Revenues increased 71 percent to a record $387.2 million for 2001, versus $226.6 million for 2000. Operating margins improved to 29.9 percent for 2001, compared with a negative 3.6 percent for 2000, reflecting the improvement in revenues resulting from record trading volume and a new pricing structure implemented in early 2001. Margin improvements were partially offset by a 16 percent increase in expenses. CME Holdings reported record 2001 net income of $69.2 million, or $2.36 per diluted share, compared with a 2000 net loss of $5.9 million, or a loss of 21 cents per share.* Fourth quarter 2001 revenues rose 56 percent to a record $105.0 million from $67.2 million for the same period of 2000. Operating margins were 27.9 percent for the fourth quarter of 2001, compared with 12.5 percent for the same period a year ago. Net income was $17.3 million for the 2001 quarter, or 59 cents per diluted share, up 270 percent from $4.7 million, or 16 cents per diluted share, for the fourth quarter of 2000.
"By every measure, 2001 was an exceptional year for CME," said Chairman Scott Gordon. "We were able to accommodate record trading volumes, achieve growth in all of our four principal product sectors and demonstrate yet again the liquidity and strength of our open outcry and electronic trading platforms. We believe that a key to CME's continued success is an unwavering commitment to providing our customers with the right trading and clearing platforms, as well as the right futures and options on futures to meet their risk management needs."
"Our clearing and trade execution platforms processed record volumes in 2001 with only small increases in expenses, demonstrating the ability to leverage our business," said Chief Executive Officer Jim McNulty. "Over the last 18 months, we implemented a number of programs to instill sound processes for running the exchange as a for-profit corporation, as well as to begin developing a pipeline of new products for 2002. This year, our focus will be on executing our new 18-month action plan, including making additional enhancements to our open outcry and electronic trading platforms and rekindling the spirit of innovation that has been a hallmark of CME."
The company's 71 percent increase in annual revenues was driven by record trading volume in 2001, when CME became the largest futures exchange in the United States based on volume. CME traded 411.7 million contracts in 2001, up 78 percent from 2000, its previous record year. The notional (underlying) value of those transactions was $293.9 trillion, 90 percent above 2000 levels. Volume on CME's GLOBEX electronic trading platform rose 137 percent to a record 81.9 million contracts in 2001. Each of CME's four principal product groups achieved volume gains in 2001 versus year-ago levels, led by the exchange's benchmark Eurodollar contract, the most actively traded futures contract in the world last year. CME's open interest reached new records 90 times in 2001 and totaled 18.9 million positions on December 13 - the highest level achieved by any exchange to date in futures and options on futures. Open interest is the number of positions outstanding at the close of trading. Before 2001, CME's open interest record was 10.2 million positions, set in 1998.
CME's volume growth resulted from interest rate volatility, demonstrated by 11 reductions in U.S. short-term interest rates in 2001, which resulted in a total reduction of 4.75 percentage points; volatility in U.S. stocks; global and domestic economic and political uncertainty; the diversity of the exchange's product offerings; programs to open access to GLOBEX electronic trading and volume discounts to customers. These factors and a new fee structure introduced in early 2001 contributed to an 87 percent increase in clearing and transaction fees, to $292.5 million in 2001 versus $156.6 million in 2000. Quotation data fees climbed 33 percent to $48.3 million from $36.3 million in 2000.
Total operating expenses were $271.3 million for 2001, an increase of 16 percent from $234.6 million for 2000. A substantial portion of the increase was due to non-cash stock-based compensation expense, which varies based on changes in the value of the trading rights associated with CME Holdings' Class B shares. Stock-based compensation expense was $17.6 million for 2001, compared with $1.0 million for 2000. Excluding this category, 2001 expenses were $253.7 million, a 9 percent increase from $233.6 million for 2000 and the operating margin for 2001 would have been 34.5 percent. CME Holdings had an income tax provision of $46.7 million for 2001, versus a tax benefit of $3.3 million for 2000.
Although historically, trading volume generally has been lower during the fourth quarter, the last quarter of 2001 was CME's fourth consecutive record quarter in volume - and at 116.2 million contracts traded, exceeded the fourth quarter of 2000 by 91 percent. CME Holdings' fourth quarter 2001 revenue growth was due primarily to a 66 percent improvement in clearing and transaction fees, to $80.6 million, and a 41 percent increase in quotation data fees, to $12.4 million. Operating expenses were $75.7 million for the fourth quarter of 2001, versus $58.7 million for the same period of 2000. Expenses rose primarily due to a $4.0 million increase in compensation expense, which includes employee bonuses, and a $7.6 million increase in non-cash stock-based compensation. Excluding stock-based compensation expense, fourth quarter 2001 expenses grew 16 percent to $69.1 million from $59.8 million for the fourth quarter of 2000, and the operating margin for the current quarter would have been 34.2 percent. The company's income tax provision was $11.9 million for the fourth quarter of 2001, compared with $3.7 million for the same period a year ago.
CME Holdings' working capital position increased 110 percent to $145.1 million at Dec. 31, 2001, compared with $69.1 million at year-end 2000. 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 $28.2 billion in collateral deposits. Founded in 1898 as a not-for-profit institution, CME became the first U.S. financial exchange to demutualize and become a shareholderowned corporation in November 2000. In December 2001, CME became a wholly owned subsidiary of Chicago Mercantile Exchange Holdings Inc., a Delaware corporation.
