For the fourth quarter of 2000, revenues improved 33 percent to $67.2 million from $50.6 million for the same period of 1999, due largely to higher trading volume and fee changes that contributed $9.6 million in additional revenue. The fee changes went into effect on Oct. 1 and were a prelude to a comprehensive fee structure implemented in the first quarter of 2001. Fourth quarter 2000 net income was $4.7 million, compared with a loss of $3.1 million in the year-earlier period.
Fiscal 2000 revenues rose 8 percent to $226.6 million from $210.6 million in 1999. Increased trading volume and changes in CME’ s fee structure resulted in higher clearing and transaction fee revenue. Increases in communication fee revenues from telecommunications services, other operating income and investment income were offset by a decrease in quotation data fees.
CME reported a 2000 net loss of $5.9 million, compared with 1999 net income of $2.7 million. Results were affected in part by major investments in technology, as well as substantial nonrecurring expenses associated with management changes and CME’ s Nov. 13 transition from a membership-owned, not-for-profit organization to a shareholder-owned, for-profit corporation.
“The past few months have been outstanding in every respect at CME,” said Chairman Scott Gordon. “First and foremost, CME made history by becoming the first U.S. financial exchange to demutualize by converting its membership interests into shares of common stock that trade separately from exchange trading privileges. In addition, we began implementing a number of programs to build profitable growth. We are especially proud of the changes we’ ve made to open access to our trading platforms and offer new trade execution choices that will further enhance the liquidity of our markets.”
“In 2001, we will focus on product development, improvements to our electronic and floor-based trading technologies, and continued re-engineering of our processes to capture cost efficiencies for the exchange and our customers,” said President and Chief Executive Officer Jim McNulty. “We are pursuing a growth strategy through expansion of our GLOBEX ® 2 distribution network, electronic listing of new and existing CME products – such as chemicals and foreign exchange products – and the introduction of single-stock futures. In addition, we have begun providing clearing and infrastructure services to new and traditional marketplaces.”
CME’ s working capital position remains strong, increasing to $69.1 million at the end of December 2000, compared with $66.7 million at Dec. 31, 1999. Excluding cash performance bonds and security deposits of $176.4 million, which are both current assets and current liabilities, the current ratio was 2.7 to 1 at Dec. 31, 2000, unchanged from year-end 1999. This ratio (current assets divided by current liabilities) is a measure of short-term debt-paying ability. Net cash provided from operating activities was $19.0 million for 2000, primarily as a result of depreciation and amortization, which is a non-cash expense.
2000 Summary
CME had record annual volume of 231.1 million contracts in 2000, representing an underlying value of $155 trillion. Electronic trading volume on CME’ s GLOBEX2 system rose 114 percent to 34.5 million contracts, nearly 15 percent of total exchange volume.
The volume increase and changes in CME’ s fee structure in the fourth quarter contributed to growth of $16.3 million in clearing and transaction fee revenue, to $156.6 million for the year.
Quotation data fees decreased 16 percent in 2000 to $36.3 million, versus $43.0 million for 1999, due to lower fees paid by non-professional subscribers. This special promotional fee program was eliminated in 2001. Communication fees rose 15 percent, and other operating revenue climbed 44 percent for the year, reflecting changes in service and other fees. Investment income also rose.
Total operating expenses increased 15 percent to $234.6 million for 2000 from $204.0 million for 1999. However, excluding about $9.8 million in one-time expenses in 2000, the increase would have been 10 percent or $20.8 million. Higher operating expenses were due largely to increased compensation expenses and strategic investments in trading and clearing systems. In electronic trading, CME made significant capacity and performance enhancements to GLOBEX2 to support a new open access policy approved in 2000. Additionally, due to operating losses, CME recorded a tax benefit of $3.3 million for 2000, compared with a tax expense of $1.9 million for 1999. The operating loss will be used to obtain a tax refund by offsetting taxable income from previous years.
P-M-T Limited Partnership operated the GLOBEX2 electronic trading system until Nov. 13, 2000, when CME purchased its assets and liabilities as part of CME’ s demutualization transaction. The limited partners’ interest in the earnings of P-M-T was $1.2 million in 2000, versus $2.1 million in 1999.
Fourth Quarter Summary
In the fourth quarter of 2000, the largest contributors to CME’ s revenue increase were clearing and transaction fees, which increased 50 percent to $48.7 million, and other operating revenue, which climbed 64 percent to $4.3 million. The primary reasons were high trading volumes and fee increases. Communication fees and investment income also increased, while quotation data fees declined.
Overall fourth quarter 2000 expenses rose 7 percent to $58.7 million from $54.9 million in 1999. The categories that contributed most to the increase were professional fees, outside services and licenses; and communications and computer and software maintenance. In addition, CME had income tax expense of $3.7 million for the fourth quarter of 2000, compared with a tax benefit of $2.0 million for the fourth quarter of 1999.
