SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported)
September 23, 2002
CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 000-33379 36-4459170
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
30 South Wacker Drive, Chicago, Illinois 60606
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (312) 930-1000
N/A
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 9. Regulation FD Disclosure.
On September 23, 2002, Chicago Mercantile Exchange Holdings Inc.
distributed a letter to its shareholders, together with a press release it
issued on the same date, announcing that it will change its accounting for
stock options retroactive to December 31, 2000.
A copy of the letter and the press release, each dated September 23, 2002,
are attached hereto as Exhibit 99.1 and 99.2, respectively.
EXHIBIT INDEX
Exhibit
Number Description
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99.1 Letter to Shareholders, dated September 23, 2002.
99.2 Press Release, dated September 23, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
CHICAGO MERCANTILE EXCHANGE HOLDINGS INC.
Registrant
Date: September 24, 2002 By: /s/ Craig S. Donohue
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Craig S. Donohue
Managing Director and Chief
Administrative Officer
EXHIBIT 99.1
[Chicago Mercantile Exchange Inc. Logo]
Terrance A. Duffy James J. McNulty
Chairman of the Board President and Chief Executive Officer
September 23, 2002
To All Shareholders, Members and Staff:
At the advice of our new independent auditors, Ernst & Young, LLP, Chicago
Mercantile Exchange Holdings Inc. has announced a change in our accounting
policy related to a portion of our stock-based compensation expense, as
described in the attached news release.
The change will improve net income and earnings per share for year-to-date
2002. Based on our initial analysis, we expect the change to increase
reported net income for the first half of 2002 by approximately $2.9
million, to about $41.7 million, or $1.40 per diluted share, from $38.8
million, or $1.31 per diluted share. For 2001 and 2000, there is no impact
on the full-year results. For 2001, quarterly net income and earnings per
share will change. Since stock-based compensation expense is a non-cash
expense, the change will have no impact on the company's cash flow. Watch
for amended quarterly results to be announced in filings with the
Securities and Exchange Commission.
/s/ Terry /s/ Jim
EXHIBIT 99.2
[Chicago Mercantile Exchange Holdings Inc. Logo]
Corporate Communications 30 South Wacker Drive
PHONE: 312 / 930.3434 Chicago, IL 60606-7499
FAX: 312 / 930.3439 www.cme.com
E-MAIL: news@cme.com
Ellen G. Resnick, 312/930-3435
Maryellen T. Thielen, 312/930-3467
news@cme.com
NEWS RELEASE
Chicago Mercantile Exchange Holdings Inc. Intends to Change Accounting Related
to a Portion of its Stock Options
Change Has No Impact on Cash Flow But Will Increase Year-To-Date 2002
Reported Earnings
CHICAGO, Sept. 23, 2002 - Chicago Mercantile Exchange Holdings
Inc. today announced that it will change its accounting for stock options.
The change was recommended by the company's new independent auditors, Ernst
& Young LLP, and will be retroactive to Dec. 31, 2000.
The change will increase net income for the first half of 2002 by
approximately $2.9 million, to about $41.7 million, or $1.40 per diluted
share, from $38.8 million, or $1.31 per diluted share. For 2001 and 2000,
there is no impact on the full-year results. For 2001, quarterly net income
and earnings per share will change. The quarterly numbers will be announced
in amendments to the company's filings with the Securities and Exchange
Commission later this week. Since stock-based compensation expense is a
non-cash expense, the changes will have no impact on the company's cash
flow.
In May 2002, Ernst & Young was appointed as the company's
independent auditors for the 2002 fiscal year to replace the company's
former independent auditors, Arthur Andersen. In that role, Ernst & Young
was asked by the company to re-audit the company's fiscal 1999, 2000 and
2001 financial results. After completing the audit, Ernst & Young informed
the company that it had reached a different conclusion than the previous
auditors on the appropriate accounting for a portion of the CEO's stock
option under Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." Ernst & Young recommended that variable
accounting treatment be employed for the full value of the CEO's stock
option, treating the option's Class A and Class B shares in the same
manner. Ernst & Young recommended no other changes to the company's
financial results for previous years.
"The original accounting treatment we adopted was based on
considerable discussion with, and the advice of, our previous auditors,"
said Chairman Terry Duffy. "Our new auditors have come to a different
conclusion, and we have adopted the changes and will make the necessary
adjustments and disclosures."
The majority of the company's stock-based compensation expense is
for the CEO's stock option for 5 percent of all classes of outstanding
common stock, which was granted in February 2000. For accounting purposes,
the option was treated as a stock appreciation right until Nov. 13, 2000,
when the company demutualized and created two classes of stock. Since that
date, the Class A share portion of the option, which represents the equity
value in the firm, has been valued using fixed accounting. In the second
quarter of 2001, the company adopted variable accounting treatment for the
Class B share portion of the option, which represents the value of the
trading rights, while maintaining fixed accounting treatment for the Class
A shares in the option. With the adoption of variable accounting for Class
A shares in the option, the company's stock option expense will vary
quarter-to-quarter based on price changes from the previous quarter in the
value of both the Class A and Class B shares.
****
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. 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 $1.5 billion per day in
settlement payments and manages $27.1 billion in collateral deposits.
Statements in this news release that are not historical facts are
forward-looking statements. 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. More detailed information about factors that may affect our
performance may be found in our filings with the Securities and Exchange
Commission, including our most recent Annual Report on Form 10-K, which can
be obtained at its Web site at www.sec.gov. We undertake no obligation to
publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise.
Further information about Chicago Mercantile Exchange Holdings Inc.
and Chicago Mercantile Exchange Inc. is available on the CME Web site at
www.cme.com.
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