Company Quick10K Filing
Quick10K
CME Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$180.01 358 $64,440
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-08 Shareholder Vote
8-K 2019-05-01 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-02-14 Earnings, Exhibits
8-K 2018-11-29 Shareholder Vote
8-K 2018-11-02 Sale of Shares, Officers, Other Events, Exhibits
8-K 2018-11-01 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-06-21 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-14 Other Events, Exhibits
8-K 2018-05-23 Shareholder Vote
8-K 2018-05-09 Shareholder Vote
8-K 2018-05-08 Officers, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-02-07 Officers, Regulation FD, Exhibits
8-K 2018-02-01 Earnings, Exhibits
WY Weyerhaeuser 19,110
NTRA Natera 1,120
MCRI Monarch Casino & Resort 758
SXCP Suncoke Energy Partners 564
HCI HCI Group 355
GURE Gulf Resources 59
ALO Alpharma 51
ATNM Actinium Pharmaceuticals 34
NUKK Nukkleus 0
FNGR Fingermotion 0
CME 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 cme-201933110qex311.htm
EX-31.2 cme-201933110qex312.htm
EX-32.1 cme-201933110qex321.htm

CME Group Earnings 2019-03-31

CME 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 cme-201933110q.htm FORM 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________
FORM 10-Q
_________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
- OR -
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to                
Commission file number 001-31553
CME GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware
 
36-4459170
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
20 South Wacker Drive, Chicago, Illinois
 
60606
(Address of principal executive offices)
 
(Zip Code)
(312) 930-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.            Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                   Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
  
Accelerated filer     o
Non-accelerated filer    o
 
  
Smaller reporting company o
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  ¨    No  ý
The number of shares outstanding of each of the registrant’s classes of common stock as of April 10, 2019 was as follows: 357,971,914 shares of Class A common stock, $0.01 par value; 625 shares of Class B-1 common stock, $0.01 par value; 813 shares of Class B-2 common stock, $0.01 par value; 1,287 shares of Class B-3 common stock, $0.01 par value; and 413 shares of Class B-4 common stock, $0.01 par value.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Class A Common Stock
CME
Nasdaq

1




 CME GROUP INC.
FORM 10-Q
INDEX
 
 
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 

2


PART I. FINANCIAL INFORMATION
Certain Terms
All references to “options” or “options contracts” in the text of this document refer to options on futures contracts.
Further information about CME Group and its products can be found at http://www.cmegroup.com. Information made available on our website does not constitute a part of this Quarterly Report on Form 10-Q.
Information about Contract Volume and Average Rate per Contract
All amounts regarding contract volume and average rate per contract are for CME Group's listed futures and options on futures contracts unless otherwise noted.
Trademark Information
CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. NEX, BrokerTec, EBS, TriOptima, and Traiana are trademarks of various entities that are under NEX, all of which are owned by CME Group. Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor's Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.
Forward-Looking Statements
From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and verbal statements, we discuss our expectations regarding future performance. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “intend,” “may,” “plan,” “expect” and similar expressions, including references to assumptions. These forward-looking statements are based on currently available competitive, financial and economic data, current expectations, estimates, forecasts and projections about the industries in which we operate and management's beliefs and assumptions. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Among the factors that might affect our performance are:
increasing competition by foreign and domestic entities, including increased competition from new entrants into our markets and consolidation of existing entities;
our ability to keep pace with rapid technological developments, including our ability to complete the development, implementation and maintenance of the enhanced functionality required by our customers while maintaining reliability and ensuring that such technology is not vulnerable to security risks;
our ability to continue introducing competitive new products and services on a timely, cost-effective basis, including through our electronic trading capabilities, and our ability to maintain the competitiveness of our existing products and services, including our ability to provide effective services to the swaps market;
our ability to adjust our fixed costs and expenses if our revenues decline;
our ability to maintain existing customers, develop strategic relationships and attract new customers;
our ability to expand and globally offer our products and services;
changes in regulations, including the impact of any changes in laws or government policy with respect to our products or services or our industry, such as any changes to regulations and policies that require increased financial and operational resources from us or our customers;
the costs associated with protecting our intellectual property rights and our ability to operate our business without violating the intellectual property rights of others;
decreases in revenue from our market data as a result of decreased demand or changes to regulations in various jurisdictions;
changes in our rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers (whether the customer receives member or non-member fees or participates in one of our various incentive programs) and the impact of our tiered pricing structure;

3


the ability of our credit and liquidity risk management practices to adequately protect us from the credit risks of clearing members and other counterparties, and to satisfy the margin and liquidity requirements associated with the BrokerTec matched principal business;
the ability of our compliance and risk management methods to effectively monitor and manage our risks, including our ability to prevent errors and misconduct and protect our infrastructure against security breaches and misappropriation of our intellectual property assets;
volatility in commodity, equity and fixed income prices, and price volatility of financial benchmarks and instruments such as interest rates, credit spreads, equity indices, fixed income instruments and foreign exchange rates;
economic, political and market conditions, including the volatility of the capital and credit markets and the impact of economic conditions on the trading activity of our current and potential customers;
our ability to accommodate increases in contract volume and order transaction traffic and to implement enhancements without failure or degradation of the performance of our trading and clearing systems;
our ability to execute our growth strategy and maintain our growth effectively;
our ability to manage the risks, control the costs and achieve the synergies associated with our strategy for acquisitions, investments and alliances, including those associated with the acquisition of NEX;
our ability to continue to generate funds and/or manage our indebtedness to allow us to continue to invest in our business;
industry and customer consolidation;
decreases in trading and clearing activity;
the imposition of a transaction tax or user fee on futures and options on futures transactions and/or repeal of the 60/40 tax treatment of such transactions;
our ability to maintain our reputation; and
the unfavorable resolution of material legal proceedings.
For a detailed discussion of these and other factors that might affect our performance, see Item 1A. of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 28, 2019 and Item 1A. of this Quarterly Report on Form 10-Q.

4


ITEM 1.
FINANCIAL STATEMENTS

CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except par value data; shares in thousands)
 
 
March 31, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Assets
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
997.4

 
$
1,374.5

Marketable securities
 
82.4

 
72.9

Accounts receivable, net of allowance of $2.0 and $2.7
 
559.5

 
553.3

Other current assets (includes $1.6 and $1.5 in restricted cash)
 
345.7

 
430.5

Performance bonds and guaranty fund contributions
 
33,620.2

 
39,455.5

Total current assets
 
35,605.2

 
41,886.7

Property, net of accumulated depreciation and amortization of $789.8 and $761.1
 
467.7

 
448.7

Intangible assets—trading products
 
17,175.3

 
17,175.3

Intangible assets—other, net
 
5,380.6

 
5,500.1

Goodwill
 
10,850.3

 
10,805.3

Other assets (includes $1.1 and $1.2 in restricted cash)
 
2,135.4

 
1,659.6

Total Assets
 
$
71,614.5

 
$
77,475.7

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 
$
65.3

 
$
116.0

Short-term debt
 

 
574.2

Other current liabilities
 
592.5

 
1,126.9

Performance bonds and guaranty fund contributions
 
33,614.6

 
39,455.5

Total current liabilities
 
34,272.4

 
41,272.6

Long-term debt
 
4,292.0

 
3,826.8

Deferred income tax liabilities, net
 
5,662.7

 
5,665.9

Other liabilities
 
1,200.9

 
745.1

Total Liabilities
 
45,428.0

 
51,510.4

 
 
 
 
 
Shareholders’ Equity:
 
 
 
 
Preferred stock, $0.01 par value, 10,000 shares authorized at March 31, 2019 and December 31, 2018; none issued
 

 

Class A common stock, $0.01 par value, 1,000,000 shares authorized at March 31, 2019 and December 31, 2018; 357,013 and 356,824 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
 
3.6

 
3.6

Class B common stock, $0.01 par value, 3 shares authorized, issued and outstanding as of March 31, 2019 and December 31, 2018
 

 

Additional paid-in capital
 
21,062.1

 
21,054.3

Retained earnings
 
5,091.1

 
4,855.3

Accumulated other comprehensive income (loss)
 
0.8

 
5.3

Total CME Group Shareholders’ Equity
 
26,157.6

 
25,918.5

Non-controlling interests
 
28.9

 
46.8

Total Equity
 
26,186.5

 
25,965.3

Total Liabilities and Equity
 
$
71,614.5

 
$
77,475.7


See accompanying notes to unaudited consolidated financial statements.

5


CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data; shares in thousands)
(unaudited)
 
 
Quarter Ended
 
March 31,
 
2019
 
2018
Revenues
 
 
 
Clearing and transaction fees
$
952.6

 
$
973.6

Market data and information services
130.1

 
94.9

Other
96.9

 
40.5

Total Revenues
1,179.6

 
1,109.0

Expenses
 
 
 
Compensation and benefits
230.3

 
152.7

Technology
47.1

 
25.5

Professional fees and outside services
39.4

 
42.6

Amortization of purchased intangibles
80.7

 
23.7

Depreciation and amortization
32.9

 
28.1

Licensing and other fee agreements
40.5

 
49.5

Other
77.7

 
46.0

Total Expenses
548.6

 
368.1

Operating Income
631.0

 
740.9

 
 
 
 
Non-Operating Income (Expense)
 
 
 
Investment income
178.7

 
156.4

Interest and other borrowing costs
(48.1
)
 
(30.1
)
Equity in net earnings of unconsolidated subsidiaries
40.5

 
40.1

Other non-operating income (expense)
(161.9
)
 
(118.6
)
Total Non-Operating Income (Expense)
9.2

 
47.8

Income before Income Taxes
640.2

 
788.7

Income tax provision
144.3

 
189.9

Net Income
495.9

 
598.8

Less: net (income) loss attributable to non-controlling interests
1.0

 

Net Income Attributable to CME Group
$
496.9

 
$
598.8

 
 
 
 
Earnings per Common Share Attributable to CME Group:
 
 
 
Basic
$
1.39

 
$
1.76

Diluted
1.39

 
1.76

Weighted Average Number of Common Shares:
 
 
 
Basic
356,886

 
339,305

Diluted
358,047

 
340,747

See accompanying notes to unaudited consolidated financial statements.

6


CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
Quarter Ended
 
March 31,
 
2019
 
2018
Net income
$
495.9

 
$
598.8

Other comprehensive income (loss), net of tax:
 
 
 
Investment securities:
 
 
 
Net unrealized holding gains (losses) arising during the period
0.8

 
(0.9
)
Income tax benefit (expense)
(0.2
)
 
0.2

Investment securities, net
0.6

 
(0.7
)
Defined benefit plans:
 
 
 
Net change in defined benefit plans arising during the period
(2.7
)
 
1.7

Amortization of net actuarial (gains) losses included in compensation and benefits expense
1.2

 
0.7

Income tax benefit (expense)
0.4

 
(0.6
)
Defined benefit plans, net
(1.1
)
 
1.8

Derivative investments:
 
 
 
Net unrealized holding gains (losses) arising during the period
0.3

 

Amortization of effective portion of net (gains) losses on cash flow hedges included in interest expense
(0.3
)
 
(0.3
)
Income tax benefit (expense)

 
0.1

Derivative investments, net

 
(0.2
)
Foreign currency translation:
 
 
 
Foreign currency translation adjustments
(4.0
)
 
0.9

Foreign currency translation, net
(4.0
)
 
0.9

Other comprehensive income (loss), net of tax
(4.5
)
 
1.8

Comprehensive Income
491.4

 
600.6

Less: comprehensive (income) loss attributable to non-controlling interests
1.0

 

Comprehensive income attributable to CME Group
$
492.4

 
$
600.6

See accompanying notes to unaudited consolidated financial statements.

7


CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(dollars in millions, except per share data; shares in thousands)
(unaudited)
 
 
Class A
Common
Stock
(Shares)
 
Class B
Common
Stock
(Shares)
 
Common
Stock and
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total CME Group Shareholders' Equity
 
Non-controlling Interest
 
Total
Shareholders’
Equity
Balance at December 31, 2018
356,824

 
3

 
$
21,057.9

 
$
4,855.3

 
$
5.3

 
$
25,918.5

 
$
46.8

 
$
25,965.3

Net income
 
 
 
 
 
 
496.9

 
 
 
496.9

 
(1.0
)
 
495.9

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
(4.5
)
 
(4.5
)
 

 
(4.5
)
Dividends on common stock of $0.75 per share
 
 
 
 
 
 
(268.0
)
 
 
 
(268.0
)
 
 
 
(268.0
)
Impact of adoption of standards updates on leasing
 
 
 
 


 
6.9

 

 
6.9

 
 
 
6.9

Changes in non-controlling interest due to measurement period adjustments
 
 
 
 
 
 
 
 
 
 

 
(16.9
)
 
(16.9
)
Exercise of stock options
64

 
 
 
3.3

 
 
 
 
 
3.3

 
 
 
3.3

Vesting of issued restricted Class A common stock
125

 
 
 
(13.8
)
 
 
 
 
 
(13.8
)
 
 
 
(13.8
)
Stock-based compensation
 
 
 
 
18.3

 
 
 
 
 
18.3

 
 
 
18.3

Balance at March 31, 2019
357,013

 
3

 
$
21,065.7

 
$
5,091.1

 
$
0.8

 
$
26,157.6

 
$
28.9

 
$
26,186.5

See accompanying notes to unaudited consolidated financial statements.

8



CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(dollars in millions, except per share data; shares in thousands)
(unaudited)
 
 
Class A
Common
Stock
(Shares)
 
Class B
Common
Stock
(Shares)
 
Common
Stock and
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders’
Equity
Balance at December 31, 2017
339,235

 
3

 
$
17,900.3

 
$
4,497.2

 
$
14.3

 
$
22,411.8

Net income
 
 
 
 
 
 
598.8

 
 
 
598.8

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
1.8

 
1.8

Dividends on common stock of $0.70 per share
 
 
 
 
 
 
(238.1
)
 
 
 
(238.1
)
Impact of adoption of standards update on tax effects related to accumulated other comprehensive income and revenue recognition
 
 
 
 
 
 
(12.5
)
 
3.8

 
(8.7
)
Exercise of stock options
59

 
 
 
4.2

 
 
 
 
 
4.2

Vesting of issued restricted Class A common stock
141

 
 
 
(14.7
)
 
 
 
 
 
(14.7
)
Stock-based compensation
 
 
 
 
17.7

 
 
 
 
 
17.7

Balance at March 31, 2018
339,435

 
3

 
$
17,907.5

 
$
4,845.4

 
$
19.9

 
$
22,772.8

See accompanying notes to unaudited consolidated financial statements.


9


CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited) 
 
 
Quarter Ended
March 31,
 
 
2019
 
2018
Cash Flows from Operating Activities
 
 
 
 
Net income
 
$
495.9

 
$
598.8

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Stock-based compensation
 
18.3

 
17.7

Amortization of purchased intangibles
 
80.7

 
23.7

Depreciation and amortization
 
32.9

 
28.1

Net loss on derivative contracts
 
14.4

 

Net realized and unrealized gains on privately-held equity investments
 
3.4

 

Undistributed earnings, net of losses, of unconsolidated subsidiaries
 
(22.6
)
 
10.9

Deferred income taxes
 
(0.6
)
 
(11.7
)
Change in:
 
 
 
 
Accounts receivable
 
(5.5
)
 
(85.0
)
Other current assets
 
45.4

 
(12.9
)
Other assets
 
(9.8
)
 
(3.8
)
Accounts payable
 
(50.6
)
 
(6.4
)
Income taxes payable
 
141.3

 
264.8

Other current liabilities
 
(73.1
)
 
0.3

Other liabilities
 
0.3

 
(0.3
)
Other
 
(1.2
)
 
0.8

Net Cash Provided by Operating Activities
 
669.2

 
825.0

 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
Proceeds from maturities of available-for-sale marketable securities
 
6.1

 
1.6

Purchases of available-for-sale marketable securities
 
(5.6
)
 
(0.8
)
Purchases of property, net
 
(49.1
)
 
(18.2
)
Net Cash Used in Investing Activities
 
(48.6
)
 
(17.4
)
 
 
 
 
 
Cash Flows from Financing Activities
 
 
 
 
Issuance of commercial paper, net of maturities
 
462.3

 

Repayment of debt
 
(569.2
)
 

Cash dividends
 
(892.1
)
 
(1,424.8
)
Settlement of derivative contracts
 
16.0

 

Employee taxes paid on restricted stock vesting
 
(13.8
)
 
(14.7
)
Other
 
(0.9
)
 
4.2

Net Cash Used in Financing Activities
 
(997.7
)
 
(1,435.3
)

















10


CME GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in millions)
(unaudited) 

 
 
Quarter Ended
March 31,
 
 
2019
 
2018
Net change in cash, cash equivalents and restricted cash
 
$
(377.1
)
 
$
(627.7
)
Cash, cash equivalents and restricted cash, beginning of period
 
1,377.2

 
1,906.0

Cash, Cash Equivalents and Restricted Cash, End of Period
 
$
1,000.1

 
$
1,278.3

 
 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
 
Cash and cash equivalents
 
$
997.4

 
$
784.6

Short-term restricted cash
 
1.6

 
492.3

Long-term restricted cash
 
1.1

 
1.4

Total
 
$
1,000.1

 
$
1,278.3

 
 

 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
 
Income taxes paid
 
$

 
$
8.8

Interest paid
 
55.4

 
42.4


See accompanying notes to unaudited consolidated financial statements.

11


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements consist of CME Group Inc. (CME Group) and its subsidiaries (collectively, the company), including Chicago Mercantile Exchange Inc. (CME), Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX), Commodity Exchange, Inc. (COMEX) and NEX Group Limited (NEX). The clearing house is a division of CME.
Effective November 2, 2018, CME Group completed its acquisition of NEX. NEX offers electronic trade execution platforms for the foreign exchange and fixed income over-the-counter markets as well as other services across the transaction lifecycle, including trade and portfolio management and portfolio compression. The financial statements and accompanying notes presented in this report include the financial results of NEX and its subsidiaries beginning on November 3, 2018.
The accompanying interim consolidated financial statements have been prepared by CME Group without audit. Certain notes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, the accompanying consolidated financial statements include all normal recurring adjustments considered necessary to present fairly the financial position of the company at March 31, 2019 and December 31, 2018 and the results of operations and cash flows for the periods indicated. Quarterly results are not necessarily indicative of results for any subsequent period.
The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in CME Group’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (SEC) on February 28, 2019.
2. Accounting Policies
Newly Adopted Accounting Policies. In February 2016, the FASB issued a standards update that requires lessees to recognize on the balance sheet the assets and liabilities associated with the rights and obligations created by those leases. The guidance for lessors is largely unchanged from current accounting rules. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current accounting standards, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The company implemented this standard as of January 1, 2019 using the modified retrospective approach with a cumulative effect of initially applying the guidance recognized on the date of initial adoption. Upon adoption of the new standard on January 1, 2019, the company recognized a lease liability of $568.0 million and right-of-use asset of $448.2 million.
Recently Issued Accounting Pronouncements. In June 2016, the FASB issued guidance that changes how credit losses are measured for most financial assets measured at amortized cost and certain other instruments. The standard requires an entity to estimate its lifetime expected credit loss and record an allowance, that when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. This forward-looking expected loss model generally will result in the earlier recognition of allowances for losses. The standard also amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available for sale debt security is a credit loss. Severity and duration of the unrealized loss are no longer permissible factors in concluding whether a credit loss exists. Entities will recognize improvements to estimated credit losses on available for sale debt securities immediately in earnings rather than as interest income over time. The standard is effective for reporting periods beginning after December 15, 2019. The standard’s provisions must be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Early adoption is permitted for reporting periods beginning in 2019. The company does not believe that the adoption of this guidance in 2020 will have a material impact on the consolidated financial statements.
In August 2018, the FASB issued a standards update that modifies the disclosure requirements for employers that sponsor defined pension or other postretirement plans. The guidance clarifies certain existing disclosures and expands the requirements for others. Disclosures that are not considered cost beneficial are removed by the update. Also, there is a new disclosure requirement to include an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for reporting periods beginning in 2021. Early adoption is permitted. The company plans to update the disclosures for these changes upon adoption of the guidance in 2021.
3. Revenue Recognition
The company generates revenue from customers from the following sources:
Clearing and transaction fees. Clearing and transaction fees include electronic trading fees and brokerage commissions, surcharges for privately-negotiated transactions, portfolio reconciliation and compression services, risk mitigation and other volume-related charges for trade contracts. Clearing and transaction fees are assessed upfront at the time of trade execution. As

12


such, the company recognizes the majority of the fee revenue upon successful execution of the trade. The minimal remaining portion of the fee revenue related to settlement activities performed after the trade execution is recognized over the short-term period that the contract is outstanding, based on management’s estimates of the average contract lifecycle. These estimates are based on various assumptions to approximate the amount of fee revenue to be attributed to services performed through contract settlement, expiration, or termination. For cleared trades, these assumptions include the average number of days that a contract remains in open interest, contract turnover, average revenue per day, and revenue remaining in open interest at the end of each period.
The nature of contracts gives rise to several types of variable consideration, including volume-based pricing tiers, customer incentives associated with market maker programs and other fee discounts. The company includes fee discounts and incentives in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee. These estimates are based on historical experience, anticipated performance, and best judgment at the time. Because of the company's certainty in estimating these amounts, they are included in the transaction price of contracts.
Market data and information services. Market data and information services represent revenue from the dissemination of market data to subscribers, distributors, and other third-party licensees of market data. Pricing for market data is primarily based on the number of reportable devices used as well as the number of subscribers enrolled under the arrangement. Fees for these services are generally billed monthly. Market data services are satisfied over time and revenue is recognized on a monthly basis as the customers receive and consume the benefit of the market data services. However, the company also maintains certain annual license arrangements with one-time upfront fees. The fees for annual licenses are initially recorded as a contract liability and recognized as revenue monthly over the term of the annual period.
Other. Other revenues include access and communication fees, fees for collateral management, fees for trade order routing through agreements from various strategic relationships, as well as other post-trade services to customers and clearing firms. Access and communication fees are charges to customers that utilize various telecommunications networks and communications services. Fees for these services are generally billed monthly and the associated fee revenue is recognized as billed. Collateral management fees are charged to clearing firms that have collateral on deposit with CME to meet their minimum performance bond and guaranty fund obligations on the exchange. These fees are calculated based on daily collateral balances and are billed monthly. This fee revenue is recognized monthly as billed as the customers receive and consume the benefits of the services. Pricing for strategic relationships may be driven by customer levels and activity. There are fee arrangements which provide for monthly as well as quarterly payments in arrears. Revenue is recognized monthly for strategic relationship arrangements as the customers receive and consume the benefits of the services.
The following table represents a disaggregation of revenue from contracts with customers for the quarters ended March 31, 2019 and 2018:
 
 
Quarters Ended
March 31,
(in millions)
 
2019
 
2018
Interest rates
 
$
302.8

 
$
338.4

Equity indexes
 
145.9

 
195.0

Foreign exchange
 
41.2

 
51.1

Agricultural commodities
 
105.0

 
121.1

Energy
 
165.0

 
191.5

Metals
 
51.0

 
59.4

Cash markets business
 
122.9

 

Interest rate swap
 
18.8

 
17.1

Total clearing and transaction fees
 
952.6

 
973.6

Market data and information services
 
130.1

 
94.9

Other
 
96.9

 
40.5

Total revenues
 
$
1,179.6

 
$
1,109.0

 
 
 
 
 
Timing of Revenue Recognition
 
 
 
 
Services transferred at a point in time
 
$
892.9

 
$
957.7

Services transferred over time
 
277.7

 
148.8

One-time charges and miscellaneous revenues
 
9.0

 
2.5

Total revenues
 
$
1,179.6

 
$
1,109.0


13


The timing of revenue recognition, billings and cash collections results in billed accounts receivable, and customer advances and deposits (contract liabilities) on the consolidated balance sheets. Certain fees for transactions, annual licenses, and other revenue arrangements are billed upfront before revenue is recognized, which results in the recognition of contract liabilities. These liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. For annual licenses and upfront fee arrangements, the company generally bills customers upon contract execution. These payments are recognized as revenue over time as the obligations under the contracts are satisfied. Changes in the contract liability balances during the quarter ended March 31, 2019 were not materially impacted by any other factors. The balance of contract liabilities was $64.4 million and $44.4 million as of March 31, 2019 and December 31, 2018, respectively.    
4. Performance Bonds and Guaranty Fund Contributions
Performance Bonds and Guaranty Fund Contributions. At March 31, 2019, performance bonds and guaranty fund contribution assets on the consolidated balance sheets include cash as well as U.S. Treasury securities and U.S. government agency securities generally with maturity dates of 90 days or less. U.S. Treasury securities and U.S. government agency securities are purchased by CME, at its discretion, using cash collateral. The benefits, including interest earned, and market risks of ownership accrue to CME. Interest earned is included in investment income on the consolidated statements of income. These debt securities are classified as available-for-sale. At March 31, 2019, the amortized cost and fair value of the U.S. Treasury securities were both $1.9 billion. At March 31, 2019, the amortized cost and fair value of the U.S. government agency securities were both $1.1 billion.
CME has been designated as a systemically important financial market utility by the Financial Stability Oversight Council and is authorized to establish and maintain a cash account at the Federal Reserve Bank of Chicago. At March 31, 2019, CME maintained $17.8 billion within the cash account at the Federal Reserve Bank of Chicago. The cash deposit at the Federal Reserve Bank of Chicago is included within performance bonds and guaranty fund contributions on the consolidated balance sheets.
Clearing House Contract Settlement. The clearing house marks-to-market open positions for all futures and options contracts twice a day (once a day for CME's cleared-only interest rate swap contracts). Based on values derived from the mark-to-market process, the clearing house requires payments from clearing firms whose positions have lost value and makes payments to clearing firms whose positions have gained value. Under the extremely unlikely scenario of simultaneous default by every clearing firm who has open positions with unrealized losses, the maximum exposure related to positions other than cleared-only interest rate swap contracts would be one half day of changes in fair value of all open positions, before considering the clearing house's ability to access defaulting clearing firms' collateral deposits.
For CME's cleared-only interest rate swap contracts, the maximum exposure related to CME's guarantee would be one full day of changes in fair value of all open positions, before considering CME's ability to access defaulting clearing firms' collateral. CME exited the credit default swap clearing business in March 2018.
During the first quarter of 2019, the clearing house transferred an average of approximately $3.0 billion a day through its clearing systems for settlement from clearing firms whose positions had lost value to clearing firms whose positions had gained value. The clearing house reduces its guarantee exposure through initial and maintenance performance bond requirements and mandatory guaranty fund contributions. The company believes that its guarantee liability is immaterial and therefore has not recorded any liability at March 31, 2019.

14


5. Intangible Assets
Intangible assets consisted of the following at March 31, 2019 and December 31, 2018:
 
 
 
March 31, 2019
 
December 31, 2018
(in millions)
 
Assigned Value
 
Accumulated
Amortization
 
Net Book
Value
 
Assigned Value
 
Accumulated
Amortization
 
Net Book
Value
Amortizable Intangible Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Clearing firm, market data and other customer relationships
 
$
5,823.5

 
$
(1,137.2
)
 
$
4,686.3

 
$
5,862.5

 
$
(1,065.6
)
 
$
4,796.9

Technology-related intellectual property
 
177.7

 
(31.2
)
 
146.5

 
179.1

 
(25.6
)
 
153.5

Other
 
104.0

 
(6.2
)
 
97.8

 
102.8

 
(3.1
)
 
99.7

Total amortizable intangible assets
 
$
6,105.2

 
$
(1,174.6
)
 
4,930.6

 
$
6,144.4

 
$
(1,094.3
)
 
5,050.1

 
 
 
 
 
 
 
 
 
 
 
 
 
Indefinite-Lived Intangible Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
 
 
 
 
450.0

 
 
 
 
 
450.0

Total intangible assets – other, net
 
 
 
 
 
$
5,380.6

 
 
 
 
 
$
5,500.1

Trading products (1)
 
 
 
 
 
$
17,175.3

 
 
 
 
 
$
17,175.3

(1)
Trading products represent futures and options products acquired in our business combinations with CBOT Holdings, Inc., NYMEX Holdings, Inc. and The Board of Trade of Kansas City, Missouri, Inc. Clearing and transaction fees are generated through the trading of these products. These trading products, most of which have traded for decades, require authorization from the Commodity Futures Trading Commission (CFTC). Product authorizations from the CFTC have no term limits.
Total amortization expense for intangible assets was $80.7 million and $23.7 million for the quarters ended March 31, 2019 and 2018, respectively.
As of March 31, 2019, the future estimated amortization expense related to amortizable intangible assets is expected to be as follows:
(in millions)
 Amortization Expense
Remainder of 2019
$
236.3

2020
315.1

2021
315.0

2022
314.5

2023
313.2

2024
306.5

Thereafter
3,130.0


15


Goodwill activity consisted of the following at March 31, 2019 and December 31, 2018:
(in millions)
 
Balance at December 31, 2018
 
Business
Combinations
 
Other
Activity (1)
 
Balance at March 31, 2019
CBOT Holdings
 
$
5,066.4

 
$

 
$

 
$
5,066.4

NYMEX Holdings
 
2,462.2

 

 

 
2,462.2

NEX
 
3,236.3

 

 
45.0

 
3,281.3

Other
 
40.4

 

 

 
40.4

Total Goodwill
 
$
10,805.3

 
$

 
$
45.0

 
$
10,850.3

(in millions)
 
Balance at December 31, 2017
 
Business
Combinations
 
Other
Activity
 
Balance at December 31, 2018
CBOT Holdings
 
$
5,066.4

 
$

 
$

 
$
5,066.4

NYMEX Holdings
 
2,462.2

 

 

 
2,462.2

NEX
 

 
3,236.3

 

 
3,236.3

Other
 
40.4

 

 

 
40.4

Total Goodwill
 
$
7,569.0

 
$
3,236.3

 
$

 
$
10,805.3

(1) Other activity includes measurement period adjustments, including adjustments to intangible assets, other assets and accrued liabilities.
6. Debt
In March 2019, the company repaid both the €350.0 million fixed rates notes and the ¥19.1 billion term loan.
Short-term debt outstanding consisted of the following at March 31, 2019 and December 31, 2018 (in U.S. dollar equivalent):
(in millions)
 
March 31, 2019
 
December 31, 2018
€350.0 million fixed rate notes due March 2019, stated rate of 3.13%
 
$

 
$
400.7

¥19.1 billion term loan due March 2019, stated rate of 0.81%
 

 
173.5

Total short-term debt
 
$

 
$
574.2

Long-term debt consisted of the following at March 31, 2019 and December 31, 2018: 
(in millions)
 
March 31, 2019
 
December 31, 2018
$750.0 million fixed rate notes due September 2022, stated rate of 3.00% (1)
 
$
747.1

 
$
746.9

€15.0 million fixed rate notes due May 2023, stated rate of 4.30%
 
16.3

 
16.6

$750.0 million fixed rate notes due March 2025, stated rate of 3.00% (2)
 
745.8

 
745.6

$500.0 million fixed rate notes due June 2028, stated rate of 3.75%
 
496.0

 
495.9

$750.0 million fixed rate notes due September 2043, stated rate of 5.30% (3)
 
742.5

 
742.4

$700.0 million fixed rate notes due June 2048, stated rate of 4.15%
 
689.6

 
689.5

Commercial paper (4)
 
854.7

 
389.9

Total long-term debt
 
$
4,292.0

 
$
3,826.8

(1)
The company maintained 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 3.32%.
(2)
The company maintained 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 3.11%.
(3)
The company maintained 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 4.73%.
(4)
The commercial paper is backed by the five-year multi-currency revolving credit facility.

16


Commercial paper with an aggregate par value of $3.3 billion and maturities ranging from 3 to 18 days was issued during the first quarter of 2019. The weighted average discount rate of commercial paper outstanding at March 31, 2019 was 2.48%. The weighted average balance of commercial paper outstanding during the quarter was $469.2 million.
Long-term debt maturities, at par value (in U.S. dollar equivalent), were as follows at March 31, 2019:  
(in millions)
Par Value
2020
$

2021

2022
1,605.0

2023
16.8

2024

Thereafter
2,700.0

Commercial paper is considered to mature in 2022 because it is backed by the five-year multi-currency revolving credit facility, which expires in 2022.
7. Contingencies
Legal and Regulatory Matters. In 2013, the CFTC filed suit against NYMEX and two former employees alleging disclosure of confidential customer information in violation of the Commodity Exchange Act. NYMEX’s motion to dismiss was denied in 2014. Based on its investigation to date and advice from legal counsel, the company believes that it has strong factual and legal defenses to the claim.
In 2003, the U.S. Futures Exchange, L.L.C. (Eurex U.S.) and U.S. Exchange Holdings, Inc. filed suit in federal court alleging 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. On October 31, 2018, the Court granted CBOT's and CME's motion for summary judgment and dismissed the case in its entirety. Eurex has appealed this decision.
In the normal course of business, the company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry and oversight. These matters could result in censures, fines, penalties or other sanctions. Management believes the outcome of any resulting actions will not have a material impact on its consolidated financial position or results of operations. However, the company is unable to predict the outcome or the timing of the ultimate resolution of these matters, or the potential fines, penalties or injunctive or other equitable relief, if any, that may result from these matters.
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 on an individual or aggregate basis will not have a material impact on its consolidated financial position or results of operations.
No accrual was required for legal and regulatory matters as none were probable and estimable as of March 31, 2019 and December 31, 2018.
Intellectual Property Indemnifications. Certain agreements with customers and other third parties related to accessing CME Group’s services may contain indemnifications from intellectual property claims that may be made against them as a result of their use of the applicable services. The potential future claims relating to these indemnifications cannot be estimated and therefore no liability has been recorded.
8. Leases
The company adopted the new leasing standard on January 1, 2019, using the modified retrospective approach. The standard requires lessees to recognize on the balance sheet the assets and liabilities associated with the rights and obligations created by those leases. Upon implementation of the standard, the company utilized the package of practical expedients which did not require reassessment of the following: (a) whether any expired or existing contracts are or contain leases, (b) the lease classification for any expired or existing leases, and (c) any initial direct costs for existing leases. In addition, the company has elected to not separately account for lease and non-lease components, resulting in a greater amount of capitalized lease costs on the balance sheet. Upon adoption of the new standard on January 1, 2019, the company recognized a lease liability of $568.0 million and right-of-use asset of $448.2 million.
The company has operating leases for datacenters, corporate offices, and certain information technology equipment. The operating leases have remaining lease terms of up to 19 years, some of which include options to extend or renew the leases for up to an additional 5 years, and some of which include options to early terminate the leases in less than 12 months. Management evaluates the exercisability of these options at least quarterly in order to determine whether the contract term must

17


be reassessed. For a small number of the leases, primarily the international locations, management's approach is to enter into short-term leases for a lease term of 12 months or less in order to provide for greater flexibility in the local environment. For certain office spaces, the company has entered into arrangements to sublease excess space to third parties, while the original lease contract is in effect with the landlord.
The company also has a finance lease related to the sale of our datacenter in March 2016. In connection with the sale, the company leased back a portion of the property. The sale leaseback transaction was recognized under the financing method and not as a sale leaseback arrangement. Our finance lease has a remaining lease term of 144 months at a discount rate of 3.51%.
The right-of-use lease asset is recorded within other assets, and the present value of the lease liability is recorded within other liabilities (segregated between short term and long term) on the consolidated balance sheets. The discount rate applied to the lease payments represents the incremental borrowing rate. Lease expense and sublease income are recorded within other expenses and other revenue, respectively. The company has elected to utilize the short term lease exception for purposes of adopting this standard, such that the company has not capitalized on the balance sheet a lease asset or lease liability associated with leases with terms of 12 months or less from the commencement date.
The components of lease costs were as follows:
(in millions)
Quarter Ended
March 31, 2019
Operating lease expense:
 
Operating lease cost
$
18.4

Short-term lease cost
3.4

Total operating lease expense included in other expense
$
21.8

 
 
Finance lease expense:
 
Interest expense associated with finance lease
$
0.9

Depreciation on building
2.2

Total finance lease expense
$
3.1

 
 
Sublease revenue included in other revenue
$
3.3

Supplemental cash flow information related to leases was as follows:
(in millions)
Quarter Ended
March 31, 2019
Cash flows from operating leases
$
15.2

Cash flows from finance lease
4.2

Supplemental balance sheet information related to leases was as follows:
(in millions)
March 31, 2019
Operating lease right-of-use assets
$
430.1

 
 
Operating lease liabilities:
 
Other current liabilities
$
39.5

Other liabilities
521.5

Total operating lease liabilities
$
561.0

 
 
(Gains) losses on sale and leaseback transactions, net

 
 
Weighted average remaining lease term (in months)
154

Weighted average discount rate
4.0
%

18


Future minimum lease payments under operating leases are as follows:
(in millions)
 
Remainder of 2019
$
45.7

2020
60.6

2021
57.1

2022
60.6

2023
57.3

2024
51.8

Thereafter
392.2

Total lease payments
725.3

Less: imputed interest
(164.3
)
Present value of lease liability
$
561.0

Future minimum lease payments under the finance lease are as follows:
(in millions)
 
Remainder of 2019
$
12.6

2020
16.9

2021
16.9

2022
17.1

2023
17.2

2024
17.4

Thereafter
111.8

Total lease payments
209.9

Less: imputed interest
(23.6
)
Present value of lease liability
$
186.3

9. Guarantees
Mutual Offset Agreement. CME and Singapore Exchange Limited (SGX) have a mutual offset agreement with a current term through October 2019. This agreement enables market participants to open a futures position on one exchange and liquidate it on the other. 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, standby letters of credit. At March 31, 2019, CME was contingently liable to SGX on letters of credit totaling $335.0 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. The company believes that its guarantee liability is immaterial and therefore has not recorded any liability at March 31, 2019.
Family Farmer and Rancher Protection Fund. In 2012, the company established the Family Farmer and Rancher Protection Fund (the Fund). The Fund is designed to provide payments, up to certain maximum levels, to family farmers, ranchers and other agricultural industry participants who use the company's agricultural commodity products and who suffer losses to their segregated account balances due to their CME clearing member becoming insolvent. Under the terms of the Fund, farmers and ranchers are eligible for up to $25,000 per participant. Farming and ranching cooperatives are eligible for up to $100,000 per cooperative. The Fund was established with a maximum of $100.0 million available for distribution to participants. Since its establishment, the Fund has made payments of approximately $2.0 million, which leaves $98.0 million available for future claims. If, at any time, payments due to participants were to exceed the amount remaining in the fund, payments would be pro-rated. Clearing members and customers must register with the company in advance and provide certain documentation in order to substantiate their eligibility. The company believes that its guarantee liability is immaterial and therefore has not recorded any liability at March 31, 2019.

19


10. Accumulated Other Comprehensive Income (Loss)
The following tables present changes in the accumulated balances for each component of other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss):
(in millions)
Investment Securities
 
Defined Benefit Plans
 
Derivative Investments
 
Foreign Currency Translation
 
Total
Balance at December 31, 2018
$
0.1

 
$
(53.8
)
 
$
69.7

 
$
(10.7
)
 
$
5.3

Other comprehensive income (loss) before reclassifications and income tax benefit (expense)
0.8

 
(2.7
)
 
0.3

 
(4.0
)
 
(5.6
)
Amounts reclassified from accumulated other comprehensive income (loss)

 
1.2

 
(0.3
)
 

 
0.9

Income tax benefit (expense)
(0.2
)
 
0.4

 

 

 
0.2

Net current period other comprehensive income (loss)
0.6

 
(1.1
)
 

 
(4.0
)
 
(4.5
)
Balance at March 31, 2019
$
0.7

 
$
(54.9
)
 
$
69.7

 
$
(14.7
)
 
$
0.8

(in millions)
Investment Securities
 
Defined Benefit Plans
 
Derivative Investments
 
Foreign Currency Translation
 
Total
Balance at December 31, 2017
$
0.6

 
$
(36.1
)
 
$
58.0

 
$
(8.2
)
 
$
14.3

Other comprehensive income (loss) before reclassifications and income tax benefit (expense)
(0.9
)
 
1.7

 

 
0.9

 
1.7

Amounts reclassified from accumulated other comprehensive income (loss)

 
0.7

 
(0.3
)
 

 
0.4

Income tax benefit (expense)
0.2

 
(0.6
)
 
0.1

 

 
(0.3
)
Net current period other comprehensive income (loss)
(0.7
)
 
1.8

 
(0.2
)
 
0.9

 
1.8

Impact of adoption of standards update on tax effects related to accumulated other comprehensive income
0.1

 
(8.2
)
 
11.9

 

 
3.8

Balance at March 31, 2018
$

 
$
(42.5
)
 
$
69.7

 
$
(7.3
)
 
$
19.9

11. 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, such as quoted prices for similar assets and liabilities in active markets, or inputs other than quoted prices that are directly observable.
Level 3 inputs consist of unobservable inputs which are derived and cannot be corroborated by market data or other entity-specific inputs.
Level 1 assets generally include investments in publicly traded mutual funds, equity securities, municipal bonds, corporate debt securities, U.S. Treasury securities and U.S. government agency securities with quoted market prices. In general, the company uses quoted prices in active markets for identical assets to determine the fair value of marketable securities.
Level 2 assets and liabilities generally consist of asset-backed securities, derivatives, privately-held equity investments and long-term debt notes. Asset-backed securities were measured at fair value based on matrix pricing using prices of similar securities with similar inputs such as maturity dates, interest rates and credit ratings. The derivative contracts were measured at fair value using standard valuation models with market-based observable inputs including forward exchange rates and discount rates. Gains and losses on these contracts are recognized in other non-operating income (expense) and accumulated comprehensive income. The fair values of the equity investments were based on quoted market prices for similar assets and long-term debt notes were based on quoted market prices in an inactive market.

20


Level 3 liabilities include contingent consideration. The contingent consideration liabilities are considered level 3 liabilities because management used significant unobservable inputs, including discount rates of 4%. The fair value of the liabilities are determined using a discounted cash flow model to calculate the present value of the expected future payouts. Significant changes in these observable inputs may have a material impact on the fair value of the contingent consideration liabilities as these amounts affect the timing and extent of cash flows under the contract. Changes to the discount rate assumption do not have a material impact on the fair value of the liability. Under the valuation model, the estimated fair values ranged from $0.5 million to $23.3 million, depending on assumptions used. Changes in the fair value of the contingent consideration flow through the income statement. Level 3 assets also include fixed assets and privately-held equity investments that were impaired.
Recurring Fair Value Measurements. Financial assets and liabilities recorded in the consolidated balance sheet as of March 31, 2019 were classified in their entirety based on the lowest level of input that was significant to each asset and liability's fair value measurement. The following table presents financial instruments measured at fair value on a recurring basis:
 
 
March 31, 2019
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets at Fair Value:
 
 
 
 
 
 
 
 
Marketable securities:
 
 
 
 
 
 
 
 
Corporate debt securities
 
$
18.7

 
$

 
$

 
$
18.7

Municipal bonds
 
1.5

 

 

 
1.5

Mutual funds
 
61.8

 

 

 
61.8

Equity securities
 
0.1

 

 

 
0.1

Asset-backed securities
 

 
0.3

 

 
0.3

Total Marketable Securities
 
82.1

 
0.3

 

 
82.4

Performance bonds and guaranty fund contributions (1):
 
 
 
 
 
 
 
 
       U.S. Treasury securities
 
1,895.6

 

 

 
1,895.6

U.S. government agency securities
 
1,129.9

 

 

 
1,129.9

Derivative contracts
 

 
0.8

 

 
0.8

Total Assets at Fair Value
 
$
3,107.6

 
$
1.1

 
$

 
$
3,108.7

 
 
 
 
 
 
 
 
 
Liabilities at Fair Value:
 
 
 
 
 
 
 
 
Derivative contracts
 
$

 
$
2.7

 
$

 
$
2.7

Contingent consideration
 

 

 
6.9

 
6.9

Total Liabilities at Fair Value
 
$

 
$
2.7

 
$
6.9

 
$
9.6

(1) Performance bonds and guaranty fund contributions on the consolidated balance sheet at March 31, 2019 include U.S. Treasury securities and U.S. government agency securities purchased with cash collateral.
The following is a reconciliation of the level 3 liability valued at fair value on a recurring basis during the first quarter of 2019:
(in millions)
Contingent Consideration
Fair value of liability at December 31, 2018
$
6.7

Unrealized gains (losses) included in operating expense
0.2

Fair Value of Liability at March 31, 2019
$
6.9

Non-Recurring Fair Value Measurements. During the first quarter of 2019, the company recognized an impairment charge of $3.4 million related to one of its privately-held equity investments. The investment's fair value was estimated to be zero at the impairment date. The company also recognized impairment charges of $1.7 million related to certain fixed assets. The fair value of the fixed assets were estimated to be zero at the impairment date. These assessments were based on qualitative indications of impairment. The fair values of the investment and fixed assets are considered level 3 and non-recurring.

21


Fair Values of Long-Term Debt Notes. The following presents the estimated fair values of long-term debt notes, which are carried at amortized cost on the consolidated balance sheets. The fair values below that are classified as level 2 under the fair value hierarchy were estimated using quoted market prices in inactive markets. The fair value of the debt facility that was classified as level 3 under the fair value hierarchy was estimated based on assumptions made by management regarding expectations of future settlement of the debt.
At March 31, 2019, the fair values (in U.S. dollar equivalent) were as follows:
(in millions)
Fair Value
 
Level
$750.0 million fixed rate notes due September 2022
$
762.3

 
Level 2
€15.0 million fixed rate notes due May 2023
18.7

 
Level 2
$750.0 million fixed rate notes due March 2025
753.8

 
Level 2
$500.0 million fixed rate notes due June 2028
527.2

 
Level 2
$750.0 million fixed rate notes due September 2043
921.8

 
Level 2
$700.0 million fixed rate notes due June 2048
741.3

 
Level 2
Commercial paper
854.7

 
Level 3
12. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of shares of all classes of CME Group common stock outstanding for each reporting period. Diluted earnings per share reflects the increase in shares using the treasury stock method to reflect the impact of an equivalent number of shares of common stock if stock options were exercised and restricted stock awards were converted into common stock. Anti-dilutive restricted stock and performance share awards were as follows for the periods presented:
 
Quarter Ended
March 31,
(in thousands)
2019
 
2018
Restricted stock and performance shares
76

 
49

Total
76

 
49

The following table presents the earnings per share calculation for the periods presented:
 
Quarter Ended
March 31,
 
2019
 
2018
Net Income Attributable to CME Group (in millions)
$
496.9

 
$
598.8

Weighted Average Number of Common Shares (in thousands):
 
 
 
Basic
356,886

 
339,305

Effect of stock options, restricted stock and performance shares
1,161

 
1,442

Diluted
358,047

 
340,747

Earnings per Common Share Attributable to CME Group:
 
 
 
Basic
$
1.39

 
$
1.76

Diluted
1.39

 
1.76

13. Subsequent Events
The company has evaluated subsequent events through the date the financial statements were issued. The company has determined that there were no subsequent events.
 


22


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is provided as a supplement to, and should be read in conjunction with, the accompanying unaudited consolidated financial statements and notes in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018.
References in this discussion and analysis to “we,” “us” and “our” are to CME Group Inc. (CME Group) and its consolidated subsidiaries, collectively. References to “exchange” are to Chicago Mercantile Exchange Inc. (CME), Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX), Commodity Exchange, Inc. (COMEX), collectively, unless otherwise noted.
RESULTS OF OPERATIONS
Financial Highlights
The following summarizes significant changes in our financial performance for the periods presented.
 
Quarter Ended
March 31,
 
 
(dollars in millions, except per share data)
2019
 
2018
 
Change
Total revenues
$
1,179.6

 
$
1,109.0

 
6
 %
Total expenses
548.6

 
368.1

 
49

Operating margin
53.5
%
 
66.8
%
 
 
Non-operating income (expense)
$
9.2

 
$
47.8

 
(81
)
Effective tax rate
22.5
%
 
24.1
%
 
 
Net income attributable to CME Group
$
496.9

 
$
598.8

 
(17
)
Diluted earnings per common share attributable to CME Group
1.39

 
1.76

 
(21
)
Cash flows from operating activities
669.2

 
825.0

 
(19
)
Revenues
 
Quarter Ended
March 31,
 
 
(dollars in millions)
2019
 
2018
 
Change
Clearing and transaction fees
$
952.6

 
$
973.6

 
(2
)%
Market data and information services
130.1

 
94.9

 
37

Other
96.9

 
40.5

 
139

Total Revenues
$
1,179.6

 
$
1,109.0

 
6

Clearing and Transaction Fees
Futures and Options Contracts
The following table summarizes our total contract volume, revenue and average rate per contract for futures and options. Total contract volume includes contracts that are traded on our exchange and cleared through our clearing house and certain cleared-only contracts. Volume is measured in round turns, which is considered a completed transaction that involves a purchase and an offsetting sale of a contract. Average rate per contract is determined by dividing total clearing and transaction fees by total contract volume. Contract volume and average rate per contract disclosures exclude trading volume for the cash markets business and interest rate swaps volume.
 
 
Quarter Ended
March 31,
 
 
 
 
2019
 
2018
 
Change
Total contract volume (in millions)
 
1,136.6

 
1,354.4

 
(16
)%
Clearing and transaction fees (in millions)
 
$
810.9

 
$
956.4

 
(15
)
Average rate per contract
 
$
0.713

 
$
0.706

 
1

We estimate the following net change in clearing and transaction fees based on changes in total contract volume and changes in average rate per contract for futures and options during the first quarter of 2019 when compared with the same period in 2018. 

23


(in millions)
Quarter Ended
Decrease due to change in total contract volume
$
(155.4
)
Increase due to change in average rate per contract
9.9

Net decrease in clearing and transaction fees
$
(145.5
)
Average rate per contract is impacted by our rate structure, including volume-based incentives; product mix; trading venue, and the percentage of volume executed by customers who are members compared with non-member customers. Due to the relationship between average rate per contract and contract volume, the change in clearing and transaction fees attributable to changes in each is only an approximation.
Contract Volume
The following table summarizes average daily contract volume. Contract volume can be influenced by many factors, including political and economic conditions, the regulatory environment and market competition. 
 
Quarter Ended
March 31,
 
 
(amounts in thousands)
2019
 
2018
 
Change
Average Daily Volume by Product Line:
 
 
 
 
 
Interest rates
10,314

 
11,948

 
(14
)%
Equity indexes
3,161

 
4,096

 
(23
)
Foreign exchange
885

 
1,100

 
(20
)
Agricultural commodities
1,381

 
1,593

 
(13
)
Energy
2,331

 
2,754

 
(15
)
Metals
561

 
713

 
(21
)
Aggregate average daily volume
18,633

 
22,204

 
(16
)
Average Daily Volume by Venue:
 
 
 
 
 
CME Globex
16,576

 
19,797

 
(16
)
Open outcry
1,284

 
1,556

 
(18
)
Privately negotiated
773

 
851

 
(9
)
Aggregate average daily volume
18,633


22,204

 
(16
)
Electronic Volume as a Percentage of Total Volume
89
%
 
89
%
 
 
Following periods of very high volatility in early 2018, overall market volatility subsided in the first quarter of 2019. Uncertainty surrounding the Federal Reserve's interest rate policy remained high throughout early 2018, however uncertainty subsided in the first quarter of 2019 following the Federal Reserve's decision to curtail interest rate hikes in 2019. Market uncertainty surrounding the United State's foreign trade policy was also high throughout early 2018, but uncertainty lessened in early 2019. We believe these factors contributed to a decrease in volume in the first quarter of 2019.


24


Interest Rate Products
The following table summarizes average daily contract volume for our key interest rate products. Eurodollar Front 8 futures include contracts expiring in two years or less. Eurodollar Back 32 futures include contracts with expirations after two years through ten years.
  
Quarter Ended
March 31,
 
 
(amounts in thousands)
2019
 
2018
 
Change
Eurodollar futures and options:
 
 
 
 
 
       Front 8 futures
2,099

 
2,802

 
(25
)%
       Back 32 futures
720

 
1,171

 
(38
)
       Options
1,720

 
1,988

 
(13
)
U.S. Treasury futures and options:
 
 
 
 
 
10-Year
2,269

 
2,537

 
(11
)
       5-Year
1,373

 
1,370

 

2-Year
694

 
632

 
10

       Treasury bond
459

 
503

 
(9
)
Federal Funds futures and options
274

 
283

 
(3
)
In the first quarter of 2019 compared with the same period in 2018, interest rate contract volume decreased, which we believe was due to an overall decline in market volatility. Volatility in the first quarter of 2019 subsided following periods of very high volatility in early 2018, which was caused by heightened uncertainty surrounding the Federal Reserve's interest rate policy, the United State's foreign trade policies and future rates of inflation. Market uncertainty surrounding the Federal Reserve's interest rate policy dampened in the first quarter of 2019 following the Federal Reserve's indication in late 2018 to reduce the number of interest rate hikes in 2019.
Equity Index Products
The following table summarizes average daily contract volume for our key equity index products.
  
Quarter Ended
March 31,
 
 
(amounts in thousands)
2019
 
2018
 
Change
E-mini S&P 500 futures and options
2,166

 
2,957

 
(27
)%
E-mini NASDAQ 100 futures and options
491

 
495

 
(1
)
E-mini Russell 2000 futures and options
150

 
154

 
(3
)
Equity index contract volume declined in the first quarter of 2019 when compared with the same period in 2018 due to a decline in overall market volatility, as measured by the CBOE Volatility Index and CBOE Nasdaq-100 Volatility Index. Volatility levels subsided following periods of very high market volatility in the first quarter of 2018, which we believe were caused by uncertainty surrounding the United States' foreign trade policies and the Federal Reserve's interest rate policy.
Foreign Exchange Products
The following table summarizes average daily contract volume for our key foreign exchange products. 
 
Quarter Ended
March 31,
 
 
(amounts in thousands)
2019
 
2018
 
Change
Euro
239

 
330

 
(28
)%
British pound
140

 
156

 
(10
)
Japanese yen
133

 
187

 
(28
)
Australian dollar
111

 
133

 
(16
)
In the first quarter of 2019, overall foreign exchange contract volume decreased when compared with the same period in 2018, which we believe resulted from an overall decrease in volatility following periods of very high volatility in the first quarter of 2018. Foreign exchange volatility decreased in the first quarter of 2019 following the Federal Reserve and other central banks' indication to limit the number of interest rate hikes in 2019. We also believe that the lack of resolution in the trade agreement between the United States and China and the delay in the United Kingdom European Union membership referendum resulted in lower volume.

25


Agricultural Commodity Products
The following table summarizes average daily contract volume for our key agricultural commodity products. 
 
Quarter Ended
March 31,
 
 
(amounts in thousands)
2019
 
2018
 
Change
Corn
484

 
515

 
(6
)%
Wheat
234

 
274

 
(15
)
Soybean
231

 
341

 
(32
)
In the first quarter of 2019 when compared with the same period in 2018, overall commodity contract volume decreased due to a decline in price volatility relative to the first quarter of 2018. In the first quarter of 2018, overall commodity price volatility was high due to significant concern surrounding the United States' foreign trade policies and higher uncertainty surrounding the 2018 crop production due to drought conditions.
Energy Products
The following table summarizes average daily contract volume for our key energy products. 
 
Quarter Ended
March 31,
 
 
(amounts in thousands)
2019
 
2018
 
Change
WTI crude oil
1,346

 
1,542

 
(13
)%
Natural gas
485

 
665

 
(27
)
Refined products
382

 
419

 
(9
)
In the first quarter of 2019 when compared with the same period in 2018, we believe overall energy contract volume decreased due to lower price volatility. The low volatility is the result of greater stability within the crude oil markets as supply was meeting demand. In addition, expanded production of natural gas resulted in a reduction of price volatility, which we believe contributed to a decrease in natural gas volume.
Metal Products
The following table summarizes average daily volume for our key metal products.  
 
Quarter Ended
March 31,
 
 
(amounts in thousands)
2019
 
2018
 
Change
Gold
340

 
437

 
(22
)%
Copper
105

 
137

 
(23
)
Silver
85

 
109

 
(22
)
Overall metal contract volume decreased in the first quarter of 2019 when compared with the same period in 2018 due to an overall decrease in market volatility as volatility subsided in the first quarter of 2019 following periods of very high volatility in the first quarter of 2018. In the same period of 2018, investors utilized gold and other precious metals as safe haven alternative investments during periods of high overall market volatility.
Average Rate per Contract
The average rate per contract increased slightly in the first quarter of 2019 when compared with the same period in 2018. The increase was largely due to lower tier-based incentives. The increase in the average rate per contract was partially offset by a shift in product mix. Interest contract volume increased by 2 percentage points as a percentage of total volume, while equity contract volume decreased by 1 percentage points. In general, equity products have a higher rate per contract compared with interest rate contracts.
Cash Markets Business
Total clearing and transaction fees revenue in the first quarter of 2019 includes transaction fees of $122.9 million attributable to businesses acquired from NEX. This revenue includes $47.6 million in transaction fees from BrokerTec U.S.'s fixed income volume and $48.9 million from EBS's foreign exchange volume.



26


The related average daily notional value for the first quarter of 2019 were as follows:
(amounts in billions)
 
Average Daily Notional Value
U.S. Treasury
 
$
172.4

European Repo (in euros)
 
271.4

Spot FX
 
81.5

Concentration of Revenue
We bill a substantial portion of our clearing and transaction fees directly to our clearing firms. The majority of clearing and transaction fees received from clearing firms represent charges for trades executed and cleared on behalf of their customers. No individual firm represented at least 10% of our clearing and transaction fees in the first quarter of 2019. Should a clearing firm withdraw, we believe that the customer portion of the firm’s trading activity would likely transfer to another clearing firm of the exchange. Therefore, we do not believe we are exposed to significant risk from the ongoing loss of revenue received from or through a particular clearing firm.
Other Sources of Revenue
The increase in market data and information services revenues in the first quarter of 2019 when compared with the same period in 2018 was mainly attributable to the additional market data revenue generated by market data subscribers and distributors associated with the legacy NEX businesses subsequent to the acquisition in November 2018. In addition, fees for basic real-time market data services increased to $105 per month from $85 per month for each device beginning in the second quarter of 2018, which also contributed to the increase in revenue.
The two largest resellers of our market data represented approximately 43% of our market data and information services revenue in the first quarter of 2018. Despite this concentration, we consider exposure to significant risk of revenue loss to be minimal. In the event that one of these vendors no longer subscribes to our market data, we believe the majority of that vendor’s customers would likely subscribe to our market data through another reseller. Additionally, several of our largest institutional customers that utilize services from our two largest resellers report usage and remit payment of their fees directly to us.
In the first quarter of 2019 when compared with the same period in 2018, the increase in other revenues was largely due to the additional other revenue contributed by the NEX acquisition. Other revenues from NEX primarily include optimization services such as portfolio management, analytics, and trade and regulatory reporting.
Expenses
  
Quarter Ended
March 31,
 
 
(dollars in millions)
2019
 
2018
 
Change
Compensation and benefits
$
230.3

 
$
152.7

 
51
 %
Technology
47.1

 
25.5

 
85
 %
Professional fees and outside services
39.4

 
42.6

 
(7
)%
Amortization of purchased intangibles
80.7

 
23.7

 
n.m.

Depreciation and amortization
32.9

 
28.1

 
17
 %
Licensing and other fee agreements
40.5

 
49.5

 
(18
)%
Other
77.7

 
46.0

 
69
 %
Total Expenses
$
548.6

 
$
368.1

 
49
 %
n.m. not meaningful

27