813.8 million versus $841.1 million a year earlier; operating income was $469.9 million versus $471.5 million, and net income attributable to CME Group was $291.7 million versus $306.5 million. Diluted EPS was $0.86 versus $0.91.
- Year-end cash and cash equivalents were $1,692.6 million, versus $1,366.1 million. Long-term debt was $2,241.4 million, with no short-term debt reported. The company reported approximately $2.3 billion of available general-purpose borrowing capacity and no borrowings under its revolving facilities.
- Cash dividends were $4.90 per share for 2015, including a $2.90 annual variable dividend. The balance sheet includes substantial clearing-member collateral and matching liabilities; these funds are not equivalent to unrestricted corporate liquidity.
Material changes versus prior period
- Revenue growth and a higher average rate per contract lifted operating income and expanded operating margin, while total expenses were broadly flat at $1,338.1 million.
- Energy average daily volume rose 21% and agricultural volume rose 13%; interest-rate volume declined 4% after a record year in 2014. Electronic trading represented 87% of contract volume, up from 86%.
- Operating cash flow increased by $223.9 million. Cash used in financing declined to $1,206.7 million, mainly reflecting lower dividend outflows than in 2014 and proceeds from the 2015 note issuance.
- Debt actions included issuing $750 million of 3.0% notes due 2025 and repurchasing $612.5 million of 4.4% notes due 2018. The repurchase produced $61.8 million of debt-prepayment costs, including the call premium.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management expected 2016 capital expenditures of approximately $115–$120 million and estimated a $11.7 million pension contribution to meet its funding goal. The company said existing cash and operating cash generation should cover working capital, capital expenditures, and commitments.
- Management highlighted competition, trading-volume and rate-per-contract variability, extensive U.S. and international regulation, technology reliability and cybersecurity, clearing-member default and collateral risks, and the ability to grow swaps, international, and newer businesses. A single clearing firm accounted for 13% of 2015 clearing and transaction-fee revenue.
- Non-operating results included the $61.8 million debt-prepayment charge and a $22.5 million net termination fee related to the abandoned GFI Group transaction; other non-operating items also included an $8.5 million loss on the sale of BM&FBOVESPA shares. The filing reported $11.3 million of 2015 foreign-currency transaction losses.
- Legal matters included a CFTC suit against NYMEX and two former employees concerning confidential customer information, and a patent dispute for which the company could not estimate a reasonably possible loss range. Accrued probable and estimable legal and regulatory matters were $3.5 million at year-end.
- Management and Ernst & Young reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether the trading-volume and fee-rate mix that supported 2015 revenue growth can persist, particularly given weaker interest-rate activity.
- The distinction between corporate cash and clearing-member collateral, and the availability and terms of clearing-house liquidity facilities.
- Debt-service, dividend, and capital-return capacity after the variable dividend and the 2025 note issuance.
- Potential effects of regulatory changes, competition, cyber incidents, and a clearing-member default on business activity and financial results.
- Developments in the disclosed CFTC and patent proceedings, and any related changes to contingencies or reserves.