Document and Entity Information
In Billions, except Share data
YearEnded
Dec. 31, 2010
Jun. 30, 2010
Feb. 16, 2011
Feb. 16, 2011
Feb. 16, 2011
Feb. 16, 2011
Feb. 16, 2011
Document Type
10-K
Amendment Flag
FALSE
Document Period End Date
2010-12-31
Document Fiscal Period Focus
FY
Document Fiscal Year Focus
2010
Entity Registrant Name
CME GROUP INC.
Entity Central Index Key
0001156375
Current Fiscal Year End Date
12/31
Entity Well-known Seasoned Issuer
Yes
Entity Current Reporting Status
Yes
Entity Voluntary Filers
No
Entity Filer Category
Large Accelerated Filer
Entity Common Stock, Shares Outstanding
67,049,401
625
813
1,287
413
Entity Public Float
18
CONSOLIDATED BALANCE SHEETS(USD $)
In Millions
Dec. 31, 2010
Dec. 31, 2009
Assets
Cash and cash equivalents
$855
$261
Marketable securities
50
43
Accounts receivable, net of allowance of $1.6 and $1.9
298
248
Other current assets
146
166
Cash performance bonds and guaranty fund contributions
4,039
5,982
Total current assets
5,388
6,699
Property, net of accumulated depreciation and amortization
787
739
Intangible assets-trading products
17,041
16,982
Intangible assets-other, net
3,453
3,247
Goodwill
7,984
7,549
Other assets
394
436
Total Assets
35,046
35,651
Liabilities and Shareholders' Equity
Accounts payable
52
47
Short-term debt
421
300
Other current liabilities
270
195
Cash performance bonds and guaranty fund contributions
4,039
5,982
Total current liabilities
4,781
6,524
Long-term debt
2,105
2,015
Deferred tax liabilities, net
7,840
7,646
Other liabilities
192
166
Total Liabilities
14,918
16,350
Redeemable non-controlling interest
68
Shareholders' Equity:
Preferred stock, $0.01 par value, 9,860 shares authorized, none issued or outstanding
Series A junior participating preferred stock, $0.01 par value, 140 shares authorized, none issued or outstanding
Class A common stock, $0.01 par value, 1,000,000 shares authorized, 66,847 and 66,511 shares issued and outstanding as of December 31, 2010 and 2009, respectively
1
1
Class B common stock, $0.01 par value, 3 shares authorized, issued and outstanding
Additional paid-in capital
17,278
17,187
Retained earnings
2,886
2,240
Accumulated other comprehensive income (loss)
(104)
(126)
Total Shareholders' Equity
20,060
19,301
Total Liabilities and Shareholders' Equity
$35,046
$35,651
CONSOLIDATED BALANCE SHEETS (Parenthetical)
In Millions, except Share data
Dec. 31, 2010
Dec. 31, 2009
Dec. 31, 2010
Dec. 31, 2009
Dec. 31, 2010
Dec. 31, 2009
Dec. 31, 2010
Dec. 31, 2009
Dec. 31, 2010
Dec. 31, 2009
Accounts receivable, allowance
2
2
Preferred stock, par value
0.01
0.01
0.01
0.01
Preferred stock, shares authorized
9,860,000
9,860,000
140,000
140,000
Preferred stock, shares issued
0
0
0
0
Preferred stock, shares outstanding
0
0
0
0
Common stock, par value
0.01
0.01
0.01
0.01
Common stock, shares authorized
1,000,000,000
1,000,000,000
1,000,000,000
1,000,000,000
3,000
3,000
Common stock, shares issued
66,847,000
66,511,000
3,000
3,000
Common stock, shares outstanding
66,847,000
66,511,000
3,000
3,000
CONSOLIDATED STATEMENTS OF INCOME(USD $)
In Millions, except Share data in Thousands, unless otherwise specified
YearEnded
Dec.31,
2010
2009
2008
Revenues
Clearing and transaction fees
$2,486
$2,162
$2,115
Market data and information services
395
331
280
Access and communication fees
45
46
44
Other
77
74
123
Total Revenues
3,004
2,613
2,561
Expenses
Compensation and benefits
432
351
318
Communications
41
47
52
Technology support services
51
46
60
Professional fees and outside services
118
85
72
Amortization of purchased intangibles
128
125
99
Depreciation and amortization
130
126
137
Occupancy and building operations
75
76
71
Licensing and other fee agreements
83
89
70
Restructuring
(1)
5
5
Other
117
72
95
Total Expenses
1,173
1,024
979
Operating Income
1,831
1,589
1,582
Non-Operating Income (Expense)
Investment income
42
29
46
Impairment of long-term investments
(2)
(46)
(275)
Gains (losses) on derivative investments
(3)
(8)
Securities lending interest income
3
38
Securities lending interest and other costs
(0)
(52)
Interest and other borrowing costs
(140)
(134)
(57)
Guarantee of exercise right privileges
4
13
Equity in net losses of unconsolidated subsidiaries
(6)
(7)
(32)
Other income (expense)
(0)
(9)
Total Non-Operating
(109)
(152)
(334)
Income before Income Taxes
1,722
1,438
1,248
Income tax provision
770
612
533
Net Income
952
826
716
Less: net income attributable to redeemable non-controlling interest
1
Net Income Attributable to CME Group
951
826
716
Earnings per Common Share Attributable to CME Group:
Basic
14.35
12.44
12.18
Diluted
$14.31
$12.41
$12.13
Weighted Average Number of Common Shares:
Basic
66,299
66,366
58,738
Diluted
66,495
66,548
58,967
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In Millions, except Share data
Class A Common Stock (Shares) [Member]
Class B Common Stock (Shares) [Member]
Common Stock and Additional Paid-in Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Total
Balance (in shares) at Dec. 31, 2007
53,278,000
3,000
Balance at Dec. 31, 2007
10,689
1,619
(3)
12,306
Comprehensive income:
Net income attributable to CME Group
716
716
Change in net unrealized gain (loss) on securities, net of tax
(25)
(25)
Change in net actuarial loss on defined benefit plans, net of tax
(15)
(15)
Change in net unrealized loss on derivatives, net of tax
(21)
(21)
Change in foreign currency translation adjustment, net of tax
(96)
(96)
Total comprehensive income attributable to CME Group
558
Cash dividend on common stock
(615)
(615)
Class A common stock issued to BM&FBOVESPA
1,189,000
Class A common stock issued to BM&FBOVESPA
631
631
Common stock and stock options issued to complete NYMEX Holdings merger, including stock issuance costs (in shares)
12,566,000
Common stock and stock options issued to complete NYMEX Holdings merger, including stock issuance costs
5,955
5,955
Tax benefit of stock issuance costs related to CBOT Holdings merger
6
6
Repurchase of Class A common stock (in shares)
(783,000)
Repurchase of Class A common stock
(224)
(224)
Exercise of stock options (in shares)
149,000
Exercise of stock options
21
21
Excess tax benefits from option exercises and restricted stock vesting
9
9
Vesting of issued restricted Class A common stock (in shares)
6,000
Vesting of issued restricted Class A common stock
(0)
(0)
Shares issued to Board of Directors (in shares)
6,000
Shares issued to Board of Directors
3
3
Shares issued under Employee Stock Purchase Plan (in shares)
6,000
Shares issued under Employee Stock Purchase Plan
1
1
Stock-based compensation
38
38
Balance (in shares) at Dec. 31, 2008
66,417,000
3,000
Balance at Dec. 31, 2008
17,129
1,720
(160)
18,689
Comprehensive income:
Net income attributable to CME Group
826
826
Change in net unrealized gain (loss) on securities, net of tax
25
25
Change in net actuarial loss on defined benefit plans, net of tax
(1)
(1)
Change in net unrealized loss on derivatives, net of tax
8
8
Change in foreign currency translation adjustment, net of tax
3
3
Total comprehensive income attributable to CME Group
860
Cash dividend on common stock
(306)
(306)
Class A common stock issued in exchange for investment in Bursa Malaysia Derivatives Berhad (in shares)
76,000
Class A common stock issued in exchange for investment in Bursa Malaysia Derivatives Berhad
25
25
Repurchase of Class A common stock (in shares)
(139,000)
Repurchase of Class A common stock
(27)
(27)
Exercise of stock options (in shares)
125,000
Exercise of stock options
22
22
Excess tax benefits from option exercises and restricted stock vesting
2
2
Vesting of issued restricted Class A common stock (in shares)
16,000
Vesting of issued restricted Class A common stock
(2)
(2)
Shares issued to Board of Directors (in shares)
12,000
Shares issued to Board of Directors
2
2
Shares issued under Employee Stock Purchase Plan (in shares)
4,000
Shares issued under Employee Stock Purchase Plan
2
2
Stock-based compensation
33
33
Balance (in shares) at Dec. 31, 2009
66,511,000
3,000
Balance at Dec. 31, 2009
17,187
2,240
(126)
19,301
Comprehensive income:
Net income attributable to CME Group
951
951
Change in net unrealized gain (loss) on securities, net of tax
5
5
Change in net actuarial loss on defined benefit plans, net of tax
6
6
Change in net unrealized loss on derivatives, net of tax
12
12
Change in foreign currency translation adjustment, net of tax
(1)
(1)
Total comprehensive income attributable to CME Group
974
Cash dividend on common stock
(306)
(306)
Class A common stock issued to BM&FBOVESPA
2,206
Class A common stock issued to BM&FBOVESPA
607
607
Repurchase of Class A common stock (in shares)
(2,007)
Repurchase of Class A common stock
(575)
(575)
Exercise of stock options (in shares)
90,000
Exercise of stock options
13
13
Excess tax benefits from option exercises and restricted stock vesting
6
6
Vesting of issued restricted Class A common stock (in shares)
35,000
Vesting of issued restricted Class A common stock
(4)
(4)
Shares issued to Board of Directors (in shares)
8,000
Shares issued to Board of Directors
2
2
Shares issued under Employee Stock Purchase Plan (in shares)
4,000
Shares issued under Employee Stock Purchase Plan
1
1
Stock-based compensation
41
41
Balance (in shares) at Dec. 31, 2010
66,847,000
3,000
Balance at Dec. 31, 2010
17,278
2,886
(104)
20,060
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical)(USD $)
In Millions, except Per Share data
YearEnded
Dec.31,
2010
2009
2008
Change in net unrealized gain (loss) on securities, tax
$4
$17
$16
Change in net actuarial loss on defined benefit plans, tax
4
1
10
Change in net unrealized loss on derivatives, tax
7
5
14
Change in foreign currency translation adjustment, tax
0
2
21
Cash dividends on common stock, per share
$4.6
$4.6
$9.6
CONSOLIDATED STATEMENTS OF CASH FLOWS(USD $)
In Millions
YearEnded
Dec.31,
2010
2009
2008
Cash Flows from Operating Activities
Net income
$952
$826
$716
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation
41
33
38
Amortization of purchased intangibles
128
125
99
Depreciation and amortization
130
126
137
Recognition of in-process research and development acquired from Credit Market Analysis Limited
4
Net accretion of discounts and amortization of debt financing costs
5
13
10
Net loss on derivative investments
9
8
Impairment of securities lending assets
24
Impairment of goodwill and intangible assets
21
14
Impairment of long-term investments
2
46
275
Guarantee of exercise right privileges
(4)
(13)
Equity in net losses of unconsolidated subsidiaries
6
7
32
Deferred income taxes
22
(57)
(115)
Change in assets and liabilities:
Accounts receivable
(29)
(14)
81
Other current assets
(30)
(7)
6
Other assets
(6)
(7)
(49)
Accounts payable
6
(24)
24
Income tax payable
12
14
(23)
Other current liabilities
80
(23)
(96)
Other liabilities
5
31
26
Other
2
0
Net Cash Provided by Operating Activities
1,356
1,083
1,197
Cash Flows from Investing Activities
Proceeds from maturities of available-for-sale marketable securities
12
440
265
Purchases of available-for-sale marketable securities
(10)
(160)
(368)
Net change in NYMEX securities lending program investments
426
110
Purchases of property, net
(160)
(158)
(200)
Consideration paid in business combinations, net of cash acquired
(20)
(2,864)
NYMEX membership rights payment
(612)
Proceeds from sale of long-term investment
47
Merger-related transaction costs
(51)
Purchase of derivative related to BM&FBOVESPA SA investment
(45)
Proceeds from Chicago Board Options Exchange exercise right privileges
40
Proceeds from sale of metals trading products
26
Purchase of Bolsa Mexicana de Valores, S.A.B. de C.V. shares
(17)
Capital contributions to FXMarketSpace Limited
(3)
(10)
Net Cash Provided by (Used in) Investing Activities
(108)
545
(3,749)
Cash Flows from Financing Activities
Proceeds (repayments) of commercial paper, net
(100)
(1,394)
1,330
Proceeds from other borrowings, net of issuance costs
608
744
2,882
Repayment of other borrowings
(300)
(250)
(1,283)
Net change in NYMEX securities lending program liabilities
(457)
(110)
Cash dividends
(305)
(306)
(615)
Class A common stock issued to BM&FBOVESPA SA
607
Stock issuance costs in merger with NYMEX Holdings
(9)
Repurchase of Class A common stock, including costs
(575)
(27)
(224)
Proceeds from exercise of stock options
13
20
21
Distribution paid to non-controlling interest
(608)
Excess tax benefits related to employee option exercises and restricted stock vesting
6
3
12
Other
1
1
2
Net Cash Provided by (Used in) Financing Activities
(653)
(1,665)
2,005
Net change in cash and cash equivalents
595
(37)
(547)
Cash and cash equivalents, beginning of period
261
298
845
Cash and Cash Equivalents, End of Period
855
261
298
Supplemental Disclosure of Cash Flow Information
Income taxes paid
766
630
665
Interest paid (excluding securities lending program)
105
91
21
Non-cash investing activities:
Change in net unrealized securities gains (losses)
9
42
(42)
Change in net unrealized derivatives gains (losses)
10
12
(34)
Non-cash financing activities:
Fair value of Class A common stock, stock options and restricted stock units issued in connection with NYMEX Holdings merger
5,963
Fair value of Class A common stock issued in exchange for BM&FBOVESPA SA stock
631
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business. Chicago Mercantile Exchange Inc. (CME), the Board of Trade of the City of Chicago, Inc. (CBOT), and New York Mercantile Exchange, Inc. (NYMEX), wholly-owned subsidiaries of CME Group Inc. (CME Group), are designated contract markets for the trading of futures and options on futures contracts. CME, CBOT, NYMEX and their subsidiaries are referred to collectively as "the exchange" in the notes to the consolidated financial statements. CME Group offers a wide range of products including those based on interest rates, equities, foreign exchange, commodities, energy and metals. CME Group also offers clearing services for cleared over-the-counter derivatives including credit default swaps and interest rate swaps. Trades are executed through CME Group's electronic trading platform, open outcry and privately negotiated transactions. Through its clearing house, CME Group offers clearing, settlement and guarantees for all products cleared through the exchange. Index Services creates, maintains and licenses the globally-recognized Dow Jones indexes. The indexes are used as benchmarks and as the basis of investment products. CME Group and its subsidiaries are referred to collectively as "the company" in the notes to the consolidated financial statements.

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.

On March 18, 2010, CBOT acquired a 90% 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.

Principles of Consolidation. The consolidated financial statements include the accounts of the company and its wholly-owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The company has completed business combinations in 2008 through 2010 and has included the financial results of these transactions in its consolidated financial statements effective from the respective dates of the transactions.

Reclassifications. Certain reclassifications have been made to the prior years' financial statements to conform to the presentation in 2010.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements, as well as the amounts of revenues and expenses reported during the period, and to disclose contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates.

Cash and Cash Equivalents. Cash equivalents consist of money market mutual funds and highly liquid investments with maturities of three months or less at the time of purchase.

Marketable Securities. Certain marketable securities have been classified as available-for-sale and are carried at fair value based on quoted market prices, with net unrealized gains and losses reported net of tax in accumulated other comprehensive income (loss). Interest on marketable securities is recognized as income when earned and includes accreted discount less amortized premium. Realized gains and losses are calculated using specific identification. Additional securities held in connection with non-qualified deferred compensation plans have been classified as trading securities. These securities are included in marketable securities in the accompanying consolidated balance sheets at fair value, and net realized and unrealized gains and losses as well as dividend income are reflected in investment income.

Fair Value of Financial Instruments. The carrying values of financial instruments included in assets and liabilities in the accompanying consolidated balance sheets are reasonable estimates of their fair values.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or an exit price. The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect the company's assessment about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The company has categorized its assets and liabilities measured at fair value into a three-level classification hierarchy. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

 

  •  

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Assets and liabilities carried at level 1 fair value generally include U.S. Treasury and Government agency securities, equity securities listed in active markets, and investments in publicly traded mutual funds with quoted market prices.

 

  •  

Level 2—Inputs are either directly or indirectly observable and corroborated by market data or are based on quoted prices in markets that are not active. Assets and liabilities carried at level 2 fair value generally include municipal bonds, corporate debt and certain derivatives.

 

  •  

Level 3—Inputs are unobservable and reflect management's best estimate of what market participants would use in pricing the asset or liability. Generally, assets and liabilities at fair value utilizing level 3 inputs include certain other assets and liabilities with inputs that require management's judgment. Assets and liabilities at fair value utilizing level 3 inputs can also include certain assets and liabilities that are tested for impairment and measured at fair value on a non-recurring basis.

For further discussion regarding the fair value of financial instruments, see notes 4 and 24.

Derivative Investments. The company may use derivative financial instruments for the purpose of hedging exposures to fluctuations in interest rates and foreign currency exchange rates. Derivatives are recorded at fair value in the consolidated balance sheets. Changes in derivatives' fair values are recognized in earnings immediately unless the instruments are accounted for as hedges. For a derivative designated as a fair value hedge, any gain or loss on the derivative is recognized in earnings in the period of change, to the extent that the hedge is effective, together with the offsetting gain or loss on the hedged item attributable to the risk being hedged. The company records the effective portions of its derivative financial instruments that are designated as cash flow hedges in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. Any ineffective or excluded portion of a hedge is recognized in earnings immediately. Any realized gains and losses from effective hedges are classified in the consolidated statements of income consistent with the accounting treatment of the items being hedged.

Accounts Receivable. Accounts receivable are primarily composed of trade receivables and unbilled revenue consisting of clearing and transaction fees, market data and information services revenue. All accounts receivable are stated at cost. A significant portion of accounts receivable and revenues are from clearing firms that are also required to be shareholders of the company. Exposure to losses on receivables for clearing and transaction fees and other amounts owed by clearing firms is dependent on each clearing firm's financial condition, the Class A shares as well as the memberships that collateralize fees owed to the exchange. The exchange retains the right to liquidate shares to satisfy a clearing firm's receivable. The allowance for doubtful accounts is calculated based on historical losses and management's assessment of probable future collections based on receivable balances in excess of 90 days.

Performance Bonds and Guaranty Fund Contributions. Performance bonds and guaranty fund contributions held by the exchange for clearing firms may be in the form of cash, securities, deposits in one of the Interest Earning Facilities (IEFs) or other non-cash deposits. Cash performance bonds and guaranty fund contributions are reflected in the consolidated balance sheets. Cash received may be invested by CME. These investments are typically overnight transactions in U.S. Government securities acquired through and held by a broker-dealer subsidiary of a bank or through CME's IEF program. Any interest earned on these investments accrues to CME and is included in investment income in the consolidated statements of income.

Securities deposited by clearing firms include short-term U.S. Treasury and U.S. Government agency securities and are not reflected in the accompanying consolidated balance sheets. These securities are held in safekeeping. Interest and gain or loss on securities deposited to satisfy performance bond and guaranty fund requirements accrues to the clearing firm.

Property. Property and equipment, excluding land, are reported at historical cost, net of accumulated depreciation and amortization. Land is reported at cost. Building and improvements are recorded at cost less accumulated depreciation and amortization. Computer software and systems include purchased software and systems, external costs specifically identifiable to the implementation of new systems and certain payroll and payroll-related costs for employees who are directly associated with and devote time to developing computer software for internal use.

Depreciation and amortization expense results from the depreciation of property purchased, as well as the amortization of purchased and internally developed software. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, as follows:

 

Land improvements

      10 to 20 years   

Buildings

      39 years   

Building improvements and equipment

      3to 24 years   

Furniture and fixtures

      7 years   

Computer hardware and software

      2to 4 years   

All leases in which the company is the tenant are accounted for as operating leases. An operating lease is typically a lease that is not capitalized on the balance sheet; however, the company has leasehold improvements, which are amortized over the lesser of their estimated useful lives or the remaining term of the applicable lease. Leasehold improvements funded by landlord allowances are capitalized in the consolidated balance sheets. Maintenance and repair items as well as certain minor purchases are charged to expense as incurred. Landlord allowances are recorded as a reduction to rent expense on a straight-line basis over the term of the lease.

Software. The company capitalizes certain salary and third-party consulting costs of developing internal use software. Capitalized costs generally are amortized over three years, commencing when the software is placed in service. Purchased software is amortized over four years. Multi-year software licenses are amortized over the life of the contract, which is generally three to seven years.

Impairment of Long-Lived and Intangible Assets. The company reviews its long-lived assets and amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable based on an examination of undiscounted cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Goodwill and indefinite-lived intangible assets are reviewed for impairment on an annual basis and whenever events or circumstances indicate that their carrying values may not be recoverable. Impairment is recorded if the carrying amount exceeds fair value.

 

Business Combinations. The company accounts for business combinations using the purchase method. Under the purchase method, the company identified as the acquirer for accounting purposes allocates the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of the transaction, including identifiable intangible assets. The purchase price in excess of the fair value of the net assets and liabilities is recorded as goodwill. Among other sources, the company uses independent valuation services to assist in determining the estimated fair values of the assets acquired and liabilities assumed.

Employee Benefit Plans. The company recognizes the funded status of defined benefit postretirement plans in its consolidated balance sheets. Changes in that funded status are recognized in the year of change in other comprehensive income (loss). Plan assets and obligations are measured at year end. The company recognizes future changes in actuarial gains and losses and prior service costs in the year in which the changes occur through other comprehensive income (loss).

Foreign Currency Translation. Revenues and expenses of foreign subsidiaries are translated from their functional currencies into U.S. dollars using weighted-average exchange rates while their assets and liabilities are translated into U.S. dollars using period-end exchange rates. Gains or losses resulting from foreign currency translations are charged or credited to other comprehensive income (loss).

Revenue Recognition. Revenue recognition policies for specific sources of revenue are discussed below.

Clearing and Transaction Fees. Clearing and transaction fees include per contract charges for trade execution, clearing, trading on the company's electronic trading platform and other fees. Fees are charged at various rates based on the product traded, the method of trade, the exchange trading privileges of the customer making the trade and the type of contract cleared. Clearing and transaction fees are recognized as revenue when a buy and sell order are matched and the trade is cleared. Therefore, unfilled or cancelled buy and sell orders have no impact on revenue. On occasion, the customer's exchange trading privileges may not be properly entered by the clearing firm and incorrect fees are charged for the transactions. When this information is corrected within the time period allowed by the exchange, a fee adjustment is provided to the clearing firm. A reserve is established for estimated fee adjustments to reflect corrections to customer exchange trading privileges. The reserve is based on the historical pattern of adjustments processed as well as specific adjustment requests. The company believes the allowances are adequate to cover estimated adjustments.

Market Data and Information Services. Market data and information services represent revenue earned for the dissemination of market information. Revenues are accrued each month based on the number of devices reported by vendors. The exchange conducts periodic audits of the number of devices reported and assesses additional fees as necessary. In addition, revenue is accrued each month for revenue generated from Index Services. On occasion, customers will pay for services in a lump sum payment. When these circumstances occur, revenue is recognized as services are provided.

Access and Communication Fees. Access fees are the connectivity charges to customers of the company's electronic trading platform that are also used by market data vendors and customers. They include line charges, access fees for electronic trading platform and hardware rental charges. The fees vary depending on the type of connection provided. An additional installation fee may be charged depending on the type of service requested and a disconnection fee may also be charged if certain conditions are met. Revenue is recognized monthly as the service is provided.

Communication fees consist of equipment rental and usage charges to customers and firms that utilize the various telecommunications networks and services in the Chicago and New York City facilities. Revenue is billed and recognized on a monthly basis.

Other Revenue. Other revenues include building revenue from the rental of commercial space that are recognized over the lease term, using the straight-line method. Under this method, revenue is recorded evenly over the entire term of occupancy for leases with scheduled rent increases or rent abatements. Also included in revenue are ancillary charges for parking, utilities, and miscellaneous services provided to tenants. Allowances for construction and other tenant costs are considered lease incentives and are recorded as a reduction to rental income on a straight-line basis over the term of the lease. In addition, processing services revenue is included in other revenue. Processing services includes trade matching services provided to NYMEX Holdings prior to the closing of the merger on August 22, 2008 as well as revenue generated from various strategic relationships.

Concentration of Revenue. One firm represented 13% and one firm represented 12% of the company's clearing and transaction fees revenue in 2010. In 2009, one firm represented 13% and one firm represented 11% of the company's clearing and transaction fees revenue. One firm represented 12% and one firm represented 10% of the company's clearing and transaction fees revenue in 2008. Should a clearing firm withdraw from the exchange, management believes that the customer portion of that firm's trading activity would likely transfer to another clearing firm. Therefore, management does not believe that the company is exposed to significant risk from the loss of revenue received from a particular clearing firm.

The two largest resellers of market data represented approximately 45% of market data and information services revenue in 2010, 55% in 2009, and 56% in 2008. Should one of these vendors no longer subscribe to the company's market data, management believes that the majority of that firm's customers would likely subscribe to the market data through another reseller. Therefore, management does not believe that the company is exposed to significant risk from a loss of revenue received from any particular market data reseller.

Share-Based Payments. The company accounts for share-based payments using a fair value method, which is based on the grant date price of the equity awards issued. The company recognizes expense relating to stock-based compensation on an accelerated basis. As a result, the expense associated with each vesting date within a stock grant is recognized over the period of time that each portion of that grant vests. The company estimates expected forfeitures of stock grants.

Marketing Costs. Marketing costs are incurred for the production and communication of advertising as well as other marketing activities. These costs are expensed when incurred, except for costs related to the production of broadcast advertising, which are expensed when the first broadcast occurs.

Income Taxes. Deferred income taxes arise from temporary differences between the tax basis and book basis of assets and liabilities. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset may not be realized. The company accounts for uncertainty in income taxes recognized in its consolidated financial statements by using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken or expected to be taken. The company classifies interest and penalties related to uncertain tax positions in income tax expense.

Segment Reporting. The company reports the results of its operations as one reporting segment primarily comprised of CME, CBOT, NYMEX and COMEX exchanges. The remaining operations do not meet the thresholds for reporting separate segment information.

Business Combinations
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 $435.6 million to goodwill and $376.4 million to identifiable intangible assets. Intangible assets include $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%. Dow Jones retains the right to redeem its remaining interest at fair value on or after March 18, 2016. As a result, Dow Jones' interest has been classified as a redeemable non-controlling interest in the company's consolidated financial statements. In addition, CBOT retains a right to call Dow Jones' remaining interest at fair value on or after March 18, 2017.

The following summarizes the changes in redeemable non-controlling interest during 2010:

 

(in millions)

       

Balance at January 1

    $ —     

Contribution by Dow Jones

      675.0   

Distribution to Dow Jones

      (607.5 ) 

Total comprehensive income attributable to redeemable non-controlling interest

      0.6   
        

Balance at December 31

    $ 68.1   
        

The following summarizes total comprehensive income attributable to redeemable non-controlling interest:

 

(in millions)

    Year Ended
December 31,
2010		  

Net income

    $ 0.7   

Reclassification of realized loss on derivative related to 4.40% fixed rate notes

      (0.1 ) 
        

Total comprehensive income attributable to redeemable non-controlling interest

    $ 0.6   
        
Securities Lending
Securities Lending

3. SECURITIES LENDING

Under its securities lending program, the company may lend 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.

CME's securities lending program has been suspended since November 2008 due to high volatility in the credit markets. 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. At December 31, 2010, 2009 and 2008, CME's securities lending program liabilities were zero.

As part of its merger with NYMEX Holdings, the company acquired the assets and liabilities of the NYMEX securities lending program. NYMEX also lent a portion of the securities that had been deposited to satisfy performance bond requirements to a third party on an overnight basis in return for cash collateral. During 2008, the company recorded impairment losses of $18.3 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. In June 2009, the NYMEX securities lending program was terminated.

Marketable Securities
Marketable Securities

4. MARKETABLE SECURITIES

Available-for-Sale Securities. Certain marketable securities have been classified as available-for-sale. The amortized cost and fair value of these securities at December 31 were as follows:

 

     2010      2009  

(in millions)

    Amortized
Cost		      Fair
Value		      Amortized
Cost		      Fair
Value		  

U.S. Government agency

    $ 9.7       $ 9.8       $ 6.0       $ 5.9   

U.S. Treasury

      5.1         5.1         5.1         5.1   

Municipal bonds

      4.3         4.3         4.6         4.7   

Asset-back securities

      2.2         2.1         3.8         3.4   

Corporate bonds

      0.1         0.1         0.1         0.1   
                                   

Total

    $ 21.4       $ 21.4       $ 19.6       $ 19.2   
                                   

Net unrealized gains (losses) on marketable securities classified as available-for-sale are reported as a component of other comprehensive income (loss) and included in the accompanying consolidated statements of shareholders' equity. The fair value and continuous duration of gross unrealized losses on marketable securities with unrealized losses that are not deemed to be other-than-temporarily impaired, at December 31, 2010:

 

     Less than 12 Months      12 Months or Greater      Total  

(in millions)

    Fair
Value		      Unrealized
Losses		      Fair
Value		      Unrealized
Losses		      Fair
Value		      Unrealized
Losses		  

U.S. Government agency

    $ 5.4       $ 0.1       $ —         $ —         $ 5.4       $ 0.1   

Asset-back securities

      —           —           2.0         0.2         2.0         0.2   
                                                     

Total

    $ 5.4       $ 0.1       $ 2.0       $ 0.2       $ 7.4       $ 0.3   
                                                     

The company has the ability and intent to hold these marketable securities until a recovery of fair value, which may be maturity and, therefore, does not consider these investments to be other-than-temporarily impaired at December 31, 2010. Unrealized gains on marketable securities totaled $0.3 million at December 31, 2010.

The amortized cost and fair value of marketable securities at December 31, 2010, by contractual maturity, were as follows:

 

(in millions)

    Amortized
Cost		      Fair
Value		  

Maturity of one year or less

    $ 5.6       $ 5.6   

Maturity between one and five years

      1.3         1.3   

Maturity between five and ten years

      10.3         10.4   

Maturity greater than ten years

      4.2         4.1   
                 

Total

    $ 21.4       $ 21.4   
                 

Trading Securities. CME maintains additional investments in a diverse portfolio of mutual funds related to its non-qualified deferred compensation plan (note 15). The fair value of these securities was $28.8 million and $23.4 million at December 31, 2010 and 2009, respectively.

Other Current Assets
Other Current Assets

5. OTHER CURRENT ASSETS

Other current assets consisted of the following at December 31:

 

(in millions)

    2010      2009  

Refundable income tax

    $ 61.0       $ 24.1   

Net deferred income taxes (note 14)

      18.3         23.8   

Prepaid technology license and maintenance contracts

      18.0         17.0   

Forward contract receivable (note 20)

      11.8         27.3   

Receivables from brokers

      11.2         8.8   

Other prepaid expenses

      9.6         13.5   

Prepaid insurance

      6.3         7.0   

CBOE exercise rights privilege

      —           39.8   

Other

      9.9         4.3   
                 

Total

    $ 146.1       $ 165.6   
                 
Performance Bonds and Guaranty Fund Contributions
Performance Bonds and Guaranty Fund Contributions

6. PERFORMANCE BONDS AND GUARANTY FUND CONTRIBUTIONS

CME clears and guarantees the settlement of CME, CBOT and NYMEX contracts traded in their respective markets. In its guarantor role, CME has precisely equal and offsetting claims to and from clearing firms on opposite sides of each contract, standing as an intermediary on every contract cleared. Clearing firm positions are combined to create a single portfolio for each clearing firm's regulated and non-regulated accounts with CME for which performance bond and guaranty fund requirements are calculated. To the extent that funds are not otherwise available to satisfy an obligation under the applicable contract, CME bears counterparty credit risk in the event that future market movements create conditions that could lead to clearing firms failing to meet their obligations to CME. CME reduces its exposure through a risk management program that includes initial and ongoing financial standards for designation as a clearing firm, performance bond requirements and mandatory guaranty fund contributions. Each clearing firm is required to deposit and maintain balances in the form of cash, U.S. Government securities, bank letters of credit or other approved investments to satisfy performance bond and guaranty fund requirements. All obligations and non-cash deposits are marked to market on a daily basis.

In addition, the rules and regulations of CBOT require certain minimum financial requirements for delivery of physical commodities, maintenance of capital requirements and deposits on pending arbitration matters. To satisfy these requirements, CBOT clearing firms have deposited cash, U.S. Treasury securities and letters of credit.

CME marks-to-market 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. For select product offerings within newer markets, positions are marked-to-market once 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 guaranty fund balances as well as other available resources. During 2010, CME transferred an average of approximately $2.4 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 guaranty fund contributions. The company believes that the guarantee liability is immaterial and therefore has not recorded any liability at December 31, 2010.

 

Cash performance bonds and guaranty fund contributions are included in the consolidated balance sheets, and these balances may fluctuate significantly over time due to investment choices available to clearing firms and any change in the amount of contributions required. Securities are not reflected in the consolidated financial statements and CME does not earn any interest on these deposits.

Clearing firms, at their option, may instruct CME to deposit the cash held by CME into one of the IEF programs. The total principal in all IEF programs was $12.5 billion at December 31, 2010 and $20.6 billion at December 31, 2009. The guaranty fund contributions held in one of the IEF programs may be used as collateral for CME's $1.0 billion secured, committed line of credit. The consolidated statements of income reflect management fees earned under the IEF programs of $10.0 million, $12.5 million and $11.8 million during 2010, 2009 and 2008, respectively. These fees are included in other revenues.

CME and The Options Clearing Corporation (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 equity index futures and options 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 (note 19). Cross-margin cash, securities and letters of credit jointly held with OCC under the cross-margin agreement are reflected at 50% of the total, or CME's proportionate share per that agreement. In addition, CME has cross-margin agreements with Fixed Income Clearing Corporation (FICC) whereby the clearing firms' offsetting positions with CME and FICC are subject to reduced performance bond requirements. Clearing firms maintain separate performance bond deposits with each clearing house, but depending on the net offsetting positions between CME and FICC, each clearing house may reduce that firm's performance bond requirements.

Each clearing firm for futures, options and cleared over-the-counter credit default swap contracts is also required to deposit and maintain specified guaranty fund contributions in the form of cash or approved securities. In the event that performance bonds, guaranty fund contributions, and other assets required to support clearing membership of a defaulting clearing firm are inadequate to fulfill that clearing firm's outstanding financial obligation, the entire guaranty fund for futures, contracts and cleared over-the-counter credit default swaps is available to cover potential losses after first utilizing CME surplus funds. CME surplus funds are operating funds of CME reduced by amounts needed for normal operations and $100.0 million of working capital designated by CME to be used in the event of default of a cleared over-the-counter interest rate swap clearing firm. Surplus funds totaled $221.7 million at December 31, 2010. The company's target for surplus funds is $100.0 million with amounts in excess of this target generally paid as a dividend from CME to CME Group on a quarterly basis based on prior quarter-end balances.

In addition, CME maintains a separate guaranty fund to support the cleared over-the-counter interest rate swap products. This is independent of the guaranty fund for futures, options and cleared over-the-counter credit default swap contracts and is isolated to clearing firms for interest rate swap products. Each clearing firm for cleared over -the-counter interest rate swaps is required to deposit and maintain specified guaranty fund contributions in the form of cash or approved securities. In the event that performance bonds, guaranty fund contributions and other assets required to support clearing membership of a defaulting clearing firm for cleared over-the-counter interest rate swap contracts are inadequate to fulfill that clearing firm's outstanding financial obligation, the guaranty fund for cleared over-the-counter interest rate swaps is available to cover potential losses after first utilizing $100.0 million of working capital designated by CME to be used in the event of default of a cleared over-the-counter interest rate swap clearing firm.

CME maintains a 364-day fully secured, committed line of credit with a consortium of domestic and international banks to be used in certain situations by the clearing house. CME may use the proceeds to provide temporary liquidity in the unlikely event of a clearing firm default, in the event of a liquidity constraint or default by a depositary (custodian of the collateral), or in the event of a temporary disruption with the domestic payments system that would delay payment of settlement variation between CME and its clearing firms. Clearing firm guaranty fund contributions received in the form of U.S. Treasury securities, Government agency securities or money market mutual funds as well as the performance bond assets of a defaulting firm can be used to collateralize the facility. The line of credit provides for borrowings of up to $1.0 billion. At December 31, 2010, guaranty fund collateral available was $2.2 billion. CME has the option to request an increase in the line from $1.0 billion to $2.0 billion. In addition to the 364-day fully secured, committed line of credit, the company also has the option to use the new $1.0 billion multi-currency revolving senior credit facility to provide liquidity for the clearing house in the unlikely event of default.

CME is required under the Commodity Exchange Act to segregate cash and securities deposited by clearing firms on behalf of their customers. In addition, CME rules require a segregation of all funds deposited by clearing firms from its operating funds.

Cash and non-cash deposits held as performance bonds and guaranty fund contributions at fair value at December 31 were as follows:

 

     2010      2009  

(in millions)

    Cash      Non-Cash
Deposits
and
IEF Funds		      Cash      Non-Cash
Deposits
and
IEF Funds		  

Performance bonds

    $ 3,717.0       $ 82,867.7       $ 5,834.6       $ 70,511.5   

Guaranty fund contributions

      231.8         2,828.3         102.6         2,652.2   

Cross-margin arrangements

      79.7         196.8         10.6         220.5   

Performance collateral for delivery

      10.0         2.1         34.1         2.6   
                                   

Total

    $ 4,038.5       $ 85,894.9       $ 5,981.9       $ 73,386.8   
                                   

The performance bond collateral and the guaranty fund contributions include collateral for clearing firms for the futures, options and cleared over-the-counter credit default swaps as well as cleared over-the-counter interest rate swaps.

Cash performance bonds may include intraday settlement, if any, that is owed to the clearing firms and paid the following business day. The balance of intraday settlements was $193.1 million at December 31, 2010 and $123.5 million at December 31, 2009. These amounts are invested on an overnight basis and are offset by an equal liability owed to clearing firms.

In addition to cash, securities and other non-cash deposits, irrevocable letters of credit may be used as performance bond deposits. At December 31, these letters of credit, which are not included in the accompanying consolidated balance sheets, were as follows:

 

(in millions)

    2010      2009  

Performance bonds

    $ 4,071.8       $ 4,000.9   

Performance collateral for delivery

      1,416.6         262.0   
                 

Total Letters of Credit

    $ 5,488.4       $ 4,262.9   
                 

All cash, securities and letters of credit posted as performance bonds are only available to meet the financial obligations of that clearing firm to CME.

Property
Property

7. PROPERTY

A summary of the property accounts at December 31 is presented below:

 

(in millions)

    2010     2009  

Land and land improvements

    $ 65.2      $ 59.1   

Building and building improvements

      454.9        438.8   

Leasehold improvements

      201.9        198.8   

Furniture, fixtures and equipment

      330.3        365.3   

Software and software development costs

      247.4        222.6   
                

Total property

      1,299.7        1,284.6   

Less accumulated depreciation and amortization

      (512.9 )      (546.1 ) 
                

Property, net

    $ 786.8      $ 738.5   
                
Intangible Assets and Goodwill
Intangible Assets and Goodwill

8. INTANGIBLE ASSETS AND GOODWILL

Intangible assets consisted of the following at December 31:

 

    2010     2009  

(in millions)

   Cost     Accumulated
Amortization		     Net Book
Value		     Cost     Accumulated
Amortization		     Net Book
Value		  

Amortizable Intangible Assets:

            

Clearing firm, market data and other customer relationships

   $ 3,081.0      $ (292.3 )    $ 2,788.7      $ 2,842.5      $ (186.8 )    $ 2,655.7   

Lease-related intangibles

     83.2        (33.5 )      49.7        83.2        (21.7 )      61.5   

Dow Jones trading products(1)

    —          —          —          74.0        (16.6 )      57.4   

Technology-related intellectual property

     51.3        (17.8 )      33.5        28.4        (10.3 )      18.1   

Open interest

     —          —          —          12.3        (12.3 )      —     

Other(2)

    15.1        (11.8 )      3.3        13.3        (8.5 )      4.8   
                                               
    3,230.6        (355.4 )      2,875.2        3,053.7        (256.2 )      2,797.5   

Foreign currency translation adjustments

     (8.7 )      4.3        (4.4 )      (7.8 )      2.5        (5.3 ) 
                                               

Total Amortizable Intangible Assets

   $ 3,221.9      $ (351.1 )      2,870.8      $ 3,045.9      $ (253.7 )      2,792.2   
                                   

Indefinite-Lived Intangible Assets:

            

Trade names(3)

        582.9            452.1   

Other(4)

        —              2.6   

Foreign currency translation adjustments

         (0.4 )          (0.4 ) 
                       

Total intangible assets—other, net

       $ 3,453.3          $ 3,246.5   
                       

Indefinite-lived trading products(4)

      $ 17,040.5          $ 16,982.0   
                       

(1) In connection with CBOT's acquisition of 90% ownership in Index Services, the company acquired a perpetual license to the Dow Jones indexes trade names. As a result, it now considers Dow Jones trading products to be indefinite-lived.
(2) At December 31, 2010 and 2009, other amortizable intangible assets consisted of non-compete, service and market maker agreements as well as a definite-lived trade name.
(3) In the second quarter of 2010, the company recorded a $0.7 million impairment charge to the CMA trade name as a result of its annual impairment testing.
(4) At December 31, 2009, other indefinite-lived intangible assets consisted of products in development. As of December 31, 2010, the products in development have been reclassified to indefinite-lived trading products.

 

Total amortization expense for intangible assets was $128.1 million, $125.1 million and $98.7 million for the years ended December 31, 2010, 2009 and 2008, respectively. As of December 31, 2010, the future estimated amortization expense related to amortizable intangible assets is expected to be:

 

(in millions)

       

2011

    $ 131.7   

2012

      126.1   

2013

      120.0   

2014

      118.3   

2015

      114.4   

Thereafter

      2,260.3   

Goodwill activity consisted of the following for the years ended December 31, 2010 and 2009:

 

(in millions)

    Balance at
December 31,
2009		      Business
Combinations		      Impairment
Adjustment		     Other
Activity(5)		     Balance at
December 31,
2010		  

CBOT Holdings

    $ 5,035.7       $ —         $ —        $ —        $ 5,035.7   

NYMEX Holdings

      2,463.1         —           —          (0.8 )      2,462.3   

Index Services

      —           435.6         —          —          435.6   

Other

      50.4         21.1         (19.8 )      (1.7 )      50.0   
                                          

Total Goodwill

    $ 7,549.2       $ 456.7       $ (19.8 )    $ (2.5 )    $ 7,983.6   
                                          

(in millions)

    Balance at
December 31,
2008		      Business
Combinations		      Impairment
Adjustment		     Other
Activity(5)		     Balance at
December 31,
2009		  

CBOT Holdings

    $ 5,036.1       $ —         $ —        $ (0.4 )    $ 5,035.7   

NYMEX Holdings

      2,436.7         —           —          26.4        2,463.1   

Other

      46.4         —           —          4.0        50.4   
                                          

Total Goodwill

    $ 7,519.2       $ —         $ —        $ 30.0      $ 7,549.2   
                                          

(5) Other activity includes adjustments to restructuring costs and tax contingencies for CBOT Holdings and NYMEX Holdings, the recognition of excess tax benefits upon exercise of stock options assumed for CBOT Holdings and NYMEX Holdings, and foreign currency translation adjustments.

The company conducts impairment testing of goodwill and indefinite-lived intangible assets at least annually. During the second quarter of 2010, the company recorded a $19.8 million impairment charge to reduce the carrying amount of CMA goodwill to its estimated fair value.

Long-term Investments
Long-term Investments

9. LONG-TERM INVESTMENTS

The company maintains various long-term investments as described below. The investments are recorded in other assets in the consolidated balance sheets.

BM&FBOVESPA SA. The company owns an approximate 5% interest in BM&FBOVESPA S.A (BM&FBOVESPA) and accounts for its investment using the cost method. BM&FBOVESPA is a stock and derivatives exchange in Brazil. CME Group and BM&FBOVESPA have entered into several agreements including order routing and technology development arrangements. In December 2008, the company reduced its investment in BM&FBOVESPA by $368.4 million consisting of $274.5 million of impairment expense due to a decline in BM&FBOVESPA's market value and $93.9 million of unrealized losses in accumulated other comprehensive income (loss) due to unfavorable changes in foreign exchange rates between the U.S. dollar and Brazilian real. The company may not sell its shares in BM&FBOVESPA until February 2012. As a result, BM&FBOVESPA stock will be carried at cost until within twelve months of the restriction lapsing, after which time the stock will be accounted for as an available-for-sale security.

Bolsa Mexicana de Valores, S.A.B de C.V. In March 2010, CME Group acquired approximately 2% of Bolsa Mexicana de Valores, S.A.B. de C.V. (Bolsa Mexicana), a financial exchange operator in Mexico. The company accounts for its investment in Bolsa Mexicana as available-for-sale. CME Group and Bolsa Mexicana maintain a strategic partnership that includes an order routing agreement for derivative products.

Bursa Malaysia Derivatives Berhad. CME Group owns a 25% interest in Bursa Malaysia Derivatives Berhad (Bursa Derivatives). CME Group and Bursa Derivatives entered into an agreement under which CME will provide order routing and trade matching services for derivatives and an agreement to license certain products from Bursa Derivatives. CME Group accounts for its investment in Bursa Derivatives using the equity method of accounting. The company may not sell its shares in Bursa Derivatives until November 2013.

DME Holdings Limited. The company owns an approximate 28% interest in DME Holdings Limited (DME Holdings). CME Group accounts for its investment in DME Holdings using the equity method of accounting. CME Group and DME Holdings maintain an agreement for Dubai Mercantile Exchange (DME) futures contracts to be exclusively traded on the CME Globex platform. At December 31, 2009, the company determined that its investment in DME Holdings was impaired due to the excess of its carrying value over the estimated fair value. As a result, the company recognized an impairment charge of $23.6 million in 2009.

Green Exchange Holdings LLC. The company owns approximately 35% of Green Exchange Holdings LLC (GX Holdings) and accounts for its investment under the equity method of accounting. GX Holdings owns The Green Exchange (GreenX), which provides environmental futures and options contracts. GX Holdings is considered a variable interest entity under accounting guidance for variable interest entities. However, CME Group is not the primary beneficiary and therefore the company does not consolidate GreenX within its consolidated financial statements.

IMAREX ASA. CME Group owns approximately 15% of IMAREX ASA (IMAREX). IMAREX is a derivatives exchange specializing in freight forward agreements. The investment in IMAREX is accounted for as available-for-sale. In September 2009, CME Group determined that its investment in IMAREX was impaired due to an extended and significant decline in the market price of its stock. As a result, CME Group recognized an impairment charge of $22.4 million in 2009.

TMX Group Inc. CME Group owned approximately 2% of TMX Group Inc. (TMX Group) until November 2010. TMX Group is an integrated, multi-asset class exchange group based in Canada. The investment in TMX Group was accounted for as available-for-sale. In November 2010, the investment in TMX Group was liquidated. As a result of the sale, CME Group recognized a $1.2 million gain.

Building Tenant Leases
Building Tenant Leases

10. BUILDING TENANT LEASES

The company maintains three buildings in Chicago and one in New York. A portion of the space in these buildings is utilized by the company as office space and for the trading floors. The remaining space is leased by third party tenants, including customers and shareholders, over terms ranging from one to eighteen years. The terms of the leases with customers and shareholders are consistent with terms for other third-party tenants.

 

Minimum future cash flows from rental revenue are as follows:

 

(in millions)

    Minimum
Rental
Payments		  

2011

    $ 31.8   

2012

      27.4   

2013

      20.5   

2014

      14.9   

2015

      12.0   
Other Assets
Other Assets

11. OTHER ASSETS

Other assets consisted of the following at December 31:

 

(in millions)

    2010      2009  

BM&FBOVESPA common stock

    $ 262.9       $ 262.9   

Bursa Derivatives common stock

      26.5         25.7   

Bolsa Mexicana common stock

      24.5         —     

IMAREX common stock

      21.5         21.8   

Deferred rental income

      17.9         19.0   

Other long-term investments

      8.3         16.5   

Other prepaid expenses

      6.3         24.5   

TMX Group common stock

      —           44.4   

Other

      26.5         21.0   
                 

Total

    $ 394.4       $ 435.8   
                 
Debt
Debt

12. DEBT

Short -term debt consisted of the following at December 31:

 

(in millions)

    2010      2009  

$300.0 million floating rate notes due August 2010, interest equal to 3-month LIBOR plus 0.65%, reset quarterly(1)

   $ —         $ 299.8   

Term loan due 2011, interest equal to 3-month LIBOR plus 1.00%, reset quarterly(2)

     420.5         —     
                 

Total short-term debt

    $ 420.5       $ 299.8   
                 

Long-term debt consisted of the following at December 31:

 

(in millions)

    2010      2009  

Term loan due 2011, interest equal to 3-month LIBOR plus 1.00%, reset quarterly(2)

   $ —         $ 420.5   

$750.0 million fixed rate notes due August 2013, interest equal to 5.40%

      748.6         748.0   

$750.0 million fixed rate notes due February 2014, interest equal to 5.75%

      747.1         746.2   

$612.5 million fixed rate notes due March 2018, interest equal to 4.40%(3)

     609.1         —     

Commercial paper(4)

     —           100.0   
                 

Total long-term debt

    $ 2,104.8       $ 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 November 6, 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 October 22, 2008. This interest rate swap was terminated in January 2011 when the term loan was repaid.
(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 March 18, 2010.
(4) At December 31, 2009, this represented commercial paper backed by a three-year senior credit facility.

Commercial paper notes with an aggregate par value of $1.3 billion and maturities ranging from 2 to 61 days were issued during 2010. The weighted average discount rate for commercial paper outstanding at December 31, 2009 was 0.24%. There was no commercial paper outstanding at December 31, 2010. During 2010 and 2009, the weighted average balance, at par value, of commercial paper outstanding was $83.4 million and $554.2 million, respectively. In 2010, the maximum month-end balance for commercial paper was $300.0 million in February. In 2009, the maximum month-end balance was $1.5 billion in January.

Long-term debt maturities, at par value, were as follows as of December 31, 2010:

 

(in millions)

       

2011

    $ —     

2012

      —     

2013

      750.0   

2014

      750.0   

2015

      —     

Thereafter

      612.5   

The fair values of the fixed rate notes due 2013 and 2014 were estimated using quoted market prices. The fair value of the fixed rate notes due 2018 was derived using a standard valuation model with market-based observable inputs including U.S. Treasury yields and interest rate spreads. At December 31, 2010, the fair values of the fixed rate notes by maturity date were as follows.

 

(in millions)

    Fair Value  

$750.0 million fixed rate notes due August 2013

    $ 824.8   

$750.0 million fixed rate notes due February 2014

      833.3   

$612.5 million fixed rate notes due March 2018

      624.1   
Other Current Liabilities
Other Current Liabilities

13. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following at December 31:

 

(in millions)

    2010      2009  

Accrued employee bonuses

    $ 70.7       $ 35.9   

Accrued operating expenses

      63.3         34.7   

Debt interest payable

      42.1         34.6   

Accrued salaries and benefits

      26.8         17.4   

Unearned revenue

      17.6         4.9   

Broker fee rebate

      16.3         16.4   

Derivative investment liability

      11.8         19.3   

Accrued real estate taxes

      6.2         9.1   

Accrued income taxes

      —           15.2   

Other

      15.6         7.7   
                 

Total

    $ 270.4       $ 195.2   
               
Income Taxes
Income Taxes

14. INCOME TAXES

Income before income taxes and the income tax provision consisted of the following for the years ended December 31:

 

(in millions)

    2010     2009     2008  

Income before income taxes:

       

Domestic

    $ 1,733.0      $ 1,438.0      $ 1,589.3   

Foreign

      (11.1 )      (0.5 )      (341.3 ) 
                        

Total

    $ 1,721.9      $ 1,437.5      $ 1,248.0   
                        

Income tax provision:

       

Current:

       

Federal

    $ 601.6      $ 536.9      $ 555.2   

State

      148.9        126.5        92.6   

Foreign

      (3.0 )      5.2        (0.2 ) 
                        

Total

      747.5        668.6        647.6   

Deferred:

       

Federal

      (53.9 )      9.3        (117.1 ) 

State

      76.1        (58.4 )      3.3   

Foreign

      0.1        (7.8 )      (1.3 ) 
                        

Total

      22.3        (56.9 )      (115.1 ) 
                        

Total Income Tax Provision

    $ 769.8      $ 611.7      $ 532.5   
                        

Reconciliation of the statutory U.S. federal income tax rate to the effective tax rate is as follows:

 

     2010     2009     2008  

Statutory U.S. federal tax rate

      35.0 %      35.0 %      35.0 % 

State taxes, net of federal benefit

      5.8        5.7        5.7   

Impact of NYMEX acquisition on existing deferred taxes

      —          —          3.9   

Impact of Illinois tax law change

      —          —          (3.1 ) 

Impact of New York City tax law change

      —          (2.7 )      —     

Increase (decrease) in domestic valuation allowance

      (0.1 )      4.5        —     

Impact of revised state apportionment estimates

      3.0        —          —     

Other, net

      1.0        0.1        1.2   
                        

Effective Tax Rate

      44.7 %      42.6 %      42.7 % 
                        

 

At December 31, deferred tax assets (liabilities) consisted of the following:

 

(in millions)

    2010     2009  

Net Current Deferred Tax Assets:

     

Unrealized loss on securities

    $ 3.5      $ 10.0   

Stock-based compensation

      4.4        4.8   

Accrued expenses and other

      10.4        9.0   
                

Net Current Deferred Tax Assets

    $ 18.3      $ 23.8   
                

Net Non-Current Deferred Tax Assets:

     

Domestic unrealized loss on investment in BM&FBOVESPA

    $ 145.8      $ 145.9   

Foreign losses

      146.3        152.0   

Stock-based compensation

      42.6        32.0   

Deferred compensation

      13.0        11.3   

Unrealized loss on securities

      45.9        54.0   

Accrued expenses and other

      42.9        51.5   
                

Subtotal

      436.5        446.7   

Valuation allowance

      (258.4 )      (264.4 ) 
                

Total non-current deferred tax assets

      178.1        182.3   

Non-Current Deferred Tax Liabilities:

     

Purchase intangible assets

      (7,957.8 )      (7,773.2 ) 

Property

      (60.7 )      (55.0 ) 
                

Total non-current deferred tax liabilities

      (8,018.5 )      (7,828.2 ) 
                

Net Non-Current Deferred Tax Liabilities

    $ (7,840.4 )    $ (7,645.9 ) 
                

A valuation allowance is recorded when it is more-likely-than-not that some portion or all of the deferred tax assets may not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. A valuation allowance has been provided as of December 31, 2010 and 2009 for net operating loss carryforwards obtained through the acquisition of Swapstream and for net operating losses generated by those operations subsequent to the acquisition. In addition, a valuation allowance has been provided as of December 31, 2010 and 2009 for the unrealized capital losses incurred in Brazil. During the years ended December 31, 2010 and 2009, the company also recorded a partial valuation allowance on its domestic unrealized capital losses. The valuation allowance was recorded for the excess of the unrealized capital losses over the unrealized capital gains of the company.

The following is a summary of the company's unrecognized tax benefits:

 

(in millions)

    2010      2009      2008  

Gross unrecognized tax benefits

    $ 56.4       $ 42.6       $ 21.5   

Unrecognized tax benefits, net of tax impacts in other jurisdictions

      43.0         33.5         14.7   

Interest and penalties related to uncertain tax positions

      15.5         8.7         6.7   

Interest and penalties recognized in the consolidated statements of income

      5.4         2.4         2.2   

Given the current status of the various examinations in progress, the company does not believe that it is reasonably possible that its unrecognized tax benefits will change significantly within the next twelve months.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

(in millions)

    2010     2009     2008  

Balance at January 1

    $ 42.6      $ 21.5      $ 9.7   

Unrecognized tax benefits acquired at dates of mergers

      —          9.7        1.6   

Additions based on tax positions related to the current year

      10.4        6.7        5.9   

Additions for tax positions of prior years

      4.1        8.1        7.2   

Reductions for tax positions of prior years

      —          (1.2 )      (1.7 ) 

Reductions resulting from the lapse of statutes of limitations

      (0.5 )      —          —     

Settlements with taxing authorities

      (0.2 )      (2.2 )      (1.2 ) 
                        

Balance at December 31

    $ 56.4      $ 42.6      $ 21.5   
                        

The company is subject to U.S. federal income tax as well as income taxes in Illinois and multiple other state, local and foreign jurisdictions. Substantially all federal and state income tax matters have been concluded through 2005 and 2004, respectively.

Employee Benefit Plans
Employee Benefit Plans

15. EMPLOYEE BENEFIT PLANS

Pension Plans. CME Group maintains a non-contributory defined benefit cash balance pension plan for eligible employees. CME's plan provides for a contribution to the cash balance account based on age and earnings and includes salary and cash bonuses in the definition of earnings. Employees who have completed a continuous 12-month period of employment and have reached the age of 21 are eligible to participate. Participant cash balance accounts receive an interest credit equal to the greater of the one-year constant maturity yield for U.S. Treasury notes or 4.0%. Participants become vested in their accounts after three years of service. The measurement date used for the plan is December 31.

The following is a summary of the change in projected benefit obligation:

 

(in millions)

    2010     2009  

Balance at January 1

    $ 107.5      $ 88.4   

Service cost

      11.6        9.7   

Interest cost

      6.5        5.9   

Actuarial (gain) loss

      (3.0 )      8.8   

Benefits paid

      (4.4 )      (5.3 ) 
                

Balance at December 31

    $ 118.2      $ 107.5   
                

The aggregate accumulated benefit obligation at December 31, 2010 and 2009 was $105.9 million and $93.1 million, respectively.

The following is a summary of the change in plan assets:

 

(in millions)

    2010     2009     2008  

Balance at January 1

    $ 107.7      $ 93.8      $ 97.9   

Actual return on plan assets

      12.8        10.7        (19.5 ) 

Employer contributions

      5.2        8.5        31.0   

Benefits paid

      (4.4 )      (5.3 )      (15.6 ) 
                        

Balance at December 31

    $ 121.3      $ 107.7      $ 93.8   
                        

 

The fair value of each major category of plan assets as of December 31 is indicated below. The assets are classified into a fair value hierarchy in their entirety based on the lowest level of input that is significant to each asset or liability's fair value measurement. Level 1 assets are valued using unadjusted market prices for identical assets in active markets based on the valuation date. Valuation techniques for level 2 assets use significant observable inputs such as quoted prices for similar assets, quoted market prices in inactive markets and other inputs that are observable or can be supported by observable market data.

 

(in millions)

    2010      2009  

Level 1:

      

Mutual Funds:

      

Fixed Income

    $ —         $ 6.1   

Level 2:

      

Money market funds

      12.4         40.5   

Mutual funds:

      

U.S. equity

      31.7         27.4   

Foreign equity

      31.5         10.8   

Fixed income

      39.9         19.5   

Commodity

      5.8         3.4   
                 

Total

    $ 121.3       $ 107.7   
                 

At December 31, 2010 and 2009, the fair value of pension plan assets exceeded the projected benefit obligation by $3.1 million and $0.2 million, respectively. This excess was recorded as a non-current pension asset.

The funding goal for the exchange is to have its pension plan 100% funded at each year end on a projected benefit obligation basis, while also satisfying any minimum required contribution and obtaining the maximum tax deduction. Year-end 2010 assumptions have been used to project the assets and liabilities from December 31, 2010 to December 31, 2011. The result of this projection is that estimated liabilities would exceed the fair value of the plan assets at December 31, 2011 by approximately $14.1 million. Accordingly, it is estimated that a $14.1 million contribution in 2011 will allow the company to meet its funding goal.

The components of net pension expense and the assumptions used to determine the end-of-year projected benefit obligation and net pension expense in aggregate are indicated below:

 

(in millions)

    2010     2009     2008  

Components of Net Pension Expense:

       

Service cost

    $ 11.6      $ 9.7      $ 8.2   

Interest cost

      6.5        5.9        5.6   

Expected return on plan assets

      (8.3 )      (7.0 )      (7.0 ) 

Recognized net actuarial loss

      2.2        2.7        0.4   
                        

Net Pension Expense

    $ 12.0      $ 11.3      $ 7.2   
                        

Assumptions Used to Determine End-of-Year Benefit Obligation:

       

Discount rate

      5.70 %      5.70 %      6.10 % 

Rate of compensation increase

      5.00        5.00        5.00   

Cash balance interest crediting rate

      4.00        4.00        4.10   

Assumptions Used to Determine Net Pension Expense:

       

Discount rate

      5.70 %      6.10 %      6.10 % 

Rate of compensation increase

      5.00        5.00        5.00   

Expected return on plan assets

      8.00        8.00        8.00   

Interest crediting rate

      4.00        4.00        4.10   

Beginning in 2010, the discount rate for the plan is determined based on the market value of a theoretical settlement bond portfolio. This portfolio consists of U.S. dollar denominated Aa-rated corporate bonds across the full maturity spectrum. A single equivalent discount rate is determined to align the present value of the required cash flow with that settlement value. The resulting discount rate is reflective of both the current interest rate environment and the plan's distinct liability characteristics.

Prior to 2010, the discount rate for the plan was determined based on an interest rate yield curve. The yield curve was comprised of bonds with a rating of Aaa and Aa and maturities between zero and thirty years. The expected annual benefit cash flows for the plan was discounted to develop a single-point discount rate by matching the plan's expected payout structure to such yield curve.

The basis for determining the expected rate of return on plan assets for the plan is comprised of three components: historical returns, industry peers and forecasted return. The plan's total return is expected to equal the composite performance of the security markets over the long term. The security markets are represented by the returns on various domestic and international stock, bond and commodity indexes. These returns are weighted according to the allocation of plan assets to each market and measured individually.

The overall objective of the plan is to meet required long-term rates of return in order to meet future benefit payments. The component of the investment policy for the plan that has the most significant impact on returns is the asset mix. The asset mix has a minimum and maximum range depending on asset class. The plan assets are diversified to minimize the risk of large losses by any one or more individual assets. Such diversification is accomplished, in part, through the selection of asset mix and investment management. The asset allocation for the plan, by asset category, at December 31 was as follows:

 

     2010     2009  

Fixed income

      32.9 %      23.8 % 

U.S. equity

      26.1        25.4   

Foreign equity

      26.0        10.0   

Money market funds

      10.2        37.6   

Commodity

      4.8        3.2   

The range of target allocation percentages for 2011 is as follows:

 

     Minimum     Maximum  

U.S. equity

      23.5 %      35.0 % 

Foreign equity

      23.5        35.0   

Fixed income

      33.0        45.0   

Commodity

      2.0        8.0   

According to the plan's investment policy, the plan is not allowed to invest in securities that compromise independence, short sales of securities directly owned by the plan, securities purchased on margin or other uses of borrowed funds, derivatives not used for hedging purposes, restricted stock or illiquid securities or any other transaction prohibited by employment laws. If the plan directly invests in short-term and long-term debt obligations, the investments are limited to obligations rated at the highest rating category by Standard & Poor's (S&P) or Moody's.

The balance and activity of the prior service costs and actuarial losses, which are included in other comprehensive income (loss), for 2010 are as follows:

 

(in millions)

    Prior
Service
Costs		      Actuarial
Loss		  

Balance at January 1

    $ 0.2       $ 35.5   

Unrecognized gain

      —           (7.4 ) 

Recognized as a component of net pension expense

      —           (2.2 ) 
                 

Balance at December 31

    $ 0.2       $ 25.9   
                 

 

The company expects to amortize $1.7 million of actuarial loss from accumulated other comprehensive income (loss) into net periodic benefit costs in 2011.

At December 31, 2010, anticipated benefit payments from the plan in future years are as follows:

 

(in millions)

    Year  

2011

    $ 7.2   

2012

      8.2   

2013

      8.6   

2014

      9.5   

2015

      10.0   

2016-2020

      62.8   

Savings Plans. CME maintains a defined contribution savings plan pursuant to Section 401(k) of the Internal Revenue Code, whereby all U.S. employees are participants and have the option to contribute to this plan. CME matches employee contributions up to 3% of the employee's base salary and may make additional discretionary contributions of up to 2% of base salary.

In addition, certain CME London-based employees are eligible to participate in a defined contribution plan. For CME London-based employees, the plan provides for company contributions of 10% of earnings and does not have any vesting requirements. Salary and cash bonuses paid are included in the definition of earnings.

Aggregate expense for all of the defined contribution savings plans amounted to $6.3 million, $5.2 million and $5.8 million in 2010, 2009 and 2008, respectively.

CME Non-Qualified Plans. CME maintains non-qualified plans, under which participants may make assumed investment choices with respect to amounts contributed on their behalf. Although not required to do so, CME invests such contributions in assets that mirror the assumed investment choices. The balances in these plans are subject to the claims of general creditors of the exchange and totaled $28.8 million and $23.4 million at December 31, 2010 and 2009, respectively. Although the value of the plans is recorded as an asset in the consolidated balance sheets, there is an equal and offsetting liability. The investment results of these plans have no impact on net income as the investment results are recorded in equal amounts to both investment income and compensation and benefits expense.

Supplemental Savings Plan—CME maintains a supplemental plan to provide benefits for employees who have been impacted by statutory limits under the provisions of the qualified pension and savings plan. All CME employees hired prior to January 1, 2007 are immediately vested in their supplemental plan benefits. All CME employees hired on or after January 1, 2007 are subject to the vesting requirements of the underlying qualified plans. Total expense for the supplemental plan was $0.9 million, $0.7 million and $1.3 million for 2010, 2009 and 2008, respectively.

Deferred Compensation Plan—A deferred compensation plan is maintained by CME, under which eligible officers and members of the Board of Directors may contribute a percentage of their compensation and defer income taxes thereon until the time of distribution.

NYMEX Members' Retirement Plan and Benefits. NYMEX maintained a retirement and benefit plan under the Commodities Exchange, Inc. (COMEX) Members' Recognition and Retention Plan (MRRP). This plan provides benefits to certain members of the COMEX division based on long-term membership, and participation is limited to individuals who were COMEX division members prior to NYMEX's acquisition of COMEX in 1994. No new participants were permitted into the plan after the date of this acquisition. Under the terms of the MRRP, the company is required to fund the plan with a minimum annual contribution of $0.4 million until it is fully funded. All benefits to be paid under the MRRP are based on reasonable actuarial assumptions which are based upon the amounts that are available and are expected to be available to pay benefits. Total contributions to the plan were $0.8 million for each of 2010, 2009 and for the period August 23 through December 31, 2008. At December 31, 2010 and 2009, the total obligation for the MRRP totaled $20.7 million and $20.5 million, respectively. Assets with a fair value of $15.8 million and $14.4 million have been allocated to this plan at December 31, 2010 and 2009, respectively, and are included in marketable securities in the consolidated balance sheets.

Other Liabilities
Other Liabilities

16. OTHER LIABILITIES

Other liabilities consisted of the following at December 31:

 

(in millions)

    2010      2009  

Accrued federal and state tax

    $ 71.9       $ 51.3   

Deferred rent

      51.6         49.9   

Post-retirement and non-qualified benefit plans

      27.7         29.5   

Non-qualified deferred compensation plans

      31.3         25.6   

Derivative contracts

      —           7.0   

Other

      9.0         2.5   
                 

Total

    $ 191.5       $ 165.8   
                 
Commitments
Commitments

17. COMMITMENTS

Operating Leases. CME Group has commitments under operating leases for certain facilities. In July 2008, the company renegotiated the operating lease for its headquarters at 20 South Wacker Drive in Chicago. The lease, which has an initial term ending on November 30, 2022, contains two consecutive renewal options for seven and ten years and a contraction option which allows the company to reduce its occupied space after November 30, 2018. In addition, the company may exercise a lease expansion option in December 2012 and in December 2017. Annual minimum rental payments under the headquarters operating lease range from $8.5 million to $13.6 million.

In August 2006, CME Group entered into an operating lease for additional office space in Chicago. The initial lease term, which became effective on August 10, 2006, terminates on November 30, 2023. The lease contains two 5-year renewal options beginning in 2023. Annual minimum rental payments for this lease range from $3.9 million to $6.2 million.

In May 1995, NYMEX Holdings signed a ground lease (expiring June 2069, with an option to terminate without penalty in June 2012) with Battery Park City Authority (BPCA) for the site where it constructed its headquarters and trading facility. Annual minimum rental payments are $2.0 million. The lease establishes payments in lieu of taxes (PILOTs) due to New York City. PILOTs are entirely abated until May 17, 2015 for the trading floor of the facility.

Leases for other locations where CME Group maintains space expire at various times from 2011 to 2017 with annual minimum rentals that will not exceed $8.0 million in any year.

Total rental expense, including equipment rental, was $35.5 million in 2010, $33.7 million in 2009 and $36.2 million in 2008.

Future minimum payments under non-cancelable operating leases are payable as follows (in millions):

 

Year

       

2011

    $ 22.5   

2012

      21.7   

2013

      22.0   

2014

      21.7   

2015

      19.4   

Thereafter

      142.5   
        

Total

    $ 249.8   
        

 

Other Commitments. Commitments include material contractual purchase obligations that are non-cancelable. Purchase obligations relate primarily to software licenses, hardware and maintenance as well as telecommunication services.

Future minimum payments due under purchase obligations in effect at December 31, 2010 are payable as follows (in millions):

 

Year

       

2011

    $ 10.4   

2012

      6.3   

2013

      0.2   

2014

      0.2   

2015

      0.2   

Thereafter

      —     
        

Total

    $ 17.3   
        

Licensing Agreements. CME Group has various licensing agreements including agreements with S&P and NASDAQ OMX Group, Inc. (NASDAQ OMX) relating to certain equity index products. The license agreement with S&P provides that the S&P 500 Index futures and options will be exclusive through December 31, 2016 as long as certain volume requirements are met. The company maintains a license agreement with NASDAQ OMX, which is exclusive with respect to futures and options contracts based on certain NASDAQ OMX indexes through October 9, 2019.

Prior to March 18, 2010, CME Group maintained a product licensing agreement with Dow Jones. The agreement enabled the exchange to exclusively offer futures and options on futures products based on the Dow Jones Industrial Average and other Dow Jones indexes. On March 18, 2010, CBOT acquired a 90% ownership interest in Index Services. As part of the formation of Index Services, Dow Jones contributed the Dow Jones indexes to Index Services. As a result, CBOT now has a perpetual and exclusive license to the Dow Jones indexes.

Other Agreements. In 1994, NYMEX entered into a letter of intent with BPCA, New York Economic Development Corporation (EDC) and Empire State Development Corporation (ESDC) to construct a new trading facility and office building on a site in Battery Park City. By agreement dated May 18, 1995, the EDC and ESDC agreed to provide funding of $128.7 million to construct the facility. NYMEX is liable for liquidated damages on a declining scale if it violates terms of the occupancy agreement at any time prior to 15 years from the date of occupancy, July 7, 1997. Such a violation could also potentially trigger a cross default under the ground lease described in operating leases.

In 2002, NYMEX entered into an agreement and received a $5.0 million grant from ESDC. This agreement requires NYMEX to maintain certain annual employment levels, and the grant is subject to recapture amounts, on a declining scale, through January 1, 2012.

Contingencies
Contingencies

18. CONTINGENCIES

Legal Matters. In 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 tortuously 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 treble damages. In 2007, CME and CBOT filed two joint motions for summary judgment. In July 2010, the judge partially granted the company's motion for summary judgment on the predatory pricing claims, finding no factual basis for such claims. 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 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 of two U.S. patents, in addition to costs, expenses and attorneys' fees. Discovery in the matter is ongoing and trial is set for 2012. 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 2009, CME and CBOT filed a complaint against Howard Garber seeking a declaratory judgment that neither CME nor CBOT was infringing certain of Mr. Garber's patents and that one of his patents is invalid and unenforceable. In 2009, Technology Research Group LLC, the current owner of one of the patents at issue, filed counterclaims alleging that CME and CBOT infringe, induce or contribute to the infringement and willfully infringe its patent. Technology Research is seeking an injunction and damages no less than a reasonable royalty. Discovery in the matter is scheduled to be completed at the end of February and trial is set for June 2011. 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 2009, Realtime Data LLC filed a complaint against CME Group and other exchanges alleging willful infringement of four patents which was later amended to add CBOT and NYMEX as defendants. Subsequently, two additional lawsuits have been filed each adding a claim for the infringement of an additional patent. One of these lawsuits has been consolidated with the original action and the other is under consideration for consolidation. Realtime Data is seeking a permanent injunction, enhanced damages, attorneys' fees and costs. Discovery in the matter is ongoing and trial is set for 2012. 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; licensing CME SPAN software; and calculating indexes as a service provider and licensing indexes as the basis of financial products 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

19. GUARANTEES

Mutual Offset Agreement. CME and Singapore Exchange Limited (SGX) have a mutual offset agreement with a current term through October 2011. 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 December 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 guaranty fund contributions of the defaulting clearing firm.

Cross-Margin Agreements. CME and The Options Clearing Corporation (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 would be 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 deposits with each clearing house, but depending on the net offsetting positions between CME and FICC, each clearing house may reduce the firm's performance bond requirement. In the event of a firm default, the total liquidation net gain or loss on the firm's offsetting open positions and the proceeds from the liquidation of the performance bond collateral held by each clearing house's supporting offsetting positions would be divided evenly between CME and FICC. Additionally, if, after liquidation of all the positions and collateral of the defaulting firm at each respective clearing organization, and taking into account any cross-margining loss sharing payments, any of the participating clearing organizations has a remaining liquidating surplus, and any other participating clearing organization has a remaining liquidating deficit, any additional surplus from the liquidation would be shared with the other clearing house to the extent that it has a remaining liquidating deficit. Any remaining surplus funds would be passed to the bankruptcy trustee.

GFX Corporation Letter of Credit. CME guarantees a $5.0 million standby letter of credit for GFX Corporation (GFX). The beneficiary of the letter of credit is the clearing firm that is used by GFX to execute and maintain its futures positions. Per exchange requirements, GFX is required to place performance bond deposits with its clearing firm. The letter of credit, utilized as a performance bond, would be drawn on in the event that GFX defaults in meeting requirements to its clearing firm. In the unlikely event of a payment default by GFX, if GFX's performance bond is not sufficient to cover the deficit, CME would guarantee the remaining deficit, if any.

Derivative Instruments
Derivative Instruments

20. DERIVATIVE INSTRUMENTS

The company mitigates certain financial exposures to interest rate risk and foreign currency exchange rate risk through the use of derivative financial instruments as part of its risk management program. The company does not use derivative instruments for trading purposes. All derivatives have been designated as cash flow hedges.

The fair value of derivative instruments and their location in the consolidated balance sheets at December 31 were as follows:

 

          Fair Value  

(in millions)

   

Location

    2010      2009  

Interest rate contracts

    Other current liabilities    $ 11.8       $ 19.3   

Interest rate contracts

    Other liabilities      —           7.0   
                    

Total Derivatives

       $ 11.8       $ 26.3   
                    

The effect of derivative instruments on the consolidated statements of income and consolidated statements of shareholders' equity for the years ended December 31 were as follows:

 

    Gains (Losses)
Recognized in OCI
(Effective Portion)		    

Gains (Losses) Reclassified from
Accumulated OCI (Effective Portion)

    

Gains (Losses) Recognized in Income
(Ineffective Portion)

  

(in millions)

     2010         2009      

Location

     2010         2009      

Location

     2010         2009    

Contract Type:

                

Interest rate contracts

   $ (9.7 )    $ (8.8 )   

Interest and other borrowing costs

   $ (20.0 )    $ (21.0 )   

Gains (losses) on derivative investments

   $ (8.6 )    $ —     

Foreign exchange contracts

     —          —       

Gains (losses) on derivative investments

     —          —       

Gains (losses) on derivative investments

     6.0        —     
                                                   

Total Derivatives

   $ (9.7 )    $ (8.8 )      $ (20.0 )    $ (21.0 )      $ (2.6 )    $ —     
                                                   

 

Interest Rate Derivatives. In connection with the issuance of floating rate debt in August and October 2008, the company entered into three interest rate swap contracts, designated as cash flow hedges, for purposes of hedging against a change in interest payments due to fluctuations in the underlying benchmark rate. In December 2010, the company approved a plan to refinance the term loan in January 2011 resulting in an $8.6 million loss on derivative instruments as a result of ineffectiveness on the associated interest rate swap contract.

To mitigate counterparty credit risk, the interest rate swap contracts required collateralization by both counterparties for the swaps' aggregate net fair value during their respective terms. Collateral was maintained in the form of cash and adjusted on a daily basis.

In February 2010, the company entered into a forward starting interest rate swap contract, designated as a cash flow hedge, for purposes of hedging against a change in interest payments due to fluctuations in the underlying benchmark rate between the date of the swap and the forecasted issuance of fixed rate debt in March 2010. The swap was highly effective.

Foreign Currency Derivatives. In connection with its purchase of BM&FBOVESPA stock in February 2008, CME Group purchased a put option to hedge against changes in the fair value of BM&FBOVESPA stock resulting from foreign currency rate fluctuations between the 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. In March 2010, the company recognized a $6.0 million gain on derivative instruments as a result of a settlement from the Lehman bankruptcy proceedings.

Capital Stock
Capital Stock

21. CAPITAL STOCK

Shares Outstanding. The following table presents information regarding capital stock:

 

     December 31,  

(in thousands)

    2010      2009  

Shares authorized

      1,000,000         1,000,000   

Class A common stock

      66,847         66,511   

Class B-1 common stock

      0.6         0.6   

Class B-2 common stock

      0.8         0.8   

Class B-3 common stock

      1.3         1.3   

Class B-4 common stock

      0.4         0.4   

CME Group has no shares of preferred stock issued and outstanding.

Associated Trading Rights. Members of CME, CBOT, NYMEX and COMEX own or lease trading rights which entitle them to access the trading floors, discounts on trading fees and the right to vote on certain exchange matters as provided for by the rules of the particular exchange and CME Group's or the subsidiaries' organizational documents. Each class of CME Group Class B common stock is associated with a membership in a specific division for trading at CME. A CME trading right is a separate asset that is not part of or evidenced by the associated share of Class B common stock of CME Group. The Class B common stock of CME Group is intended only to ensure that the Class B shareholders of CME Group retain rights with respect to representation on the board of directors and approval rights with respect to the core rights described below.

Trading rights at CBOT are evidenced by Class B memberships in CBOT, at NYMEX by Class A memberships in NYMEX and at COMEX by COMEX Division Memberships in COMEX. Members of the CBOT, NYMEX and COMEX exchanges do not have any rights to elect members of the board of directors and are not entitled to receive dividends or other distributions on their memberships. The company is, however, required to have at least 10 CBOT directors (as defined by its bylaws) until its 2012 annual meeting.

 

Core Rights. Holders of CME Group Class B common shares have the right to approve changes in specified rights relating to the trading privileges at CME associated with those shares. These core rights relate primarily to trading right protections, certain trading fee protections and certain membership benefit protections. Votes on changes to these core rights are weighted by class. Each class of Class B common stock has the following number of votes on matters relating to core rights: Class B-1, six votes per share; Class B-2, two votes per share; Class B-3, one vote per share; and Class B-4, 1/6th of one vote per share. The approval of a majority of the votes cast by the holders of shares of Class B common stock is required in order to approve any changes to core rights. Holders of shares of Class A common stock do not have the right to vote on changes to core rights.

Voting Rights. With the exception of the matters reserved to holders of CME Group Class B common stock, holders of CME Group common stock vote together on all matters for which a vote of common shareholders is required. In these votes, each holder of shares of Class A or Class B common stock of CME Group has one vote per share.

Transfer Restrictions. Each class of CME Group Class B common stock is subject to transfer restrictions contained in the Certificate of Incorporation of CME Group. These transfer restrictions prohibit the sale or transfer of any shares of Class B common stock separate from the sale of the associated trading rights.

Election of Directors. The CME Group Board of Directors is currently comprised of 33 members, including 10 CBOT directors (as defined by its bylaws). Until CME Group's 2012 annual meeting, its board must include at least 10 CBOT directors. Holders of Class B-1, Class B-2 and Class B-3 common stock have the right to elect six directors, of which three are elected by Class B-1 shareholders, two are elected by Class B-2 shareholders and one is elected by Class B-3 shareholders. The remaining directors are elected by the Class A and Class B shareholders voting as a single class.

Dividends. Holders of Class A and Class B common stock of CME Group are entitled to receive proportionately such dividends, if any, as may be declared by the CME Group board of directors.

Ownership Requirements. As of December 31, 2010, each clearing firm clearing only CME, CBOT or NYMEX products was required to own 6,000 shares of Class A common stock in addition to the requisite number of exchange memberships at the exchange in which the firm is seeking status as a clearing firm. For firms clearing products at two exchanges, the Class A common stock ownership requirement was 9,000 shares and for firms clearing at all exchanges, the requirement was 12,000 shares. The total Class A common stock held by the company's clearing firms pursuant to this requirement was 0.7 million shares at December 31, 2010.

Shareholder Rights Provisions. The board of directors of CME Group has adopted a plan creating rights that entitle CME Group's shareholders to purchase shares of CME Group stock in the event that a third party initiates a transaction designed to take over the company. This rights plan is intended to encourage persons seeking to acquire control of CME Group to engage in arms-length negotiations with the board of directors and management. The rights are attached to all outstanding shares of CME Group common stock, and each right entitles the shareholder to purchase one one-thousandth of a share of Series A junior participating preferred stock at a purchase price of $1,000 per unit. The rights should not interfere with any merger or other business combination approved by the board of directors since the rights may be amended to permit such acquisition or redeemed by the company under the terms of the plan. In the event the rights become exercisable, each holder of a right shall receive, upon exercise, Class A common stock having a value equal to two times the exercise price of the right. The plan has an expiration date of December 3, 2011.

CME Group Omnibus Stock Plan. CME Group has adopted an Omnibus Stock Plan under which stock-based awards may be made to employees. A total of 8.0 million Class A shares have been reserved for awards under the plan. Awards totaling 4.0 million shares have been granted and are outstanding or have been exercised under this plan at December 31, 2010 (note 22).

 

CBOT Holdings Long-Term Equity Incentive Plan. In connection with the merger with CBOT Holdings, CME Group assumed CBOT Holdings' 2005 Long-Term Equity Incentive Plan. Under the plan, stock-based awards may be made to certain directors, officers and other key employees or individuals. A total of 0.4 million shares have been reserved for awards under the plan. In connection with receiving shareholder approval to increase the amount of authorized shares under the Omnibus Stock Plan in May 2009, the company undertook to freeze future awards under this plan. As a result, 0.3 million shares that remained authorized for future awards under this plan were frozen.

NYMEX Holdings Omnibus Long-Term Incentive Plan. In connection with the merger with NYMEX Holdings, CME Group assumed NYMEX Holdings' 2006 Omnibus Long-Term Incentive Plan. Under the plan, stock-based awards may be made to any director, officer or employee of the company and other key individuals providing services to the company. A total of 1.0 million shares have been reserved for awards under the plan. In connection with receiving shareholder approval to increase the amount of authorized shares under the Omnibus Stock Plan in May 2009, the company undertook to freeze future awards under this plan. As a result, 0.7 million shares that remained authorized for future awards under this plan were frozen.

Director Stock Plan. CME Group has adopted a Director Stock Plan under which awards are made to non-executive directors as part of their annual compensation. A total of 125,000 Class A shares have been reserved under this plan, and approximately 34,000 shares have been awarded through December 31, 2010.

Employee Stock Purchase Plan. CME Group has adopted an Employee Stock Purchase Plan (ESPP) under which employees may purchase Class A shares at 90% of the market value of the shares using after-tax payroll deductions. A total of 40,000 Class A shares have been reserved under this plan, of which approximately 20,000 shares have been purchased through December 31, 2010 (note 22).

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 included a share buyback program of up to $1.1 billion of CME Group Class A common stock, subject to market conditions through December 2009. The board's authorization permitted the repurchase of shares through the open market, an accelerated program, a tender offer or privately negotiated transactions. The number of shares purchased under the program was 0.9 million shares at an average price per share of $272 for a total cost of $250.8 million.

In February 2010, CME Group was authorized by its board of directors to purchase up to 2.35 million shares of Class A common stock. The authorization of the repurchase was approved in connection with the company's agreement to issue additional Class A common shares to BM&FBOVESPA to increase its aggregate share ownership in the company to 5%. During 2010, 2.0 million shares were purchased at an average price of $287 per share for a total cost of $575.3 million.

Stock-Based Payments
Stock-Based Payments

22. STOCK-BASED PAYMENTS

CME Group adopted an Omnibus Stock Plan under which stock-based awards may be made to employees. A total of 8.0 million Class A shares have been reserved for awards under the plan. Awards totaling 4.0 million shares have been granted and are outstanding or have been exercised under the plan as of December 31, 2010. Awards granted before 2009 generally vest over a five-year period, with 20% vesting one year after the grant date and on that same date in each of the following four years. Beginning in 2009, awards granted generally vest over a four-year period, with 25% vesting one year after the grant date and on that same date in each of the following three years.

Total compensation expense for stock-based payments was $40.9 million for the year ended December 31, 2010, $33.4 million for the year ended December 31, 2009, and $37.6 million for the year ended December 31, 2008. The total income tax benefit recognized in the consolidated statements of income for stock-based payment arrangements was $16.4 million, $13.4 million and $15.1 million for the years ended December 31, 2010, 2009 and 2008, respectively.

 

Excluding estimates of future forfeitures, at December 31, 2010, there was $83.2 million of total unrecognized compensation expense related to employee stock-based compensation arrangements that had not yet vested. That expense is expected to be recognized over a weighted average period of 2.1 years.

In 2010, the company granted employees stock options totaling 280,884 shares under the Omnibus Stock Plan. The options have a ten-year term with exercise prices ranging from $271 to $318, the closing market prices on the grant dates. The fair value of these options totaled $28.5 million, measured at the grant dates 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 each option grant was calculated using the following assumptions:

 

     Grant Date
     2010    2009    2008

Dividend yield

    1.4% - 1.7%    1.4% -2.4%    1.0% -2.3%

Expected volatility

    42% - 44%    45% -49%    44% - 50%

Risk-free interest rate

    1.9% - 2.9%    2.4% -3.2%    1.6% -3.9%

Expected life

    6.2years    6.2 to 6.5 years    6.5years

The dividend yield was calculated by dividing that year's expected quarterly dividends by the market price of the stock at the dates of grant. Until December 2008, expected volatility was determined using a weighted-average implied volatility of traded options on the company's stock. Historical volatility was evaluated, but it was determined that implied volatility was a better measure of expected future volatility. Beginning December 2008, a weighting of implied and historical volatility was used to estimate expected future volatility. The risk-free rate was based on the U.S. Treasury yield in effect at the time of each grant. The expected life of options granted has been determined using the simplified method as outlined in guidance from the Securities and Exchange Commission.

The following table summarizes stock option activity for 2010:

 

     Number of Shares     Weighted
Average
Exercise
Price		  

Outstanding at December 31, 2009

      1,071,213      $ 305   

Granted

      280,884        273   

Exercised

      (89,552 )      139   

Cancelled

      (45,424 )      387   
          

Outstanding at December 31, 2010

      1,217,121        307   
          

Exercisable at December 31, 2010

      640,725        288   
          

The weighted average grant date fair value of options granted during 2010, 2009, and 2008 was $101, $117 and $174 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008, was $15.6 million, $14.6 million and $31.9 million, respectively.

Stock options outstanding at December 31, 2010 had a weighted average remaining contractual life of 6.6 years and an aggregate intrinsic value of $78.8 million. Stock options exercisable at December 31, 2010 had a weighted average remaining contractual life of 4.8 years and an aggregate intrinsic value of $59.3 million.

In 2010, the company granted 133,225 shares of restricted Class A common stock and 428 shares of restricted stock units which generally have a vesting period of 2 to 4 years. The fair value related to these grants was $36.7 million, which is recognized as compensation expense on an accelerated basis over the vesting period. In 2010, the company granted 1,020 performance shares. The vesting of these shares is contingent on meeting stated goals over a performance period. Beginning with restricted stock grants in September 2010, dividends are accrued on restricted Class A common stock and restricted stock units and are paid once the restricted stock vests.

The following table summarizes restricted stock and performance shares activity for 2010:

 

     Number of Shares     Weighted
Average
Grant Date
Fair Value		  

Outstanding at December 31, 2009

      116,677      $ 280   

Granted

      134,245        275   

Vested

      (34,630 )      257   

Cancelled

      (19,830 )      260   
          

Outstanding at December 31, 2010

      196,462        283   
          

The total fair value of restricted stock that vested during the years ended December 31, 2010, 2009 and 2008, was $10.3 million, $6.2 million and $2.5 million, respectively.

Eligible employees may acquire shares of CME Group's Class A common stock using after-tax payroll deductions made during consecutive offering periods of approximately six months in duration. Shares are purchased at the end of each offering period at a price of 90% of the closing price of the Class A common stock as reported on the NASDAQ. Compensation expense is recognized on the dates of purchase for the discount from the closing price. In 2010, 2009 and 2008, a total of 4,371, 4,402 and 5,600 shares, respectively, of Class A common stock were issued to participating employees. These shares are subject to a six-month holding period. Annual expense of $0.1 million for the purchase discount was recognized in 2010, 2009 and 2008, respectively.

Non-executive directors receive an annual award of Class A common stock with a value equal to $75,000. Non-executive directors may also elect to receive some or all of the cash portion of their annual stipend, up to $25,000, in shares of stock based on the closing price at the date of distribution. As a result, 7,470, 11,674 and 5,509 shares of Class A common stock were issued to non-executive directors during 2010, 2009 and 2008, respectively. These shares are not subject to any vesting restrictions. Expense of $2.4 million, $2.5 million and $2.4 million related to these stock-based payments was recognized for the years ended December 31, 2010, 2009 and 2008, respectively.

Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)

23. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table provides a summary of the changes in accumulated other comprehensive income (loss) for the years presented, net of tax:

 

(in millions)

    Net
Unrealized
Gain (Loss)
On Securities		     Change
In
Derivative
Instruments		     Actuarial
Gain (Loss)
on Defined
Benefit Plans		     Foreign
Currency
Translation
Adjustment		     Accumulated
Other
Comprehensive
Income (Loss)		  

Balance at December 31, 2007

    $ 0.3      $ —        $ (4.2 )    $ 0.8      $ (3.1 ) 

Foreign currency translation adjustment

      —          —          —          (95.7 )      (95.7 ) 

Net unrealized loss on securities

      (25.3 )      —          —          —          (25.3 ) 

Net actuarial loss

      —          —          (15.6 )      —          (15.6 ) 

Amortization of net actuarial loss

      —          —          0.2        —          0.2   

Net unrealized loss on cash flow hedge

      —          (20.1 )      —          —          (20.1 ) 

Reclassification of realized gain on cash flow hedge

      —          (0.7 )      —          —          (0.7 ) 
                                        

Balance at December 31, 2008

      (25.0 )      (20.8 )      (19.6 )      (94.9 )      (160.3 ) 

Foreign currency translation adjustment

      —          —          —          2.6        2.6   

Net unrealized gain on securities

      11.8        —          —          —          11.8   

Reclassification of security impairment

      13.6        —          —          —          13.6   

Net actuarial loss

      —          —          (1.6 )      —          (1.6 ) 

Amortization of net actuarial loss

      —          —          0.2        —          0.2   

Net unrealized loss on cash flow hedge

      —          (5.2 )      —          —          (5.2 ) 

Reclassification of realized loss on cash flow hedge

      —          12.7        —          —          12.7   
                                        

Balance at December 31, 2009

      0.4        (13.3 )      (21.0 )      (92.3 )      (126.2 ) 

Foreign currency translation adjustment

      —          —          —          (0.5 )      (0.5 ) 

Net unrealized gain on securities

      6.0        —          —          —          6.0   

Reclassification of gain on sale of security

      (0.7 )      —          —          —          (0.7 ) 

Net actuarial gain

      —          —          4.5        —          4.5   

Amortization of net actuarial loss

      —          —          1.3        —          1.3   

Net unrealized loss on cash flow hedge

      —          (5.8 )      —          —          (5.8 ) 

Ineffectiveness on cash flow hedge

      —          5.2        —          —          5.2   

Reclassification of realized loss on cash flow hedge

      —          12.1        —          —          12.1   
                                        

Balance at December 31, 2010

    $ 5.7      $ (1.8 )    $ (15.2 )    $ (92.8 )    $ (104.1 ) 
                                        
Fair Value Measurements
Fair Value Measurements

24. FAIR VALUE MEASUREMENTS

The company uses a three-level classification hierarchy 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