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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] 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
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NYMEX HOLDINGS, INC.
DELAWARE 13-4098266
(STATE OF INCORPORATION) (I.R.S. ID.)
ONE NORTH END AVENUE
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10282-1101
(212) 299-2000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
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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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares of NYMEX Holdings, Inc. Capital Stock outstanding as
of March 21, 2001 was 816. The aggregate market value of NYMEX Holdings, Inc.
Capital Stock held by stockholders of NYMEX Holdings, Inc., as of March 21, 2001
was $581,400,000, based upon the average of the bid and ask price for a NYMEX
Holdings, Inc. share as of March 21, 2001.
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TABLE OF CONTENTS
PART I
ITEM 1. Business.................................................... 2
ITEM 2. Properties.................................................. 15
ITEM 3. Legal Proceedings........................................... 15
ITEM 4. Submission of Matters to a Vote............................. 16
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 17
ITEM 6. Selected Financial Data..................................... 17
ITEM 7. Management's Discussion and Analysis of Consolidated Results
of Operations and Financial Condition....................... 19
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 27
ITEM 8. Financial Statements and Supplementary Data................. 28
ITEM 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 28
PART III
ITEM 10. Directors and Executive Officers of the Registrant and the
Exchange.................................................... 29
ITEM 11. Executive Officer Compensation.............................. 35
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 37
ITEM 13. Certain Relationships and Related Transactions.............. 38
PART IV
ITEM 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K......................................................... 39
Signatures.................................................. 41
Index to Financial Statements............................... F-2
Independent Auditors' Report................................ F-3
Management's Responsibility for Financial Statements........ F-4
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PART I
ITEM 1. BUSINESS.
Forward-Looking Information -- Safe Harbor Statement
Certain information set forth herein (other than historical data and
information) constitute forward-looking statements regarding events and trends
which may affect the Company's future operating results and financial position.
The words "estimate," "expect," "intend" and "project," as well as other words
or expressions of similar meaning, are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this annual report on Form 10-K.
Such statements are based on current expectations. Assumptions, are inherently
uncertain, and are subject to risks which should be viewed with caution. Actual
results and experience may differ materially from forward-looking statements as
a result of many factors, including: changes in general economic and industry
conditions in various markets in which the Company's contracts are traded,
increased competitive activity, fluctuations in prices of the underlying
commodities as well as for trading floor supplies, pit cards and expenses
related to trading and clearing contracts, the ability to control costs and
expenses, and other unanticipated events and conditions. It is not possible to
foresee or identify all such factors. The Company disclaims any intention,
commitment or obligation to revise or update any forward-looking statement, or
to disclose any facts, events or circumstances that occur after the date hereof
which may affect the accuracy of any forward-looking statement.
Overview
Throughout this document NYMEX Holdings, Inc., will be referred to as NYMEX
Holdings and, together with its subsidiaries, as the "Company." The two
principal operating subsidiaries of NYMEX Holdings are New York Mercantile
Exchange, Inc., ("NYMEX Exchange" or "NYMEX Division"), and Commodity Exchange
Inc. ("COMEX" or "COMEX Division"), which is a wholly-owned subsidiary of NYMEX
Exchange. Where appropriate, each division will be discussed separately and
collectively will be discussed as the "Exchange".)
NYMEX Exchange is the largest exchange in the world for the trading of
energy futures and options contracts, including contracts for crude oil, heating
oil and natural gas. It is also the second largest exchange in the world for the
trading of platinum group metals contracts. COMEX is the largest marketplace for
gold and silver futures and options contracts, and is the largest exchange in
North America for futures and options contracts for copper and aluminum. The
participants in NYMEX Exchange and COMEX primarily include institutions involved
in the production, consumption and trading of energy and metals products. These
market participants use these exchanges for both hedging and speculative
purposes.
Description of Business
NYMEX Exchange's predecessor, the New York Mercantile Exchange, was
established in 1872 as the Butter and Cheese Exchange of New York to provide an
organized forum for the trading of dairy products. Within a few years, the egg
trade became an important part of the business and the name was modified to the
Butter, Cheese and Egg Exchange of the City of New York. In order to attract
traders of groceries, dried fruits, canned goods and poultry, the name was
changed to New York Mercantile Exchange in 1882.
Energy futures trading was first established with the introduction of the
heating oil contract in 1978, the world's first successful energy futures
contract. Between 1981 and 1996, contracts followed for gasoline, crude oil,
natural gas, propane, and electricity. The platinum futures contract is the
world's longest continuously traded precious metals futures contract, and was
the first industrial commodity traded on the NYMEX Division. It is considered
one of the world's most valuable industrial metals. Palladium futures, the only
exchange-traded instrument for that metal, were launched in 1956.
COMEX was founded in 1933 from the combination of four futures markets; the
National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk
Exchange, and the New York Hide
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Exchange. It initially traded six commodities: copper, hides, rubber, silk,
silver and tin. In August 1994, with the acquisition of COMEX, the Exchange
became the world's largest physical commodity futures exchange. In addition to
the trading of the metals contracts noted above, COMEX also provides for trading
of the FTSE Eurotop 100(R) stock index futures and options contracts and FTSE
Eurotop 300(R) stock index futures contracts, which are contracts based on
indices designed to measure the collective performance of a sector of the
European equities market.
Corporate Reorganization - The Demutualization
On November 17, 2000, the New York Mercantile Exchange converted from a New
York not-for-profit membership association into a Delaware for-profit stock
corporation. NYMEX Holdings, Inc., and New York Mercantile Exchange Inc. were
formed as a result of a two-step merger.
First Merger
In the first merger, the New York Mercantile Exchange merged into NYMEX
Exchange, a newly formed, non-stock corporation organized under Delaware law.
NYMEX Exchange survived this merger. In the first merger, each NYMEX Division
member received one Class A membership and one Class B membership in NYMEX
Exchange for each NYMEX Division membership that the member owned. The Class A
membership represents the trading privileges associated with a NYMEX Division
membership. The Class B membership represents an economic interest in NYMEX
Exchange which includes a right to dividends and liquidation proceeds.
Second Merger
Immediately after the first merger was completed, NYMEX Exchange merged
with a transitory merger subsidiary of NYMEX Holdings, a newly formed stock
holding company also organized under Delaware law. NYMEX Exchange survived this
merger and became a wholly-owned subsidiary of NYMEX Holdings.
In the second merger, each member's Class B membership was exchanged for
one share of common stock in NYMEX Holdings. NYMEX Holdings' interest in its
subsidiary was converted into the sole outstanding Class B membership in NYMEX
Exchange.
Result
As a result of the two-step merger:
Each NYMEX Division membership became one Class A membership in NYMEX
Exchange and one share of common stock of NYMEX Holdings; NYMEX Holdings holds
the sole outstanding Class B membership in NYMEX Exchange; NYMEX Exchange is a
subsidiary of NYMEX Holdings; and both NYMEX Exchange and NYMEX Holdings are
organized under Delaware law.
By operation of law, NYMEX Exchange assumed all of the rights and
obligations of the New York Mercantile Exchange. All contracts market
designations previously held by the New York Mercantile Exchange with the
Commodities Futures Trading Commission ("CFTC") have been transferred to NYMEX
Exchange.
NYMEX Holdings, NYMEX Exchange and their subsidiaries were formed for the
purpose of providing both open outcry and electronic trading facilities to
foster the open outcry trading of commodities. NYMEX Exchange and COMEX are the
principal operating subsidiaries of NYMEX Holdings. The Company's principal
offices are located at One North End Avenue, World Financial Center, New York,
NY 10282. Its telephone number is (212) 299-2000.
Intellectual Property
The Company presently maintains several trademarks and service marks on a
domestic and international scale that protect the Company's name and its
products.
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Clearinghouse Function
In addition to providing the facilities necessary for commodities trading,
the Company also serves a clearinghouse function. This means that the Exchange
stands as a financial intermediary for transactions conducted on its exchanges,
and thereby guarantees performance of obligations owed to both buyers and
sellers. The Exchange also provides operational infrastructure to allow position
matching, reporting and margining for all exchange-traded contracts. The
Exchange's clearinghouses employ a margin system and a network of clearing
member guarantees to manage default risk. This structure permits parties to
trade with one another without individual credit determinations or counter-party
credit risk, allows for the daily flow of market-to-market variation margin
payments, and allows the Exchange to look to the financial strength of its
clearing members as its only customers.
The Clearing 21(R) system was designed to replace the Company's trade
management, data input and clearing systems. This system, a highly flexible,
state-of-the-art, clearing system developed jointly with the Chicago Mercantile
Exchange, was rolled out in 1999 and is expected to support any anticipated
growth in volume or business expansion for the next five to ten years. The
Clearing 21(R) system clears trades originating from two sources: the trade
management system on the trading floor and NYMEX ACCESS(R) electronic trading.
The system consists of the following six modules:
- Banking -- This module has the ability to handle multi-exchange
requirements, as well as process bank transactions, including payments
and receipts, and adjustments.
- Settlement -- Settlement processes and calculates the amounts applied to
margin requirements and determines the payment or amount to be received
on a transaction.
- Asset Management -- Asset management processes and calculates the asset
inventories maintained by a member as well as values them based on
settlement value.
- Deliveries -- This module handles delivery instructions as well as tracks
confirmations of trades.
- Position Management -- Position management aggregates trades to the
clearing member level.
- Performance Bond -- This module calculates margin based on both delivery
and open positions.
Installation of the final subsystems of Clearing 21(R) is expected to be
implemented for the COMEX Division in 2001.
The Exchange has an excellent risk management track record. No significant
clearing member default has occurred since 1985. The 1985 default was at the
COMEX Clearing Association ("CCA") prior to the COMEX acquisition, and was
promptly resolved. NYMEX Exchange's clearing function enables the Company to
guarantee the financial performance of all contracts traded on NYMEX Exchange.
NYMEX ACCESS(R)
The Company attempts to provide innovative, state-of-the-art trading
systems and facilities to enable it to efficiently serve its customers. To
support its expanding international business and product base, the Company has
made sizable investments to upgrade the operational efficiency and functionality
of both its clearing systems and global electronic trading platform.
The Exchange launched its NYMEX ACCESS(R) electronic trading system in June
1993. NYMEX ACCESS(R) permits the trading of futures and options contracts on
crude oil, heating oil, unleaded gasoline, natural gas and platinum, and futures
contracts on gold, silver, copper, aluminum, Middle East sour crude oil,
propane, palladium and electricity, through a worldwide network. The system was
originally active solely when NYMEX Exchange's trading floor was closed;
however, the Exchange now trades its electricity and Middle East sour crude oil
contracts exclusively on NYMEX ACCESS(R) throughout the daytime and night
sessions. As of December 31, 2000, approximately 723 users were authorized to
trade over the system and approximately 505 trader workstations were in place in
the United States, United Kingdom, Australia, and Singapore.
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Trading on NYMEX ACCESS(R), achieved a volume level during 2000 of
approximately 2.1 million contracts, which accounted for 2% of the Exchange's
total trading volume. Volume traded on NYMEX ACCESS(R) has grown at an average
annual rate of approximately 25% during the period since its inception in 1993
through December 31, 2000. A new upgraded version of NYMEX ACCESS(R) was
launched in November 1999. The new system retains the response time of its
predecessor while expanding capacity, using a standard Windows NT interface, and
is less costly to operate and easier to maintain than the previous system. The
new system offers brokers and their customers a wider range of accounting and
data tracking functions. Most importantly, NYMEX ACCESS(R) now allows for
daytime trading as well as the potential to trade financial and other commodity
products. Toward this end, in March 2000, NYMEX Exchange launched its
electricity contracts for trading exclusively on NYMEX ACCESS(R) throughout the
daytime and night sessions. Upgrading and modernizing daytime trade matching,
and review and correction of clearing operations has also been the focus of a
sustained effort by the Company.
Product Distribution
The Company provides the physical facilities necessary to conduct an
open-outcry auction market, electronic trading systems and systems for the
matching and clearing of all trades executed on the Exchange.
The Company also sells real-time market data relating to prices of
contracts traded on the NYMEX Division and COMEX Division to third parties. The
data is distributed to customers through information vendors. In addition, fees
from customers are collected by these vendors and remitted to the Exchange.
These information vendors include Reuters, Bridge, ILX Systems and CQG, who
distribute the data to subscribers that receive real-time data on terminals at
their business or personal locations.
Principal Products
NYMEX Division
NYMEX Exchange is the leading commodity exchange for trading energy futures
and options contracts, including contracts for crude oil, heating oil, unleaded
gasoline, propane, natural gas and electricity, and is a leading exchange for
trading platinum group metals futures and options, including contracts for
platinum and palladium. The aggregate trading volume in crude oil contributed
30%, 31%, and 28% of the Company's total consolidated revenues for the years
ended December 31, 2000, 1999, and 1998, respectively. The aggregate trading
volume in natural gas contributed 16%, 15%, and 14% of the Company's total
consolidated revenues for the years ended December 31, 2000, 1999, and 1998,
respectively.
COMEX Division
COMEX provides futures and options trading of precious metals including
gold, silver, as well as base metals including copper and aluminum contracts,
FTSE Eurotop 100(R) stock index futures and options contracts, and FTSE Eurotop
300(R) stock index futures contracts. The Company's gold and silver futures and
options contracts are the world's principal exchange-traded instruments for
these commodities.
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The following is a list of the contracts traded and open interest in those
contracts on both the NYMEX Division and COMEX Division:
NYMEX DIVISION CONTRACTS TRADED
1996 1997 1998 1999
---------------------- ---------------------- ----------------------- -----------------------
FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS
---------- --------- ---------- --------- ---------- ---------- ---------- ----------
Light Sweet Crude
Oil................ 23,487,821 5,271,456 24,771,375 5,790,333 30,495,647 7,448,095 37,860,064 8,161,976
Henry Hub Natural
Gas................ 8,813,867 1,234,691 11,923,628 2,079,607 15,978,286 3,115,765 19,165,096 3,849,454
N.Y. Heating Oil.... 8,341,877 1,108,935 8,370,964 1,147,034 8,863,764 669,725 9,200,703 695,558
New York Harbor
Unleaded
Gasoline........... 6,312,339 655,965 7,475,145 1,033,778 7,992,269 730,421 8,701,216 600,009
Platinum............ 802,468 36,175 698,597 31,139 528,269 14,183 567,268 11,146
Palladium........... 205,610 N/A 238,716 N/A 131,250 N/A 75,394 N/A
California-Oregon
Border
Electricity........ 52,340 7,650 120,896 13,495 128,423 19,989 52,032 3,761
Palo Verde
Electricity........ 17,548 3,964 155,977 19,328 139,738 28,597 51,852 4,419
Heating Oil-Crude
Oil Spread
Options............ N/A 45,920 N/A 18,657 N/A 36,615 N/A 46,482
Gasoline-Crude Oil
Spread Options..... N/A 31,743 N/A 41,867 N/A 22,575 N/A 46,281
Propane............. 53,903 N/A 40,255 N/A 43,868 N/A 37,544 N/A
Cinergy
Electricity........ N/A N/A N/A N/A 48,483 2,597 34,367 1,419
Entergy
Electricity........ N/A N/A N/A N/A 42,580 1,855 20,528 105
PJM Electricity..... N/A N/A N/A N/A N/A N/A 3,254 N/A
Permian Basin
Natural Gas........ 8,811 0 15 0 0 0 0 N/A
Alberta Natural
Gas................ 2,876 15 110 0 0 0 0 N/A
Middle East Sour
Crude Oil.......... 0 N/A 0 N/A 1 N/A 0 N/A
Gulf Coast Unleaded
Gasoline........... 0 N/A 0 N/A 0 N/A 0 N/A
---------- --------- ---------- --------- ---------- ---------- ---------- ----------
Total........ 48,099,460 8,396,514 53,795,678 10,175,238 64,392,578 12,090,417 75,769,318 13,420,610
========== ========= ========== ========= ========== ========== ========== ==========
2000
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FUTURES OPTIONS
---------- ----------
Light Sweet Crude
Oil................ 36,882,692 7,460,052
Henry Hub Natural
Gas................ 17,875,013 5,335,800
N.Y. Heating Oil.... 9,631,376 1,385,968
New York Harbor
Unleaded
Gasoline........... 8,645,182 1,012,460
Platinum............ 320,924 7,065
Palladium........... 50,766 N/A
California-Oregon
Border
Electricity........ 7,060 0
Palo Verde
Electricity........ 21,477 0
Heating Oil-Crude
Oil Spread
Options............ N/A 42,363
Gasoline-Crude Oil
Spread Options..... N/A 16,348
Propane............. 26,075 N/A
Cinergy
Electricity........ 461 0
Entergy
Electricity........ 34 0
PJM Electricity..... 188 N/A
Permian Basin
Natural Gas........ 0 N/A
Alberta Natural
Gas................ 0 N/A
Middle East Sour
Crude Oil.......... 25 N/A
Gulf Coast Unleaded
Gasoline........... 0 N/A
---------- ----------
Total........ 73,461,273 15,260,056
========== ==========
"N/A" means contract was either not in existence at the time or was
declared dormant and therefore not available for trading.
"0" means contract was available for trading but no trades were executed.
NYMEX DIVISION OPEN INTEREST*
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 2000
----------------- ----------------- ------------------- --------------------- -------------------
FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS
------- ------- ------- ------- --------- ------- --------- --------- ------- ---------
Light Sweet Crude
Oil................ 364,170 439,536 413,045 363,639 483,327 420,962 501,819 557,221 407,646 532,965
Henry Hub Natural
Gas................ 143,846 120,431 186,815 221,849 222,576 242,379 246,629 369,520 353,093 513,901
N.Y. Heating Oil.... 95,408 104,877 152,476 86,415 176,361 66,632 135,259 58,593 124,664 147,976
New York Harbor
Unleaded
Gasoline........... 59,806 32,886 100,742 25,965 100,465 26,859 89,804 45,854 90,242 38,791
Platinum............ 25,990 3,276 10,983 1,141 11,543 413 11,953 326 8,429 305
Palladium........... 7,995 N/A 3,565 N/A 2,861 N/A 2,869 N/A 1,848 N/A
California-Oregon
Border
Electricity........ 3,196 1,743 5,336 2,904 2,401 268 1,974 1 0 0
Palo Verde
Electricity........ 1,218 899 4,515 2,191 1,537 10 1,769 0 73 0
Heating Oil-Crude
Oil Spread
Options............ N/A 2,655 N/A 1,998 N/A 4,845 N/A 5,235 N/A 4,488
Gasoline-Crude Oil
Spread Options..... N/A 1,645 N/A 2,521 N/A 977 N/A 1,411 N/A 1,625
Propane............. 3,222 N/A 2,019 N/A 4,068 N/A 2,408 N/A 907 N/A
Cinergy
Electricity........ N/A N/A N/A N/A 2,087 1,490 193 0 25 0
Entergy
Electricity........ N/A N/A N/A N/A 2,653 50 25 0 0 0
PJM Electricity..... N/A N/A N/A N/A N/A N/A 372 N/A 0 N/A
Permian Basin
Natural Gas........ 50 0 0 0 0 0 0 N/A 0 N/A
Alberta Natural
Gas................ 162 0 0 0 0 0 0 N/A 0 N/A
Middle East Sour
Crude Oil.......... 0 N/A 0 N/A 0 N/A 0 N/A 0 N/A
Gulf Coast Unleaded
Gasoline........... 0 N/A 0 N/A 0 N/A 0 N/A 0 N/A
------- ------- ------- ------- --------- ------- --------- --------- ------- ---------
Total........ 705,063 707,948 879,496 708,623 1,009,879 764,885 995,074 1,038,161 986,927 1,240,051
======= ======= ======= ======= ========= ======= ========= ========= ======= =========
"N/A" means contract was either not in existence at the time or was
declared dormant and therefore not available for trading.
"0" means contract was available for trading but no trades were executed.
* Open Interest as recorded on the last business day of the years 1996 to
2000.
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COMEX DIVISION CONTRACTS TRADED
1996 1997 1998 1999
---------------------- ---------------------- ---------------------- ----------------------
FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS
---------- --------- ---------- --------- ---------- --------- ---------- ---------
Gold................ 8,902,179 2,079,663 9,541,904 2,064,883 8,990,094 1,945,366 9,575,788 2,815,831
Silver.............. 4,870,808 949,239 4,893,520 842,923 4,094,616 818,053 4,157,500 725,885
High Grade Copper... 2,311,919 150,339 2,356,170 133,603 2,483,610 153,332 2,852,962 160,857
Aluminum............ N/A N/A N/A N/A N/A N/A 27,978 642
FTSE Eurotop 100(R)
Index.............. 38,925 0 47,427 0 50,619 0 25,181 0
FTSE Eurotop 300(R)
Index.............. N/A N/A N/A N/A N/A N/A 6,279 N/A
5 Day Gold Option... N/A 150 N/A N/A N/A N/A N/A N/A
5 Day Silver
Option............. N/A 96 N/A N/A N/A N/A N/A N/A
5 Day High Grade
Copper Option...... N/A 0 N/A N/A N/A N/A N/A N/A
---------- --------- ---------- --------- ---------- --------- ---------- ---------
Total........ 16,123,831 3,179,487 16,839,021 3,041,409 15,618,939 2,916,751 16,645,688 3,703,215
========== ========= ========== ========= ========== ========= ========== =========
2000
----------------------
FUTURES OPTIONS
---------- ---------
Gold................ 6,643,464 2,083,414
Silver.............. 3,117,017 579,085
High Grade Copper... 2,778,124 65,043
Aluminum............ 46,099 0
FTSE Eurotop 100(R)
Index.............. 4,800 0
FTSE Eurotop 300(R)
Index.............. 36,863 N/A
5 Day Gold Option... N/A N/A
5 Day Silver
Option............. N/A N/A
5 Day High Grade
Copper Option...... N/A N/A
---------- ---------
Total........ 12,626,367 2,727,542
========== =========
"N/A" means contract was either not in existence at the time or was
declared dormant and therefore not available for trading.
"0" means contract was available for trading but no trades were executed.
COMEX DIVISION OPEN INTEREST*
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 2000
----------------- ----------------- ----------------- ----------------- -----------------
FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS FUTURES OPTIONS
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gold................ 189,805 328,367 177,770 404,403 162,912 432,256 155,914 629,296 111,307 302,517
Silver.............. 84,693 59,319 98,906 106,258 75,353 60,858 76,387 64,209 72,121 62,417
High Grade Copper... 49,176 12,637 70,078 15,214 71,975 19,960 71,753 12,142 69,752 5,190
Aluminum............ N/A N/A N/A N/A N/A N/A 571 0 1,907 0
FTSE Eurotop 100(R)
Index.............. 2,461 0 2,200 0 1,811 0 387 0 215 0
FTSE Eurotop 300(R)
Index.............. N/A N/A N/A N/A N/A N/A 552 N/A 899 N/A
5 Day Gold Option... N/A 0 N/A N/A N/A N/A N/A N/A N/A N/A
5 Day Silver
Option............. N/A 0 N/A N/A N/A N/A N/A N/A N/A N/A
5 Day High Grade
Copper Option...... N/A 0 N/A N/A N/A N/A N/A N/A N/A N/A
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total........ 326,135 400,323 348,954 525,875 312,051 513,074 305,564 705,647 256,201 370,124
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
"N/A" means contract was either not in existence at the time or was
declared dormant and therefore not available for trading.
"0" means contract was available for trading but no trades were executed.
* Open Interest as recorded on the last business day of the years 1996 to
2000.
Competitive Environment
According to information provided by the Futures Industry Association
("FIA"), based on 2000 trading volume of approximately 104.1 million contracts,
the Exchange is the largest physical commodity based futures exchange in the
world and the third largest futures exchange in the United States. Physical
commodity based futures exchanges are exchanges that primarily trade futures
contracts based upon a physical commodity, such as crude oil or gold. Futures
exchanges include physical commodity based futures exchanges as well as
exchanges that primarily trade futures contracts based upon financial
instruments. The two U.S. futures exchanges with greater volume, the Chicago
Board of Trade and the Chicago Mercantile Exchange, trade primarily futures
contracts based upon financial instruments, such as stock indices or fixed
income products. Similarly, on a worldwide level, those futures exchanges that
had greater trading volume in 2000, including the Chicago Board of Trade and the
Chicago Mercantile Exchange, traded primarily equity based and fixed income
based financial instruments.
The marketplace for the Exchange's contracts exists both in the physical
format of open-outcry ring trading, which takes place on the trading floor
facilities, and electronically through the technological
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innovations described herein. Exchanges designated as "contract markets" can
compete with the Exchange in offering market trading of futures and options
contracts in both of these formats. In addition, over-the-counter ("OTC")
trading of similar contracts, which consists of the direct negotiation between
two parties as to the terms of a contract, represents a principal source of
competition for the Exchange and is expected to be a significant factor
affecting the Exchange's trading volumes and operating revenues. Nevertheless,
given the Company's belief that OTC products and exchange-traded futures and
options are, in certain aspects, complementary risk management tools, the
Company views the OTC derivatives market as a "quasi-competitor."
The Company encounters competition in all aspects of its businesses. The
futures industry includes approximately 70 exchanges located in 27 countries,
including 10 principal futures exchanges in the United States. According to the
FIA statistics for 2000, the Exchange is the sixth largest principal futures
exchange in the world. International exchanges upon which contracts that are the
same or similar to those traded on the Exchange include, without limitation, the
International Petroleum Exchange, United Kingdom (solely in respect of its crude
oil products), the London Metal Exchange, United Kingdom (copper and aluminum)
and the Tokyo Commodity Exchange, Japan (platinum, palladium, aluminum and
certain energy products). Nevertheless, other futures exchanges that do not have
contracts relating to commodities traded on the Exchange, by trading different
contracts in different niches, essentially reduce product diversification
opportunities. In addition, the Exchange potentially competes with all exchanges
with respect to potential new products and for investors' speculative funds.
Volume on foreign futures and options exchanges is growing rapidly, which
potentially may take away volume from the Company. The Company also faces the
threat of competition from the activity of foreign exchanges in the United
States. For example, the London Metal Exchange's decision to open copper
warehouses in the United States could have an adverse impact on arbitrage
opportunities of copper market participants.
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Shown below is a list of the largest principal futures exchanges in the
world and their country of location, 2000 total contract volumes and the three
most actively traded products on each of them as reported by the FIA.
2000 TOTAL CONTRACT VOLUMES AND MOST ACTIVE PRODUCTS
EUREX, Germany and Switzerland........... 364,833,663 Euro-BUND futures, Euro-BOBL futures, DAX
options
Chicago Board of Trade, U.S.............. 233,528,558 U.S. T-Bond futures, U.S. T-Bond options, Ten
Year T-Note future
Chicago Mercantile Exchange, U.S......... 231,114,296 3 Month Eurodollar futures, S&P 500 Index
futures, 3 Month Eurodollar options
Paris Bourse, SA......................... 147,065,643 Euro Notional Bond Futures, CAC 40 Index
(Long Term) options, all options on
individual equities, CAC 40 10 Euro futures
London International Financial Futures
Exchange, U.K.......................... 125,569,936 3 Month Euribor futures, 3 Month Sterling
futures, FTSE 100(R) Index futures
New York Mercantile Exchange, U.S........ 104,075,238 Crude Oil futures, Natural Gas futures,
Heating Oil futures
B, M & F, Brazil......................... 82,945,277 Interest Rate futures, U.S. Dollar futures,
Interest Rate swap futures
London Metal Exchange, U.K............... 66,445,247 High Grade Primary Aluminum futures,
Copper-Grade A futures, Special High Grade
Zinc futures
Tokyo Commodity Exchange, Japan.......... 50,851,882 Gasoline, Platinum, and Gold
Sydney Futures Exchange, Australia....... 31,299,021 3 Year Treasury Bonds, 90 day Bank Bills, and
10 Year Treasury Bonds
Historically, the futures industry has been characterized by significant
concentration, with exchanges generally developing niches in product categories
that, for the most part, have not substantially competed with futures and
options contracts traded on other exchanges, despite the lack of significant
regulatory obstacles to doing so. The liquidity provided by trading in a
particular contract on an exchange, as described above, typically creates a
competitive advantage for such exchange as compared to other exchanges
considering offering rival contracts. With certain exceptions, most of the
trading conducted in a futures product occurs on a single futures exchange.
The Exchange, like other commodity and financial exchanges, is directly
affected by such factors as national and international economic and political
conditions, broad trends in business and finance, legislation and regulations
affecting the national and international financial and business communities
(including taxes), currency values, the level and volatility of interest rates,
fluctuation in the volume and price levels in the commodities markets and
perception of stability in the commodities and financial markets. From time to
time, the federal government has considered imposing a transaction tax on
futures and options contracts, which would increase the costs of trading the
Exchange's contracts. These and other factors can affect the Exchange's volume
of trading and the stability and liquidity of the commodities markets. A reduced
volume of commodity transactions and reduced market liquidity would result in
lower revenues for the Company from transaction and clearing fees. In periods of
reduced transactions, the Company's profitability would also likely be adversely
affected because certain of its expenses are relatively fixed.
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The Company is attempting to internationalize its customer base, in large
part by undertaking a large-scale marketing effort to introduce risk management
analysis and techniques to potential customers abroad. Toward achieving that
end, the Company has placed terminals for trading NYMEX ACCESS(R), the Company's
electronic trading system, in the United Kingdom and in Australia, through a
linkage with the Sydney Futures Exchange. In addition, the Company concluded an
agreement in 1999 with the Singapore International Monetary Exchange, now known
as the Singapore Exchange Derivatives Trading Limited, to install NYMEX
ACCESS(R) terminals on the desks of experienced traders in that country. The
design and introduction of products aimed specifically at global markets make up
a key component of the Company's international strategy. While a number of the
Company's contracts such as gold and crude oil have long had a global following,
the Middle East Sour Crude oil futures and options contracts marked the first
product designed primarily for a regional overseas market and to trade
exclusively on NYMEX ACCESS(R). The Company anticipates that the soon to be
launched Central Appalachian coal contract will draw strong interest from the
growing international coal market.
Recent Business Developments
Demutualization Transaction
On May 12, 2000, the Company's Form S-4 Registration Statement, with
respect to its plan to demutualize, was declared effective by the Securities and
Exchange Commission. On June 20, 2000, the NYMEX Division members voted and
approved the Company's demutualization plan. On July 26, 2000, the Company
received approval from the CFTC to transfer its "contract market" designations
from the Exchange to NYMEX Exchange upon consummation of the demutualization
transaction. On October 23, 2000, the Company received a favorable private
letter ruling from the Internal Revenue Service that there would be no adverse
tax consequence to the Company, or any of its members as a result of the
demutualization transaction. On November 2, 2000, the Board of Directors of the
Company voted to implement the demutualization transaction. This transaction was
successfully completed on November 17, 2000.
Reduction-In-Workforce
On August 1, 2000, the Company implemented a Reduction-In-Workforce program
resulting in the elimination of 10% of the Company's staff. This program was
adopted in an effort to establish a more cost-efficient business structure in
response to competition. These staff reductions encompassed various professional
and clerical positions throughout the Company. Restructuring and related costs
recorded in fiscal 2000 totaled $1.9 million pretax or $2,328 per share. $1.8
million of these charges were for severance payments to affected employees,
$100,000 of which is owed as of December 31, 2000. The remaining $100,000 of the
program's costs represents benefits payments made to employees for the rest of
the 2000 year.
enymex(SM) Trading Platform
enymex(SM) combines the Company's 129 years of market expertise and
leadership with state-of-the-art technology to create a powerful electronic
trading platform that will provide users with a comprehensive system for
commodity risk management. enymex(SM) is an Internet-based trading platform that
will be open to all clearing member approved participants. enymex(SM) will
initially accommodate trading in energy products that naturally complement NYMEX
Division's existing liquid benchmark energy contracts. In the future, trading on
enymex(SM) is expected to expand to include contracts in electricity, precious
and base metals and possibly bandwith, weather and emissions. enymex(SM) will
enable its users to trade commodity products that previously could only be
traded over-the-counter, in an environment that is neutral and centralized and
that is supported by the Exchange's clearing operations and more than a century
of experience in exchange management.
To assist in the development and project management of enymex(SM), the
Company has retained Accenture (formerly Andersen Consulting) in these
endeavors. Initially, Accenture was retained to assist the Company in the
creation of the enymex(SM) business plan. Currently, Accenture is being retained
as overall systems integrator for the project. enymex(SM) is a business endeavor
approved by the Company's Board of
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Directors in May 2000 and expected to be operational in the second quarter of
2001, although there can be no assurance that enymex(SM) will be launched within
this time frame. enymex(SM) is expected to become the premier, global exchange
for trading and clearing a wide range of standardized physical commodity
contracts, with an initial focus in the energy markets. The Company plans to
integrate enymex(SM) with its proven clearing infrastructure to provide
counter-party risk management and net margining of positions across derivatives
markets, and to combine the interface of an electronic derivatives market with
order routing to the Company's established futures and options market. On
February 15, 2001, the Company executed agreements with Kiodex, Inc., an
application service provider of risk management solutions for the commodity and
derivatives markets, to use its trade engine platform as the order-matching
system for enymex(SM). This platform is an automated, scalable, fault-tolerant
order-matching system that will enable customers to enter orders for derivative
commodity products and receive executions and confirmations. On March 14, 2001,
the Company announced an agreement with Global View Software, Inc., a provider
of software solutions and integrated information for commodities markets, to
develop the infrastructure for the enymex(SM) customer interface. The Company is
currently in discussions with several potential alliance partners to provide
third party network connectivity to enymex(SM), content and pricing information
for the enymex(SM) web site, and clearing services to external organizations. It
is anticipated that agreements with these potential alliance partners will be
finalized in the near term. On November 2, 2000, a letter of intent was signed
with Platts, a division of the McGraw-Hill Companies, Inc., to enable the
Company to license all Platts energy and metals pricing data for use in the
development of new energy and metals products.
Termination of the Members' Retention and Retirement Plan
On October 4, 2000, the Company's Board of Directors voted to terminate the
NYMEX Division's Members' Retention and Retirement Plan. The assets of this Plan
were distributed in January 2001.
Financial Information about Segments
Financial information relating to NYMEX Holdings' "Segments" for each of
the three years for the period ended December 31, 2000 appears in Note 14
captioned "Segment Reporting" of the Notes to the Consolidated Financial
Statements set forth in Item 8 of the Annual Report, at pages F-18 through F-19
and is incorporated herein by specific reference.
Risk Factors
This section discusses the material risks for the Company that are
associated with being a contract market in the futures industry:
The Company may face competition from exchanges or other electronic transaction
facilities which provide services similar to our Company.
Other exchanges designated as "contract markets" or "derivatives
transaction facilities" (a new regulatory designation under the recently enacted
Commodity Futures Modernization Act of 2000 ("CFMA") by the CFTC and foreign
exchanges permitted by the CFTC to do business in this country) can compete with
the Company in offering market trading of futures and options contracts in both
the open outcry and electronic trading formats. In addition, over-the-counter,
or OTC, trading of physical commodity instruments, such as swaps, forward
contracts and NYMEX Exchange "look alike" contracts, traded in the voice
brokered market or on electronic transaction facilities represent a significant
source of existing and potential competition for NYMEX Exchange.
Failure to adapt to rapid technological and other changes could have a material
adverse effect on our business.
The markets in which we compete are characterized by rapidly changing
technology, evolving industry standards, frequent enhancements to existing
services and products, the introduction of new services and products and
changing customer demands. These market characteristics are heightened by the
increasing use
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of the Internet and the trend for companies from many industries to offer
Internet-based products and services. The widespread adoption of new Internet,
networking or telecommunications technologies or other technological changes
could require us to incur substantial expenditures to modify or adapt our
services or infrastructure. Our future success will depend on our ability to
respond to changing technologies on a timely and cost-effective basis. Our
operating results may be adversely affected if we cannot successfully develop,
introduce or market new services and products. In addition, any failure by us to
anticipate or respond quickly to changes in technology and customer preferences,
or any significant delays in other product development efforts, could have a
material adverse effect on our business, financial condition and operating
results.
There may potentially be limited access to the Company's enymex(SM)
Internet-based trading platform.
If the Company is unable to execute contracts with key back-office service
providers to modify their system to accommodate enymex(SM) trades, then clearing
members may be limited in their ability to process trades executed through
enymex(SM).
The trend toward electronic trading and away from open outcry trading could
divert volume away from the Exchange's open outcry trading system.
Both newly-formed organizations and established exchanges are increasingly
employing electronic trading systems that provide fast, low cost execution of
trades. These organizations and exchanges are routing order flow away from
exchanges employing traditional open-outcry trading systems. Many market
participants believe that these electronic trading systems represent a threat to
the continued viability of the open-outcry method of trading. Futures exchanges
such as the London International Financial Futures Exchange, Hong Kong Exchanges
and Clearing, and the Sydney Futures Exchange have closed traditional trading
systems and replaced them with electronic systems. The Company provides
electronic trading of its futures and options contracts through the NYMEX
ACCESS(R) system. Electronic trading systems may divert volume away from the
Exchange's open-outcry trading system. If there is a migration of business to a
competitor, we may experience reduced volume on our open-outcry trading system
and, therefore, incur lower clearing and transaction fees.
The Company may not be successful in executing our international strategy.
To date, we have taken steps to internationalize our customer base. There
can be no assurance that we will be able to succeed in marketing and operating
our products and developing localized services in international markets. We may
experience difficulty in managing our international operations because of
competitive conditions overseas, difficulties in supervising foreign operations,
managing currency risk, language and cultural differences, political instability
and unexpected changes in regulatory requirements or the failure to obtain
requested regulatory approvals overseas. Any of these could have a material
adverse effect on the success of our international operations and, consequently,
on our business.
The loss of our largest market data vendors could have a material adverse
effect on our business, financial condition and result of operations.
Of the 64 vendors through whom we distribute market data, nine represented
approximately 80% of our market data revenue in 2000. Market data revenue
represented approximately 26% of our consolidated operating revenues for 2000.
The termination of some or all of our agreements with these vendors without
customers entering new subscription agreements with another vendor could have a
material adverse effect on our business, financial condition and results of
operations.
Our revenues may be adversely impacted if the value of our market data declines
or if we become subject to legislation or regulation limiting the prices that
we can charge for our market data.
We derive a significant percentage of our revenues from sales of market
data. The proliferation of competing trading systems may result in competing
streams of similar market data which may diminish the value of our market data
and the prices that we can charge for it. We could also become subject to
legislation
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or regulation limiting the prices that we can charge for market data. Any
limitations on the prices we may charge for market data could have a material
adverse effect on our business, financial condition and operating results.
A decline in the trading volume of Light Sweet Crude Oil or Henry Hub Natural
Gas contracts could adversely affect our results of operations.
Light Sweet Crude Oil futures and options and Henry Hub Natural Gas Futures
and options accounted for 50% and 26%, respectively, of the NYMEX Division's
total 2000 trading volume. Therefore, we are particularly affected by declines
in trading volumes of these contracts. Downturns in trading volumes of these
contracts could have a material adverse affect on our revenues and, therefore,
on our profitability and results of operations.
System limitations and failures could harm our business.
Our business depends on the integrity and performance of the computer and
communications systems supporting it. If our systems cannot be expanded to keep
pace with increased demand or fail to perform, we could experience: (1)
unanticipated disruptions in service; (2) slower response times; and (3) delays
in the introduction of new products and services. These consequences could
result in lower trading volumes, financial losses, decreased customer service
and satisfaction, litigation or customer claims and regulatory sanctions. We
have experienced occasional systems failures and delays in the past and could
experience systems failures and delays in the future. Our systems and operations
also are vulnerable to damage or interruption from human error, natural
disasters, power loss, sabotage, computer viruses, intentional acts of vandalism
and similar events. Any system failure that causes an interruption in service or
decreases the responsiveness of service could impair our reputation, damage our
brand name and negatively impact our revenues. We also rely on a number of third
parties for systems support. Any interruption in these third-party services or a
deterioration in the performance of these services could also be disruptive to
our business and have a material adverse effect on our business, financial
condition and operating results.
Amendments to the Commodity Exchange Act or amendments to CFTC regulations may
adversely affect our ability to conduct our business.
We are regulated by the CFTC under the authority given by the federal
Commodity Exchange Act ("CEA"). It is possible that Congress could amend the
Commodity Exchange Act or that the CFTC could amend its regulations in a manner
which will adversely affect our ability to conduct our business by changing
regulatory requirements or by reducing regulatory requirements and thereby
permitting additional competition from existing or new markets or from dealers
in derivative instruments. On December 21, 2000, President Clinton signed the
CFMA , which reauthorized the CFTC for a five-year period and which extensively
revised the CEA. The legislation will result in reducing and, in some instances,
eliminating entirely the regulatory requirements to engage in activities
currently engaged in by futures exchanges, including the clearing of
futures-like OTC instruments and the establishment of multilateral trading
facilities. Consequently, there exists a risk that the legislation will result
in increased competition.
We may not be able to maintain our self-regulatory responsibilities.
It is uncertain whether the CFTC will change its regulatory scheme in
response to the demutualization of exchanges. It is possible that the CFTC will
take the position that exchanges, organized as for-profit corporations, are not
as capable as membership organizations in maintaining adequate compliance and
surveillance programs. This position could lead to new CFTC regulations that
would require us to modify or restructure our regulatory functions. We believe
that our regulatory programs and capabilities contribute significantly to our
brand name and reputation. Although we believe that we will retain these
responsibilities, we cannot assure you that we will not be required to rely on a
third party to perform these responsibilities. If we are required to rely on a
third party to perform regulatory and oversight functions, we may incur
substantial expenses and suffer severe harm to our reputation if the regulatory
and oversight services are inadequate.
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The Company is also currently engaged in a number of projects designed to
improve the operational efficiency of the open-outcry method of trading and to
enable the Company to compete effectively in an increasingly electronic and
Internet-based trading environment.
The underlying principle is to apply as many technological innovations to
the open-outcry method of trading as possible so that the open-outcry method can
compete openly and efficiently with electronic methods. The Company is in the
process of evaluating a number of feasibility studies as to the implementation
of these innovations as well as wireless voice and data transmission.
Lower Average Rate per Contract
The average rate per contract on the NYMEX Division declined for the year
2000. The Exchange differentiates between members and nonmembers in its rate
structure as members are charged lower rates. If the proportion of member trades
increases, the Company's rate per contract declines. If this trend should
continue, revenue may decline even though overall volume remains constant or
increases.
Seasonal and Other Conditions
The Company believes that its business, in the aggregate, is not seasonal.
Certain of its contracts listed on the NYMEX Division, however, trade more
heavily in some seasons than in others. For example, heating oil futures and
options trade more heavily in the late fall and winter months, while higher
trading in unleaded gasoline futures and options usually occurs in the late
spring and summer months. Where appropriate, the Company manages its trading
floor personnel and expenses appropriately to address the seasonal variations in
demand for these contracts.
Working Capital Requirements
The Company believes its working capital of $74.9 million is adequate to
meet its current obligations. Although no assurances can be made, the Company
believes it has adequate cash flows from operations to fund future operations
and capital expenditure requirements for the next twelve months. In addition,
the Company has the ability, and may seek, to raise capital through issuances of
stock in the private and public capital markets. For additional information on
working capital, reference is made to "Management's Discussion and Analysis of
Consolidated Results of Operations and Financial Condition -- Liquidity and
Capital Resources" beginning on page 19 of this document.
Government Approvals and Regulation
The Company's operations are subject to extensive regulation by the CFTC
under the CEA. The CEA requires that, with certain exceptions, futures trading
in commodities be conducted on a commodity exchange designated as a "contract
market" or "derivatives transaction facility" by the CFTC, and establishes
certain non-financial criteria for an exchange to be designated to list futures
contracts is non-exclusive; the CFTC may designate additional exchanges as
"contract markets" for trading the contracts. The NYMEX and COMEX Divisions have
been separately designated by contract markets by the CFTC (see below, the
"Business -- Products Traded on NYMEX Exchange" and "-- Products Traded on the
COMEX"). Additional legislation and regulation, including changes in rules
promulgated by the CFTC or other governmental regulatory and self-regulatory
authorities or changes in the interpretation or enforcement of existing laws and
rules, may directly affect the manner of operations and profitability of the
Company.
Research and Development
The Company expends significant amounts each year on research for the
development and improvement of existing commodity contracts, as well as on
trading and clearing systems.
During the years ended December 31, 2000, 1999 and 1998, the Company
expended, directly or indirectly, $11 million, $12 million, and $6 million,
respectively, on research, development and certain software engineering
activities relating to the design, development, improvement and modification of
new and
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existing contracts, as well as the formulation and design of new processes,
systems and improvements to existing ones. The Company anticipates that it will
continue to have significant research and development expenditures to maintain
its competitive position during 2001.
Effects of Environmental Regulations
The Company's services are not subject to environmental regulations.
Number of Employees
At December 31, 2000, NYMEX Holdings had 544 full-time employees. No
employees are covered by labor unions.
Foreign Sales
The Company's foreign revenues from market data services were $1.3 million,
$1.3 million, and $1.0 million, in 2000, 1999 and 1998, respectively.
ITEM 2. PROPERTIES.
The Company's state-of-the-art trading facilities and corporate
headquarters are located in a 16-story building in downtown Manhattan. This
building, which is on land leased from the Battery Park City Authority for a
term expiring on June 17, 2069, is one of five office buildings in a complex
known as the World Financial Center. Construction of the 502,000 square foot
building was completed in 1997. Each of the NYMEX and COMEX Divisions has its
own 25,000 square foot trading floor in the facility. The facility also contains
all of the Company's back office support functions. The Company leases
approximately 100,000 square feet at this facility to 31 tenants who are member
firms, two non-commercial tenants, and three non-member retail tenants.
The Company also leases 17,000 square feet of space at 22 Cortlandt Street
in New York, New York. This space is used as the backup data center for the One
North End facility.
The Company also leases office space in Washington, D.C., at which it
conducts government relations activities, as well as office space in Houston,
Texas and London, England, at which it conducts marketing activities. These
offices are used to promote awareness of the Company's products.
The Company's management believes its properties are adequate and suitable
for its business as presently conducted and are adequately maintained for the
immediate future. The Company's facilities are effectively utilized for current
operations of all segments and suitable additional space is available to
accommodate expansion needs. For further information concerning leases, see Note
15 of the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. Set forth below are
descriptions of legal proceedings and litigation to which the Company is a party
as of December 31, 2000. Although there can be no assurance as to the ultimate
outcome, the Company has denied, or believes it has a meritorious defense and
will deny liability, in all significant cases pending against it including the
matters described below, and intends to defend vigorously each such case. While
the ultimate result of the proceedings against the Company cannot be predicted
with certainty, it is the opinion of management, after consultation with outside
legal counsel, that the resolution of these matters, in excess of amounts
already recognized, will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
The Company has been named as a defendant in the following legal actions:
Electronic Trading Systems Corporation v. New York Mercantile
Exchange. This action was originally filed in the United States District
Court for the Northern District of Texas (Dallas Division) and is now
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pending in United States District Court for the Southern District of New
York. NYMEX Exchange was served with a summons and complaint on or about
May 10, 1999. This is a patent infringement case. Plaintiff alleges that it
is the owner of United States Patent No. 4,903,201 entitled "Automated
Futures Trade Exchange" and that NYMEX Exchange is infringing this patent
through use of its electronic trading system. Plaintiff seeks an
unspecified amount of royalties. On September 15, 2000, the Court granted
NYMEX Exchange's motion to sever and transfer venue to the Southern
District of New York. This case is in discovery. Mediation is pending in
this matter.
Enrique Rivera and Edith Rivera v. New York Mercantile Exchange, Mark
Kessloff, Les Faison, Brian Bartichek and John Does "1-10." This action is
pending in New York State Supreme Court (Bronx County). NYMEX Exchange was
served with the summons and complaint on or about April 22, 1999. This is
an ethnic discrimination case. Plaintiff alleges that throughout his
employment with NYMEX Exchange he was subjected to a hostile work
environment and discrimination regarding his ethnic origin. Plaintiff seeks
an unspecified amount of compensatory and punitive damages. The case is in
discovery.
Western Capital Design, LLC On Its Own Behalf and on behalf of those
similarly situated v. New York Mercantile Exchange and John Does
"1-50." This action is pending in United States District Court for the
Southern District of New York. NYMEX Exchange was served with the summons
and complaint on or about February 17, 1999. This action relates to alleged
wrongful conduct by NYMEX Exchange and certain members regarding the
execution of heating oil and natural gas options. Plaintiff alleges that
the prices it was charged for heating oil and natural gas options were
improper and that these improper transactions affected the market price at
which plaintiff transacted its trading. Plaintiff seeks compensatory
damages and $75,000,000 in punitive damages. This action was commenced in
State Court in Florida. It was removed to Federal Court by notice of
removal filed March 8, 1999. Venue was transferred to the Southern District
of New York by an order dated May 11, 1999. NYMEX Exchange's motion to
dismiss was filed on November 12, 1999 and granted on March 31, 2000. NYMEX
Exchange was served with an amended complaint on or about April 26, 2000.
NYMEX Exchange's motion to dismiss the amended complaint was granted and
the complaint was dismissed with prejudice on February 16, 2001.
Luxembourg Henry and Jose Terrero v. NY Mercantile Exchange. This action
is pending in New York State Supreme Court (New York County). NYMEX
Exchange was served with a summons and complaint on January 24, 2001.
Plaintiffs are former employees who were terminated as part of the 10%
reduction in force that occurred in July 2000. Plaintiffs allege harassment
and discrimination because of race (Henry) and national origin (Terrero)
and that they were improperly terminated. Henry seeks reinstatement to his
former position; compensatory damages in the amount of $9,320,000 for lost
wages, fringe benefits and emotional distress; and costs and disbursements.
Terrero seeks reinstatement to his former position; compensatory damages in
the amount of $4,500,000 for lost wages, fringe benefits and emotional
distress; and costs and disbursements. NYMEX Exchange served its answer on
February 13, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Stock Trading Symbol -- Not applicable.
Stock Exchange Listings -- At present, there is no established public
trading market for the Company's common stock. None of the Company's common
stock is listed on any Exchange or automated quotation system.
Stock (Membership) Prices -- Shares and NYMEX Division trading rights are
stapled together. They are purchased from existing members at prevailing market
prices. These prices are established through a bid-and-ask system. An applicant
must meet certain financial requirements and have two members sponsor such
applicant in order to become a member. All membership applicants are subjected
to a thorough review process in order to be approved. The Exchange conducts a
background investigation of each membership applicant focusing on the
applicant's credit standing, financial responsibility, character and integrity.
The high and low sale prices for a share of NYMEX Holdings Common Stock are
reflected in the following seat sale prices for each quarter of 2000 and 1999,
and were as follows (in dollars): (See Note below)
2000 HIGH LOW
---- ------- -------
First Quarter............................................... 725,000 600,000
Second Quarter.............................................. 650,000 550,000
Third Quarter............................................... 700,000 601,000
Fourth Quarter.............................................. 700,000 650,000
1999
----
First Quarter............................................... 600,000 565,000
Second Quarter.............................................. 610,000 570,000
Third Quarter............................................... 580,000 551,000
Fourth Quarter.............................................. 630,000 567,000
---------------
Source: NYMEX Membership Department Records. For the 1st quarter of 2001, a
record high sale price was recorded at 735,000.
Note: On November 17, 2000, the Company's demutualization transaction was
completed. Each existing NYMEX Division membership was exchanged for a share of
common stock. In addition, each NYMEX Division membership was converted into a
Class A membership in NYMEX Exchange.
Dividend Policy -- The Company has never paid cash dividends on its common
stock and currently has no plans to do so in the foreseeable future. The
Company, however, has no restrictions on its ability to pay dividends.
Approximate Number of Holders of Common Stock -- There were 612 holders of
record of the Company's common stock as of March 27, 2001.
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED).
The following table sets forth selected consolidated financial and other
information for the Company. The balance sheet and operating data as of and for
each of the years in the five-year period ended December 31, 2000 have been
derived from the audited consolidated financial statements and notes thereto.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Consolidated
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Results of Operations and Financial Condition" beginning on page 19, the
consolidated financial statements and the notes thereto, and other financial
information, included in this report.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA
Revenues
Clearing and transaction fees(1).... $ 92,500 $ 105,206 $ 90,764 $ 80,773 $ 76,826
Market data fees.................... 33,622 34,689 34,858 33,457 33,232
Other(2)............................ 4,747 4,540 4,961 3,557 2,532
------------ ------------ ----------- ----------- -----------
Operating revenues.................. 130,869 144,435 130,583 117,787 112,590
------------ ------------ ----------- ----------- -----------
Expenses
General and administrative.......... 99,092 89,139 86,992 83,933 73,170
Rent and facility................... 15,736 12,877 12,760 17,116 14,415
Depreciation and amortization(3).... 13,862 10,966 9,901 5,215 7,642
Demutualization expense(4).......... 4,281 593 -- -- --
Marketing........................... 2,446 2,537 2,403 4,813 2,534
Amortization of goodwill............ 2,153 2,153 2,153 2,153 2,153
Loss on disposition of property and
equipment......................... 857 1,298 2,814 1,234 --
------------ ------------ ----------- ----------- -----------
Operating expenses.................. 138,427 119,563 117,023 114,464 99,914
------------ ------------ ----------- ----------- -----------
Operating (loss) income............. (7,558) 24,872 13,560 3,323 12,676
Other income and expenses
Investment income, net.............. 9,355 3,942 6,739 8,288 4,860
Interest expense.................... (7,718) (7,721) (7,958) (6,967) (1,781)
------------ ------------ ----------- ----------- -----------
(Loss) income before income taxes... (5,921) 21,093 12,341 4,644 15,755
Income tax (benefit) expense........ (3,140) 8,903 6,263 3,495 8,000
------------ ------------ ----------- ----------- -----------
Net (loss) income................... $ (2,781) $ 12,190 $ 6,078 $ 1,149 $ 7,755
============ ============ =========== =========== ===========
BALANCE SHEET DATA
Total assets.......................... $ 387,138 $ 392,494 $ 375,282 $ 372,327 $ 329,515
Total liabilities..................... 302,479 299,292 289,049 285,762 237,728
Short-term borrowings................. 2,815 -- -- 5,043 5,043
Long-term borrowings.................. 97,185 100,000 100,000 100,000 90,043
Total equity.......................... 84,659 93,202 86,233 86,565 91,787
OTHER DATA
(Loss) earnings per
share/membership(5)................. $ (3,408) $ 14,939 $ 7,449 $ 1,408 $ 9,504
Book value per share/membership(5).... $ 103,749 $ 114,218 $ 105,678 $ 106,085 $ 112,484
Current ratio(6)...................... 2.3 6.6 8.1 5.1 4.9
Working capital....................... $ 74,892 $ 111,300 $ 112,839 $ 102,002 $ 122,438
Capital expenditures.................. $ 12,797 $ 20,022 $ 18,175 $ 82,795 $ 109,375
Cash provided by (used in)
operations.......................... $ 11,501 $ 44,310 $ 26,151 $ 40,355 $ (43,315)
Times interest earned(7).............. 0.2 3.7 2.6 1.7 9.8
Number of employees at end of
period.............................. 544 609 594 587 528
Sales price per share/membership(8)
High................................ $ 725,000 $ 630,000 $ 705,000 $ 675,000 $ 585,000
Low................................. $ 550,000 $ 551,000 $ 430,000 $ 525,000 $ 410,000
Total trading volume.................. 104,075,238 109,538,831 95,018,685 83,851,346 75,799,292
Total open interest................... 2,853,303 3,044,446 2,599,889 2,462,948 2,139,469
---------------
(1) Clearing and transaction fees are presented net of member fee rebates
which were $13,727, $13,065, $11,272, $10,012 and $8,510 for the years
ended December 31, 2000, 1999, 1998, 1997 and 1996, respectively.
(2) Beginning in 1998, NYMEX Division introduced various other rebate
programs. These costs reduced other revenue for the years ended December
31, 2000, 1999 and 1998 by $2,831, $2,399 and $1,364, respectively.
(3) Depreciation and amortization expense is net of amortization of deferred
credit for building construction of $2,145, $2,145, $1,930 and $1,287 for
the years ended December 31, 2000, 1999, 1998 and 1997,
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respectively. There was no amortization of deferred credit for building
construction for the year ended 1996.
(4) On May 12, 2000, the Company's Form S-4 Registration Statement, with
respect to its plan to demutualize, was declared effective by the SEC.
Expenses incurred for the demutualization were accounting, investment
banking, legal, printing and SEC filing fees, and are shown as a separate
line item on the Consolidated Statements of Operations and Retained
Earnings/Members' Equity.
(5) NYMEX Holdings has 816 shares authorized, issued and outstanding for the
year ended December 31, 2000. NYMEX Exchange had 900 memberships
authorized and 816 memberships outstanding for each of the years ended
December 31, 1999, 1998, 1997 and 1996, respectively. The per share
(membership) amounts in the table are based on the 816 shares
(memberships) issued and outstanding at the end of each of the periods
shown. The 84 NYMEX memberships which were issued but not outstanding were
cancelled upon demutualization.
(6) Equals current assets divided by current liabilities. Current assets and
liabilities at December 31, 2000 includes $33.2 million in NYMEX Division
member retention benefits which were paid out subsequent to year end. Had
this payment been made at December 31, 2000, the current ratio would have
been 4.3.
(7) Equals income before income taxes and interest expense divided by interest
expense.
(8) Shares are purchased from existing members at prevailing market prices.
These prices are established through a bid-and-ask system coordinated by
the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (IN THOUSANDS, EXCEPT PER SHARE
DATA).
Introduction
This discussion summarizes the significant factors affecting the results of
operations and financial condition of the Company during the years ended
December 31, 2000, 1999 and 1998. This discussion is provided to increase the
understanding of, and should be read in conjunction with, the audited
consolidated financial statements, accompanying notes and tables included in
this annual report.
Forward Looking and Cautionary Statements and Factors That May Affect Future
Results
The SEC encourages companies to disclose forward-looking information so
that investors can better understand a company's future prospects and make
informed investment decisions. Except for the historical information and
discussions contained herein, statements contained in this Form 10-K may
constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company has attempted, wherever
possible, to identify such statements by using words such as "anticipate,"
"believes," "expects" and words and terms of similar substance in connection
with any discussion of future operating or financial performance. These
statements involve a number of risks, uncertainties and other factors that may
cause actual results to differ materially, including; the Company's ability to
continue to develop and market new innovative products and services and to keep
pace with technological change; failure to continue to develop and market a new
electronic trading system; failure to obtain or protect intellectual property
rights; competitive pressures; financial condition or results of operations;
quarterly fluctuations in revenues and volatility of commodity prices; changes
in financial or business conditions; ability to attract and retain key
personnel; ability to successfully manage acquisitions and alliances; and legal
and economic changes and other risks, uncertainties and factors discussed
elsewhere in this Form 10-K, in the Company's other filings with the SEC, or in
materials incorporated therein by reference.
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FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
Results of Operations
The Company reported a net loss of $2,781, which was a loss of $3,408 per
share, a decrease of $14,971 compared to the prior year. This decrease was
primarily the result of the following factors:
- a decrease in realized rates on cleared contracts on the NYMEX Division;
- a significant decrease in trading volume on the COMEX Division,
particularly in the gold contract. Overall trading volume decreased by
25% for this division when compared with the previous year;
- costs associated with professional services rendered in connection with
the demutualization plan, the new NYMEX ACCESS(R) system, and the
development of an e-commerce business;
- payroll costs associated with the special compensation awarded to the
heirs of the Company's late president, and the Company's implementation
of the reduction-in-workforce program.
The following discussion provides additional information about the
components of the Company's operating results for the year ended 2000:
Revenues
Total operating revenues were $130,869 during 2000, down $13,566, or 9%,
from the same period in 1999.
Clearing and transaction fees represent the core business of the Exchange
and are directly affected by volume. Changes in volume are affected by various
external factors such as:
- shifts in supply and demand of the underlying commodities;
- market perception of price volatility in the commodities and financial
markets;
- weather conditions affecting certain energy commodities;
- national and international economic and political conditions.
During 2000, clearing and transaction fees, net of member fee rebates, were
$92,500 compared to $105,206 earned during the previous year. This 12% decrease
was the result of the following two conditions: a lower average rate realized
per contract cleared on the NYMEX Division as more trades were billed at the
lower member rate, and a substantial decline in trading volume on the COMEX
Division. Member fee rebates, which apply only to NYMEX Division members,
amounted to $13,727 and $13,065 for the years ended December 31, 2000 and 1999,
respectively. In December 2000 the Company's board of directors approved a 50%
reduction in the rebate rate for the first half of 2001. As a result, these fee
rebates are expected to decrease during the next year.
The NYMEX Division's clearing and transaction fees, net of member fee
rebates, were $73,609 in 2000, a 7% decrease over the previous year.
Overall trading activity at the Exchange continued at near record levels
last year. For the period 1995 through 2000, overall options and futures volume
has risen at a compound rate of 7.5% a year for the combined COMEX and NYMEX
Divisions, although it was down 5% overall from 1999's record level. This small
decrease, however, masks highly divergent trends within the Exchange's metals
and energy complex.
Energy Markets
In the energy markets, competitive pressures from new trading platforms and
industry consolidation left overall futures and options volume flat compared to
the prior record year. Crude oil, the Exchange's single most heavily traded
contract, traded about 37 million futures contracts, down about 3% from 1999.
Still, this represents 9.3% compound annual growth since 1995. Increased
volatility and uncertainty has maintained that contract as the single most
heavily traded physical commodity futures contract in the world. Crude Oil
Option volume fell 9% from 1999. The years 1999 and 2000 were characterized by
rising crude oil prices. The relative
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scarcity in energy supplies increased volatility and uncertainty in the oil
industry. The annualized daily volatility of the month closest to delivery crude
oil contract increased to 45% last year compared to 1999's 35% and 1998's 32%.
In addition, uncertainty can be measured by the term structure of the crude oil
futures market. On average the difference between the first and second month
contract prices in crude oil was $0.83 in 2000. This compares with the average
difference in the previous four years of only $0.13. The growth rates over the
past five years can be mostly attributed to the increased hedging needs of the
industry.
Growth in volume during 2000 may have been dampened by consolidation within
the energy industry. Mergers among major oil companies may have lessened their
need to hedge outside the company. Moreover, the increased presence of
alternative crude oil derivatives trading platforms may also have contributed to
the limited growth.
While down nearly 7% since 1999, Natural Gas futures volume has risen at a
17.2% compound annual rate since 1995. Natural Gas options have experienced even
greater growth. Since 1995, volume has grown at a compound annual rate of 42.1%,
including 39% over 1999. Extraordinary volatility and sharply higher prices in
the latter part of 2000 accounted for most of the decline in 2000's futures
contract trading. The average nominal value of the front month Natural Gas
Contract in 2000 was $43,000 compared to the average from 1996 to 1999 of
$23,100. The near doubling in contract value, along with the related rise in
performance bond requirements, necessitated a substantial increase in the
capital requirements needed to hedge physical natural gas production and
consumption. The capital required to trade Natural Gas can also be measured by
the rise in uncertainty. The annualized volatility of the daily changes in the
front month contract was 75.5% in 2000. This compares to 48.9% in 1999 and the
average of 59.1% since 1996. The wide daily swings in contract value during
November and December led trading interests to curtail somewhat their futures
trading activity due to the higher potential for losses. The average difference
between the first and second month contracts was $0.011. This compares to an
average of $0.006 in 1999. The higher this number, the greater the perception of
supply shortage. This perception induced a great deal of the volatility in the
market. This increased volatility has perhaps in turn led to a significant shift
from futures trading to more options trading because of an option's limited loss
potential.
The Heating Oil market was also characterized by highly volatile markets in
2000. As a result the Exchange saw trading activity increase, particularly in
its options markets. Futures trading was up 4.6% last year. Over the five year
period since 1996, futures trading has grown on average 3.1% per year. Options
trading increased by nearly 100% from 1999 and at a rate of 14.5% on average
from 1996. Stimulating trading activity was the sharp increase in the price
differential between Heating Oil and Crude Oil based on the front month
settlement prices. In 2000, this differential averaged $5.11, sharply higher
than the $1.44 average for 1999 and the $3.00 average of the past five years.
The widening of this spread attracted more hedging activity into the market.
Growth in Unleaded Gasoline activity has also shifted from futures to
options. In 2000, futures volume was unchanged from 1999, while options volume
grew 68%. Since 1995, options volume has grown at a compound rate of 5.7% per
year, compared to futures growth of 4.1% over the same period. As with the other
energy commodities, Unleaded Gasoline experienced higher volatility in 2000. The
front month contract had an annualized standard deviation of nearly 40% in 2000
compared to only 35% in 1999 and a recent low of 27% in 1997. Like Heating Oil,
hedging activity was stimulated by the widening spread with Crude Oil. In 2000,
the average differential was $7.40. This compares to $4.35 in 1999 and an
average of $5.30 since 1995.
Metals Markets
The COMEX Division's clearing and transaction fees were $18,891 during
2000, down 25% from the previous year. The overall trading volume for this
division experienced its weakest trading in eight years, and its third weakest
annual volume since 1985. Volume on this division decreased by 25% in 2000 when
compared with the previous year.
In the metals markets, trading volume fell from the year earlier period
primarily due to the drop-off in volatility in the underlying commodity markets.
In the gold market, prices, as well as the volatility of prices, drifted lower.
The annualized standard deviation of the first active month in Gold fell to
16.2% in 2000 from
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17.6% in 1999. There was a sharp drop-off in trading activity. Futures volume
fell 26% while options volume fell 51%. In the silver market, futures volume
fell about 25% while options trading was off 20%. Correspondingly, volatility as
measured by the first active month contract fell to 16% last year from 23% the
previous year. Under these market conditions, some producers have decided they
would no longer hedge all of their output. In the copper market, a trendless
market, combined with low volatility contributed to the decline in volume. The
first active month experienced a standard deviation of price returns of only 18%
in 2000, as the market hovered in the mid $.80 range. This is substantially less
than the 25% volatility recorded in 1999. Accordingly, futures volume fell by 3%
while options volume was down approximately 60%. While annualized volatility
rose for the palladium and platinum markets, persistent fears of delivery
problems kept volume low. Platinum and palladium futures volume fell 68% and 23%
respectively.
Market data fees, which represent 26% of the Company's total operating
revenues for the 2000 year, decreased by 3% due primarily to additional
allowances for amounts determined to be potentially uncollectible as a result of
the voluntary bankruptcy filing of a major market data vendor.
Other income increased by 5% during 2000 when compared to 1999 and was
primarily the result of the additional rental income received from new tenants.
Operating Expenses
Total operating expenses were $138,427 during the fiscal year 2000, up 16%
from the previous year. A significant portion of the $18,864 increase from the
previous year reflected the Company's considerable expenditures for e-commerce
initiatives, costs associated with the demutualization transaction, special
compensation awarded to the heirs of the Company's late president, and the
implementation of the Reduction-In-Workforce plan.
Salaries and employee benefits, which constituted 35% of total operating
expenses for 2000, rose 6% from the previous year. This increase is the result
of the following:
- a $1.8 million special compensation award to the heirs of the Company's
late president R. Patrick Thompson, to be paid out over a three-year
period. During his tenure as president of the Exchange, Mr. Thompson
helped to transform the Exchange into a recognized global leader in the
commodities markets. He was instrumental in the successful launch of the
Natural Gas futures contract in 1990, one of the largest energy contracts
presently traded. The Exchange had become the sixth largest futures
exchange in the world at the time of his death.
- a Reduction-In-Workforce program resulting in the elimination of 10% of
the Company's staff. These employees were notified and terminated by the
end of the year. These staff reductions encompassed various professional
and clerical positions throughout the Company. The total cost of this
program was $1.9 million, of which $1.8 million was for severance
payments to affected employees and were made by December 31, 2000. The
remaining $100,000 of the program's cost represents benefit payments to
be made on the affected employee's behalf through the rest of 2001. This
$100,000 is reflected in accrued salaries and related liabilities on the
Consolidated Balance Sheet as of December 31, 2000. This program is
expected to save approximately $3.6 million annually in salaries and
related payroll taxes and benefits.
Professional services, exclusive of demutualization, increased by $7,201,
or 86%, during 2000 when compared with the previous year. Consulting services
related to the post-implementation phase of the new NYMEX ACCESS(R) system as
well as professional services in connection with the Company's e-commerce
initiatives substantially contributed to this increase in 2000.
General and administrative expenses increased by $1,051, or 8%, during 2000
when compared with the previous year. The primary reasons for the increase were
litigation and impaired investment allowances incurred during the year. A 10%
increase in software licensing and maintenance fees due to new acquisitions of
software also contributed to this increase.
22
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Telecommunications, equipment rentals and maintenance decreased by $965, or
6%, during 2000 when compared to the previous year. In 1999, significant costs
were incurred due to the fact that prior to its November 1999 launch, the
updated version of NYMEX ACCESS(R) was being tested at the same time that the
previous version was operational. After its launch, the previous version of
NYMEX ACCESS(R) was maintained as a backup capacity through the end of 1999.
Rent and facility expenses increased by $2,859, or 22%, during 2000 when
compared to the previous year. A significant increase in real estate taxes due
to reduced abatements was the primary reason for this increase. Light, heat, and
power costs also rose, increasing 42% during 2000 as a result of rising rates
charged for electricity.
Depreciation and amortization of property and equipment, net of deferred
credit amortization, increased by $2,896, or 26%, during 2000 when compared to
the previous year. This increase is primarily the result of amortization expense
on internally developed software costs. These costs were incurred on software
development projects that were placed into service during the 4th quarter of
1999 and, therefore, no amortization expense was incurred on these projects
prior to the last quarter of 1999.
Demutualization fees incurred during 2000 totaled $4,281, or 3% of the
total operating expenses. These fees consisted of accounting, investment
banking, legal, printing and SEC filing fees incurred during the for-profit
conversion, or demutualization, of the Company.
Losses from the disposition of property and equipment were $857 during 2000
and consisted primarily of computer equipment taken out of service during the
year as the Exchange continued to update its technology on the trading floor as
well as in the back office support areas.
Other Income
Investment income, net of investment advisory fees, increased by $5,413, or
137%, during 2000 when compared with the previous year. Unrealized gains on its
fixed income portfolio represented more than half of this increase. The Company
primarily held investments in municipal bonds at the end of the 2000 year. The
high demand for municipal bonds during the fourth quarter caused yields to fall
and market values to increase. Interest income from the Company's investments
accounted for $2.5 million of the increase.
FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
The Company reported net income of $12,190, which represented earnings of
$14,939 per NYMEX Division membership, an increase of $6,112 compared to the
prior year. This increase was primarily the result of the following factors:
- a substantial increase in trading volume on the NYMEX Division,
predominantly in the crude oil and natural gas contracts. Overall trading
volume increased by 17% for this division when compared with the previous
year.
- a significant increase in trading volume on the COMEX Division,
particularly in the gold and copper contracts. Overall trading volume
increased by 10% for this division when compared with the previous year.
- a considerable decline in investment income from the Company's fixed
income portfolio during 1999 when compared with the previous year.
The following discussion provides additional information about the
components of the Company's operating results for the year ended 1999:
Revenues
Total 1999 operating revenues were $144,435, up $13,852, or 11%, from the
same period in 1998. During 1999, clearing and transaction fees, net of member
fee rebates, were $105,206 compared to $90,764 earned during the previous year.
This 16% increase was the result of the substantial increases in trading volume
on
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both the NYMEX and COMEX Divisions. Member fee rebates, which apply only to
NYMEX Division members, amounted to $13,065 and $11,272 for the years ended
December 31, 1999 and 1998, respectively.
The NYMEX Division's clearing and transaction fees, net of member fee
rebates, were $79,867 in 1999, an 18% increase over the previous year. The
overall trading volume for the NYMEX Division experienced a significant increase
when compared with the same period a year ago.
- Crude oil futures and options commodity trading volume increased 21% in
1999 compared with the previous year, primarily due to several OPEC cuts
in oil production, which lowered world oil inventory supplies.
- Natural gas futures and options, the NYMEX Division's second largest
contract traded, experienced a 21% increase in trading volume during 1999
when compared with the previous year. Higher demand for this commodity
during 1999 due to warmer weather conditions than the previous year was
the prime reason for this increase.
- Unleaded gasoline futures and options commodity trading volume moderately
increased by 7% during 1999 when compared with the previous year. The
price of the underlying unleaded gasoline commodity increased, which led
to higher options on futures contracts trading during 1999, particularly
in the fourth quarter, when compared with the previous year. Price
volatility, primarily during the second half of 1999, led to this volume
increase.
The COMEX Division's clearing and transaction fees were $25,339 during
1999, up 9% from the previous year. The overall trading volume for this division
experienced strong growth when compared with the previous year.
- Commodity trading volume for gold futures and options, the COMEX
Division's most active contract, experienced a 13% increase during 1999
when compared with the previous year. The COMEX gold contract has been
used as a hedge against inflation. The existence of inflationary
pressures in the U.S. as well as abroad led to strong commodity trading
in gold during 1999. Inflation was a major concern for the Federal
Reserve during 1999 as they raised interest rates on several occasions
during the year.
- Copper futures and options commodity trading volume increased by 14%
during 1999 when compared with the previous year. A shortage in copper
supplies, particularly during the third quarter of 1999, was the primary
reason for this volume increase.
Other income decreased by 8% during 1999 when compared with the previous
year primarily the result of the introduction of new incentive rebate programs.
These programs reduced various other revenue sources such as office rentals and
booth license fees.
Operating Expenses
Total operating expenses were $119,563 during 1999, up only 2% from the
previous year. This $2,540 increase from the previous year primarily reflected
the Exchange's expenses incurred for legal services related to demutualization
efforts during the fourth quarter of 1999 as well as the costs associated with
the parallel operations in connection with the upgrade of the on-line trading
systems.
Salaries and employee benefits, which constituted 38% of total operating
expenses for 1999, rose 3% from the previous year and for the most part
reflected the effect of employee merit increases.
Professional services increased by $938, or 13%, during 1999 when compared
with the previous year and was largely the result of legal services in
connection with a patent infringement case.
Telecommunications, equipment rentals and maintenance increased by $1,290,
or 8%, during 1999 when compared to the previous year. In 1999, significant
costs were incurred due to the fact that prior to its November 1999 launch, the
updated version of NYMEX ACCESS(R) was being tested at the same time that the
previous version was operational. After its launch, the previous version of
NYMEX ACCESS(R) was maintained as a backup capacity through to the end of 1999.
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Depreciation and amortization of property and equipment, net of deferred
credit amortization, increased by $1,065, or 11%, during 1999 when compared to
the previous year. 70% of this increase was due to depreciation expense on new
computer and trading floor equipment acquired during 1999. The remaining 30% of
the increase was for the amortization of internally developed software costs for
projects placed in service during the fourth quarter of 1999.
General and administrative expenses decreased by $971, or 6%, during 1999
when compared with the previous year. 60% of this decrease was the result of
costs incurred by the Company during 1998 to settle a business dispute
concerning the NYMEX ACCESS(R) trading system, which was successfully resolved.
The balance of this decrease was primarily the result of higher travel costs
incurred during the fourth quarter of 1998 as a result of the Company's pursuit
of several international business ventures. International business ventures were
not as actively pursued during 1999 as the Company concentrated its efforts on
demutualization.
Other Income
Investment income, net of investment advisory fees, decreased by $2,797, or
42%, during 1999 when compared with the previous year. A significant portion of
the Company's investment portfolio was held in fixed income instruments. During
1999, the Federal Reserve raised interest rates on three occasions. This
resulted in a significant decline in market value for the Company's investment
portfolio.
FINANCIAL CONDITION AND CASH FLOWS
Liquidity and Capital Resources
The Company has made, and expects to continue to make, significant
investments in technology to fund its future growth and increase shareholder
value. A total of $12,797 was invested in capital expenditures during 2000 as
the Company continued to update and enhance its computer software applications.
The Company had $110,607 in cash, cash equivalents, and marketable securities at
December 31, 2000.
Cash Flow
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999
--------------- ---------------
Net cash (used in) provided by:
Operating activities.............................. $ 11,501 $ 44,310
Investing activities.............................. (13,801) (20,965)
Financing activities.............................. (1,313) (1,106)
-------- --------
Net (decrease) increase in cash and cash
equivalents....................................... $ (3,613) $ 22,239
======== ========
Working Capital
(IN THOUSANDS)
AT DECEMBER 31, AT DECEMBER 31,
2000 1999
--------------- ---------------
Current assets...................................... $131,166 $131,307
Current liabilities................................. 56,274 20,007
-------- --------
Working capital................................... $ 74,892 $111,300
======== ========
Current ratio....................................... 2.33:1 6.56:1
Current assets at December 31, 2000 decreased by $141 from year-end 1999
primarily as a result of cash flows from net income before depreciation and
amortization, offset by payments for capital expenditures. The primary changes
in current assets consisted of an increase of $10,838 in marketable securities,
offset by declines of $6,846 in clearing and transaction fees receivable, and
$3,613 in cash and cash equivalents. The decline in receivables was attributable
to collection of higher year-end balances. The decrease in cash and cash
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27
equivalents was due to repurchase agreements maturing prior to year-end; these
proceeds were reinvested in marketable securities.
Current liabilities at December 31, 2000 increased by $36,267, or 181% from
year-end 1999, and is primarily the result of the termination of the NYMEX
members' retention program which was paid out in January 2001. At December 31,
2000 $33.2 million, or 92% of the increase, was payable to participants in this
plan and was reported as a current liability on the Consolidated Balance Sheet.
Future Cash Requirements
As of December 31, 2000, the Company had debt of $100,000, including $2.8
million of short term debt. This debt consisted of the following:
- $31,000 of 7.48% notes with an eleven-year principal payout beginning in
2001,
- $54,000 of 7.75% notes with an eleven-year principal payout beginning in
2011, and
- $15,000 of 7.84% notes with a five-year principal payout beginning in
2022.
The Company would incur a redemption premium should it choose to pay off
any series of notes prior to its maturity. These notes contain certain
limitations on the Company's ability to incur additional indebtedness.
enymex(SM), the Company's e-commerce initiative, is currently in the
detailed design phase of development. A leading consulting firm has been
retained as system integrator and will be responsible for ensuring that the
complex systems, including trade matching software, are integrated into NYMEX
Exchange's back-office systems, including its state-of-the-art clearing system,
Clearing 21(R). It is anticipated that enymex(SM) will be introduced during the
second quarter of 2001. Given the technical complexity of the system, it is
anticipated that there will be significant capital and operating expenditures
associated with the development and launch of enymex(SM).
The Company believes that its cash flows from operations will be sufficient
to meet its needs for the foreseeable future. In addition, following its
demutualization, the Company will have the ability, and may seek, to raise
capital through issuances of stock in the private and public capital markets.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, which was
later amended by SFAS No. 138. Among other provisions, it requires that entities
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. Gains and losses resulting from
changes in the fair values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting
treatment. The effective date of this standard was delayed via the issuance of
SFAS No. 137. The effective date of SFAS No. 133 is now for fiscal years
beginning after June 15, 2000, though earlier adoption is encouraged and
retroactive application is prohibited. Effective January 1, 2001, the Company
adopted this statement. Upon adoption, SFAS No. 133 had no impact on the
Company's financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities -- a
Replacement of FASB Statement No. 125, which revises the standards of accounting
for securitizations and other transfers of financial assets and collateral. The
provisions of SFAS No. 140 carry over most of the guidance outlined in SFAS No.
125 and further establish accounting and reporting standards with a
financial-components approach that focuses on control. Under this approach,
financial assets or liabilities are recognized when control is established and
derecognized when control has been surrendered or the liability has been
extinguished. In addition, specific implementation guidelines have been
established to further distinguish transfers of financial assets that are sales
from transfers that are secured borrowings. SFAS No. 140 is effective
prospectively, for transfers occurring after March 31, 2001 and for disclosures
relating to securitization transactions and collateral for fiscal years ended
after
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December 15, 2000. The Company has adopted the provisions of SFAS No. 140 that
relate to disclosures of securitization transactions and collateral in the
preparation of its consolidated financial statements for the year ended December
31, 2000. The Company will adopt the remaining provisions of SFAS No. 140 as
required in 2001 and is currently assessing their impact.
Recent Developments
For a discussion of the Company's recent business developments see Item 1.
Business. Recent Business Developments beginning on page 10.
Responsibility for Financial Reporting
Management is responsible for the preparation, integrity and objectivity of
the audited consolidated financial statements and related notes, and the other
financial information contained in this Form 10-K. Such financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America and are considered by management to present
fairly the Company's consolidated financial position, results of operations and
cash flows. These audited consolidated financial statements include some amounts
that are based on management's best estimates and judgements, giving due
consideration to materiality.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The table below provides information about the Company's marketable
securities, excluding equity securities, including expected principal cash flows
for the years 2001 through 2006 and thereafter (in thousands). These securities
are classified as trading.
PRINCIPAL AMOUNTS BY EXPECTED MATURITY
AT DECEMBER 31, 2000
TOTAL FAIR MARKET
2006 PRINCIPAL VALUE AS OF
AND CASH DECEMBER 31,
2001 2002 2003 2004 2005 THEREAFTER FLOWS 2000
------ ------ ------ ------ ------ ---------- --------- ------------
Municipal Bonds.............................. $2,633 $3,777 $1,133 $3,397 $9,785 $49,914 $70,639 $73,037
Weighted average interest rate............... 6.19% 5.86% 4.62% 5.02% 5.07% 4.77%
------ ------ ------ ------ ------ ------- ------- -------
Total Portfolio, excluding equity
securities................................. $2,633 $3,777 $1,133 $3,397 $9,785 $49,914 $70,639 $73,037
====== ====== ====== ====== ====== ======= ======= =======
PRINCIPAL AMOUNTS BY EXPECTED MATURITY
AT DECEMBER 31, 1999
TOTAL FAIR MARKET
2005 PRINCIPAL VALUE AS OF
AND CASH DECEMBER 31,
2000 2001 2002 2003 2004 THEREAFTER FLOWS 1999
------- ----- ------ ----- ------- ---------- --------- ------------
Government Bonds, Federal Agency Issues....... $ 2,157 $ -- $2,351 $ -- $ 992 $ -- $ 5,500 $ 5,518
Weighted average interest rate................ 2.50% -- 5.50% -- 6.50% --
U.S. Treasury issues.......................... -- -- -- -- 3,948 974 4,922 4,893
Weighted average interest rate................ -- -- -- -- 5.88% 6.00%
Municipal Bonds............................... 2,959 95 3,946 898 7,352 43,012 58,262 54,319
Weighted average interest rate................ 4.37% 3.57% 5.53% 4.50% 5.88% 4.80%
------- ----- ------ ----- ------- ------- ------- -------
Total Portfolio, excluding equity
securities.................................. $ 5,116 $ 95 $6,297 $ 898 $12,292 $43,986 $68,684 $64,730
======= ===== ====== ===== ======= ======= ======= =======
Interest Rate Risk
Current Assets. In the normal course of business, the Company invests
primarily in fixed income securities. Marketable securities bought by the
Company are typically held for the purpose of selling them in
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the near term and are classified as trading securities. Unrealized gains and
losses are included in earnings. For the years ended December 31, 2000 and 1999,
the Company had net investment income of $9.4 million and $3.9 million,
respectively. Accordingly, a substantial portion of the Company's income depends
upon its ability to continue to invest monies in these instruments at prevailing
interest rates and market prices. The fair value of these securities at December
31, 2000 and 1999 was $78 million and $67 million. The change in fair value,
using a hypothetical 10% decline in prices, is estimated to be a $7.8 million
and $6.7 million loss for December 31, 2000 and 1999, respectively. The Company
also invests in U.S. government securities and repurchase agreements and
maintains interest-bearing balances in its trading accounts with its investment
managers. Financial instruments with maturities of three months or less when
purchased are classified as cash equivalents in the consolidated financial
statements.
Debt. The interest rate on the Company's long-term indebtedness is a
weighted average fixed rate of 7.68%. The Company's fixed rate debt is exposed
to the risk that the fair market value of its debt will increase in a declining
interest rate environment. This would result in the Company paying a redemption
premium if it should choose to refinance this debt. Management has not deemed it
necessary to employ any market or interest risk management strategies, such as
interest rate swap agreements. In the future, as the Company pursues its market
strategy, it may become subject to a higher degree of interest rate sensitivity
if it is required to borrow at higher or at variable rates. This could
significantly increase the Company's future sensitivity to interest rate
fluctuations and materially affect, in a negative manner, the Company's future
financial position and results of operations. There have been no material
changes in the Company's outstanding debt since December 31, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Information on page F-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND THE EXCHANGE.
Set forth below are: (1) the names and ages of all directors (including
directors who are also executive officers) of the Company at March 28, 2001, (2)
all positions with the Company presently held by each such person and (3) the
positions held by, and principal areas of responsibility of, each such person
during the last five years.
TERM
EXPIRATION
NAME OF DIRECTOR DATE
---------------- ----------
Vincent Viola........................ 45 Chairman 2004
Mitchell Steinhause.................. 53 Vice Chairman 2002
Richard Schaeffer.................... 48 Director, Treasurer 2002
Madeline Boyd........................ 48 Director 2004
Robert Coakley....................... 37 Director 2002
John Conheeney....................... 71 Director 2003
J. Robert Collins, Jr................ 35 Director 2004
Kenneth Garland...................... 52 Director 2004
Anthony George Gero.................. 64 Director 2002
David Greenberg...................... 36 Director 2003
E. Bulkeley Griswold................. 62 Director 2003
Jesse B. Harte....................... 42 Director 2003
Scott Hess........................... 44 Director 2003
Steven Karvellas..................... 41 Director 2002
Harley Lippman....................... 46 Director 2004
Kevin McDonnell...................... 41 Director 2002
Gary Rizzi........................... 46 Director 2004
Gordon Rutledge...................... 47 Director 2004
Richard Saitta....................... 51 Director 2003
Robert Steele........................ 62 Director 2004
Neal L. Wolkoff, Esq................. 45 Executive Vice President
David Keller......................... 40 Chief Information Officer
Christopher K. Bowen, Esq............ 40 Senior Vice President and General Counsel
Patrick F. Conroy.................... 44 Senior Vice President -- Finance and
Administration
Robert Levin......................... 45 Senior Vice President -- Planning and
Development
Bernard Purta........................ 57 Senior Vice President -- Regulatory Affairs and
Operations
Stuart A. Smith...................... 53 Senior Vice President -- Operations
The Board of Directors of the Company is comprised of 22 members. There are
currently two vacancies on the Board. On March 20, 2001, the stockholders of
NYMEX Holdings and the Class A members of NYMEX Exchange voted to increase the
size of their respective Boards of Directors by three members to include those
persons who have leased out their last or sole membership in NYMEX Exchange.
This change will become effective after the filing of the appropriate corporate
documentation with the CFTC and the State of Delaware.
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--------------------------------------------------------------------------------
CLASS I DIRECTORS - TERMS THAT EXPIRE IN THE YEAR 2004
--------------------------------------------------------------------------------
VINCENT VIOLA -- CHAIRMAN Director since 1982 Age 45
Mr. Viola was elected Chairman in 2001. Mr. Viola formed the First Bank Group.
From 1993 to 1996 he served as Vice Chairman of the Board. During his board
service, Mr. Viola served as chairman of the strategic planning committee and
was instrumental in developing the NYMEX ACCESS(R) electronic trading platform.
In 1990, he formed a proprietary futures and options trading group on the NYMEX
Division and the International Petroleum Exchange.
--------------------------------------------------------------------------------
MADELINE BOYD Director since 1998 Age 48
Ms. Boyd has been a member of the Exchange since 1984, trading gasoline for her
own account for more than 16 years. She was elected to the Board of Directors in
1998. Ms. Boyd is Chairman of the Charitable Foundation Committee. Ms. Boyd also
serves as a director of the Commodity Floor Brokers and Traders Association and
Futures and Options for Kids.
--------------------------------------------------------------------------------
J. ROBERT COLLINS, JR. Director since 2001 Age 35
Mr. Collins is Senior Vice President of natural gas trading at El Paso Merchant
Energy-Gas, LP., a division of El Paso Energy Corp. Mr. Collins directs the
natural gas derivatives portfolio. Before joining El Paso in 1997, Mr. Collins
was a natural gas and crude oil options market-maker with Pioneer Futures on the
floor of the Exchange. Mr. Collins has been a member since 1996.
--------------------------------------------------------------------------------
KENNETH GARLAND Director since 2001 Age 52
Mr. Garland began trading at NYMEX Division as a local trader in 1981. In 1982
and 1983, he also acted as a floor broker. Since 1983, he has traded exclusively
as a local trader. In 1994, he was recommended by the Exchange to represent the
National Futures Association membership appeals subcommittee, a position he
holds to this day.
--------------------------------------------------------------------------------
HARLEY LIPPMAN Public Director since 1999 Age 46
Mr. Lippman is the founder and owner of the information technology consulting
company Genesis 10 which he founded in 1999. He was also the founder and sole
owner of Triad Data Inc., an information technology consulting firm sold in 1998
which made the Inc. 500(C) list. He also serves on the advisory board of the
Columbia University School of International and Public Affairs.
--------------------------------------------------------------------------------
GARY RIZZI Director since 1983 Age 46
Mr. Rizzi has been a director since 1995. Mr. Rizzi is presently a Vice
President of A.G. Edwards. Mr. Rizzi has served on the Board of Directors for
the past six years and on the Executive Committee for the past year. He is also
a member of the COMEX Division and both divisions of the New York Board of
Trade.
--------------------------------------------------------------------------------
GORDON RUTLEDGE Director since 2001 Age 47
Mr. Rutledge began his career as the commodity newswire editor at Merrill Lynch
in 1976. He became a broker in 1981. In 1991, Mr. Rutledge started Onyx
Brokerage Inc. He has been a Vice President of AAA Capital Management since
December 1997.
--------------------------------------------------------------------------------
ROBERT STEELE Public Director since 1999 Age 62
Mr. Steele was a Public Director from 1988 to 1994 and re-appointed to the board
in 1999. He is also Vice Chairman of John Ryan Company and a Director of the
Merlin Retail Financial Center. Mr. Steele has also served as President and
Chief Executive Officer of the Norwich Savings Society from 1975 to 1981, and as
President and Chief Executive Officer of Dollar Dry Dock Bank of New York from
1985 to 1990. Mr. Steele also served as a Representative in the United States
Congress from 1970 to 1974. In addition, Mr. Steele serves on the Board of
Directors of SmartServ Online, Scan Optics, Inc., NLC Insurance Companies and is
Chairman of the Board of Moore Medical Corp.
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--------------------------------------------------------------------------------
CLASS III DIRECTORS - TERMS THAT EXPIRE IN THE YEAR 2003
--------------------------------------------------------------------------------
JOHN CONHEENEY Public Director since March 1996 Age: 71
Retired. Formerly a member of the Board of Directors for the Chicago Board of
Trade, the Chicago Mercantile Exchange, Globex, and the COMEX Division.
--------------------------------------------------------------------------------
E. BULKELEY GRISWOLD Public Director since March 1996 Age: 62
Managing General Partner of L&L Capital Partners.
Mr. Griswold serves on the boards of Southern Connecticut Advisory Board of
Fleet Bank, Trust Company of Connecticut, and Scan-Optics.
--------------------------------------------------------------------------------
DAVID GREENBERG Director since March 2000 Age: 36
President of Sterling Commodities Corp., a commodity trading firm.
Mr. Greenberg has been a member of the NYMEX Division since 1990 and of the
COMEX Division since 1988. He also serves as a member of the New York Board of
Trade and a director of the Commodity Floor Brokers and Traders Association.
--------------------------------------------------------------------------------
JESSE B. HARTE Director since March 2000 Age: 42
Employed by Duke Energy Trading and Marketing, LLC., a commodity trading firm.
Mr. Harte has been a member of the NYMEX Division since 1983. He was formerly
an owner of Bay Area Petroleum, a large independent floor brokerage operation
and a Senior Vice President of Daiwa Securities, a Futures Commission Merchant.
--------------------------------------------------------------------------------
SCOTT HESS Director since March 1997 Age: 44
Presently a partner in G&H Commodities.
Mr. Hess has been a member of the NYMEX Division since 1982. He is also a
director of the Commodity Floor Brokers and Traders Association.
--------------------------------------------------------------------------------
RICHARD SAITTA Director since March 1993 Age: 51
Presently an independent floor broker and President of Star Futures Corp.
Mr. Saitta has been a member of the NYMEX Division since 1976.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CLASS II DIRECTORS - TERMS EXPIRE IN THE YEAR 2002
--------------------------------------------------------------------------------
MITCHELL STEINHAUSE -- VICE Director since March 1992 Age: 53
CHAIRMAN
Presently an independent floor broker.
Mr. Steinhause was elected Vice Chairman of the Board in March 2000. He has
previously served as Corporate Secretary and has been a member of NYMEX Division
since 1975 as both a floor broker and a local trader.
--------------------------------------------------------------------------------
RICHARD SCHAEFFER Director since March 1990 Age: 48
Senior Vice President and Director of Global Energy Futures for ABN AMRO, Inc.
Mr. Schaeffer has been NYMEX Exchange's Treasurer since March 1993. Prior to
1990, he was Senior Vice President/Director of the Chicago Corp., which was a
clearing member of both the NYMEX and COMEX Divisions from 1997 until its merger
with ABN AMRO, Inc.
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--------------------------------------------------------------------------------
ROBERT COAKLEY Director since March 1999 Age: 37
Mr. Coakley has been a member of the NYMEX Division since 1990. Pursuant to a
settlement agreement reached with Mr. Coakley, the National Futures Association
restricted Mr. Coakley's registration as a floor broker for two years effective
July 28, 1999. This restriction on registration will be removed after this
two-year period if Mr. Coakley is not charged with a violation of the Commodity
Exchange Act, National Futures Association requirements, self-regulatory
organization rules or any statue rule or regulation of any law enforcement or
regulatory agency.
--------------------------------------------------------------------------------
ANTHONY GEORGE GERO Director since March 1999 Age: 64
Senior Vice President of investments, senior spokesman for the futures division,
and a President's Council member of Prudential Securities, Inc.
Mr. Gero has served as a director for an aggregate of 20 years and a member of
the NYMEX Division since 1966. He is also the Chairman of the NYMEX PAC and
Chairman of the Commodity Floor Brokers and Traders Association. Mr. Gero is
currently a board member of the New York Futures Exchange and FINEX and was
previously a director of the Commodity Clearing Corporation.
--------------------------------------------------------------------------------
STEVEN J. KARVELLAS Director since March 1996 Age: 41
Presently an independent floor broker.
Mr. Karvellas has been a member of both the NYMEX and COMEX Divisions since
1990. He began his career as a clerk on COMEX in 1984 and was elected to the
board of directors of COMEX Division in 1987.
--------------------------------------------------------------------------------
KEVIN MCDONNELL Director since March 1999 Age: 41
Presently an independent floor broker.
Mr. McDonnell has been a member of NYMEX Division since 1984.
--------------------------------------------------------------------------------
Committees of the Board
The NYMEX Holdings Board of Directors is authorized to designate from among
its members an executive committee, which will have all the authority of the
board of directors, and other committees, each consisting of two or more
directors. The Chairman of the Board will be an ex officio member of all
committees.
Executive Committee
The Executive Committee shall have and may exercise the authority of the
Board. The Executive Committee shall have the power to perform other duties as
are specified by the Board or as are provided in the Bylaws and Rules.
Audit Committee
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the scope and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls.
Finance Committee
The Finance Committee shall exercise general supervision over the financial
affairs of the Company. It shall examine and cause to be audited the accounts of
the Company by such certified accountant or accountants as may, upon its
recommendation, be approved by the Board; and shall prescribe the methods and
32
34
procedures of keeping the accounts of the Company. It shall supervise all
investments authorized by the Board. It shall recommend to the Board the
financial institutions in which the Company's funds may be deposited and the
separate accounts to be opened, maintained and designated for deposits and
disbursements for various purposes.
Bylaws Committee
The Bylaws Committee may, in its discretion, propose to the Board such
amendments or additions to the Bylaws as it may from time to time consider
necessary or advisable.
Compensation Committee
Compensation levels for the Company's President and Executive Vice
President are determined by the Executive Committee of the Board and
compensation for the Chairman and Vice Chairman are determined by the Board.
Set forth below are: (1) the names and ages of all executive officers
(including executive officers who are also directors) of the Company at March
27, 2001, (2) all positions with the Company presently held by each such person,
and (3) the positions held by, and principal areas of responsibility of, each
such person during the last five years.
NAME POSITION(S) HELD AGE
---- ---------------- ---
VINCENT VIOLA CHAIRMAN 45
Mr. Viola was elected Chairman in 2001. Mr. Viola formed the First Bank
Group. From 1993 to 1996 he served as Vice Chairman of the Board. During his
board tenure, Mr. Viola served as chairman of the strategic planning committee
and was instrumental in developing the NYMEX ACCESS(R) electronic trading
platform. In 1990 he formed a proprietary futures and options trading group on
the NYMEX Division and the International Petroleum Exchange.
MITCHELL STEINHAUSE VICE CHAIRMAN 53
Mr. Steinhause is presently an independent floor broker. He was elected
Vice Chairman of the Board in March 2000. He has previously served as Corporate
Secretary and has been a member of NYMEX Division since 1975 as both a floor
broker and a local trader.
RICHARD SCHAEFFER TREASURER 48
Mr. Schaeffer is presently a Senior Vice President and Director of Global
Energy Futures for ABN AMRO, Inc. He has been NYMEX Exchange's Treasurer since
March 1993. Prior to 1990, he was Senior Vice President/Director of the Chicago
Corp., which was a clearing member of both the NYMEX and COMEX Divisions from
1997 until its merger with ABN AMRO Inc.
NEAL L. WOLKOFF EXECUTIVE VICE PRESIDENT 45
Mr. Wolkoff serves as Executive Vice President of NYMEX Holdings and has
been Executive Vice President of the NYMEX Exchange since July 1993 and was
Senior Vice President - Operations and Regulatory Affairs from November 1989 to
July 1993. Mr. Wolkoff also serves as Executive Vice President of the COMEX
Division. He previously served as a director of Enersoft Inc. Earlier in his
career, he served as a trial attorney with the CFTC. Mr. Wolkoff has assumed the
duties and responsibilities of the President of the Company until a successor
has been duly elected and qualified.
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35
CHRISTOPHER K. BOWEN SENIOR VICE PRESIDENT AND GENERAL COUNSEL 40
Mr. Bowen serves as Senior Vice President and General Counsel of NYMEX
Holdings and has been Senior Vice President and General Counsel of the NYMEX
Exchange since 1997. Mr. Bowen has held positions of Associate General Counsel
and Senior Associate General Counsel. He has also served as Counsel/Manager of
Futures Compliance at Morgan Stanley & Co., Inc. and as an attorney at the CFTC.
Mr. Bowen serves as Senior Vice President and General Counsel of COMEX and CCA.
DAVID KELLER CHIEF INFORMATION OFFICER 40
Mr. Keller serves as Chief Information Officer of NYMEX Holdings and has
been Chief Information Officer of NYMEX Exchange since May 2000. Prior to
joining NYMEX Exchange, Mr. Keller was the Chief Information and Technology
Officer of Sempra Energy Trading Corp. and prior to that was President, Chief
Executive Officer and Founder of Enersoft Corporation. Mr. Keller also serves as
Chief Information Officer of COMEX and CCA.
PATRICK F. CONROY SENIOR VICE PRESIDENT - FINANCE & 44
ADMINISTRATION
Mr. Conroy serves as Senior Vice President - Finance & Administration of
NYMEX Holdings and has been Senior Vice President - Finance & Administration of
NYMEX Exchange since January 1993. Mr. Conroy also serves as Senior Vice
President - Finance of COMEX and CCA.
ROBERT LEVIN SENIOR VICE PRESIDENT - PLANNING AND 45
DEVELOPMENT
Mr. Levin serves as Senior Vice President - Planning and Development of
NYMEX Holdings and has been Senior Vice President - Planning and Development of
NYMEX Exchange since June 1993. Mr. Levin was Vice President - Product
Development of NYMEX Exchange from July 1991 until June 1993. Mr. Levin also
currently serves as Senior Vice President - Planning and Development of COMEX.
BERNARD J. PURTA SENIOR VICE PRESIDENT - REGULATORY 57
AFFAIRS AND OPERATIONS
Mr. Purta serves as Senior Vice President - Operations and Regulatory
Affairs of NYMEX Holdings and has been Senior Vice President - Operations and
Regulatory Affairs of NYMEX Exchange since December 1993. He also serves as
Senior Vice President - Operations and Regulatory Affairs of COMEX and the CCA
(of which he is also Treasurer) and as Treasurer of NYMEX PAC. He currently is a
director of the FIA Futures Services Division (N.Y.). Earlier in his career he
served as a staff member at the CFTC.
STUART A. SMITH SENIOR VICE PRESIDENT - OPERATIONS 52
Mr. Smith serves as Senior Vice President - Operations of NYMEX Holdings
and has been Senior Vice President - Operations of the NYMEX Exchange since May
1992. Mr. Smith currently serves as Senior Vice President - Operations of COMEX.
Mr. Smith previously served as Vice President of Trading Floor Operations from
1986 to 1996.
None of the directors, except for the Chairman, currently is or has ever
been an officer or employee of the Company or any of its subsidiaries, nor were
there any Executive Committee interlocks or other relationships during 2000
requiring disclosure under interim 402(j) of Regulation S-K of the SEC.
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36
ITEM 11. EXECUTIVE OFFICER COMPENSATION.
The Summary Compensation Table below sets forth information in respect of
the compensation of the Chief Executive Officer of the Company during 2000 and
the persons who were, at December 31, 2000, the other four most highly
compensated executive officers of the Company and its subsidiaries during 1998,
1999, and 2000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION (1),(2)
-------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- -------- ---------- ------------
Daniel Rappaport, Chairman(5)..................... 2000 $588,462 $ 700,000 --
1999 -- 1,500,000 $ 100,000(3)
1998 -- 850,000 100,000(3)
R. Patrick Thompson, Esq., President.............. 2000 299,194 -- 1,800,000(4)
1999 412,500 200,000 --
1998 360,699 200,000 --
Neal Wolkoff, Esq., Executive Vice President...... 2000 422,803 250,000 --
1999 342,500 130,000 --
1998 289,699 130,000 --
David Keller, Chief Information Officer........... 2000 221,646 200,000 --
1999 N/A N/A N/A
1998 N/A N/A N/A
Christopher Bowen, Esq., Senior Vice President and
General Counsel.............................. 2000 223,608 80,956 --
1999 198,450 76,923 --
1998 180,339 51,030 --
---------------
(1) Includes amounts deferred under the Company's 401(k) and deferred
compensation plans.
(2) Perquisites and other personal benefits aggregating the lower of $50,000 or
10% of the sum of salary and bonus are not reported.
(3) Represents stipend payments for serving as the Chairman of the Board of
Directors.
(4) Represents special compensation payable to the late president's heirs.
(5) Vincent Viola was elected Chairman of the Company on March 20, 2001.
Corporate Tax Deduction on Compensation in Excess of $1 Million a Year
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation in excess of $1 million paid to
the Company's Chief Executive Officer or any of the four other most highly
compensated officers. Certain performance-based compensation is specifically
exempt from the deduction limit. The Company plans to ensure that any award
granted to a covered employee will qualify as performance-based compensation
under Section 162(m).
Other Compensation Plan Information
Savings Plan
The Company sponsors a defined contribution plan known as the "Savings and
Investment Plan" for all eligible domestic employees. This plan qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Participating employees may elect to defer up to 15% of their base salary,
subject to the annual Internal Revenue Code limit. The Company matches pre-tax
contributions up to a maximum of 3% of base salary. A participant may also make
after-tax contributions. The Company does not match these
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37
contributions. This amount may be reduced to comply with applicable Internal
Revenue Code requirements. The Company also makes a year end contribution
ranging from 2% to 7% of base salary based upon tenure for each eligible plan
member provided the Company attains certain minimum corporate profitability
thresholds. Participants are immediately vested in their before-tax and
after-tax contributions and actual earnings on their contributions. Participants
become vested in the matching and year end contributions at a rate of 40% of
such contribution after two full years of service, and then 20% per year up to
100% after five years of service. Participants may receive the full value of
their accounts generally only upon termination of employment. The plan allows
earlier receipt of a participant's share in the plan, subject to certain
limitations and conditions as set forth in the plan document.
Deferred Compensation Plan
The Company's Deferred Compensation Plan for executives provides that an
eligible employee may elect to defer receipt of current compensation in order to
provide retirement benefits on behalf of these employees. The Company may
provide a matching and year-end contribution to the plan. Matching contribution
percentages follow the same guidelines as the Company's defined contribution
plan. The deferred compensation plan is not intended to be a qualified plan
under the provisions of the Internal Revenue Code. It is intended to be unfunded
and, therefore, all compensation under this plan is held by the Company and
commingled with its general assets. The participating employees are general
creditors of the Company with respect to these benefits. The Company has the
right to amend, modify or terminate the deferred compensation plan at any time.
Employment Agreement
The Company has an employment and compensation agreement with Neal L.
Wolkoff, Esq., one of its executive officers. This agreement provides for the
named officer to earn a minimum of $500,000 per year through 2003. In addition
to his stated annual salary, the executive shall have the opportunity to receive
an annual bonus in an amount to be determined by the Board of Directors, but in
no event less than $250,000 per year.
Compensation of Directors
The Company maintains the following standard compensation arrangements with
its directors:
Chairman Stipend -- Effective January 1, 2000, the Chairman receives an annual
stipend of $600,000. The Chairman is also eligible to receive a year-end bonus
in an amount to be determined and approved by the Board of Directors.
Vice Chairman Stipend -- Effective April 1, 2000, the Vice Chairman receives an
annual stipend of $100,000, as well as a fee of $1,000 for each board meeting
attended. The Vice Chairman is also eligible to receive a year-end bonus in an
amount to be determined and approved by the Board of Directors.
Director Stipend -- Directors receive a monthly stipend of $2,500, or $30,000 a
year. Effective April 1, 2000, directors receive an additional fee of $1,000 for
each board meeting attended. In addition, effective April 1, 2000, directors
serving on the executive committee receive an additional annual stipend of
$20,000 and are also eligible to receive a year-end bonus in an amount to be
determined and approved by the Board of Directors.
Member Retention Plan
On October 4, 2000 the Board of Directors voted to terminate the NYMEX
Division's Members' Retention and Retirement Plan. The assets of this plan were
distributed in January 2001. The value of the assets and related liability as of
December 31, 2000 was $33.2 million and is classified as a current liability on
the balance sheet. Certain directors of the board were participants in this
plan.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table shows how many NYMEX Holdings common shares certain
individuals beneficially owned on March 27, 2001. These individuals include: (a)
our current directors, (b) the three executive officers named in the
compensation tables on page 35 and (c) all current directors and executive
officers as a group. A person has beneficial ownership over shares if the person
has voting or investment power over the shares.
As of March 27, 2001, no director or executive officer of the Company owned
more than 1% of all the outstanding shares of common stock at December 31, 2000.
No person is the beneficial owner of 5% or more of the shares of common stock of
the Company.
SHARES OF
COMMON PERCENT OF
STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED
------------------------ ------------ ------------
(a)
Vincent Viola............................................... 1 *
Mitchell Steinhause......................................... 1 *
Richard Schaeffer........................................... 4 *
Madeline Boyd............................................... 1 *
Robert Coakley.............................................. 1 *
John Conheeney.............................................. 0 *
J. Robert Collins, Jr. (1).................................. 3 *
Kenneth Garland............................................. 1 *
Anthony George Gero......................................... 2 *
David Greenberg............................................. 1 *
E. Bulkeley Griswold........................................ 0 *
Jesse B. Harte (2).......................................... 1 *
Scott Hess.................................................. 1 *
Steven Karvellas............................................ 1 *
Harley Lippman.............................................. 0 *
Kevin McDonnell............................................. 1 *
Gary Rizzi (3).............................................. 1 *
Gordon Rutledge............................................. 1 *
Richard Siatta.............................................. 1 *
Robert Steele............................................... 0 *
(b)
Neal L. Wolkoff, Esq........................................ 0 *
Christopher K. Bowen, Esq................................... 0 *
David Keller................................................ 0 *
(c)
All directors and executive officers as a group............. 22 2.6 %
---------------
* Less than one percent
ABC Agreement
An "ABC Agreement" is an agreement in which a member designates an
individual to exercise voting rights and other membership privileges, but does
not give the individual the power to dispose of a membership. The provisions of
an ABC Agreement also apply to the common stock of NYMEX Holdings shown to be
beneficially owned by the director. The following directors currently have an
ABC Agreement:
(1) Mr. Collins has entered into an ABC Agreement with El Paso Merchant
Energy -- GAS LP.
(2) Mr. Harte has entered into an ABC Agreement with Duke Energy Trading and
Marketing, LLC.
(3) Mr. Rizzi has entered into an ABC Agreement with AGE Commodity Clearing
Corp.
37
39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pioneer Futures, Inc., of which the Chairman of the Board of the Company is
the sole shareholder, currently leases from the Exchange approximately 41,768
square feet of space at the One North End facility. Pioneer has nine leases as
follows: (1) 5,019 square feet expiring on November 2, 2002; (2) 10,360 square
feet expiring on December 4, 2002; (3) 2,840 square feet expiring on December
15, 2002; (4) 561 square feet expiring on January 1, 2003; (5) 1,372 square feet
expiring on June 1, 2003; (6) 792 square feet expiring on August 1, 2003; (7)
1,213 square feet expiring on September 1, 2003; (8) 718 square feet expiring on
December 1, 2003; (9) 18,893 square feet expiring on July 1, 2005. The current
aggregate annual rent for these spaces is $1,601,162.
Sterling Commodities Corp., of which a Company board member is president,
currently leases from the Exchange approximately 6,253 square feet of space at
the One North End facility. The lease expires on November 23, 2002. The current
annual rent for this space is $225,108. The president's father is CEO and 100%
owner of the company.
Genesis 10, of which a Company board member is the founder and chief
executive officer, is an information technology consulting firm. This public
board member owns 90% of the equity interest of Genesis 10. In addition, the
Company has entered into a written contractual relationship with Genesis 10
under which Genesis 10 provides the services of one temporary Senior
Developer/Architect. Approximately $395,000 has been paid by the Company to
Genesis 10 for services rendered from October 1999 to the present. Furthermore,
if the Senior Developer/Architect is hired on a permanent basis, the Exchange
will be obligated to pay Genesis 10 a fee of 30% of annual compensation.
The Company has provided financial guarantees and pledged collateral
relating to a membership seat financing program with one of its banks. Pursuant
to this program, the member remains primarily liable for the loan which is used
to purchase an interest in the Company. The Company's guarantee is limited to
the lesser of $500,000 or 50% of the purchase price of the membership interest,
and the Company has the right to liquidate the interest if the member defaults
on the loan. Under the program, the Company may issue guarantees totaling, in
the aggregate, up to $11 million. As of March 10, 2001, the following directors
had loan balances relating to this program of greater than $60,000: Robert
Coakley ($322,910) and Stephen Karvellas ($232,750).
38
40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
1. Consolidated Financial Statements
The consolidated financial statements required to be filed hereunder
are listed on page F-2 hereof by reference to the corresponding page
number in the Annual Report.
2. Financial Statement Schedule
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. Exhibits
Certain of the following exhibits were previously filed as exhibits
to other reports or registration statements filed by NYMEX Holdings and are
incorporated herein by reference to such reports or registration statements
as indicated parenthetically below by the appropriate report reference date
or registration statement number.
EXHIBITS
2.2 Form of Agreement and Plan of Merger by and among New York
Mercantile Exchange, Inc., NYMEX Holdings, Inc. and NYMEX
Merger Sub, Inc. (incorporated herein by reference to
Exhibit 2.2 of Form S-4 (file no. 333-30332))
3.1 Amended and Restated Certificate of Incorporation of NYMEX
Holdings, Inc.
3.2 Bylaws of NYMEX Holdings, Inc. (incorporated herein by
reference to Exhibit 3.2 of Form S-4 (file no. 333-30332)).
4 Note Purchase Agreement among NYMEX and each of Purchasers
listed in Schedule A attached thereto dated October 15, 1996
(incorporated herein by reference to Exhibit 10.5 of Form
S-4 (file no. 333-30332)).
10.1 NYMEX Amended and Restated Members' Retention and Retirement
Plan effective December 31, 1997. (incorporated herein by
reference to Exhibit 10.1 of Form S-4 (file no. 333-30332)).
10.2 Trust under the NYMEX Members' Retention and Retirement Plan
dated December 31, 1997. (incorporated herein by reference
to Exhibit 10.2 of Form S-4 (file no. 333-30332)).
10.3 Ground Lease between Battery Park City Authority and NYMEX
dated May 18, 1995. (incorporated herein by reference to
Exhibit 10.3 of Form S-4 (file no. 333-30332)).
10.4 Funding Agreement among New York State Urban Development
Corporation, Battery Park City Authority and NYMEX dated May
18, 1995. (incorporated herein by reference to Exhibit 10.4
of Form S-4 (file no. 333-30332)).
10.5 NYMEX Holdings, Inc. Executive Income Deferral Program.
10.6 Network License Order Form between Oracle Corporation and
NYMEX, accompanying Payment Plan Agreement and Payment
Schedule between Oracle Credit Corporation and NYMEX
(incorporated herein by reference to Exhibit 10.6 of Form
S-4 (file no. 333-30332)).
10.7 Network License Order Form between Oracle Corporation and
NYMEX, accompanying Payment Schedule between Oracle Credit
Corporation and NYMEX and Amendment 1 to the Network License
Order Form (incorporated herein by reference to Exhibit 10.7
of Form S-4 (file no. 333-30332)).
39
41
10.8 Network License Order Form between Oracle Corporation and NYMEX and accompanying Payment Schedule
between Oracle Credit Corporation and NYMEX. (incorporated herein by reference to Exhibit 10.8 of Form
S-4 (file no. 333-30332)).
10.8.1 Software License and Services Agreement between Oracle Corporation and NYMEX effective January 6, 1995
(incorporated herein by reference to Exhibit 10.8.1 of Form S-4 (file no. 333-30332)).
10.9 Smartnet Agreement between Cisco Systems, Inc. and NYMEX dated May 21, 1996. (incorporated herein by
reference to Exhibit 10.9 of Form S-4 (file no. 333-30332)).
10.10 Network Supported Account Agreement between Cisco Systems, Inc. and NYMEX dated May 21, 1996
(incorporated herein by reference to Exhibit 10.10 of Form S-4 (file no. 333-30332)).
10.11 COMEX Members' Retention and Retirement Plan.
10.12 Employment Agreement between NYMEX Holdings and Neal L. Wolkoff, Esq.
21.1 Subsidiaries of NYMEX Holdings, Inc. (incorporated herein by reference to Exhibit 21.1 of Form S-4 (file
no. 333-30332)).
99 Published report regarding the demutualization vote by Security holders on June 20, 2000.
40
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, NYMEX Holdings, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 27, 2001
NYMEX HOLDINGS, INC.
BY: /s/ VINCENT VIOLA
------------------------------------
VINCENT VIOLA
Chairman of the Board of Directors
(Principal Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF NYMEX HOLDINGS,
INC. AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VINCENT VIOLA Chairman of the Board March 27, 2001
-----------------------------------------------------
VINCENT VIOLA
/s/ MITCHELL STEINHAUSE Vice Chairman March 27, 2001
-----------------------------------------------------
MITCHELL STEINHAUSE
/s/ RICHARD SCHAEFFER Treasurer March 27, 2001
-----------------------------------------------------
RICHARD SCHAEFFER
/s/ MADELINE BOYD Director March 27, 2001
-----------------------------------------------------
MADELINE BOYD
/s/ ROBERT COAKLEY Director March 27, 2001
-----------------------------------------------------
ROBERT COAKLEY
/s/ JOHN CONHEENEY Director March 27, 2001
-----------------------------------------------------
JOHN CONHEENEY
Director March 27, 2001
-----------------------------------------------------
J. ROBERT COLLINS, JR.
/s/ KENNETH GARLAND Director March 27, 2001
-----------------------------------------------------
KENNETH GARLAND
/s/ ANTHONY GEORGE GERO Director March 27, 2001
-----------------------------------------------------
ANTHONY GEORGE GERO
/s/ DAVID GREENBERG Director March 27, 2001
-----------------------------------------------------
DAVID GREENBERG
Director March 27, 2001
-----------------------------------------------------
E. BULKELEY GRISWOLD
Director March 27, 2001
-----------------------------------------------------
JESSE B. HARTE
41
43
SIGNATURE TITLE DATE
--------- ----- ----
Director March 27, 2001
-----------------------------------------------------
SCOTT HESS
/s/ STEVEN KARVELLAS Director March 27, 2001
-----------------------------------------------------
STEVEN KARVELLAS
Director March 27, 2001
-----------------------------------------------------
HARLEY LIPPMAN
Director March 27, 2001
-----------------------------------------------------
KEVIN MCDONNELL
/s/ GARY RIZZI Director March 27, 2001
-----------------------------------------------------
GARY RIZZI
/s/ GORDON RUTLEDGE Director March 27, 2001
-----------------------------------------------------
GORDON RUTLEDGE
Director March 27, 2001
-----------------------------------------------------
RICHARD SAITTA
Director March 27, 2001
-----------------------------------------------------
ROBERT STEELE
/s/ NEAL L. WOLKOFF Executive Vice March 27, 2001
----------------------------------------------------- President
NEAL L. WOLKOFF
/s/ PATRICK F. CONROY Senior Vice March 27, 2001
----------------------------------------------------- President-Finance and
PATRICK F. CONROY Administration
/s/ JOSEPH FILKO Controller March 27, 2001
-----------------------------------------------------
JOSEPH FILKO
42
44
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2000
F-1
45
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
ITEM 14(1)
ITEM 14(1) FINANCIAL STATEMENTS
Report of Independent Auditors, Deloitte & Touche LLP....... F-3
Management's Responsibility for Financial Statements........ F-4
Consolidated Balance Sheets at December 31, 2000 and 1999... F-5
Consolidated Statements of Operations and Retained
Earnings/Members' Equity for the years ended December 31,
2000, 1999 and 1998....................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... F-7
Notes to Consolidated Financial Statements.................. F-8
All other financial statements and schedules have been omitted since the
required information is not applicable or is included in Item 14(1) Financial
Statements.
F-2
46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of NYMEX Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of NYMEX
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of operations and retained
earnings/members' equity and of cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of NYMEX Holdings, Inc. and
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
New York, New York
March 9, 2001
F-3
47
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
To Our Stockholders:
Management is responsible for the reliability of the consolidated financial
statements and related notes. The financial statements were prepared in
conformity with accounting principles generally accepted in the United States of
America and include amounts based upon our estimates and assumptions, as
required. The consolidated financial statements have been audited by our
independent auditors, Deloitte & Touche LLP, who were given free access to all
financial records and related data, including minutes of the meetings of the
Board of Directors and Committees of the Board. We believe that our
representations to the independent auditors are valid and appropriate.
Management maintains a system of internal accounting controls designed to
provide reasonable assurance as to the reliability of the financial statements,
as well as to safeguard assets from unauthorized use or disposition. The system
is supported by formal policies and procedures. Our internal audit function
monitors and reports on the adequacy of and compliance with the internal control
system, and appropriate actions are taken to address significant control
deficiencies and other opportunities for improving the system as they are
identified. The Audit Committee consists of the Chairman of the Board and three
Public Directors appointed by the Board. One of the Public Directors serves as
chairman of the committee. The Audit Committee meets several times each year
with representatives of management, including the Chief Financial Officer, the
Vice President of Internal Audit and the independent auditors to review the
financial reporting process and controls in place to safeguard assets. Both our
independent auditors and internal auditor have unrestricted access to the Audit
Committee.
Although no cost-effective internal control system will preclude all errors
and irregularities, we believe our controls as of December 31, 2000 provide
reasonable assurance that the Consolidated Financial Statements are reliable and
that our assets are reasonably safeguarded.
/s/ VINCENT VIOLA
--------------------------------------
Chairman of the Board
/s/ PATRICK F. CONROY
--------------------------------------
Senior Vice President -- Finance and
Administration
Date: March 27, 2001
-----------------------------------
F-4
48
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE/MEMBERSHIP AMOUNTS)
2000 1999
-------- --------
ASSETS
Cash and cash equivalents................................... $ 32,979 $ 36,592
Marketable securities, at market (cost of $75,637 and
$70,703).................................................. 77,628 66,790
Clearing and transaction fees receivable, net............... 7,575 14,421
Market data fees receivable, net............................ 4,039 4,647
Prepaid taxes and expenses.................................. 4,468 4,209
Deferred income taxes....................................... 1,188 476
Other current assets........................................ 3,289 4,172
-------- --------
Total current assets.............................. 131,166 131,307
Property and equipment, net................................. 224,547 228,613
Goodwill, net............................................... 18,482 20,635
Security deposits........................................... 10,240 10,250
Other assets................................................ 2,703 1,689
-------- --------
TOTAL ASSETS................................................ $387,138 $392,494
======== ========
LIABILITIES AND STOCKHOLDERS'/MEMBERS' EQUITY
LIABILITIES:
NYMEX Division members' retention program................... $ 33,221 $ --
Accounts payable and accrued liabilities.................... 11,285 12,053
Accrued salaries and related liabilities.................... 3,869 2,848
Notes payable............................................... 2,815 --
Deferred credit -- grant for building construction.......... 2,145 2,145
Accrued interest payable.................................... 1,920 1,920
Other current liabilities................................... 1,019 1,041
-------- --------
Total current liabilities......................... 56,274 20,007
Deferred income taxes....................................... 10,875 12,568
Postemployment and postretirement benefits.................. 7,075 6,770
Deferred rent expense....................................... 1,236 833
Other non-current liabilities............................... 1,586 --
Notes payable............................................... 97,185 100,000
Deferred credit -- grant for building construction.......... 119,035 121,179
Subordinated commitment -- members' retention program....... 9,213 37,935
-------- --------
Total liabilities................................. 302,479 299,292
-------- --------
COMMITMENTS AND CONTINGENCIES (See Note 15)
STOCKHOLDERS'/MEMBERS' EQUITY:
Common stock, at $0.01 par value, 816 shares authorized,
issued and outstanding.................................... -- --
Additional paid-in capital.................................. 84,415 --
Retained earnings........................................... 244 --
Members' equity............................................. -- 93,202
-------- --------
Total stockholders'/members' equity............... 84,659 93,202
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'/MEMBERS' EQUITY......... $387,138 $392,494
======== ========
The accompanying notes are an integral part of these statements.
F-5
49
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS/MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE/MEMBERSHIP AMOUNTS)
2000 1999 1998
-------- -------- --------
OPERATING REVENUES:
Clearing and transaction fees, net of member fee rebates
of $13,727, $13,065 and $11,272 in 2000, 1999 and
1998................................................... $ 92,500 $105,206 $ 90,764
Market data fees.......................................... 33,622 34,689 34,858
Other, net of rebates of $2,831, $2,399, and $1,364 in
2000, 1999 and 1998.................................... 4,747 4,540 4,961
-------- -------- --------
Total operating revenues.......................... 130,869 144,435 130,583
-------- -------- --------
OPERATING EXPENSES:
Salaries and employee benefits............................ 48,547 45,802 44,552
Rent and facility......................................... 15,736 12,877 12,760
Professional services..................................... 15,625 8,424 7,486
General and administrative................................ 15,063 14,012 14,983
Telecommunications, equipment rentals and maintenance..... 14,952 15,917 14,627
Depreciation and amortization of property and equipment,
net of deferred credit amortization.................... 13,862 10,966 9,901
Demutualization expenses.................................. 4,281 593 --
Marketing................................................. 2,446 2,537 2,403
Amortization of goodwill.................................. 2,153 2,153 2,153
Loss on disposition of property and equipment............. 857 1,298 2,814
Other..................................................... 4,905 4,984 5,344
-------- -------- --------
Total operating expenses.......................... 138,427 119,563 117,023
-------- -------- --------
(LOSS) INCOME FROM OPERATIONS............................... (7,558) 24,872 13,560
OTHER INCOME (EXPENSES):
Investment income, net.................................... 9,355 3,942 6,739
Interest expense.......................................... (7,718) (7,721) (7,958)
-------- -------- --------
(LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR INCOME TAXES... (5,921) 21,093 12,341
(BENEFIT) PROVISION FOR INCOME TAXES........................ (3,140) 8,903 6,263
-------- -------- --------
NET (LOSS) INCOME........................................... (2,781) 12,190 6,078
MEMBERS' EQUITY, BEGINNING OF YEAR.......................... 93,202 86,233 86,565
LESS: DEMUTUALIZATION ADJUSTMENTS AND NET TRANSFER TO
MEMBERS' RETENTION PROGRAM:
NYMEX Division............................................ (4,959) (4,017) (5,255)
COMEX Division............................................ (803) (1,204) (1,155)
Allocation of members' equity and pre-demutualization loss
to additional paid-in capital............................. (84,415) -- --
-------- -------- --------
RETAINED EARNINGS/MEMBERS' EQUITY, END OF YEAR.............. $ 244 $ 93,202 $ 86,233
======== ======== ========
(Loss) earnings per share/NYMEX Division membership (based
on 816 shares/NYMEX Division memberships)................. $ (3,408) $ 14,939 $ 7,449
======== ======== ========
The accompanying notes are an integral part of these statements.
F-6
50
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $(2,781) $12,190 $ 6,078
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization of property and equipment,
net of deferred credit amortization.................... 13,862 10,966 9,901
Amortization of goodwill................................ 2,153 2,153 2,153
Deferred income taxes................................... (2,405) 2,979 8,262
Loss on disposition of property and equipment........... 857 1,298 2,814
Net changes in operating assets and liabilities:
(Increase) decrease in marketable securities:
Corporate funds.................................... (12,330) 9,029 2,167
Members' retention funds........................... 1,492 6,238 (5,398)
Decrease (increase) in clearing and transaction fees
receivable........................................... 6,846 (8,346) 2,042
Decrease (increase) in market data fees receivable.... 608 (1,007) (154)
(Increase) decrease in prepaid taxes and expenses..... (259) 5,024 2,398
Decrease (increase) in other current assets........... 883 (1,378) (366)
(Decrease) increase in accounts payable and accrued
liabilities.......................................... (768) 4,224 (4,954)
Increase (decrease) in accrued salaries and related
liabilities.......................................... 1,021 (76) 1,078
Decrease in accrued interest payable.................. -- -- (1,196)
(Decrease) increase in other current liabilities...... (22) 831 906
Increase in postemployment and postretirement
benefits............................................. 305 185 420
Increase in other non-current liabilities............. 1,586 -- --
Increase in deferred rent expense..................... 403 -- --
Other................................................. 50 -- --
------- ------- -------
Net cash provided by operating activities.......... 11,501 44,310 26,151
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (12,797) (20,022) (18,175)
Decrease in security deposits............................. 10 -- --
(Increase) decrease in other assets....................... (1,014) (943) 50
------- ------- -------
Net cash used in investing activities.............. (13,801) (20,965) (18,125)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
COMEX acquisition note repayments......................... -- -- (5,043)
Distributions under NYMEX Division members' retention
program................................................. (1,313) (1,106) (1,012)
------- ------- -------
Net cash used in financing activities.............. (1,313) (1,106) (6,055)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (3,613) 22,239 1,971
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 36,592 14,353 12,382
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $32,979 $36,592 $14,353
======= ======= =======
SUPPLEMENTAL INFORMATION
Cash paid for:
Interest................................................ $ 7,680 $ 7,680 $ 9,130
======= ======= =======
Income taxes............................................ $ 39 $ 704 $ --
======= ======= =======
Cash received from:
Income tax refunds...................................... $ -- $ -- $ 3,461
======= ======= =======
Noncash members' equity transactions -- transfer to
subordinated commitment -- members' retention program:
NYMEX Division.......................................... $ 4,959 $ 4,017 $ 5,255
======= ======= =======
COMEX Division.......................................... $ 803 $ 1,204 $ 1,155
======= ======= =======
The accompanying notes are an integral part of these statements.
F-7
51
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS -- NYMEX Holdings, Inc. ("NYMEX Holdings") was
incorporated in 2000 as a stock corporation in Delaware, and is the successor to
the New York Mercantile Exchange which was established in 1872. Under these
laws, NYMEX Holdings has the right to pay dividends. The two principal operating
subsidiaries of NYMEX Holdings are the New York Mercantile Exchange, Inc.
("NYMEX Exchange" or "NYMEX Division") and the Commodity Exchange, Inc. ("COMEX"
or "COMEX Division"), which is organized as a wholly-owned subsidiary of NYMEX
Exchange. Where appropriate, each NYMEX Exchange operating division, NYMEX
Division and COMEX Division, will be discussed separately, and collectively will
be referred to as the "Exchange." When discussing NYMEX Holdings together with
its subsidiaries, reference is being made to the "Company."
The Company demutualized on November 17, 2000 at which time the book value
of the assets and liabilities of NYMEX carried over to NYMEX Exchange. After the
demutualization, all the assets and liabilities of NYMEX Exchange were
consolidated into the parent company, NYMEX Holdings.
As a Company which has subsidiaries designated for trading futures
contracts and options on futures contracts by the Commodity Futures Trading
Commission, the Company has the primary objective of creating and maintaining an
orderly market for contracts that are traded on the Exchange. Through its
in-house clearing units, the Exchange stands as buyer to every seller and seller
to every buyer. To manage the risk of financial nonperformance, the Exchange
requires members to post margin, in the form of cash, U.S. government securities
or irrevocable letters of credit. The Exchange also requires guaranty fund
deposits from clearing members which would be available to cover financial
nonperformance. (See Notes 12 and 13.) The Exchange has extensive surveillance
and compliance operations and procedures to monitor and enforce the rules
pertaining to trading, position limits and financial condition of its members.
BASIS OF PRESENTATION -- The accompanying consolidated financial statements
are presented on an accrual basis in conformity with accounting principles
generally accepted in the United States of America.
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries
NYMEX Exchange, COMEX, COMEX Clearing Association, Inc. ("CCA"), and NYMEX
Technology Corp. (which became inactive in November 1996). Intercompany balances
and transactions have been eliminated in consolidation.
USE OF ESTIMATES -- The preparation of the accompanying consolidated
financial statements and related notes in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, the reported amounts of
revenues and expenses during the reporting period, and the disclosure of
contingent liabilities. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents consist of cash and
all highly-liquid investments with maturities of three months or less when
purchased. The fair value of cash and cash equivalents approximates their
carrying amounts. The Company set aside $17.7 million and $10.4 million in cash
and cash equivalents for the members' retention plan as of December 31, 2000 and
1999, respectively.
Securities purchased under agreements to resell are treated as cash
equivalents and are carried at contract value, as specified in the agreements.
The market value of securities purchased under agreements to resell is monitored
by the Company and additional collateral is obtained as necessary to protect
against credit exposure. At December 31, 2000 and 1999, U.S. government
securities held in a segregated account by a U.S. money-center bank
collateralized the securities purchased under agreements to resell.
MARKETABLE SECURITIES -- The Company invests primarily in high-grade
tax-exempt municipal bonds and direct obligations of the U.S. government and its
agencies. The Company has classified all of its investments in
F-8
52
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
debt and equities as trading. Management determines the appropriate
classification of debt and equity securities at the time of purchase and
re-evaluates such classification at each balance sheet date.
Trading securities are bought and held principally for the purpose of
selling them in the near future and are carried at fair value based on quoted
market prices. The resulting unrealized gains or losses are recognized currently
in the Consolidated Statements of Operations and Retained Earnings/Members'
Equity. Realized gains or losses from the sales of marketable securities are
determined on the specific identification basis and are included in Investment
Income, Net in the Consolidated Statements of Operations and Retained
Earnings/Members' Equity.
REVENUE RECOGNITION -- The largest source of the Company's operating
revenues are clearing and transaction fees. These fees are recognized as revenue
in the same period that trades are effectuated on the Exchange. Clearing and
transaction fees receivable are monies due the Exchange from clearing member
firms. Exposure to losses on receivables is principally dependent on each member
firm's financial condition. Fees owed to the Exchange are collateralized by
members' interests. At the end of December 31, 2000 and 1999, no clearing and
transaction fees receivable balance was greater than the member's interests.
Management does not believe that a concentration of credit risk exists from
these receivables. The Company retains the right to liquidate a member's
interests in order to satisfy its receivable.
Clearing and transaction fees receivable are carried at amounts that
approximate fair value, net of allowances for member credits which are based
upon expected billing adjustments. An allowance for member credits of $1,000,000
and $1,500,000 has been established based on historical recording of these
subsequent credits and has been applied as a reduction of clearing and
transaction fees receivable at December 31, 2000 and 1999, respectively. The
Company believes the allowances are adequate to cover member credits. The
Company also believes the likelihood of incurring material losses due to
collectibility is remote and therefore no allowance for doubtful accounts is
necessary.
Effective January 1, 1996, the NYMEX Division adopted a fee reduction
program, pursuant to which certain clearing fees of NYMEX Division members are
substantially reduced. The Exchange adopted a fee reduction program for futures
commission merchants (FCMs) effective January 1, 1998 and similar fee reduction
programs for local owners and floor brokerage operations effective January 1,
1999. These programs have been established to reduce various operating costs to
these participants such as telephone, rent and marketing expenses.
The Company provides real time information to subscribers regarding prices
of futures and options contracts traded on the Exchange. As is common business
practice in the industry, fees are remitted to the Exchange by market data
vendors on behalf of subscribers. Revenues are accrued for the current month
based on the last month reported. The Company conducts periodic audits of the
information provided. At December 31, 2000, four vendors represented a
receivable balance greater than 5% of the total balance. An allowance for
uncollectible receivables of $1,600,000 and $500,000 has been applied as a
reduction to the December 31, 2000 and 1999 market data fees receivable
balances, respectively.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, less
allowances for depreciation and amortization. Depreciation and amortization are
provided utilizing the straight-line method over the estimated useful lives of
the assets or lease terms, whichever is shorter. (See Note 4.)
The following table summarizes the years over which significant assets are
generally depreciated or amortized:
Building and improvements................................... 20 to 60 years
Information system equipment................................ 4 to 10 years
Furniture, fixtures, office machinery and other............. 3 to 15 years
Leasehold improvements...................................... 15 to 40 years
F-9
53
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Where different depreciation methods or lives are used for tax purposes,
deferred income taxes are recorded. The Company capitalizes purchases of
software and amortizes these costs using the straight-line method over a period
of three years. Beginning in 1999, the Company capitalized internally developed
software and implementation costs based on a project-by-project analysis. All
capitalized internally developed software costs are amortized using the
straight-line method over the estimated useful lives of the software, not
exceeding five years.
The carrying value of property and equipment is assessed annually and/or
when factors indicating an impairment may be present. The Company determines
such impairment by measuring undiscounted future cash flows. If an impairment is
present, the assets are reported at the lower of carrying value or fair value.
There were no impairments recognized for the years ended December 31, 2000 and
1999. The loss on disposition of assets included in the Consolidated Statements
of Operations and Retained Earnings/Members' Equity for these years represents
the net book value of property retired from service.
Expenditures for repairs and maintenance are charged to expense as
incurred. Expenditures for major renewals and betterments which significantly
extend the useful lives of existing property and equipment are capitalized and
depreciated. Fully depreciated assets are retained in property and accumulated
depreciation accounts until removed from service. Upon retirement or disposition
of property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in
operations.
GOODWILL -- Goodwill, representing the excess of the purchase price over
the fair value of the net assets of COMEX (acquired in August 1994), is being
amortized on a straight-line basis over the period of expected benefit of 15
years. The accumulated amortization balance as of December 31, 2000, and 1999
was $13,817,000 and $11,663,000, respectively. Periodically, the Company reviews
the recoverability of goodwill. The measurement of possible impairment is based
on the ability to recover the balance of the goodwill from expected future
operating cash flows on an undiscounted basis. There were no impairments
recognized during any of the periods presented.
INCOME TAXES -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting For
Income Taxes. SFAS No. 109 requires that deferred taxes be established based
upon the temporary differences between financial statement and income tax bases
of assets and liabilities using the enacted statutory rates. A valuation
allowance is recognized if it is anticipated that some or all of a deferred tax
asset may not be realized. (See Note 10.)
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- The Company accounts for
certain postretirement benefits in accordance with SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions. SFAS No. 106
requires the Company to accrue the estimated cost of retiree benefit payments
other than pensions during the employees' active service lives. For the Company,
such benefits consist principally of health care benefits. (See Note 9.)
POSTEMPLOYMENT BENEFITS -- The Company has certain postemployment benefit
plans covering its employees. The benefit plans provide severance, disability,
supplemental health care, life insurance or other welfare benefits. The Company
accrues the cost of certain benefits provided to former or inactive employees
during the employee's active years of service.
SEGMENT REPORTING -- Management reports on two segments: the NYMEX
Division, providing futures and options trading of energy product contracts and
platinum group metals contracts, and the COMEX Division, providing futures and
options trading of precious metals contracts, copper and aluminum contracts, and
the FTSE Eurotop 100(R) stock index futures and options contracts and FTSE
Eurotop 300(R) futures contracts. Management is currently using revenues of
these two divisions as a measurement of operating performance. (See Note 14.)
F-10
54
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED CREDIT -- GRANT FOR BUILDING CONSTRUCTION
By agreement dated May 18, 1995, the Company secured a grant from the New
York City Economic Development Corporation (EDC) and the Empire State
Development Corporation (ESDC, formerly called the New York State Urban
Development Corporation) for approximately $128.7 million for construction of a
new facility. The grant is being recognized in income on the same basis as and
matched to the depreciation of the facility. (See Note 15.) The 2000, 1999 and
1998 amortization of the deferred credit is recorded as a reduction to
depreciation and amortization expense.
MARKETING COSTS
Marketing costs include costs incurred for producing and communicating
advertising and other marketing activities. These costs are expensed when
incurred.
EARNINGS PER SHARE
The Company has only one type of earnings per share calculation, basic
earnings per share. In accordance with SFAS No. 128, Earnings per Share, basic
earnings per common share are based on the weighted average number of common
shares outstanding in each year. There are no common stock equivalents and thus,
no dilution of earnings per share.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, which was
later amended by SFAS No. 138. Among other provisions, it requires that entities
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. Gains and losses resulting from
changes in the fair values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting
treatment. The effective date of this standard was delayed via the issuance of
SFAS No. 137. The effective date of SFAS No. 133 is now for fiscal years
beginning after June 15, 2000, though earlier adoption is encouraged and
retroactive application is prohibited. Effective January 1, 2001, the Company
adopted this statement. Upon adoption, SFAS No. 133 had no impact on the
Company's financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities -- a
Replacement of FASB Statement No. 125, which revises the standards of accounting
for securitizations and other transfers of financial assets and collateral. The
provisions of SFAS No. 140 carry over most of the guidance outlined in SFAS No.
125 and further establish accounting and reporting standards with a
financial-components approach that focuses on control. Under this approach,
financial assets or liabilities are recognized when control is established and
derecognized when control has been surrendered or the liability has been
extinguished. In addition, specific implementation guidelines have been
established to further distinguish transfers of financial assets that are sales
from transfers that are secured borrowings. SFAS No. 140 is effective
prospectively, for transfers occurring after March 31, 2001 and for disclosures
relating to securitization transactions and collateral for fiscal years ended
after December 15, 2000. The Company has adopted the provisions of SFAS No. 140
that relate to disclosures of securitization transactions and collateral in the
preparation of its consolidated financial statements for the year ended December
31, 2000. The Company will adopt the remaining provisions of SFAS No. 140, as
required in 2001, and is currently assessing their impact.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1999
and 1998 consolidated financial statements to conform to the 2000 presentation.
F-11
55
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. COLLATERIZATION
At December 31, 2000, the Company had accepted collateral in the form of
United States treasury bills that it is permitted by contract or industry
practice to sell or repledge, although it is not the Company's policy to do so.
This collateral was received in connection with reverse repurchase agreements
with and is held in custody by its banks. The fair value of such collateral at
December 31, 2000 was approximately $30,108,000.
3. DEMUTUALIZATION
On May 12, 2000, the Company's Form S-4 Registration Statement, with
respect to its plan to demutualize, was declared effective by the Securities and
Exchange Commission. As a result, NYMEX Holdings owns all of the equity of the
Exchange and current NYMEX Division members received all of the stock of NYMEX
Holdings, while retaining their trading privileges in NYMEX Exchange. This plan
was subsequently approved by the members. The previous contract market
designations of pre-demutualization New York Mercantile Exchange were
transferred to NYMEX Exchange. A favorable IRS letter ruling was received on
October 23, 2000 stating that there would be no adverse tax consequences
resulting from the demutualization transaction. The demutualization was
completed on November 17, 2000.
Expenses incurred for demutualization consisted of accounting, investment
banking, legal printing and SEC filing fees, are shown as a separate line item
on the Consolidated Statements of Operations and Retained Earnings/Members'
Equity.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost, less related accumulated
depreciation and amortization of $44,932,000 at December 31, 2000 and
$31,323,000 at December 31, 1999.
PROPERTY AND EQUIPMENT (IN THOUSANDS)
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------- -------------------
NET GROSS NET GROSS
-------- -------- -------- --------
Building and improvements........................... $167,821 $179,536 $170,420 $178,780
Information system equipment........................ 28,288 50,384 32,742 50,188
Furniture, fixtures, office machinery and other..... 27,982 38,376 24,937 29,760
Leasehold improvements.............................. 456 1,183 514 1,208
-------- -------- -------- --------
$224,547 $269,479 $228,613 $259,936
======== ======== ======== ========
Depreciation and amortization expense of property and equipment is
presented net of amortization of the deferred credit. This amortization of
deferred credit was $2.1 million, $2.1 million, and $1.9 million in 2000, 1999
and 1998, respectively.
In 2000, the Company retired from service capital assets and their related
accumulated amortization and depreciation totaling $3.2 million and $2.4
million, respectively. The resulting loss (remaining net book value) of $0.8
million was recognized in current earnings. In 1999, a similar loss of $1.3
million was recognized and included in the Consolidated Statement of Operations
and Retained Earnings/Members' Equity. For the year ended December 31, 1998,
$2.8 million for disposed assets was recognized in the Consolidated Statement of
Operations and Retained Earnings/Members' Equity.
F-12
56
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE
Notes payable consisted of the following at December 31:
(IN THOUSANDS)
2000 1999
-------- --------
Private Placement Notes:
7.48%, Senior Notes, Series A, due 2011................... $ 31,000 $ 31,000
7.75%, Senior Notes, Series B, due 2021................... 54,000 54,000
7.84%, Senior Notes, Series C, due 2026................... 15,000 15,000
-------- --------
100,000 100,000
Less current maturities................................... 2,815 --
-------- --------
Long-term debt............................................ $ 97,185 $100,000
======== ========
The Company issued a private offering of debt during 1996 and 1997,
totaling $100 million to provide completion financing for the new Company
trading facility and headquarters. This issue contained three series each with
different maturities, interest rates, and required repayment schedules. Series A
notes require annual principal repayments from 2001 to 2010, and a final payment
of principal in 2011. Series B notes require annual principal repayments from
2011 to 2020, and a final payment of principal in 2021. Series C notes require
annual principal repayments from 2022 to 2025, and a final payment of principal
in 2026. The notes represent senior unsecured obligations of the Company and are
not secured by the facility, the Company's interest therein, or any other
collateral.
Long-term debt that becomes due during the next five years is as follows:
(IN THOUSANDS)
--------------
2002........................................................ $2,815
2003........................................................ 2,815
2004........................................................ 2,815
2005........................................................ 2,815
2006........................................................ 2,815
6. MEMBERS' RETENTION PROGRAMS
On October 4, 2000, the Company's Board of Directors voted to terminate the
NYMEX Division Members' Retention and Retirement Plan. The Company had
maintained a Retention Program under which qualified NYMEX Division members,
based on long-term and continuous membership, as defined, may receive payments
of $25,000 per year for 10 years. The program was amended to increase the
scheduled payment by three percent each year, commencing July 1, 1996, and then
remain fixed for each recipient at each respective level. The assets of this
Plan were distributed in January 2001. The value of the assets and related
liability, as of December 31, 2000, was $33.2 million. The liability is
classified as current on the Consolidated Balance Sheet. Program commitments
were recognized by a transfer from members' equity to a subordinated commitment
to the membership. For each of the years ended December 31, 2000, 1999, and
1998, $3,600,000 was transferred.
The Company also maintains a Retention Program for members of the COMEX
Division. The program is similar to the terminated NYMEX Division program,
except that the annual benefit payments are $12,500 ($2,000 for options members)
for vested participants and no new participants were permitted after the date of
the merger. No payments may be made prior to January 1, 2002. In addition, under
the terms of the COMEX merger agreement, the COMEX Division program will be
funded at a minimum of $400,000 annually. In any year in which the Company funds
the NYMEX Division program or makes a distribution to NYMEX
F-13
57
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Division members, the funding shall be $800,000. Such amounts may be reduced if
actuarial assumptions indicate that full funding can be achieved without making
the entire funding contributions indicated above. Prior to the demutualization
of the Company on November 17, 2000, corporate contributions to the plan were
recognized as direct transfers from members' equity. After demutualization,
corporate contributions are charged against current operations.
All benefits to be paid under the COMEX Division program shall be based
upon reasonable actuarial assumptions which, in turn, are based upon the amounts
that are available and are expected to be available to pay benefits, except that
the benefits paid to any individual will not exceed the amounts stated above.
Subject to the foregoing, the Board of Directors of the Company reserves the
right to amend or terminate the program upon an affirmative vote of 60% of the
eligible COMEX Division plan participants.
7. DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan (the "Plan") for all
eligible domestic employees. The Plan qualifies as a deferred salary arrangement
under Section 401(k) of the Internal Revenue Code. Under the Plan, participating
employees may defer up to 15 % of their pre-tax earnings, subject to the annual
Internal Revenue Code contribution limit. The Company matches contributions up
to a maximum of 3 % of salary. In addition, the Company makes annual
contributions ranging from 2% to 7% based upon tenure for each eligible Plan
member. Employees vest immediately in their contribution and vest in the
Company's contribution at a rate of 40 % after two full years of service, and
then 20 % per year until fully vested at 100 % after five years of service. The
Company's total contributions to the Plan were $1.8 million, $1.6 million and
$1.6 million for each of the years ended December 31, 2000, 1999 and 1998,
respectively.
8. DEFERRED COMPENSATION
Effective July 1, 1997, the Company instituted a nonqualified deferred
compensation plan (the "Deferred Plan") for key employees to permit them to
defer receipt of current compensation in order to provide retirement benefits on
behalf of such employees. The Company may provide a matching and a regular year-
end contribution to the Deferred Plan. Matching and year-end contribution
percentages follow the same guidelines as the Company's defined contribution
plan. The Deferred Plan is not intended to be a qualified plan under the
provisions of the Internal Revenue Code. It is intended to be unfunded and,
therefore, all compensation deferred under the Deferred Plan is held by the
Company and commingled with its general assets. The participating employees are
general creditors of the Company with respect to these benefits. The Company has
the right to amend, modify, or terminate the Deferred Plan at any time.
9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefit plans for qualifying retired employees.
Substantially all of the Company's employees may become eligible for these
benefits if they reach specified age and years of service criteria while working
for the Company. The benefits are provided through certain insurance companies.
The Company expects to fund its share of such benefit costs principally on a
pay-as-you-go basis.
F-14
58
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the funded status of such plans reconciled
with amounts recognized in the Company's consolidated financial statements at
December 31 (in thousands):
2000 1999
---- ----
Change in accumulated postretirement benefit obligation:
Accumulated postretirement benefit obligation, beginning
of year................................................ $ 3,761 $ 4,168
Service cost.............................................. 339 446
Interest cost............................................. 311 248
Actuarial loss (gain)..................................... 429 (942)
Benefits paid............................................. (183) (159)
------- -------
Accumulated postretirement benefit obligation, end of
year................................................... $ 4,657 $ 3,761
======= =======
Funded status............................................... $(4,657) $(3,761)
Unrecognized transition obligation........................ 1,355 1,452
Unrecognized prior service cost........................... (1,494) (1,613)
Unrecognized net gain..................................... (1,241) (1,733)
------- -------
Accrued postretirement benefit cost, end of year.......... $(6,037) $(5,655)
======= =======
2000 1999 1998
---- ---- ----
Net periodic postretirement benefit cost consists of the
following components for the years ended December 31 (in
thousands):
Service cost.............................................. $ 339 $ 446 $ 461
Interest cost............................................. 331 248 239
Amortization of:
Transition obligation.................................. 97 96 96
Prior service cost..................................... (119) (118) (118)
Net gain............................................... (62) (57) (43)
----- ----- -----
Net periodic postretirement benefit cost.................. $ 586 $ 615 $ 635
===== ===== =====
The weighted-average discount rates used in determining the accumulated
postretirement benefit obligation were 7.50% and 7.75% at December 31, 2000 and
1999, respectively.
The weighted-average annual assumed rates of increase in the per capita
cost to cover benefits (i.e., health care cost trend rate) is 10.0% for 2000 and
is assumed to decrease gradually to 5% by 2005 and remain level thereafter.
The following shows the impact of a 1% change in the trend rate:
1% 1%
POINT POINT
INCREASE DECREASE
-------- --------
Effect on total of service and interest cost................ $ 52,058 $ (48,678)
Effect on accumulated postretirement benefit obligation..... $339,484 $(314,803)
F-15
59
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
The (benefit) provision for income taxes in the Consolidated Statements of
Operations and Retained Earnings/Members' Equity for the years ended December
31, 2000, 1999 and 1998, respectively, consisted of the following (in
thousands):
2000 1999 1998
---- ---- ----
Current:
Federal................................................. $(1,475) $4,391 $(2,024)
State and local......................................... 844 1,533 25
------- ------ -------
(631) 5,924 (1,999)
------- ------ -------
Deferred:
Federal................................................. (1,804) 2,844 5,717
State and local......................................... (705) 135 2,545
------- ------ -------
(2,509) 2,979 8,262
------- ------ -------
Total (benefit) provision....................... $(3,140) $8,903 $ 6,263
======= ====== =======
Reconciliation of the statutory U.S. federal income tax rate to the
effective tax rate on income before tax is as follows:
2000 1999 1998
---- ---- ----
Statutory U.S. federal tax rate............................ 34.0% 34.0% 35.0%
State and local taxes, net of federal benefit.............. (0.2%) 13.6% 0.1%
Member benefits............................................ 5.8% --% 12.2%
Amortization of goodwill................................... (12.4%) 4.7% 6.1%
Deferred credit amortization--grant for building
construction............................................. 12.3% (4.7%) (5.5%)
Tax-exempt income.......................................... 18.5% (5.1%) (6.4%)
Nondeductible expenses..................................... (3.4%) 1.5% 2.1%
Valuation allowance........................................ (2.0%) --% --%
Rate change................................................ 12.4% --% --%
Change in estimate......................................... (16.2%) --% --%
Other, net................................................. 4.2% (1.8%) 7.1%
------ ---- ----
Effective tax rate......................................... 53.0% 42.2% 50.7%
====== ==== ====
F-16
60
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, the components of net deferred tax assets (liabilities)
were as follows (in thousands):
2000 1999
---- ----
Current
Assets:
Unrealized losses on marketable securities............. $ -- $ 304
Accrued expenses....................................... 156 89
Federal net operating loss carryforwards............... 166 41
State and city net operating losses.................... 365 --
Suspended charitable contributions..................... 453 --
Demutualization costs.................................. 447 --
Other.................................................. -- 103
-------- --------
1,587 537
-------- --------
Liabilities:
Unrealized gains on marketable securities.............. (297) --
Other.................................................. (102) (61)
-------- --------
(399) (61)
-------- --------
Total current net deferred tax assets....................... $ 1,188 $ 476
======== ========
Noncurrent
Assets:
Postretirement benefits................................ $ 3,262 $ 3,177
Deferred compensation.................................. 318 237
Suspended capital loss................................. -- 134
Suspended charitable contributions..................... 774 607
Federal net operating loss carryforwards............... 325 440
Demutualization costs.................................. 1,711 --
AMT credit carryforwards............................... 943 943
Market data reserve.................................... 229 --
Other.................................................. 103 98
-------- --------
7,665 5,636
-------- --------
Liabilities:
Depreciation and amortization............................. (18,422) (18,204)
-------- --------
Total noncurrent deferred tax liabilities................. (10,757) (12,568)
Less valuation allowance.................................. (118) --
-------- --------
Total net noncurrent deferred tax liabilities............... $(10,875) $(12,568)
======== ========
A valuation allowance of $118 was established in 2000 in accordance with
provisions of SFAS No. 109. The allowance has been established due to the
uncertainty of realizing certain tax loss carryforwards.
F-17
61
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. REDUCTION-IN-WORKFORCE
On August 1, 2000, the Company implemented a reduction-in-workforce program
resulting in the elimination of 10% of the Company's staff. These employees were
notified and terminated by the end of the year. This program was adopted in an
effort to establish a more cost-efficient business structure in response to
competition. These staff reductions encompassed various professional and
clerical positions throughout the Company. Restructuring and related costs
recorded in fiscal 2000 totaled $1.9 million pretax or $2,328 per share. $1.8
million of these charges were for severance payments to affected employees,
$100,000 of which is owed as of December 31, 2000. The remaining $100,000 of the
program's costs represents benefits payments made to employees for the rest of
the 2000 year.
12. SEGREGATED FUNDS
The Company is required under the Commodity Exchange Act to segregate cash
and securities that are deposited by clearing members at banks approved by the
Company as margin for house and customer accounts; such assets belong to members
and thus are not included in the accompanying consolidated financial statements.
At December 31, 2000 and 1999, $8,615 and $1,872,134 of cash, $5,435,298,000 and
$2,832,567,000 of U.S. Treasury obligations, and $111,970,000 and $24,200,000 of
U.S. Treasury bills purchased under agreements to resell, respectively, were
segregated pursuant to such regulations by the NYMEX Division. In addition, at
December 31, 2000 and 1999, the NYMEX Division held irrevocable letters of
credit amounting to $452,652,000 and $248,089,600, respectively, which are used
by members to meet their obligations to the Company for margin requirements on
both open futures and options positions, as well as delivery obligations in lieu
of depositing cash and/or securities. The Company invests cash deposits and
earns interest thereon. All income earned on deposits of U.S. government
securities accrue to the member firms depositing such securities.
At December 31, 2000 and 1999, the COMEX Division's segregated funds
consisted of $572 and $2,984,384 in cash, $507,545,000 and $763,650,000 in U.S.
Treasury bills, and $1,700,000 and $4,150,000 of U.S. Treasury bills purchased
under agreements to resell, respectively. The COMEX Division also holds
irrevocable letters of credit aggregating $30,450,000 and $89,650,000 as of
December 31, 2000 and 1999, respectively.
13. GUARANTY FUND
Each clearing member is required to maintain a security deposit, in the
form of cash or U.S. Treasury securities, ranging from $100,000 to $2,000,000,
depending upon such clearing member's reported regulatory capital, in a fund
known as a "Guaranty Fund" for the respective clearing division (NYMEX and/or
COMEX). Separate and distinct Guaranty Funds, held by the Company, are
maintained for the NYMEX and COMEX Divisions. These funds may be used by the
respective divisions for any loss sustained by the Company as a result of the
failure of a clearing member to discharge their obligations.
At December 31, 2000 and 1999, the total deposits maintained in the NYMEX
Division Guaranty Fund were $79,276,000 and $83,966,000, respectively. At
December 31, 2000 and 1999, the total deposits for the COMEX Division Guaranty
Fund were $77,812,000 and $76,944,141, respectively.
14. SEGMENT REPORTING
The Company has two operating segments: the NYMEX Division, providing
futures and options trading of energy product contracts and platinum group
metals contracts, and the COMEX Division, providing for futures and options
trading of precious metals contracts, copper and aluminum contracts, and FTSE
Eurotop 100(R) stock index futures and options and FTSE Eurotop 300(R) futures
contracts. At present, the Company does not consider enymex(SM) to be a business
segment. The Company believes this will be a segment to be
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62
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported on in 2001. enymex(SM) is an internet-based trading platform that will
be open to all clearing member approved participants. A summary by business
segment follows (in thousands):
NYMEX COMEX TOTAL
-------- ------- --------
Year Ended December 31, 2000
OPERATING REVENUES:
Clearing and transaction fees
Regular trading hours(1)............................... $ 80,986 $18,257 $ 99,243
NYMEX ACCESS(R)(2)..................................... 6,350 634 6,984
Market data fees.......................................... 18,566 15,056 33,622
Other..................................................... 4,540 207 4,747
Member fee rebates........................................ (13,727) -- (13,727)
-------- ------- --------
Total operating revenues.......................... $ 96,715 $34,154 $130,869
======== ======= ========
Year Ended December 31, 1999
OPERATING REVENUES:
Clearing and transaction fees
Regular trading hours(1)............................... $ 85,512 $24,313 $109,825
NYMEX ACCESS(R)(2)..................................... 7,420 1,026 8,446
Market data fees.......................................... 18,997 15,692 34,689
Other..................................................... 4,327 213 4,540
Member fee rebates........................................ (13,065) -- (13,065)
-------- ------- --------
Total operating revenues.......................... $103,191 $41,244 $144,435
======== ======= ========
Year Ended December 31, 1998
OPERATING REVENUES:
Clearing and transaction fees
Regular trading hours(1)............................... $ 73,199 $22,332 $ 95,531
NYMEX ACCESS(R)(2)..................................... 5,668 837 6,505
Market data fees.......................................... 18,864 15,994 34,858
Other..................................................... 4,196 765 4,961
Member fee rebates........................................ (11,272) -- (11,272)
-------- ------- --------
Total operating revenues.......................... $ 90,655 $39,928 $130,583
======== ======= ========
---------------
(1) Clearing and transaction fees generated from trading on the open outcry
system during regular business hours.
(2) Clearing and transaction fees generated from trading on the NYMEX ACCESS(R)
system.
15. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. Set forth below are
descriptions of legal proceedings and litigation to which the Company is a party
as of December 31, 2000. Although there can be no assurance as to the ultimate
outcome, the Company believes that it has a meritorious defense and will deny
liability in all significant cases pending against it, including the matters
described below, and intends to defend vigorously each such case. While the
ultimate result of the proceedings against the Company cannot be predicted with
certainty, it is the opinion of management, after consultation with outside
legal counsel, that the resolution of these matters, in excess of amounts
already recognized, will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
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63
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has been named as a defendant in the following legal actions:
Electronic Trading Systems Corporation v. New York Mercantile
Exchange. This action was originally filed in the United States District
Court for the Northern District of Texas (Dallas Division) and is now
pending in United States District Court for the Southern District of New
York. NYMEX Exchange was served with a summons and complaint on or about
May 10, 1999. This is a patent infringement case. Plaintiff alleges that it
is the owner of United States Patent No. 4,903,201 entitled "Automated
Futures Trade Exchange" and that NYMEX Exchange is infringing this patent
through use of its electronic trading system. Plaintiff seeks an
unspecified amount of royalties. On September 15, 2000, the Court granted
NYMEX Exchange's motion to sever and transfer venue to the Southern
District of New York. This case is in discovery. Mediation is pending in
this matter.
Enrique Rivera and Edith Rivera v. New York Mercantile Exchange, Mark
Kessloff, Les Faison, Brian Bartichek and John Does "1-10." This action is
pending in New York State Supreme Court (Bronx County). NYMEX Exchange was
served with the summons and complaint on or about April 22, 1999. This is
an ethnic discrimination case. Plaintiff alleges that throughout his
employment with NYMEX Exchange he was subjected to a hostile work
environment and discrimination regarding his ethnic origin. Plaintiff seeks
an unspecified amount of compensatory and punitive damages. The case is in
discovery.
Western Capital Design, LLC On Its Own Behalf and on behalf of those
similarly situated v. New York Mercantile Exchange and John Does
"1-50." This action is pending in United States District Court for the
Southern District of New York. NYMEX Exchange was served with the summons
and complaint on or about February 17, 1999. This action relates to alleged
wrongful conduct by NYMEX Exchange and certain members regarding the
execution of heating oil and natural gas options. Plaintiff alleges that
the prices it was charged for heating oil and natural gas options were
improper and that these improper transactions affected the market price at
which plaintiff transacted its trading. Plaintiff seeks compensatory
damages and $75,000,000 in punitive damages. This action was commenced in
State Court in Florida. It was removed to Federal Court by notice of
removal filed March 8, 1999. Venue was transferred to the Southern District
of New York by an order dated May 11, 1999. NYMEX Exchange's motion to
dismiss was filed on November 12, 1999 and granted on March 31, 2000. NYMEX
Exchange was served with an amended complaint on or about April 26, 2000.
NYMEX Exchange's motion to dismiss the amended complaint was granted and
the complaint was dismissed with prejudice on February 16, 2001.
Luxembourg Henry and Jose Terrero v. NY Mercantile Exchange. This action
is pending in New York State Supreme Court (New York County). NYMEX
Exchange was served with a summons and complaint on January 24, 2001.
Plaintiffs are former employees who were terminated as part of the 10%
reduction in force that occurred in July 2000. Plaintiffs allege harassment
and discrimination because of race (Henry) and national origin (Terrero)
and that they were improperly terminated. Henry seeks reinstatement to his
former position; compensatory damages in the amount of $9,320,000 for lost
wages, fringe benefits and emotional distress; and costs and disbursements.
Terrero seeks reinstatement to his former position; compensatory damages in
the amount of $4,500,000 for lost wages, fringe benefits and emotional
distress and costs and disbursements. NYMEX Exchange served its answer on
February 13, 2001.
The Company occupies premises under leases with various lessors which
expire in 2001 through 2069. For the years ended December 31, 2000, 1999 and
1998, rental expense for the premises amounted to
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64
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,019,950, $1,998,996 and $2,242,665, respectively. At December 31, 2000, the
Company was obligated for future minimum rental payments required under the
noncancelable terms of various leases as follows:
(IN
THOUSANDS)
2001........................................................ $ 1,640
2002........................................................ 1,506
2003........................................................ 1,506
2004........................................................ 1,756
2005........................................................ 2,070
2006 and thereafter......................................... 13,264
-------
Total............................................. $21,742
=======
The Company began sub-leasing space in its headquarters during 1997. Rents
earned from these rentals were $3,385,882, $3,159,875 and $1,879,656 during
2000, 1999 and 1998, respectively.
The leases on the Company's corporate headquarters, as well as the back-up
data center, include scheduled base rent increases over the term of the lease.
The total amount of the base rent payments is being charged to expense on the
straight-line method over the term of the lease. The Company has recorded a
deferred credit to reflect the excess of rent expense over cash payments since
inception of the lease.
In 1994, the Company entered into a Letter of Intent with Battery Park City
Authority ("BPCA"), the New York City Economic Development Corporation ("EDC"),
and the Empire State Development Corporation ("ESDC," formerly called the New
York State Urban Development Corporation) to construct a new trading facility
and office building on a site in Battery Park City. By agreement dated May 18,
1995, EDC and ESDC agreed to provide funding of $128.7 million to construct the
facility. The Company is liable for liquidated damages on a declining scale,
with an initial maximum of up to $75 million, if it violates terms of the
occupancy agreement at any time prior to the 15 years from the date of
occupancy.
In May 1995, the Company signed a ground lease (expiring June 2069) with
BPCA for the new trading facility. The lease establishes payments in lieu of
taxes ("PILOTs") due to New York City, as follows: for the trading portion of
the facility, PILOTs are entirely abated for the first 20 years after occupancy
and, thereafter, at an amount equal to assessment; for the office portion of the
facility, PILOTs are entirely abated for one year after occupancy, at a
percentage of assessment (ranging from 25% to 92.5%) for the next 10 years and,
thereafter, at an amount equal to assessment. Sub-let space is not eligible for
abatements.
EMPLOYMENT AGREEMENTS
The Company has an employment and compensation agreement with one of its
executive officers. This agreement provides for the named officer to earn a
minimum of $500,000 per year through 2003. In addition to the stated annual
salary, the executive shall have the opportunity to receive an annual bonus in
an amount to be determined by the Board of Directors, but in no event less than
$250,000 per year.
16. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following are descriptions of material transactions involving the
Company and its directors:
Pioneer Futures, Inc., of which the Chairman of the Board of the Company is
the sole shareholder, currently leases from the Exchange approximately 41,768
square feet of space at the One North End facility. Pioneer has nine leases as
follows: (1) 5,019 square feet expiring on November 2, 2002; (2) 10,360 square
feet expiring on December 4, 2002; (3) 2,840 square feet expiring on December
15, 2002; (4) 561 square feet
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65
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expiring on January 1, 2003; (5) 1,372 square feet expiring on June 1, 2003; (6)
792 square feet expiring on August 1, 2003; (7) 1,213 square feet expiring on
September 1, 2003; (8) 718 square feet expiring on December 1, 2003; (9) 18,893
square feet expiring on July 1, 2005. The current aggregate annual rent for
these spaces is $1,601,162.
Sterling Commodities Corp., of which a Company board member is president,
currently leases from the Exchange approximately 6,253 square feet of space at
the One North End facility. The lease expires on November 23, 2002. The current
annual rent for this space is $225,108. The president's father is CEO and 100%
owner of the company.
Genesis 10, of which a Company board member is the founder and chief
executive officer, is an information technology consulting firm. This board
member owns 90% of the equity interest of Genesis 10. In addition, the Company
has entered into a written contractual relationship with Genesis 10 under which
Genesis 10 provides the services of one temporary Senior Developer/Architect.
Approximately $395,000 has been paid by the Company to Genesis 10 for services
rendered from October 1999 to the present. Furthermore, if the Senior
Developer/Architect is hired on a permanent basis, the Exchange will be
obligated to pay Genesis 10 a fee of 30% of annual compensation.
Seat Financing Program
The Company has provided financial guarantees and pledged collateral
relating to a membership seat financing program with one of its banks. Pursuant
to the program, the member remains primarily liable for the loan which is used
to purchase an interest in the Company. The Company's guarantee is limited to
the lesser of $500,000 or 50% of the purchase price of the membership interest,
and the Company has the right to liquidate the interest if the member defaults
on the loan. Under the program, the Company may issue guarantees totaling, in
the aggregate, up to $11 million. As of March 10, 2001, the following directors
had loan balances relating to this program of greater than $60,000: Robert
Coakley ($322,910) and Stephen Karvellas ($232,750).
17. SUBSEQUENT EVENT
The assets of the NYMEX Division Members' Retention and Retirement Plan
held in a trust were distributed in January 2001. The value of the assets and
related liability, as of December 31, 2000 was $33.2 million and is classified
as a current liability on the Consolidated Balance Sheet.
F-22
66
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
2000
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Quarter Ended
----------------------------------------------------
Volumes
NYMEX Division...................................... 22,463 22,055 22,514 21,689
COMEX Division...................................... 4,828 4,072 3,240 3,213
Summarized financial data
Net revenues........................................ $34,637 $32,425 $32,819 $30,988
Income (loss) from operations....................... 2,597 (4,021) (4,739) (1,395)
Provision (benefit) for income taxes................ 1,417 (3,910) (2,051) 1,404
Net income (loss)................................... 1,535 (1,970) (1,898) (448)
Net income (loss) per common share.................. 1,881 (2,414) (2,326) (549)
Dividends per common share.......................... -- -- -- --
Common stock prices
High.............................................. $725,000 $650,000 $700,000 $700,000
Low............................................... $600,000 $550,000 $601,000 $650,000
Note: On November 17, 2000, the Company's demutualization transaction was
completed. Each existing NYMEX Division membership was exchanged for a
share of common stock and a Class A membership in NYMEX Exchange. Common
stock prices presented for the quarters in 1999 and through the third
quarter of 2000 relate to membership interests, not common stock.
1999
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Quarter Ended
----------------------------------------------------
Volumes
NYMEX Division...................................... 20,636 22,138 24,278 22,137
COMEX Division...................................... 5,085 5,005 5,482 4,777
Summarized financial data
Net revenues........................................ $35,098 $35,701 $38,188 $35,448
Income from operations.............................. 7,038 6,918 8,847 2,069
Provision (benefit) for income taxes................ 3,089 2,600 4,098 (884)
Net income.......................................... 3,346 2,816 4,440 1,588
Net income per common share......................... 4,100 3,451 5,441 1,947
Dividends per common share.......................... -- -- -- --
Common stock prices
High.............................................. $600,000 $610,000 $580,000 $630,000
Low............................................... $565,000 $570,000 $551,000 $567,000
F-23