-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hco+OsbzOK0Hs6iZ2V3/SSa+j0NM4+NNhin47cW0CBguWZn7P0jcXdia3LfFrEJR FXhfK9Ukasrc+Ud6vHbUJg== 0001193125-08-247657.txt : 20081204 0001193125-08-247657.hdr.sgml : 20081204 20081204103549 ACCESSION NUMBER: 0001193125-08-247657 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20081202 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20081204 DATE AS OF CHANGE: 20081204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CME GROUP INC. CENTRAL INDEX KEY: 0001156375 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 364459170 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31553 FILM NUMBER: 081228971 BUSINESS ADDRESS: STREET 1: 20 S. WACKER DR. CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129303011 MAIL ADDRESS: STREET 1: 20 S. WACKER DR. CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: CHICAGO MERCANTILE EXCHANGE HOLDINGS INC DATE OF NAME CHANGE: 20010802 8-K 1 d8k.htm FORM 8-K Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 2, 2008

CME Group Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   000-33379   36-4459170

(State or other jurisdiction

of incorporation)

   (Commission File Number)  

(IRS Employer

Identification No.)

20 South Wacker Drive, Chicago, Illinois 60606

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (312) 930-1000

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Item 8.01. Other Events

Furnished as Exhibit 100 to this Current Report on Form 8-K are the following materials from CME Group Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2008, filed on November 10, 2008, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Consolidated Balance Sheet, (ii) the Unaudited Consolidated Statement of Income, (iii) the Unaudited Consolidated Statement of Shareholders’ Equity, (iv) the Unaudited Consolidated Statement of Cash Flows and (v) the Notes to Unaudited Consolidated Financial Statements. Users of this data are advised pursuant to Rule 401 of Regulation S-T that the financial information contained in the XBRL documents is unaudited and these are not the official publicly filed financial statements of CME Group Inc. The purpose of submitting these XBRL-formatted documents is to test the related format and technology and, as a result, investors and others should continue to rely on the official filed version of the filing and not rely on the XBRL-related documents in making investment decisions.

In accordance with Rule 402 of Regulation S-T, the information in this Current Report on Form 8-K, including Exhibit 100, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act.

 

Item 9.01. Financial Statements and Exhibits.

EXHIBIT INDEX

 

Exhibit

Number

   

Description

100    The following financial statements from CME Group Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2008, filed on November 10, 2008, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Consolidated Balance Sheet, (ii) the Unaudited Consolidated Statement of Income, (iii) the Unaudited Consolidated Statement of Shareholders’ Equity, (iv) the Unaudited Consolidated Statement of Cash Flows and (v) the Notes to Unaudited Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

CME Group Inc.

By:

   /s/ Kathleen M. Cronin
 

Kathleen M. Cronin

Managing Director, General Counsel and Corporate Secretary

Dated: December 2, 2008

EXHIBIT INDEX

 

Exhibit

Number

   

Description

Exhibit 100.INS    XBRL Instance Document
Exhibit 100.SCH    XBRL Taxonomy Extension Schema Document
Exhibit 100.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 100.LAB    XBRL Taxonomy Extension Label Linkbase Document
Exhibit 100.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
 EX-100.INS 2 cme-20080930.xml XBRL INSTANCE DOCUMENT 39255052000 127322000 8090348000 53130000 17314171000 339941000 9558334000 7765049000 16959000000 20226292000 39255052000 9608624000 2412817000 947073000 92893000 868543000 598321000 114503000 0 0 660795000 7506397000 909360000 7506397000 503703000 3443331000 671000 0 335718000 582421000 17314842000 -20486000 1734404000 19028760000 67090000 3000 2.82 2.81 11496000 29047000 260181000 34087000 7504000 -20057000 227309000 11929000 17884000 17986000 84581000 19253000 168691000 -24771000 18960000 420771000 33821000 17783000 67000 16958000 49000 680952000 60086000 59870000 396000000 75644000 558721000 10894000 17910000 8503000 28906000 8016000 -262891000 2261000 1706000 210000 -32179000 7958000 -2780000 14136000 21746000 459585000 6073000 25916000 22889000 16729000 24459000 6936000 2319827000 -3445430000 862712000 45195000 17536000 14157000 202739000 0 2769894000 94228000 7157000 168392000 119398000 1035002000 254112000 2883888000 119258000 15000000 11391000 651000 1282909000 3650000 26300000 631394000 -7758000 -60163000 -91334000 573000 -18542000 -10263000 5963347000 0 0 0 612000000 0 -119258000 11.66 11.61 39118000 63158000 704910000 102869000 -7758000 -27927000 483380000 47041000 21590000 41409000 231458000 44792000 -27539000 52904000 1164340000 73722000 48551000 -8398000 47783000 2065000 1869250000 56302000 56054000 1136801000 192281000 1542280000 32194000 53944000 32147000 48211000 12789000 538457000 636037000 7614000 653421000 364000 -6129000 -748000 -10871000 651000 631394000 24003000 11391000 26300000 2464000 651000 631394000 24003000 11391000 2464000 6385000 5963347000 1189000 12566000 -62000 106000 6000 5000 2000 5963347000 20306197000 203308000 3848240000 58965000 10688766000 187487000 4987055000 5049211000 7987000000 8000560000 20306197000 4076063000 0 2862026000 55900000 108690000 157615000 76257000 0 0 377452000 833022000 2862026000 833022000 164435000 1796789000 533000 0 845312000 10689299000 -3102000 1619440000 12305637000 53278000 3000 0 677034000 10649383000 -2203000 1464215000 12111395000 53168000 3000 3.90 3.87 12044000 15964000 219847000 32872000 60000 -3663000 132748000 15747000 1420000 21027000 78462000 11471000 201572000 -11055000 14647000 345375000 19082000 13093000 0 15046000 4512000 565222000 52103000 51748000 334320000 45821000 477840000 10487000 17981000 23150000 21710000 -28499000 -292470000 274000 1161000 821000 -49160000 32561000 0 0 0 253461000 -1548000 60877000 67565000 4554000 12986000 943000 -848518000 -15514000 571562000 0 40626000 949340000 105749000 15991000 0 0 14452000 629071000 89993000 164147000 685250000 0 0 0 25192000 662000 0 0 16219000 0 0 -2537000 2539000 -40000 2436000 931000 0 11144789000 -3059000 116187000 0 39750000 0 11.28 11.18 29973000 16592000 488001000 72661000 60000 -10054000 301635000 33284000 1444000 57727000 191591000 25300000 20549000 32835000 738561000 44925000 26434000 0 36328000 4512000 1226562000 40920000 40556000 759110000 95163000 988803000 25862000 90300000 91560000 88801000 -28499000 105749000 458251000 23815000 -3720000 457475000 -1254000 561000 1469000 662000 950604000 25192000 16219000 -2979000 1515372000 2143000 662000 950604000 25192000 1112489000 405862000 2143000 11126094000 34836000 19816000 -1695000 200000 6000 4000 1000 3000 11126094000 969504000 405862000 -2979000 1116209000 1519092000 34836000 3000 1. Basis of Presentation Effective July 12, 2007, CBOT Holdings, Inc. (CBOT Holdings) merged with and into Chicago Mercantile Exchange Holdings Inc. (CME Holdings). Immediately following the merger, the combined company was renamed CME Group Inc. (CME Group). The financial statements and accompanying notes presented in this report include the financial results of the former CBOT Holdings and its subsidiaries beginning July 13, 2007. CME Group acquired Credit Market Analysis Limited, a private company incorporated in the United Kingdom, and its three subsidiaries (collectively, CMA) on March 23, 2008. The financial statements and accompanying notes presented in this report include the financial results of CMA beginning on March 24, 2008. On August 22, 2008, CME Group completed its merger with NYMEX Holdings, Inc. (NYMEX Holdings). The financial statements and accompanying notes presented in this report include the financial results of NYMEX Holdings and its subsidiaries beginning on August 23, 2008. 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 consolidated financial statements consist of CME Group and its subsidiaries (collectively, the company), including Chicago Mercantile Exchange Inc. (CME), 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 September 30, 2008 and December 31, 2007 and the results of operations and cash flows for the periods indicated. Quarterly results are not necessarily indicative of results for any subsequent period. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the company's Annual Report on Form 10-K for the year ended December 31, 2007. Certain reclassifications have been made to the 2007 financial statements to conform to the presentation in 2008. 2. Business Combinations NYMEX Holdings Effective August 22, 2008, pursuant to the merger agreement dated March 17, 2008, as amended, CME Group completed its merger with NYMEX Holdings. The company entered into this merger primarily as a means to expand its product base, further leverage its existing operating model, extend its presence in the over-the-counter market and better position itself to compete on a global scale. Under purchase accounting, CME Group is considered the acquirer of NYMEX Holdings. The preliminary purchase price consists of the following (in thousands): Acquisition of NYMEX Holdings' outstanding common stock: In exchange for CME Group's Class A common stock $ 5,931,199 In exchange for cash 3,412,573 Fair value of NYMEX Holdings' stock options and restricted stock units assumed 42,801 Merger-related transaction costs 51,114 Total Preliminary Purchase Price $ 9,437,687 Acquisition of common stock. Pursuant to the merger agreement, NYMEX Holdings' shareholders elected to receive cash, stock or a combination thereof as consideration for their shares. The aggregate consideration included a mandatory cash component equal to the product of NYMEX Holdings common stock outstanding at August 22, 2008 and $36.00 per share. Based on the election for cash and stock as subject to the mandatory cash requirement, CME Group issued 12.5 million shares of Class A common stock to NYMEX Holdings' shareholders. The share price of $473 used to calculate the fair value of stock issued was based on the average closing price of CME Holdings Class A common stock for the five-day period beginning two trading days before and ending two trading days after March 17, 2008 (the merger announcement date). Fair value of stock options and restricted units assumed. At the close of the merger, NYMEX Holdings had 1,412,000 stock options and 188,700 restricted stock units outstanding. Each stock option and restricted stock unit was converted using an exchange ratio of 0.2378 derived from the allocation of cash and stock consideration to the shareholders in accordance with the merger agreement. The preliminary fair value of stock options was determined using a share price of $342, the closing price of the CME Group's Class A common stock on August 21, 2008. The preliminary fair value of stock options was calculated using a Black-Scholes valuation model with the following assumptions: expected lives of 0.1 to 4.7 years; risk-free interest rates of 1.8% to 3.0%; expected volatility of 45%; and a dividend yield of 1.3%. The portion of fair value of unvested stock options related to future service has been allocated to deferred stock-based compensation and is being amortized over the remaining vesting period. The preliminary fair value of restricted stock units, all of which vested at the merger date, was determined using a share price of $342, the closing price of the CME Group's Class A common stock on August 21, 2008. Merger-related transaction costs. These include costs incurred by CME Group for investment banking fees, legal and accounting fees, and other external costs directly related to the merger. Preliminary purchase price allocation. In accordance with Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," the preliminary purchase price has been allocated to NYMEX Holdings' net tangible and identifiable intangible assets based on their estimated fair values as of August 22, 2008. The allocation of the purchase price was based on certain preliminary valuations and the estimates and assumptions are subject to change. The primary areas of those purchase price allocations that are not yet finalized relate to the valuation of intangible assets and real property, restructuring liabilities and goodwill. The company expects to finalize its purchase price allocation within the next ten months. (in thousands) Cash and cash equivalents $ 642,680 Other current assets 781,718 Property and equipment 260,627 Intangible assets 10,672,630 Other non-current assets 141,212 Accounts payable and other current liabilities (742,974 ) Membership rights payment (612,000 ) Long-term deferred tax liabilities, net (4,266,028 ) Other non-current liabilities (125,677 ) Deferred stock-based compensation 10,653 Total Tangible and Intangible Assets and Liabilities 6,762,841 Goodwill 2,674,846 Total Preliminary Purchase Price $ 9,437,687 The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The intangible assets and goodwill acquired are not deductible for tax purposes except for a small portion of goodwill attributable to merger-related transaction costs. Intangible assets. In performing the preliminary purchase price allocation, the company considered many factors including its intentions for the future use of acquired assets, analyses of historical financial performance and estimates of future performance. The preliminary fair value of the trade name was estimated using the relief from royalty method. The preliminary fair values for components of lease-related intangibles were derived from income capitalization and sales comparison approaches. The preliminary fair values for all other intangible assets were estimated using a multi-period excess earnings method. The following table sets forth the preliminary fair values of the intangible assets as of September 30, 2008: Estimated (in thousands) Fair Value Useful Life Trading products (1) $ 9,000,000 Indefinite Clearing firm relationships (2) 1,170,000 30 years Trade name 250,000 Indefinite Market data customer relationships (2) 190,000 30 years Lease-related intangibles 42,630 4 to 13 years ClearPort technology 10,000 5 years Open interest 10,000 0.5 years Total Intangible Assets $ 10,672,630 (1) Trading products include energy and metals trading product lines. The majority of these products have traded at NYMEX for decades and authorizations by the U.S. Commodity Futures Trading Commission to trade these products are perpetual. (2) Clearing firm and market data customer relationships represent the underlying relationships with NYMEX's existing clearing firm and market data customer base. Due to their historically insignificant attrition rates, the amortization of these assets has been calculated on a straight-line basis. This method best reflects the estimated pattern in which the economic benefits from these relationships will be realized. Pre-merger contingencies. The company has not identified any material unrecorded pre-merger contingencies that are both probable and reasonably estimable. If prior to the end of the one-year purchase price allocation period, information becomes available which indicates that it is probable that such events had occurred and the amounts can be reasonably estimated, adjustments will be made to the purchase price allocation. Pro forma results. The following unaudited condensed pro forma consolidated income statements assumes that the NYMEX Holdings and CBOT Holdings mergers were completed as of January 1, 2007. Quarter Ended Nine Months Ended September 30, September 30, (in thousands, except per share data) 2008 2007 2008 2007 Total Revenues $ 794.4 $ 744.6 $ 2,383.9 $ 2,054.2 Total Expenses 339.2 332.2 925.7 938.3 Total Non-Operating Income (Expense) (55.8 ) (71.8 ) (111.4 ) (186.0 ) Net Income 168.1 184.5 759.3 528.5 Earnings per Share: Basic $ 2.51 $ 2.76 $ 12.98 $ 7.88 Diluted 2.50 2.74 11.32 7.83 This pro forma information has been prepared for comparative purposes only and is not intended to be indicative of past or future results. The pro forma information for the periods presented includes purchase accounting effects on historical NYMEX Holdings' operating results, amortization of purchased intangible assets, stock-based compensation expense for unvested stock options and restricted stock units assumed as well as the impact of NYMEX's membership rights payment on investment income. Results for the quarter and nine months ended September 30, 2008 include NYMEX Holdings' merger-related transaction costs of approximately $43.6 million and $52.7 million, respectively. 3. Securities Lending Under its securities lending program, the company lends a portion of the securities that have been deposited to satisfy performance bond requirements to a third party on an overnight basis and receives collateral in the form of cash. The cash is then invested in instruments on which the company receives the benefit, and bears the risk, to generate interest income. Interest expense is paid to the third party for the cash collateral, and a fee is paid to the program's third party administrator on each transaction. Securities on loan are marked to market daily and compared to collateral received. At September 30, 2008, cash collateral in CME's securities lending program was invested in money market mutual funds with an estimated fair value of $493.4 million. During September 2008, the company recorded an impairment loss of $6.0 million on CME's invested collateral due to the default of a corporate debt issuer on its obligation to one of the money market mutual funds. The impairment loss was recorded in securities lending interest and other costs in the consolidated statements of income. CME's securities lending program liabilities were $499.4 million at September 30, 2008. As part of its merger with NYMEX Holdings, the company acquired the assets and liabilities of the NYMEX securities lending program. NYMEX also lends a portion of the securities that have been deposited to satisfy performance bond requirements to a third party on an overnight basis in return for cash collateral. At September 30, 2008, NYMEX securities lending cash collateral was invested as follows: Unrealized (in thousands) Cost Fair Value Gain (Loss) Corporate debt securities $ 401,272 $ 398,221 $ (3,051 ) Asset-backed securities 12,539 12,422 (117 ) Repurchase agreements 5,307 5,307 - Total Invested Collateral $ 419,118 $ 415,950 $ (3,168 ) At September 30, 2008, all collateral was invested in securities with remaining maturities of one year or less. NYMEX securities lending program liabilities were $447.7 million at September 30, 2008. During September 2008, the company recorded an impairment loss of $15.7 million on NYMEX invested collateral due to the default of one of the corporate debt issuers. The impairment loss was recorded in securities lending interest and other costs in the consolidated statements of income. 4. Performance Bonds and Security Deposits CME maintains performance bonds and security deposit requirements for futures and options traded on the CME, CBOT and NYMEX exchange marketplaces. Each firm that clears futures and options traded on the exchanges is required to deposit acceptable collateral and maintain specified performance bonds and security deposits principally in the form of cash, funds deposited in the various Interest Earning Facility programs, U.S. government and certain foreign government securities, bank letters of credit or shares of specific U.S. equity securities. Clearing firm positions executed on the CME, CBOT and NYMEX exchange marketplaces are subject to the guarantee of CME Clearing. Because NYMEX members have been included in the security deposit calculation, the NYMEX guarantee fund, which would have previously been used for any loss sustained by NYMEX as a result of a default of a clearing firm, was terminated. Each clearing firm's positions are separately accounted for in regulated and non-regulated accounts, for which performance bond and security deposit requirements are calculated. Performance bonds and security deposits are available to meet the financial obligations of that clearing firm to CME Clearing. In the event that performance bonds and security deposits of a defaulting clearing firm are inadequate to fulfill that clearing firm's outstanding financial obligation, the entire security deposit fund is available to cover potential losses after first utilizing operating funds of CME in excess of amounts needed for normal operations. Cash performance bonds and security deposits may fluctuate due to the investment choices available to clearing firms and the change in the amount of deposit required. As a result, these offsetting liabilities may vary significantly over time. In addition, the rules and regulations of CBOT require certain minimum financial requirements for delivery of physical commodities. To satisfy these requirements, CBOT clearing firms must deposit collateral with CME in the form of cash, U.S. Treasury securities or letters of credit. 5. Intangible Assets and Goodwill During August 2008, the company merged with NYMEX Holdings. In connection with the merger, the company recorded goodwill and identifiable intangible assets. Indefinite-lived intangible assets consist primarily of trading products and a trade name. Amortizable intangible assets include primarily clearing firm and market data customer relationships. The values of goodwill and intangible assets are based on a preliminary purchase price allocation as of September 30, 2008. Intangible assets, which include intangible assets acquired with CMA and NYMEX Holdings as well as in prior transactions, consisted of the following at September 30, 2008: Accumulated Net Book (in thousands) Cost Amortization Value Clearing firm, market data and other customer relationships $ 2,858,510 $ (68,064 ) $ 2,790,446 Lease-related intangibles 84,806 (7,302 ) 77,504 Dow Jones licensing agreement 74,000 (8,192 ) 65,808 Technology-related intellectual property 28,360 4,055 24,305 Open interest 10,000 (2,151 ) 7,849 Market maker agreement 9,682 (3,969 ) 5,713 Other (1) 3,578 (1,739 ) 1,849 Total Amortizable Intangible Assets $ 3,068,936 $ (95,462 ) 2,973,474 Trading products 16,959,000 Trade names 467,400 Other (2) 2,457 Total Indefinite-Lived Intangible Assets 17,428,857 Total Intangible Assets $ 20,402,331 (1) Other amortizable intangible assets consist primarily of non-compete and service agreements, trade names with limited lives, and foreign currency translation adjustments on CMA's intangible assets. (2) Other indefinite-lived intangible assets consist of products in development, a regulatory license and foreign currency translation adjustments on CMA and Swapstream's intangible assets. As of September 30, 2008, the future estimated amortization expense related to amortizable intangible assets is expected to be: (in thousands) Remainder of 2008 $ 36,063 2009 126,441 2010 123,238 2011 122,908 2012 116,815 2013 107,915 Thereafter 2,340,094 On September 7, 2008, CME Group completed its sale of CBOT metals trading products, including open interest, to NYSE Euronext. Metals trading products, which were acquired as part of the merger with CBOT Holdings, had a carrying amount of approximately $28.0 million at the sale date. The company recognized a loss of $2.8 million in the third quarter of 2008. Goodwill consisted of the following at September 30, 2008: Balance at Balance at January 1, Impairment Other September 30, (in thousands) 2008 Acquisitions Adjustment Activity (1) 2008 CBOT Holdings $ 5,037,316 $ - $ - $ (1,169 ) $ 5,036,147 NYMEX Holdings - 2,674,846 - (1,321 ) 2,673,525 CMA - 60,772 - (5,395 ) 55,377 Swapstream 11,895 - (11,895 ) - - Total Goodwill $ 5,049,211 $ 2,735,618 $ (11,895 ) $ (7,885 ) $ 7,765,049 (1) Other activity consists primarily of adjustments to restructuring costs and tax contingencies for CBOT Holdings, the recognition of excess tax benefits upon exercise of stock options assumed for CBOT Holdings and NYMEX Holdings, and foreign currency translation adjustments for CMA. During the third quarter of 2008, the company recorded a $3.2 million and $11.9 million impairment charge to reduce the carrying amounts of Swapstream intangible assets and goodwill, respectively, to their estimated fair values based on the results of an annual impairment test. 6. Debt On August 12, 2008, CME Group completed a public offering of $250.0 million aggregate principal amount of floating rate notes due 2009, $300.0 million aggregate principal amount of floating rate notes due 2010 and $750.0 million aggregate principal amount of 5.40% notes due 2013. The floating rate notes due 2009 bear interest equal to three-month London Interbank Offered Rate (LIBOR) plus 0.20% per year, adjusted quarterly. The floating rate notes due 2010 bear interest equal to three-month LIBOR plus 0.65% per year, adjusted quarterly. Proceeds from the offering, together with other available funds, were used to finance the company's merger with NYMEX Holdings. On August 22, 2008, CME Group entered into a $1.4 billion senior credit facility, with various financial institutions, which provides for term loans of up to $420.5 million and for revolving loans of up to $995.5 million. This facility expires on August 22, 2011. The company may, at its option, so long as no default is continuing, increase the revolving portion of the facility up to $1.1 billion with the consent of only the various financial institutions providing the additional funds. Proceeds from this facility were used, in part, to finance the merger with NYMEX Holdings, to pay merger-related transaction costs in connection with that merger and to refinance certain existing indebtedness of NYMEX Holdings. Borrowings under the revolving portion of this facility were used, in part, to provide ongoing working capital and for other corporate purposes of the company and its subsidiaries, including supporting issuances of commercial paper, financing dividends and repurchasing stock. As of September 30, 2008, the company had borrowed and subsequently repaid $995.5 million of this facility. On August 22, 2008, CME Group initiated a 364-day revolving bridge facility with various financial institutions. The facility initially provided for loans of up to $3.2 billion, but was later reduced to $1.3 billion. At its option, the company may borrow under the facility at the prime rate. The company pays a fee of 0.03% per year to maintain the facility. As of September 30, 2008, the company had borrowed and subsequently repaid $187.0 million of this facility. Proceeds from the program were used in part to fund the company's merger with NYMEX Holdings and may also be used to pay merger-related transaction costs in connection with that merger, to finance dividends and to repurchase the company's stock. The revolving bridge facility may also serve as a back-up facility for a commercial paper program. Commercial paper with an aggregate par value of $1.2 billion and maturities ranging from one to 65 days were issued during the third quarter of 2008. At September 30, 2008, $1.2 billion ($253.9 million in short-term and $945.5 million in long-term) remained outstanding. The weighted average interest rate of commercial paper outstanding during the third quarter was 2.46%. The weighted average balance of commercial paper outstanding during the the third quarter of 2008 was $447.3 million. Debt consisted of the following: September 30, December 31, (in thousands) 2008 2007 Short-term debt: $250 million floating rate notes due 2009, interest equal to 3-month LIBOR plus 0.20%, reset quarterly(1) $ 249,787 $ - Commercial paper (backed by a 364-day revolving facility) 253,916 164,435 Total short-term debt $ 503,703 $ 164,435 Long-term debt: $300 million floating rate notes due 2010, interest equal to 3-month LIBOR plus 0.65%, reset quarterly(1) $ 299,444 $ - $750 million fixed rate notes due 2013, interest equal to 5.4% 747,373 - Term loan due 2011, interest equal to 3-month LIBOR plus 1%, reset quarterly(1) 420,500 - Commercial paper (backed by a 3-year senior credit facility) 945,500 - $ 2,412,817 $ - (1) See Note 10 for a discussion of the interest rate swaps associated with these borrowings. Long-term debt maturities, at par value, are as follows as of September 30, 2008: (in thousands) 2008 $ - 2009 - 2010 300,000 2011 1,366,000 2012 - 2013 and thereafter 750,000 7. Restructuring In August 2007, subsequent to its merger with CBOT Holdings, the company approved and initiated plans to restructure its operations in order to eliminate redundant costs and improve operational efficiencies. Restructuring efforts include reductions in employee positions, the closure of duplicate facilities and consolidation of trading and other technologies. Total estimated restructuring costs of $30.3 million consist primarily of severance and transitional payments and contract termination penalties which were substantially complete by July 2008. The following is a summary of restructuring activity for this plan: Planned Interest on Total Liability at Total Restructuring Deferred Accrued Cash September 30, Expected (in thousands) Costs Payments to Date Payments 2008 Payments Severance and related costs $ 20,988 $ 154 $ 21,142 $ (19,992 ) $ 1,150 $ 21,466 Contract terminations 8,597 280 8,877 (8,221 ) 656 8,877 Total Restructuring $ 29,585 $ 434 $ 30,019 $ (28,213 ) $ 1,806 $ 30,343 As of September 30, 2008, the company had not finalized its plans to restructure operations in conjunction with the integration of NYMEX Holdings. The company intends to finalize and initiate its restructuring plan related to the NYMEX Holdings merger in the fourth quarter of 2008. 8. Income Taxes The company's effective tax rate was 57.4% in the third quarter of 2008 and 42.5% for the first nine months of 2008. The effective tax rate is impacted by the increase in the state and local tax rates as a result of the recent combination with NYMEX, including a charge of $48.3 million to record the impact of the new combined state and local tax rate on the existing net deferred tax liability. For the first nine months of 2008, this increase in the state and local tax rates and the resulting impact to the net deferred tax liability is partially offset by the first quarter benefit from the Illinois tax law change that resulted in a $38.6 million reduction in the net deferred tax liability. Reconciliation of the statutory U.S. federal income tax rate to the effective tax rate for the nine months ended September 30 is as follows: 2008 2007 Statutory U.S. federal tax rate 35.0 % 35.0 % State taxes, net of federal benefit 5.4 4.8 Impact of Illinois tax law change (3.4 ) - Impact of NYMEX acquisition on existing deferred taxes 4.3 - Other, net 1.2 (0.1 ) Effective Tax Rate 42.5 % 39.7 % The company's net deferred tax liability as of September 30, 2008 increased significantly from December 31, 2007 due to the recent merger with NYMEX Holdings and the deferred tax liability which was recognized on the identified intangibles acquired as part of the merger. Net current deferred tax assets and net long term deferred tax liabilities consisted of the following: (in thousands) September 30, 2008 December 31, 2007 Net Current Deferred Tax Assets: Accrued expenses and other $ 16,878 $ 9,567 Stock-based compensation 13,664 4,629 Restructuring 726 4,203 Net Current Deferred Tax Assets $ 31,268 $ 18,399 Net Long-Term Deferred Tax Assets/(Liabilities): Depreciation and amortization $ 33,414 $ 30,472 Foreign net operating losses 18,623 11,235 Real Estate 16,139 16,090 Stock-based compensation 12,464 12,377 Deferred compensation 9,873 8,878 Other 24,852 22,554 Subtotal 115,365 101,606 Valuation allowance (18,623 ) (11,235 ) Total long-term deferred tax assets 96,742 90,371 Purchased intangibles (8,173,508 ) (3,915,155 ) Software development costs (13,483 ) (13,384 ) Other (99 ) (10,072 ) Total long-term deferred tax liabilities (8,187,090 ) (3,938,611 ) Net Long-Term Deferred Liabilities $ (8,090,348 ) $ (3,848,240 ) 9. Contingencies and Guarantees Legal Matters. There are two purported class action complaints pending against the former NYMEX Holdings, the former NYMEX Holdings board of directors and CME Group in the Delaware Court of Chancery related to the merger between CME Group and NYMEX Holdings. The first complaint, amended as of October 6, 2008, is a purported consolidated class action on behalf of former NYMEX Holdings' shareholders (the shareholder complaint) which alleges, among other things, that the NYMEX Holdings board of directors breached their fiduciary duties in approving the merger agreement by exclusively negotiating a transaction with CME Group without regard to the fairness of the transaction to the NYMEX Holdings shareholders, failing to take steps to maximize shareholder value, capping the minimum price of NYMEX Holdings' stock, failing to properly value NYMEX Holdings, making changes to NYMEX Holdings' change of control severance plan weeks before announcing that it was engaged in discussions with CME Group, requiring the Class A members to execute a waiver and release that allegedly is coercive because it is intended to deprive them of their rights to participate in this lawsuit as well as their rights to past, present and future royalty payments under Section 311(G) of the former bylaws of NYMEX, and failing to fully disclose material information related to the merger, including financial information and information necessary to prevent statements contained in the preliminary proxy from being misleading. The shareholder complaint further alleges that CME Group aided and abetted the alleged breach of fiduciary duties. The shareholder plaintiffs initially sought to enjoin the merger; however, they pulled the preliminary injunction hearing from the court's calendar on August 5, 2008 after becoming satisfied that there had been adequate disclosures by NYMEX Holdings and CME Group. The shareholder plaintiffs now seek damages for the alleged breaches of fiduciary duties and a declaration that the waiver and release is invalid and unenforceable. On October 24, 2008, CME Group moved to dismiss the shareholder plaintiffs' complaint. The second complaint, amended as of September 18, 2008, is a purported consolidated class action on behalf of NYMEX Class A members (the member complaint) which alleges claims substantially similar to those raised in the shareholder complaint. The member plaintiff initially sought to enjoin the merger; however, she pulled the preliminary injunction hearing from the court's calendar on August 5, 2008 after becoming satisfied that there had been adequate disclosures by NYMEX Holdings and CME Group. The member plaintiff now seeks damages for the alleged breaches of fiduciary duties and a declaration that the waiver and release is invalid and unenforceable. On September 22, 2008, CME Group filed a motion to dismiss and stay discovery. On September 26, 2008, the member plaintiffs, jointly with the shareholder plaintiffs, filed a motion for declaratory judgment and requested an expedited hearing on their motion. On October 2, 2008, the Court denied the plaintiffs' request for expedition and granted CME Group's request to stay discovery in both actions. The parties currently are briefing CME Group's motion to dismiss the shareholder complaint and motion to dismiss the member complaint, as well as the plaintiffs' joint motion for declaratory judgment. Based on its investigation to date and advice from counsel, the company believes this suit is without merit and intends to defend itself vigorously against these charges. 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. On December 12, 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. On September 2, 2004, the judge granted CBOT's and CME's motion to transfer venue to the Northern District of Illinois. In light of that decision, the judge did not rule on the motions to dismiss. On March 25, 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. The parties are currently engaged in discovery. On April 9, 2007, CME and CBOT filed two joint motions for summary judgment. 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 23, 2006, CBOT Holdings and CBOT, along with a class consisting of certain CBOT full members, filed a lawsuit in the Court of Chancery of the State of Delaware against the Chicago Board Options Exchange (CBOE). The lawsuit seeks to enforce and protect the exercise right privileges (ERPs). The lawsuit alleges that these ERPs allow CBOT's full members who hold them to become full members of CBOE and to participate on an equal basis with other members of CBOE in CBOE's announced plans to demutualize. On June 2, 2008, the parties reached a settlement in principle. Under the proposed settlement terms with CBOE, which are subject to execution of a class settlement agreement and to its approval by the Delaware Court, participating Class A members will share in an aggregate of 18 percent of the CBOE Holdings equity through the issuance of warrants that will be converted into non-voting common stock of CBOE Holdings convertible upon CBOE Holdings' initial public offering into voting common stock. Class members will also be entitled to receive non-interest bearing notes for their pro rata share of $300.0 million. Participating Class B members will be paid $250,000 for each ERP owned. 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 effect on its consolidated financial position or results of operations. CBOE Exercise Right Privileges. Under the terms of the merger agreement with CBOT Holdings, eligible CBOT members who held ERPs were each given the choice of tendering their ERP to the company for $250,000 payable after the closing or to participate as a class member in the CBOE lawsuit with a guaranteed payment of up to $250,000 from the company if the lawsuit results in a recovery of less than that amount. On June 2, 2008, the parties to the lawsuit agreed to a settlement in principle. Pursuant to the terms of the settlement, holders of ERPs could submit a claim to participate in the settlement as a Class A or Class B settlement participant on October 14, 2008. Participating Class A members will share in an equity pool equal to 18% of the total common stock issued by CBOE in its demutualization and will share in cash pool of up to $300.0 million, subject to a cap of $600,000 per individual. Participating Class B members would be paid $250,000 per ERP. The settlement remains subject to court approval. The maximum possible aggregate payment under the company's guarantee, assuming that all outstanding ERPs are paid $250,000 by the company, is $293.0 million. Mutual Offset Agreement. CME and Singapore Exchange Limited (SGX) have a mutual offset agreement that has been extended through October 2009. CME can maintain collateral in the form of U.S. Treasury securities or irrevocable letters of credit. At September 30, 2008, CME was contingently liable to SGX on irrevocable letters of credit totaling $34.0 million and had pledged securities with a fair value of $83.9 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 security deposits and performance bonds of the defaulting clearing firm. 10. Derivative Investments The company mitigates certain financial exposures to foreign currency exchange rate risk and interest rate risk through the use of derivative financial instruments as part of its risk management program. Foreign Currency Derivatives In connection with its purchase of BM&F stock in February 2008, CME Group purchased an option to hedge against changes in the fair value of BM&F stock resulting from foreign currency rate fluctuations between U.S. dollar and the Brazilian real (BRL) beyond the option's exercise price. Lehman Brothers Special Financing Inc. (LBSF) was the sole counterparty to this option contract. On September 15, 2008, Lehman Brothers Holdings Inc. (Lehman) filed for protection under Chapter 11 of the United States Bankruptcy Code. The bankruptcy filing of Lehman was an event of default that gave the company the right to immediately terminate the put option agreement with LBSF. To mitigate credit risk, the derivative agreement required CME Group's counterparty to collateralize substantially all of the option's fair value with cash or U.S. Treasury securities. Upon termination of the option agreement, the company recognized a loss of $2.0 million due to the shortfall in collateralization. The company intends to file a proof of claim with the bankruptcy court. The BM&F stock is currently carried at cost due to restrictions on CME Group's ability to sell the stock. As of September 30, 2008, the company had not re-established a hedge against changes in fair value of the stock resulting from foreign currency rate fluctuations. During the third quarter and first nine months of 2008, the company recognized a gain of $9.4 million and a loss of $5.9 million, respectively, due to the changes in the fair value of this option contract. Interest Rate Derivatives In connection with the issuance of floating rate debt in August 2008, the company entered into two interest rate swap agreements, designated as cash flow hedges, for purposes of hedging against a change in interest payments due to fluctuations in the underlying benchmark rate. These swaps are expected to be highly effective. Under the first swap agreement, which is effective November 6, 2008 and matures on August 6, 2010, the company pays a fixed rate of interest and receives a variable rate of interest equal to the three-month LIBOR as determined on the quarterly reset date on a notional principal amount of $300.0 million. The net amount to be paid or received quarterly, beginning on February 6, 2009, is recorded as an adjustment to interest expense, while the change in fair value is recorded in accumulated other comprehensive income in the consolidated balance sheet to the extent that the hedge is effective. Any ineffectiveness is recorded in the consolidated statements of income in the period incurred. The aggregate fair value of the interest rate swap as of September 30, 2008 was an asset of $345,000. For the third quarter and nine months ended September 30, 2008, the company recognized a net unrealized gain of $345,000 of which an immaterial amount was considered ineffectiveness. Under the second swap agreement, which is effective October 22, 2008 and matures on August 19, 2011, the company pays a fixed rate of interest and receives a variable rate of interest equal to the three-month LIBOR as determined on the quarterly reset date on a notional principal amount of $420.5 million. The net amount to be paid or received quarterly, beginning on January 22, 2009, is recorded as an adjustment to interest expense, while the change in fair value is recorded in accumulated other comprehensive income in the consolidated balance sheet to the extent that the hedge is effective. Any ineffectiveness is recorded in the consolidated statements of income in the period incurred. The aggregate fair value of the interest rate swap as of September 30, 2008 was a liability of $1.2 million. For the third quarter and nine months ended September 30, 2008, the company recognized a net unrealized loss related to the agreement of $1.2 million of which an immaterial amount was considered ineffectiveness. Subsequent to the end of the third quarter, the company entered into an additional interest rate swap agreement. This swap is also designated as a cash flow hedge for purposes of hedging against a change in interest payments on floating rate debt due to fluctuations in the underlying benchmark rate. This swap, which is effective November 6, 2008 and matures on August 6, 2009, is expected to be highly effective. Under the swap agreement, the company pays a fixed rate of interest and receives a variable rate of interest equal to the three-month LIBOR as determined on the quarterly reset date on a notional principal amount of $250.0 million. The net amount to be paid or received quarterly, beginning on February 6, 2009, will be recorded as an adjustment to interest expense, while the change in fair value is recorded in accumulated other comprehensive income in the consolidated balance sheet to the extent that the hedge is effective. Any ineffectiveness will be recorded in the consolidated statements of income in the period incurred. To mitigate counterparty credit risk, the swap agreements require collateralization by both counterparties for the swaps' aggregate net fair value. Collateral, which is maintained in the form of cash, is adjusted and transferred on a daily basis. 11. Stock-Based Payments Total expense for stock-based payments, including shares issued to the board of directors, unvested CBOT options, and the unvested options assumed in the company's merger with NYMEX Holdings, was $28.0 million for the nine months ended September 30, 2008 and $17.4 million for the nine months ended September 30, 2007. The total income tax benefit recognized in the consolidated statements of income for stock-based payment arrangements was $11.3 million and $6.9 million for the nine months ended September 30, 2008 and 2007, respectively. In connection with the NYMEX Holdings merger, CME Group assumed stock options available or outstanding under the NYMEX Holdings' Omnibus Long-Term Incentive Plan. A total of 0.6 million shares have been reserved for awards under this plan. Employee stock options totaling 335,721 shares were outstanding under this plan at the time the merger closed. CME Group accelerated vesting of 210,282 shares during the third quarter of 2008 and recognized $5.8 million in compensation and benefits expense. In the first nine months of 2008, the company granted employees stock options totaling 180,210 shares under the CME Group Omnibus Stock Plan. The options have a ten-year term with exercise prices ranging between $337 and $486 per share, the closing market prices on the dates of grant. The fair value of these options totaled $33.0 million, measured at the grant dates using the Black-Scholes valuation model. The Black-Scholes fair value of the option grants was calculated using the following assumptions: dividend yield ranging from 0.9% to 1.4%; expected volatility ranging from 44% to 50%; risk-free interest rate ranging from 2.8% to 3.9%; and expected life of 6.5 years. The grant date weighted average fair value of options granted during the year was $183 per share. Under Staff Accounting Bulletin No. 110, the company uses the simplified method to determine the expected term when calculating the fair value of employee stock options using the Black-Scholes valuation model. The company will continue to use the simplified method due to insufficient historical exercise data pertaining to options granted under the CME Group Omnibus Stock Plan, which began in 2000, and changes in business resulting from the company's merger with CBOT Holdings and NYMEX Holdings. Year to date, the company granted 12,727 shares of restricted Class A common stock which generally have a vesting period of one to five years. The fair value of these grants is $4.9 million, which is recognized as compensation expense on an accelerated basis over the vesting period. CME Group also issued 5,509 and 4,072 shares of Class A common stock to its non-executive directors during the first nine months of 2008 and 2007, respectively. The fair value of these grants was $2.5 million and $2.1 million, respectively. These shares are not subject to any vesting restrictions. 12. Share Repurchases In June 2008, CME Group was authorized, by its board of directors, to pursue new initiatives to return capital to shareholders. The initiatives include a share buyback program of up to $1.1 billion of CME Group Class A common stock, subject to market conditions. The buyback program will take place over a period of up to 18 months. The board's authorization permits the repurchase of shares through the open market, an accelerated program, a tender offer or privately negotiated transactions. The company will repurchase its shares pursuant to a plan under Rule 10b5-1 of the Securities Exchange Act of 1934. The share repurchase plan does not obligate CME Group to repurchase any specific dollar amount or number of shares of its Class A common stock. In September 2008, CME Group purchased 62,360 shares of its Class A common stock at an average price of $382 per share for a total cost of $23.8 million. From October 1 through November 5, 2008, the company purchased 474,497 additional shares of its Class A common stock at an average price per share of $316 for a total cost of $150.0 million. 13. Fair Value Measurements In January 2008, CME Group adopted SFAS No. 157, "Fair Value Measurements," which provides guidance for using fair value to measure assets and liabilities by defining fair value and establishing a framework for measuring fair value. The standard creates a three-level hierarchy, which 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 fair market value of the investments within marketable securities, securities lending collateral and other equity investments. The Level 1 investments include U.S. Treasury securities, exchange traded mutual funds, repurchase agreements 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. Investments included in Level 2 consist primarily of U.S. government agency securities, municipal bonds, asset-backed securities and certain corporate bonds. Level 3 assets include certain corporate bonds and asset-backed securities as well as mutual funds. These assets have been valued using valuation models with inputs that are both observable and unobservable. The unobservable inputs used in these models are significant to the fair value of the investments and require management's judgment. The company determined the fair value of the derivative contracts using standard valuation models that are based on market-based observable inputs including forward and spot exchange rates and interest rate curves. Level 2 derivative assets include interest rate swaps and forward foreign exchange contracts. The fair value of the liability for the guarantee of ERPs is derived using probability-weighted Black-Scholes option values for various scenarios. The liability is included in Level 3 because management uses significant unobservable inputs including probability, expected return and volatility factors to determine the fair value. Financial assets and liabilities recorded in the consolidated balance sheet as of September 30, 2008 are classified in their entirety based on the lowest level of input that is significant to the asset or liability's fair value measurement. Financial Instruments Measured at Fair Value on a Recurring Basis: (in thousands) Level 1 Level 2 Level 3 Total Assets at Fair Value: Marketable securities: U.S. Treasury securities $ 94,976 $ - $ - $ 94,976 Mutual funds 21,006 - - 21,006 Municipal bonds - 8,867 - 8,867 U.S. Government agency securities - 2,425 - 2,425 Equities 48 - - 48 Total 116,030 11,292 - 127,322 Securities lending collateral: Mutual funds - - 493,410 493,410 Corporate bonds - 395,682 2,540 398,222 Asset-backed securities - 8,568 3,853 12,421 Repurchase agreements 5,307 - - 5,307 Total 5,307 404,250 499,803 909,360 Derivative investments: Interest rate swap contracts - 1,772 - 1,772 Foreign currency forward contract - 137 - 137 Total - 1,909 - 1,909 Equity investments 71,623 - - 71,623 Total Assets at Fair Value $ 192,960 $ 417,451 $ 499,803 $ 1,110,214 Liabilities at Fair Value: Interest rate swap contracts $ - $ 2,630 $ - $ 2,630 Guarantee of CBOE exercise right privileges - - 1,194 1,194 Total Liabilities at Fair Value $ - $ 2,630 $ 1,194 $ 3,824 The following is a reconciliation of assets and liabilities at fair value on a recurring basis using significant unobservable inputs (Level 3) during the first nine months of 2008. Guarantee of CBOE Securities Foreign Exercise Lending Currency Right (in thousands) Collateral Option Privileges Fair value of assets (liabilities) at January 1, 2008 $ - $ - $ (13,983 ) Purchases and issuances 22,536 45,195 - Transfers in (out) of Level 3 499,410 - - Realized and unrealized gains (losses): Included in non-operating income (expense) (21,745 ) (7,894 ) 12,789 Included in other comprehensive income (loss) (398 ) - - Settlements - (37,301 ) - Fair value of assets (liabilities) at September 30, 2008 $ 499,803 $ - $ (1,194 ) Total unrealized gains and (losses) related to financial assets and liabilities in the consolidated balance sheets at September 30, 2008 $ (22,143 ) $ - $ 12,789 Due to market conditions, the company revalued a money market mutual fund investment within the CME's securities lending collateral using unobservable inputs during the third quarter of 2008. A financial institution defaulted on its obligation to the fund in the third quarter resulting in a decline in the fund's market value. Management considered its exposure to potential loss due to the default and its ability to hold the investment in determining the fair value of the investments. As a result of the revaluation, the company recorded an impairment charge of $6.0 in securities lending interest and other costs during the third quarter as the decline in value was determined to be other-than-temporary. This investment was transferred into Level 3 during the third quarter because its fair value is based on management's best estimate. As a result of the merger with NYMEX Holdings in August 2008, the company acquired the collateral portfolio for the NYMEX securities lending program. At September 30, 2008, two corporate debt securities in the portfolio were determined to be other-than-temporarily impaired due to default by the issuers. The company recorded an impairment charge of $15.7 million in securities lending interest and other costs during the third quarter of 2008. These investment are included as purchases in Level 3 as they were acquired as part of the merger. In addition, the company has categorized certain asset-backed securities in the NYMEX securities lending portfolio in Level 3 because their fair value was estimated using valuation models with unobservable inputs. 14. Earnings Per 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 converted into common stock. Outstanding stock options of approximately 525,000 and 395,000 were anti-dilutive for the quarter and nine months ended September 30, 2008, respectively. Approximately 135,000 outstanding stock options and restricted stock awards were anti-dilutive for the quarter and nine months ended September 30, 2007, respectively. These shares were not included in the diluted earnings per common share calculations. Quarter Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2008 2007 2008 2007 Net Income $ 168,691 $ 201,572 $ 653,421 $ 457,475 Weighted Average Number of Common Shares: Basic 59,870 51,748 56,054 40,556 Effect of stock options 208 344 240 352 Effect of restricted stock grants 8 11 8 12 Diluted 60,086 52,103 56,302 40,920 Earnings per Share: Basic $ 2.82 $ 3.90 $ 11.66 $ 11.28 Diluted 2.81 3.87 11.61 11.18 15. Subsequent Event On October 10, 2008, CME renewed its 364-day clearing facility with a consortium of financial institutions. 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