Document and Entity Information
Document and Entity Information | ||||||
3 Months Ended
Mar. 31, 2010 | Apr. 21, 2010
Class A common stock | Apr. 21, 2010
Class B common stock, Class B-1 | Apr. 21, 2010
Class B common stock, Class B-2 | Apr. 21, 2010
Class B common stock, Class B-3 | Apr. 21, 2010
Class B common stock, Class B-4 | |
Document Type | 10-Q | |||||
Amendment Flag | false | |||||
Document Period End Date | 2010-03-31 | |||||
Document Fiscal Period Focus | Q1 | |||||
Document Fiscal Year Focus | 2,010 | |||||
Entity Registrant Name | CME GROUP INC. | |||||
Entity Central Index Key | 0001156375 | |||||
Current Fiscal Year End Date | --12-31 | |||||
Entity Filer Category | Large Accelerated Filer | |||||
Entity Common Stock, Shares Outstanding | 65,685,568 | 625 | 813 | 1,287 | 413 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Millions | Mar. 31, 2010
| Dec. 31, 2009
|
Current Assets: | ||
Cash and cash equivalents | 444.2 | 260.6 |
Marketable securities | 46.3 | 42.6 |
Accounts receivable, net of allowance of $1.4 and $1.9 | 316.9 | 248.3 |
Other current assets | 165.5 | 165.6 |
Cash performance bonds and security deposits | 4510.1 | 5981.9 |
Total current assets | 5,483 | 6,699 |
Property, net of amortization $573.4 and $546.1 | 734.7 | 738.5 |
Intangible assets - trading products | 17,038 | 16,982 |
Intangible assets - other, net | 3,535 | 3246.5 |
Goodwill | 7978.6 | 7549.2 |
Other assets | 433.1 | 435.8 |
Total Assets | 35202.4 | 35,651 |
Current Liabilities: | ||
Accounts payable | 36.3 | 46.7 |
Short-term debt | 299.9 | 299.8 |
Other current liabilities | 317.6 | 195.2 |
Cash performance bonds and security deposits | 4510.1 | 5981.9 |
Total current liabilities | 5163.9 | 6523.6 |
Long-term debt | 2823.8 | 2014.7 |
Deferred tax liabilities, net | 7787.4 | 7645.9 |
Other liabilities | 170.3 | 165.8 |
Total Liabilities | 15945.4 | 16,350 |
Redeemable non-controlling interest | 67.3 | |
Shareholders' Equity: | ||
Additional paid-in capital | 16918.6 | 17186.6 |
Retained earnings | 2404.2 | 2239.9 |
Accumulated other comprehensive income (loss) | -133.8 | -126.2 |
Total Shareholders' Equity | 19189.7 | 19,301 |
Total Liabilities and Shareholders' Equity | 35202.4 | 35,651 |
Class A common stock | ||
Shareholders' Equity: | ||
Common stock | 0.7 | 0.7 |
Preferred stock | ||
Shareholders' Equity: | ||
Preferred stock | ||
Series A junior participating preferred stock | ||
Shareholders' Equity: | ||
Preferred stock | ||
Class B common stock | ||
Shareholders' Equity: | ||
Common stock |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | ||
In Millions, except Share data in Thousands | Mar. 31, 2010
| Dec. 31, 2009
|
Accounts receivable, allowance | 1.4 | 1.9 |
Property, accumulated depreciation and amortization | 573.4 | 546.1 |
Class A common stock | ||
Common stock, par value | 0.01 | 0.01 |
Common stock, shares authorized | 1,000,000 | 1,000,000 |
Common stock, shares issued | 65,601 | 66,511 |
Common stock, shares outstanding | 65,601 | 66,511 |
Preferred stock | ||
Preferred stock, par value | 0.01 | 0.01 |
Preferred stock, shares authorized | 9,860 | 9,860 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Series A junior participating preferred stock | ||
Preferred stock, par value | 0.01 | 0.01 |
Preferred stock, shares authorized | 140 | 140 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Class B common stock | ||
Common stock, par value | 0.01 | 0.01 |
Common stock, shares authorized | 3 | 3 |
Common stock, shares issued | 3 | 3 |
Common stock, shares outstanding | 3 | 3 |
CONSOLIDATED STATEMENTS OF INCO
CONSOLIDATED STATEMENTS OF INCOME (USD $) | ||
In Millions, except Share data in Thousands | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Revenues | ||
Clearing and transaction fees | $578 | 527.8 |
Market data and information services | 87.6 | 85.5 |
Access and communication fees | 10.9 | 11.6 |
Other | 16.7 | 22.2 |
Total Revenues | 693.2 | 647.1 |
Expenses | ||
Compensation and benefits | 98.8 | 86.7 |
Communications | 10.1 | 12.4 |
Technology support services | 12.2 | 11.8 |
Professional fees and outside services | 31.2 | 22.3 |
Amortization of purchased intangibles | 30.8 | 33.3 |
Depreciation and amortization | 32.2 | 31 |
Occupancy and building operations | 20.5 | 19.4 |
Licensing and other fee agreements | 21.1 | 24.6 |
Restructuring | -0.3 | 3.2 |
Other | 21.9 | 16 |
Total Expenses | 278.5 | 260.7 |
Operating Income | 414.7 | 386.4 |
Non-Operating Income (Expense) | ||
Investment income | 11.1 | 1.8 |
Gains (losses) on derivative investments | 6 | |
Securities lending interest income | 2.4 | |
Securities lending interest and other costs | -0.4 | |
Interest and other borrowing costs | -31.4 | -38.5 |
Equity in losses of unconsolidated subsidiaries | -1.5 | -1.2 |
Total Non-Operating | -15.8 | -35.9 |
Income before Income Taxes | 398.9 | 350.5 |
Income tax provision | 158.7 | 151.4 |
Net Income | 240.2 | 199.1 |
Less: net loss attributable to redeemable non-controlling interest | ||
Net Income Atrributable to CME Group | 240.2 | 199.1 |
Earnings per Common Share Attributable to CME Group: | ||
Basic | 3.63 | $3 |
Diluted | 3.62 | $3 |
Weighted Average Number of Common Shares: | ||
Basic | 66,234 | 66,302 |
Diluted | 66,428 | 66,439 |
CONSOLIDATED STATEMENTS OF SHAR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $) | ||||||
In Millions, except Share data in Thousands | Class A common stock
| Class B common stock
| Common Stock and Additional Paid-in Capital
| Retained Earnings
| Accumulated Other Comprehensive Income (Loss)
| Total
|
Beginning Balance at Dec. 31, 2008 | 17129.2 | 1719.7 | -160.3 | 18688.6 | ||
Beginning Balance (in shares) at Dec. 31, 2008 | 66,417 | 3 | ||||
Comprehensive income: | ||||||
Net income | 199.1 | 199.1 | ||||
Change in net unrealized loss on securities, net of tax | 4.3 | 4.3 | ||||
Change in net actuarial loss on defined benefit plans, net of tax | -1.3 | -1.3 | ||||
Change in net unrealized loss on derivatives, net of tax | 1.5 | 1.5 | ||||
Change in foreign currency translation adjustment, net of tax | -1.2 | -1.2 | ||||
Total comprehensive income | 202.4 | |||||
Cash dividends on common stock of $1.15 per share | -76.3 | -76.3 | ||||
Repurchase of Class A common stock (in shares) | (139) | |||||
Repurchase of Class A common stock | (27) | (27) | ||||
Exercise of stock options (in shares) | 18 | |||||
Exercise of stock options | 2.4 | 2.4 | ||||
Excess tax benefits from option exercises and restricted stock vesting | 0.4 | 0.4 | ||||
Vesting of issued restricted Class A common stock (in shares) | 1 | |||||
Shares issued to Board of Directors (in shares) | 3 | |||||
Stock-based compensation | 8.6 | 8.6 | ||||
Ending Balance (in shares) at Mar. 31, 2009 | 66,300 | 3 | ||||
Ending Balance at Mar. 31, 2009 | 17113.6 | 1842.5 | (157) | 18799.1 | ||
Beginning Balance at Dec. 31, 2009 | 17187.3 | 2239.9 | -126.2 | 19,301 | ||
Beginning Balance (in shares) at Dec. 31, 2009 | 66,511 | 3 | ||||
Comprehensive income: | ||||||
Net income | 240.2 | 240.2 | ||||
Change in net unrealized loss on securities, net of tax | -5.3 | -5.3 | ||||
Change in net actuarial loss on defined benefit plans, net of tax | 0.9 | 0.9 | ||||
Change in net unrealized loss on derivatives, net of tax | 0.1 | 0.1 | ||||
Change in foreign currency translation adjustment, net of tax | -3.3 | -3.3 | ||||
Total comprehensive income | 232.6 | |||||
Cash dividends on common stock of $1.15 per share | -75.9 | -75.9 | ||||
Repurchase of Class A common stock (in shares) | (936) | |||||
Repurchase of Class A common stock | -281.8 | -281.8 | ||||
Exercise of stock options (in shares) | 26 | |||||
Exercise of stock options | 2.1 | 2.1 | ||||
Excess tax benefits from option exercises and restricted stock vesting | 2.4 | 2.4 | ||||
Stock-based compensation | 9.3 | 9.3 | ||||
Ending Balance (in shares) at Mar. 31, 2010 | 65,601 | 3 | ||||
Ending Balance at Mar. 31, 2010 | 16919.3 | 2404.2 | -133.8 | 19189.7 |
1_CONSOLIDATED STATEMENTS OF SH
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Change in net unrealized loss on securities, tax | 1.8 | 2.8 |
Change in net actuarial loss on defined benefit plans, tax | 0.6 | 0.9 |
Change in net unrealized loss on derivatives, tax | 0.1 | 0.9 |
Change in foreign currency translation adjustment, tax | 2.2 | 0.6 |
Cash dividends on common stock, per share | 1.15 | 1.15 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash Flows from Operating Activities | ||
Net Income | 240.2 | 199.1 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Stock-based compensation | 9.3 | 8.6 |
Amortization of purchased intangibles | 30.8 | 33.3 |
Depreciation and amortization | 32.2 | 31 |
Net accretion of discounts and amortization of debt financing costs | 1.1 | 8.8 |
Equity in losses of unconsolidated subsidiaries | 1.5 | 1.2 |
Deferred income taxes | -7.2 | -9.5 |
Change in assets and liabilities: | ||
Accounts receivable | -48.3 | -45.1 |
Other current assets | -6.6 | 15.9 |
Other assets | -12.8 | -3.7 |
Accounts payable | -10.4 | -24.5 |
Income tax payable | 146.9 | 90.1 |
Other current liabilities | -27.8 | -50.1 |
Other liabilities | 7.8 | 1.6 |
Other | (1) | (2) |
Net Cash Provided by Operating Activities | 355.7 | 254.7 |
Cash Flows from Investing Activities | ||
Proceeds from maturities of available-for-sale marketable securities | 5.5 | 168.7 |
Purchases of available-for-sale marketable securities | -5.1 | -104.8 |
Net change in NYMEX securities lending program investments | 274.4 | |
Purchases of property, net | -26.3 | -35.3 |
Cash acquired from Index Services | 6.1 | |
Capital contributions to FXMarketSpace Limited | (2) | |
Net Cash Provided by (Used in) Investing Activities | -19.8 | 301 |
Cash Flows from Financing Activities | ||
Proceeds (repayments) of commercial paper, net | 200 | -858.8 |
Proceeds from other borrowings, net of issuance costs | 608.4 | 744.7 |
Net change in NYMEX securities lending program liabilities | -299.8 | |
Cash dividends | -75.9 | -76.3 |
Repurchase of Class A common stock, including costs | -281.8 | (27) |
Proceeds from exercise of stock options | 2.1 | 2.4 |
Distribution paid to non-controlling interest | -607.5 | |
Excess tax benefits related to employee option exercises and restricted stock vesting | 2.4 | 0.4 |
Net Cash Used in Financing Activities | -152.3 | -514.4 |
Net change in cash and cash equivalents | 183.6 | 41.3 |
Cash and cash equivalents, beginning of period | 260.6 | 297.9 |
Cash and Cash Equivalents, End of Period | 444.2 | 339.2 |
Supplemental Disclosure of Cash Flow Information | ||
Income taxes paid | 27.8 | 48.1 |
Interest paid (excluding securities lending program) | 44 | 36 |
Non-cash investing activities: | ||
Change in net unrealized securities gains (losses) | -4.6 | 7.1 |
Change in net unrealized derivatives gains (losses) | 0.2 | 2.4 |
Basis of Presentation
Basis of Presentation | |
3 Months Ended
Mar. 31, 2010 | |
Basis of Presentation | 1. Basis of Presentation The consolidated financial statements consist of CME Group Inc. (CME Group) and its subsidiaries (collectively, the company), including Chicago Mercantile Exchange Inc. (CME), the Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX) and their respective subsidiaries (collectively, the exchange). In the opinion of management, the accompanying consolidated financial statements include all normal recurring adjustments considered necessary to present fairly the financial position of the company at March 31, 2010 and December 31, 2009 and the results of operations and cash flows for the periods indicated. Quarterly results are not necessarily indicative of results for any subsequent period. On March 18, 2010, CBOT acquired a 90 percent ownership interest in CME Group Index Services LLC (Index Services), a joint venture with Dow Jones Company (Dow Jones). The financial statements and accompanying notes presented in this report include the financial results of Index Services beginning on March 19, 2010. The accompanying interim consolidated financial statements have been prepared by CME Group without audit. Certain notes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in CME Group's Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission (SEC) on February 26, 2010. Certain reclassifications have been made to the 2009 financial statements to conform to the presentation in 2010. |
Business Combinations
Business Combinations | |
3 Months Ended
Mar. 31, 2010 | |
Business Combinations | 2. Business Combinations On March 18, 2010, CBOT and Dow Jones entered into an agreement to form Index Services. Index Services was formed through the contribution of CBOT's market data business and Dow Jones' index business. Based on the preliminary fair value of assets contributed, the company has allocated $432.6 million to goodwill and $376.4 million to identifiable intangible assets. Intangible assets consist primarily of $232.8 million of customer relationships and $126.6 million of trade names. In conjunction with its formation, Index Services issued $612.5 million of 4.40% fixed rate notes due 2018, which are guaranteed by CME Group, in an unregistered offering. Proceeds of $607.5 million were distributed to Dow Jones thereby reducing its interest in Index Services to 10 percent. Dow Jones retains the right to redeem its remaining interest at fair value on or after March 18, 2016. In addition, CBOT retains a right to call Dow Jones' remaining interest at fair value on or after March 18, 2017. In accordance with current accounting guidance, Dow Jones' interest has been classified as redeemable non-controlling interest in the company's consolidated financial statements. The following summarizes the changes in the redeemable non-controlling interest during the first quarter of 2010: (in millions) Balance at December31, 2009 $ Contribution by Dow Jones 675.0 Distribution to Dow Jones (607.5 ) Net unrealized loss on derivative relating to the 4.40% fixed rate notes (0.2 ) Net income (loss) for the period Total comprehensive income attributable to redeemable non-controlling interest (0.2 ) Balance at March31, 2010 $ 67.3 |
Intangible Assets and Goodwill
Intangible Assets and Goodwill | |
3 Months Ended
Mar. 31, 2010 | |
Intangible Assets and Goodwill | 3. Intangible Assets and Goodwill Intangible assets consisted of the following at March 31, 2010 and December 31, 2009: March31, 2010 December31, 2009 (in millions) Cost AccumulatedAmortization Net BookValue Cost AccumulatedAmortization Net BookValue Amortizable Intangible Assets: Clearing firm, market data and other customer relationships $ 3,075.3 $ (211.3 ) $ 2,864.0 $ 2,842.5 $ (186.8 ) $ 2,655.7 Lease-related intangibles 83.2 (24.7 ) 58.5 83.2 (21.7 ) 61.5 Dow Jones trading products (a) 74.0 (16.6 ) 57.4 Technology-related intellectual property 38.8 (11.9 ) 26.9 28.4 (10.3 ) 18.1 Open interest 12.3 (12.3 ) Market maker agreement 9.7 (6.2 ) 3.5 9.7 (5.8 ) 3.9 Other (b) 5.2 (2.8 ) 2.4 3.6 (2.7 ) 0.9 3,212.2 (256.9 ) 2,955.3 3,053.7 (256.2 ) 2,797.5 Foreign currency translation adjustments (9.5 ) 3.5 (6.0 ) (7.8 ) 2.5 (5.3 ) Total Amortizable Intangible Assets $ 3,202.7 $ (253.4 ) $ 2,949.3 $ 3,045.9 $ (253.7 ) $ 2,792.2 Indefinite-Lived Intangible Assets: Trading products (a) $ 17,038.0 $ 16,982.0 Trade names 583.6 452.1 Other (c) 2.6 2.6 17,624.2 17,436.7 Foreign currency translation adjustments (0.5 ) (0.4 ) Total Indefinite-Lived Intangible Assets 17,623.7 17,436.3 Total Intangible Assets $ 20,573.0 $ 20,228.5 (a) At March31, 2010, in connection with CBOT's 90% ownership interest in Index Services, the company now considers the Dow Jones trading products as an indefinite lived asset, and is included with the other trading products. (b) At March31, 2010 and December31, 2009, other amortizable intangible assets consisted of non-compete and service agreements. (c) At March31, 2010 and December31, 2009, other indefinite-lived intangible assets consisted of products in development. Total amortization expense for intangible assets was $30.8 million and $33.3 million for the quarters ended March 31, 2010 and 2009, respectively. As of March 31, 2010, the future estimated amortization expense related to amortizable intangible assets is expected to be: (in millions) Remainder of 2010 $ 96.0 2011 127.9 2012 122.6 2013 116.6 2014 115.0 2015 111.0 T |
Debt
Debt | |
3 Months Ended
Mar. 31, 2010 | |
Debt | 4. Debt On March 18, 2010, Index Services completed an offering of $612.5 million of 4.40% fixed rate notes due 2018. Proceeds of $607.5 million were distributed to Dow Jones in conjunction with its investment in Index Services. Debt consisted of the following: (in millions) March31,2010 December31,2009 Short-term debt: $300.0 million floating rate notes due August 2010, interest equal to 3-month LIBOR plus 0.65%, reset quarterly(1) $ 299.9 $ 299.8 Total short-term debt $ 299.9 $ 299.8 Long-term debt: Term loan due 2011, interest equal to 3-month LIBOR plus 1.00%, reset quarterly(2) 420.5 420.5 $750.0 million fixed rate notes due August 2013, interest equal to 5.40% 748.2 748.0 $750.0 million fixed rate notes due February 2014, interest equal to 5.75% 746.4 746.2 $612.5 million fixed rate notes due March 2018, interest equal to 4.40%(3) 608.8 Commercial paper (4) 299.9 100.0 Total long-term debt $ 2,823.8 $ 2,014.7 (1) In September 2008, the company entered into an interest-rate swap agreement that modified the variable interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.92% beginning with the interest accrued after November6, 2008. (2) In September 2008, the company entered into an interest-rate swap agreement that modified the variable interest obligation associated with this facility so that the interest payable effectively became fixed at a rate of 4.72% beginning with the interest accrued after October22, 2008. (3) In February 2010, the company entered into a forward-starting interest-rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 4.46% at issuance on March18, 2010. (4) At March31, 2010 and December31, 2009, this represented commercial paper backed by the three-year senior credit facility. Commercial paper notes with an aggregate par value of $900.0 million and maturities ranging from seven to 61 days were issued during the quarter ended March 31, 2010. The weighted average discount rates for commercial paper outstanding at March 31, 2010 and December 31, 2009 were 0.20% and 0.24%, respectively. During the first quarter of 2010 and 2009, the weighted average balance, at par value, of commercial paper outstanding was $230.0 million and $1.0 billion, respectively. Long-term debt maturities, at par value, were as follows as of March 31, 2010: (in millions) 2011 $ 720.5 2012 2013 750.0 2014 750.0 Thereafter 612.5 Commercial paper is considered to mature in 2011 because it is backed by the three-year senior credit facility, which expires in 2011. At March 31, 2010, the fair values of the fixed rate notes by maturity date were as follows. The fair value for the fixed rate notes due 2013 and 2014 was estimated using quoted market prices. The fair value of the fixed rate notes due 2018 w |
Contingencies
Contingencies | |
3 Months Ended
Mar. 31, 2010 | |
Contingencies | 5. Contingencies Legal Matters. On October 14, 2003, the U.S. Futures Exchange, L.L.C. (Eurex U.S.) and U.S. Exchange Holdings, Inc. filed suit against CBOT and CME in the United States District Court for the District of Columbia. The suit alleges that CBOT and CME violated the antitrust laws and tortiously interfered with the business relationship and contract between Eurex U.S. and The Clearing Corporation. Eurex U.S. and U.S. Exchange Holdings, Inc. are seeking a preliminary injunction and treble damages. In December 2003, CBOT and CME filed separate motions to dismiss or, in the event the motion to dismiss is denied, to move the venue to the United States District Court for the Northern District of Illinois. In September 2004, the judge granted CBOT's and CME's motions to transfer venue to the Northern District of Illinois. In light of that decision, the judge did not rule on the motions to dismiss. In March, 2005, Eurex U.S. filed a second amended complaint in the United States District Court for the Northern District of Illinois. On June 6, 2005, CME and CBOT filed a motion to dismiss the complaint. On August 25, 2005, the judge denied the joint CME/CBOT motion to dismiss. In April 2007, CME and CBOT filed two joint motions for summary judgment. The company is currently awaiting the court's decision on the motions. Based on its investigation to date and advice from legal counsel, the company believes this suit is without merit and intends to defend itself vigorously against these charges. On August 19, 2008, Fifth Market filed a complaint against CME Group and CME seeking a permanent injunction against CME's Globex system and enhanced damages for what the plaintiff alleges is willful infringement, in addition to costs, expenses and attorneys' fees. The suit alleges that CME infringes two U.S. patents. Based on its investigation to date and advice from legal counsel, the company believes this suit is without merit and intends to defend itself vigorously against these charges. In addition, the company is a defendant in, and has potential for, various other legal proceedings arising from its regular business activities. While the ultimate results of such proceedings against the company cannot be predicted with certainty, the company believes that the resolution of any of these matters will not have a material adverse affect on its consolidated financial position or results of operations. Intellectual Property Indemnifications. Certain agreements with customers and other third parties related to accessing the CME Globex platform, the CME ClearPort platform, and/or the Clearing 21 platform; utilizing market data services, and licensing CME SPAN software may contain indemnifications from intellectual property claims that may be made against them as a result of their use of the applicable products and/or services. The potential future claims relating to these indemnifications cannot be estimated and, therefore, no liability has been recorded. |
Guarantees
Guarantees | |
3 Months Ended
Mar. 31, 2010 | |
Guarantees | 6. Guarantees CME Clearing Contract Settlement. CME accounts for its guarantee of settlement of contracts in accordance with current accounting guidance on guarantees. CME marks-to-market all open positions at least twice a day, and requires payment from clearing firms whose positions have lost value and makes payments to clearing firms whose positions have gained value. In select circumstances where CME has introduced clearing services to newer markets, positions are marked-to-market daily, with the capability to mark-to-market more frequently as market conditions warrant. Under the extremely unlikely scenario of simultaneous default by every clearing firm who has open positions with unrealized losses, the maximum exposure related to CME's guarantee would be one half day of changes in fair value of all open positions, before considering CME's ability to access defaulting clearing firms' performance bond and security deposit balances as well as other available resources. During the first quarter of 2010, CME transferred an average of approximately $2.2 billion a day through its clearing system for settlement from clearing firms whose positions had lost value to clearing firms whose positions had gained value. CME reduces its guarantee exposure through initial and maintenance performance bond requirements and mandatory security deposits. The company believes that the guarantee liability in accordance with the accounting guidance is immaterial and therefore has not recorded any liability at March 31, 2010. Mutual Offset Agreement. CME and Singapore Exchange Limited (SGX) have a mutual offset agreement with a current term through October 2010. The term of the agreement will automatically renew for a one year period unless either party provides advance notice of their intent to terminate. CME can maintain collateral in the form of U.S. Treasury securities or irrevocable letters of credit. At March 31, 2010, CME was contingently liable to SGX on irrevocable letters of credit totaling $83.0 million. Regardless of the collateral, CME guarantees all cleared transactions submitted through SGX and would initiate procedures designed to satisfy these financial obligations in the event of a default, such as the use of performance bonds and security deposits of the defaulting clearing firm. Cross-Margin Agreements. CME and Options Clearing Corporate (OCC) have a cross-margin arrangement, whereby a common clearing firm may maintain a cross-margin account in which the clearing firm's positions in certain CME futures and options on futures contracts are combined with certain positions cleared by OCC for purposes of calculating performance bond requirements. The performance bond deposits are held jointly by CME and OCC. If a participating firm defaults, the gain or loss on the liquidation of the firm's open position and the proceeds from the liquidation of the cross-margin account are allocated 50% each to CME and OCC. Cross-margin agreements exist with CME and Fixed Income Clearing Corp (FICC) whereby the clearing firms' offsetting positions with CME are subject to reduced margin requirements. Clearing firms maintain separate performance bond de |
Stock-Based Payments
Stock-Based Payments | |
3 Months Ended
Mar. 31, 2010 | |
Stock-Based Payments | 7. Stock-Based Payments Total expense for stock-based payments, including shares issued to the board of directors, converted CBOT Holdings options and converted NYMEX Holdings options, was $9.9 million for the quarter ended March 31, 2010, and $9.2 million for the quarter ended March 31, 2009. The total income tax benefit recognized in the consolidated statements of income for stock-based payment arrangements was $4.0 million and $3.7 million for the quarters ended March 31, 2010 and 2009, respectively. In the first quarter of 2010, the company granted employees stock options totaling 5,836 shares under the CME Group Omnibus Stock Plan. The options have a ten-year term with an exercise price of $314 per share, the closing market price on the date of grant. The fair value of these options totaled $0.7 million, measured at the grant date using the Black-Scholes valuation model, which is recognized as compensation expense on an accelerated basis over the vesting period. The Black-Scholes fair value of the option grant was calculated using the following assumptions: dividend yield of 1.5%; expected volatility of 43.6%; risk-free interest rate of 2.9% and expected life of 6.2 years. The grant date weighted average fair value of options granted during the quarter was $126 per share. In the first quarter of 2010, the company granted 4,155 shares of restricted Class A common stock which generally have a vesting period of two to five years. The fair value of this grant was $1.3 million, which is recognized as compensation expense on an accelerated basis over the vesting period. |
Fair Value Measurements
Fair Value Measurements | |
3 Months Ended
Mar. 31, 2010 | |
Fair Value Measurements | 8. Fair Value Measurements Accounting guidance on fair value measurements and related disclosures provides direction for using fair value to measure assets and liabilities by defining fair value and establishing a framework for measuring fair value. The guidance creates a three-level hierarchy that establishes classification of fair value measurements for disclosure purposes. * Level 1 inputs, which are considered the most reliable evidence of fair value, consist of quoted prices (unadjusted) for identical assets or liabilities in active markets. * Level 2 inputs consist of observable market data, other than level 1 inputs, such as quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are directly observable. * Level 3 inputs consist of unobservable inputs which are derived and cannot be corroborated by market data or other entity-specific inputs. In general, the company uses quoted prices in active markets for identical assets to determine the fair value of marketable securities and equity investments. Level 1 assets generally include U.S. Treasury securities and exchange-traded mutual funds, and publicly-traded equity securities. If quoted prices are not available to determine fair value, the company uses other inputs that are observable either directly or indirectly. Assets included in level 2 generally consist of U.S. Government agency securities, municipal bonds, asset-backed securities and certain corporate bonds. There were no level 3 assets that were valued on a recurring and non-recurring basis as of March 31, 2010. The company determined the fair value of its interest rate swap contracts, considered level 2 assets, using standard valuation models with market-based observable inputs including forward and spot exchange rates and interest rate curves. The level 2 marketable securities are measured at fair value based on matrix pricing. Financial assets and liabilities recorded in the consolidated balance sheet as of March 31, 2010 were classified in their entirety based on the lowest level of input that was significant to each asset or liability's fair value measurement. Financial Instruments Measured at Fair Value on a Recurring Basis: As of March31, 2010 (in millions) Level1 Level2 Level3 Total Assets at Fair Value: Marketable securities: U.S. Treasury securities $ 5.1 $ $ $ 5.1 Mutual funds 25.2 25.2 Corporate bonds 0.1 0.1 Municipal bonds 4.5 4.5 Asset-backed securities 3.1 3.1 U.S. Government agency securities 8.3 8.3 Total 30.3 16.0 46.3 Equity investments 60.1 60.1 Total Assets at Fair Value $ 90.4 $ 16.0 $ $ 106.4 Liabilities at Fair Value: Interest rate swap contracts $ $ 23.1 $ $ 23.1 Total Liabilities at Fair Value $ $ 23.1 $ $ 23.1 There were no transfers of assets or liabilitie |
Earnings Per Common Share
Earnings Per Common Share | |
3 Months Ended
Mar. 31, 2010 | |
Earnings Per Common Share | 9. Earnings Per Common Share Basic earnings per share is computed by dividing net income by the weighted average number of shares of all classes of common stock outstanding for each reporting period. Diluted earnings per share reflects the increase in shares using the treasury stock method to reflect the impact of an equivalent number of shares of common stock if stock options were exercised and restricted stock awards were vested. Outstanding stock options of approximately 609,000 and 734,000 were anti-dilutive for the quarters ended March 31, 2010 and 2009, respectively. Restricted stock awards of approximately 5,000 were anti-dilutive for the quarter ended March 31, 2009. These options and awards were not included in the diluted earnings per common share calculation. QuarterEndedMarch31, (in millions, except shares and per share data) 2010 2009 Net Income Attributable to CME Group $ 240.2 $ 199.1 Weighted Average Number of Common Shares (in thousands): Basic 66,234 66,302 Effect of stock options 155 120 Effect of restricted stock grants 39 17 Diluted 66,428 66,439 Earnings per Common Share Attributable to CME Group: Basic $ 3.63 $ 3.00 Diluted 3.62 3.00 |
Subsequent Events
Subsequent Events | |
3 Months Ended
Mar. 31, 2010 | |
Subsequent Events | 10. Subsequent Events The company has evaluated subsequent events through the date the financial statements were issued, and has determined that there are no subsequent events that require disclosure. |