Previously, CME accounted for its stock options using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." As a result, variable accounting was required for a portion of the company's stock options, causing quarterly fluctuations in non-cash stock-based compensation expense due to changes in the value of the company's shares. The fair value method ensures that the total expense of each stock option will not change over the life of that stock option.
Since stock-based compensation is a non-cash expense, the accounting change will have no impact on the company's cash flow. For the full year 2002, the change will reduce stock-based compensation expense, resulting in an increase to diluted earnings per share under U.S. generally accepted accounting principles (GAAP) of approximately 66 cents. Final fourth quarter and full-year 2002 results will be announced in the company's upcoming earnings release. For 2001, the accounting change will increase the company's previously reported not income by about $6.8 million, to approximately $75.1 million or $2.57 per diluted share. For 2000, the accounting change will increase the previously reported net loss by about $4.6 million, to a net loss of approximately $10.5 million or 36 cents per share. Restated financial statements for 2000, 2001 and the first three quarters of 2002 will be available in future SEC filings, as well as on the Investor Relations section of CME's Web site.
"Our goal is to provide transparency in our financial results, so our investors can monitor our financial performance and make the appropriate comparisons to prior periods," said Chief Financial Officer David Gomach. "By adopting the fair value method of accounting for our stock options and grants, we significantly decrease the fluctuations we have experienced in our stock-based compensation expense."
The change is based on guidance issued by the Financial Accounting Standards Board (FASB) on Dec. 31, 2002 in its Statement No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure."
Chicago Mercantile Exchange Holdings Inc. is the parent company of Chicago Mercantile Exchange Inc. (www.cme.com), the largest futures exchange in the United States based on notional value, trading volume and open interest. On Dec. 6, 2002, CME Holdings and its subsidiary became the first publicly traded U.S. financial exchange. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX around-the-clock electronic trading platform. CME offers futures contracts and options on futures primarily in four product areas: interest rates, stock indexes, foreign exchange and commodities. The exchange moves about $1.8 billion per day in settlement payments and manages $27.4 billion in collateral deposits.
Further information about Chicago Mercantile Exchange Holdings Inc. and Chicago Mercantile Exchange Inc. is available on the CME Web site at wvvw.cme.com.
