1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
NYMEX HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 333-30332 13-4098266
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE NORTH END AVENUE, WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10282-1101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 299-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 [ ]
As of May 15, 2001, 816 shares of the Registrant's common stock, par value
$0.01 per share, were outstanding. As described in this report, the Registrant
and its wholly owned subsidiary, New York Mercantile Exchange, Inc., succeeded
to the business and operations of the New York Mercantile Exchange upon
consummation of a demutualization transaction that took place on November 17,
2000. None of the stock of the Registrant is listed for trading on any stock
exchange or included in any automated quotation system. New York Mercantile
Exchange, Inc., has 816 Class A memberships outstanding, representing trading
privileges. The sole Class B membership represents an economic interest in New
York Mercantile Exchange, Inc., which is held by the Registrant.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2
TABLE OF CONTENTS
PAGE
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 3
Unaudited Condensed Consolidated Statements of Operations
And Accumulated Deficit/Members' Equity for the Three Months
Ended March 31, 2001 and March 31, 2000..................... 3
Unaudited Condensed Consolidated Balance Sheets at March 31,
2001 and December 31, 2000.................................. 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2001 and March 31,
2000........................................................ 5
Notes to Unaudited Condensed Consolidated Financial
Statements for the Three Months Ended March 31, 2001 and
March 31, 2000.............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 17
PART II: OTHER INFORMATION
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities and Use of Proceeds................... 19
Item 3. Defaults Upon Senior Securities............................. 19
Item 4. Submission of Matters to a Vote of Security Holders......... 19
Item 5. Other Information........................................... 20
Item 6. Exhibits and Reports on Form 8-K............................ 20
Signatures............................................................. 21
PRELIMINARY STATEMENT: A registration statement on Form S-4 with respect
to the Registrant's common stock, was declared effective on May 12, 2000. On
November 17, 2000, the New York Mercantile Exchange converted from a New York
not-for-profit membership association to a Delaware for-profit stock
corporation. On April 24, 2001, the registrant filed a Form 8-A and registered
its 816 shares of stock under the Securities Exchange Act of 1934, as amended.
2
3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT/MEMBERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT FOR 2001
AND PER NYMEX DIVISION MEMBERSHIP AMOUNT FOR 2000)
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------
Operating Revenues:
Clearing and transaction fees, net of member fee
rebates................................................ $23,740 $25,148
Market data fees.......................................... 8,263 8,338
Other, net of rebates..................................... 1,602 1,151
------- -------
Total operating revenues............................... 33,605 34,637
------- -------
Operating Expenses:
Salaries and employee benefits............................ 11,690 11,609
General and administrative................................ 4,249 3,792
Professional services..................................... 4,105 3,984
Rent and facility......................................... 4,086 3,657
Telecommunications, equipment rentals and maintenance..... 3,943 3,428
Depreciation and amortization of property and equipment,
net of deferred credit amortization.................... 3,821 3,222
Demutualization expenses.................................. -- 336
Other..................................................... 2,793 2,012
------- -------
Total operating expenses............................... 34,687 32,040
(Loss) Income from Operations............................... (1,082) 2,597
Other Income (Expenses):
Investment income, net.................................... 1,725 2,283
Interest expense.......................................... (1,928) (1,928)
------- -------
(Loss) Income before benefit (provision) for
Income Taxes.............................................. (1,285) 2,952
Benefit (provision) for income taxes........................ 456 (1,417)
------- -------
Net (loss) Income........................................... (829) 1,535
Retained earnings/members' equity, beginning of period...... 244 93,202
Less net transfer to members' retention program:
NYMEX Division............................................ -- (490)
COMEX Division............................................ -- (254)
------- -------
Accumulated deficit/members' equity, end of period.......... $ (585) $93,993
======= =======
Net (loss) income per share/per NYMEX Division membership
(based on 816 shares/NYMEX Division memberships).......... $(1,016) $ 1,881
======= =======
The accompanying notes are an integral part of these statements.
3
4
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000(1)
--------- ------------
ASSETS
Cash and cash equivalents................................... $ 15,036 $ 32,979
Marketable securities, at market (cost of $58,788 at March
31, 2001 and $75,637 at December 31, 2000)................ 60,734 77,628
Other current assets........................................ 20,915 20,559
-------- --------
Total current assets.............................. 96,685 131,166
Property and equipment, net................................. 225,639 224,547
Goodwill, net............................................... 17,944 18,482
Other assets................................................ 12,848 12,943
-------- --------
Total Assets...................................... $353,116 $387,138
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
NYMEX Division members' retention program................... $ -- $ 33,221
Accounts payable and other current liabilities.............. 15,088 16,173
Accrued interest payable.................................... 3,840 1,920
Deferred credit -- grant for building construction.......... 2,145 2,145
Notes payable -- short term................................. 2,815 2,815
-------- --------
Total current liabilities......................... 23,888 56,274
Notes payable............................................... 97,185 97,185
Deferred credit -- grant for building construction.......... 118,498 119,035
Other non-current liabilities............................... 20,449 20,772
Subordinated commitment -- members' retention program....... 9,266 9,213
-------- --------
Total liabilities................................. 269,286 302,479
-------- --------
COMMITMENTS AND CONTINGENCIES (See Note 8)
STOCKHOLDERS' EQUITY:
Common stock, at $0.01 par value, 816 shares authorized,
issued and outstanding.................................... -- --
Additional paid-in capital.................................. 84,415 84,415
Accumulated deficit/Retained earnings....................... (585) 244
-------- --------
Total stockholders' equity........................ 83,830 84,659
-------- --------
Total Liabilities and Stockholders' Equity........ $353,116 $387,138
======== ========
---------------
(1) The amounts as of December 31, 2000 have been derived from the audited
consolidated financial statements of NYMEX Holdings, Inc. and subsidiaries.
The accompanying notes are an integral part of these statements.
4
5
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- -------
Cash Flows From Operating Activities:
Net (loss) income......................................... $ (829) $ 1,535
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and
equipment, net of deferred credit amortization...... 3,821 3,222
Amortization of goodwill............................. 538 538
Deferred income taxes................................ (378) --
Loss on disposition of property and equipment........ 24 --
Net changes in operating assets and liabilities...... 17,481 (6,019)
-------- -------
Net cash provided by (used in) operating
activities....................................... 20,657 (724)
-------- -------
Cash Flows From Investing Activities:
Capital expenditures...................................... (5,474) (2,148)
Decrease in other assets.................................. 95 28
-------- -------
Net cash used in investing activities............. (5,379) (2,120)
-------- -------
Cash Flows From Financing Activities:
Distributions under NYMEX Division members' retention
program................................................ (33,221) (287)
-------- -------
Cash used in financing activities................. (33,221) (287)
-------- -------
Net Decrease in Cash and Cash Equivalents................... (17,943) (3,131)
Cash and Cash Equivalents, Beginning of Year................ 32,979 36,592
-------- -------
Cash and Cash Equivalents, End of Period.................... $ 15,036 $33,461
======== =======
Supplemental Information:
Cash paid for:
Interest............................................. $ -- $ --
======== =======
Income taxes......................................... $ -- $ --
======== =======
Non-cash members' equity transaction -- transfer to
subordinated commitment -- members' retention program:
NYMEX Division....................................... $ -- $ 490
======== =======
COMEX Division....................................... $ -- $ 254
======== =======
The accompanying notes are an integral part of these statements.
5
6
NYMEX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND MARCH 31, 2000
1. DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- NYMEX Holdings, Inc. ("NYMEX Holdings") was
incorporated in 2000 as a Delaware for-profit stock corporation, and is the
successor to the New York Mercantile Exchange, which was first established as
the Butter and Cheese Exchange in 1872. 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 New York Mercantile Exchange demutualized on November 17, 2000 at which
time the book value of the assets and liabilities of the New York Mercantile
Exchange carried over to NYMEX Exchange. Upon consummation of the
demutualization transaction, all of the assets and liabilities of NYMEX Exchange
were consolidated into the parent company, NYMEX Holdings. NYMEX Holdings has
the right to pay dividends.
NYMEX Exchange is the largest exchange in the world for the trading of
energy futures and options contracts, including contracts for crude oil,
gasoline, 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.
As a company that 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 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 who would be available to cover financial nonperformance (See
Notes 5 and 6). 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 unaudited condensed consolidated
financial statements of NYMEX Holdings and subsidiaries have been prepared in
accordance with Accounting Principles Board Opinion No. 28 and Rule 10-01 of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC"). These are unaudited condensed consolidated financial statements and do
not include all necessary disclosures required for complete financial
statements.
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the Company's
financial position, results of operations and cash flows for the dates and
interim periods covered. Interim period operating results may not be indicative
of the operating results for a full year. This information should be read in
conjunction with the audited consolidated financial statements and notes thereto
as of December 31, 2000 and 1999 and for each year in the three-year period
ended December 31, 2000.
The preparation of the accompanying condensed consolidated financial
statements and related notes in conformity with accounting principles generally
accepted in the United States of America requires manage-
6
7
ment 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.
Certain reclassifications have been made to the prior year amounts to
conform to the current presentation. All intercompany balances and transactions
have been eliminated in consolidation.
Prior to its demutualization, the New York Mercantile Exchange accounted
for the contributions to the NYMEX and COMEX Divisions' members' retention
programs as transfers from members' equity to subordinated commitments. After
the demutualization, such contributions and related earnings are accounted for
as expenses.
During the fourth quarter of 2000, the Company changed its estimated useful
life for an internally developed software project from five years to three
years. The Company changed its estimate based upon management's belief that a
three-year estimated useful life provides a better matching of costs and
revenues. At that time, the Company did not deem this change in estimate to be
material, and as such, did not effect prior year comparability and was not
reported in the Company's annual report. Management believes this change in
estimate has a material effect on the period ended March 31, 2001 comparability.
The effect of this change in estimate for the period ended March 31, 2001 was to
increase the net loss by approximately $385,000, or $472 per share.
For a summary of significant accounting policies (which have not
significantly changed from December 31, 2000 -- see note 2 to the unaudited
condensed consolidated financial statements) and additional information, see
note 1 to the audited December 31, 2000 financial statements which were filed
with the SEC in the Company's Form 10-K on March 29, 2001.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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. 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 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 adopted the provisions of SFAS No. 140 that
relate to disclosures of securitization transactions and collateral in the
preparation of its condensed consolidated financial statements for the quarter
ended March 31, 2001. The Company adopted the remaining provisions of SFAS No.
140 as required on April 1, 2001. Upon adoption, SFAS No. 140 had no impact on
the Company's financial position or results of operations.
7
8
3. COLLATERALIZATION
At March 31, 2001 and 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 are held in custody by, its banks. The
fair value of such collateral at March 31, 2001 and December 31, 2000 was
approximately $13,001,000 and $30,108,000, respectively.
4. REVENUE REBATE AND FEE REDUCTION PROGRAM
Effective January 1, 1996, the Company adopted a fee rebate program, which
substantially reduces clearing fees for the NYMEX Division members. The board of
directors approved a 50% reduction in the rebate, effective January 1, 2001.
Rebates under this program totaled $1.6 million and $3.3 million for the three
months ended March 31, 2001 and March 31, 2000, respectively. Clearing and
transaction fees are presented in the unaudited condensed consolidated
statements of operations and accumulated deficit/ members' equity, net of these
rebates.
The Company also adopted several incentive programs for members for the
purpose of reducing various operating costs. These incentive programs totaled
$498,000 and $446,000 for the three months ended March 31, 2001 and March 31,
2000, respectively. Other revenues are presented in the unaudited condensed
consolidated statements of operations and accumulated deficit/members' equity
net of fee reductions related to these programs.
5. 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. These assets belong to the
clearing member firms and are not included in the accompanying unaudited
condensed consolidated financial statements. At March 31, 2001 and 2000,
$922,081 and $15,499 of cash, $3,286,609,900 and $3,695,342,300 of U.S. Treasury
obligations and $22,300,000 and $25,540,000 of U.S. Treasury obligations
purchased under agreements to resell, respectively, were segregated pursuant to
such regulations by the NYMEX Division. In addition, at March 31, 2001 and 2000,
the NYMEX Division held irrevocable letters of credit amounting to $166,252,000
and $193,650,000, respectively, which are used by clearing 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
clearing member firms depositing such securities.
At March 31, 2001 and 2000, the segregated funds of the Company's COMEX
Division consisted of $126,978 and $2,786,455 in cash, $525,239,000 and
$1,025,580,000 in U.S. Treasury obligations and $1,640,000 and $8,435,000 of
U.S. Treasury obligations purchased under agreements to resell, respectively.
The COMEX Division also held irrevocable letters of credit aggregating
$22,500,000 and $85,050,000 as of March 31, 2001 and 2000, respectively.
6. GUARANTY FUNDS
Each clearing member firm 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 firm's reported regulatory
capital, in a fund known as a "Guaranty Fund" for the respective clearing
division (NYMEX Division and/or COMEX Division). Separate and distinct Guaranty
Funds, held by the Company, are maintained for the NYMEX and COMEX Divisions.
These funds may be used by the Company for any loss sustained by the Company as
a result of the failure of a clearing member firm to discharge its obligations.
At March 31, 2001 and 2000, the total deposits maintained in the NYMEX
Division Guaranty Fund were $79,681,000 and $81,672,950, respectively. At March
31, 2001 and 2000, the total deposits for the COMEX Division Guaranty Fund were
$77,393,000 and $79,119,500, respectively.
8
9
7. 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 futures and options trading
of precious metals contracts, copper and aluminum contracts, FTSE Eurotop 100(R)
stock index futures and options contracts, and FTSE Eurotop 300(R) stock index
futures contracts. A summary of operating revenues by business segment follows
(in thousands):
NYMEX DIVISION COMEX DIVISION TOTAL
-------------- -------------- -------
Three Months Ended March 31, 2001
Operating Revenues:
Clearing and transaction fees
Regular trading hours(1)..................... $18,540 $5,020 $23,560
NYMEX ACCESS(R)(2)........................... 1,578 154 1,732
Member fee rebates........................... (1,552) N/A (1,552)
Market data fees................................ 4,537 3,726 8,263
Other, net of rebates........................... 1,562 40 1,602
------- ------ -------
Total operating revenues................ $24,665 $8,940 $33,605
======= ====== =======
Three Months Ended March 31, 2000
Operating Revenues:
Clearing and transaction fees
Regular trading hours(1)..................... $21,105 $5,565 $26,670
NYMEX ACCESS(R)(2)........................... 1,530 247 1,777
Member fee rebates........................... (3,299) N/A (3,299)
Market data fees................................ 4,469 3,869 8,338
Other, net of rebates........................... 1,130 21 1,151
------- ------ -------
Total operating revenues................ $24,935 $9,702 $34,637
======= ====== =======
---------------
(1) Clearing and transaction fees generated from trading on the open outcry
system during regular trading hours.
(2) Clearing and transaction fees generated from trading on NYMEX ACCESS(R) (the
Company's electronic trading system).
8. 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 March 31, 2001. 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.
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
the 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
9
10
"Automated Futures Trade Exchange" and that NYMEX Exchange is infringing
this patent through the 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."
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 then 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. On or
about March 26, 2001, a Notice of Appeal was served on NYMEX Exchange.
- Luxembourg Henry and Jose Terrero v. NY Mercantile Exchange. This action
is pending in New York State Supreme Court (Kings 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. On March 30, 2001 the
parties entered into a stipulation to discontinue the action without
prejudice, and if the action is re-commenced, it will be brought in
Supreme Court, New York County. The stipulation was filed with the court
on April 4, 2001.
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE/PER NYMEX DIVISION
MEMBERSHIP AND STATISTICAL DATA)
INTRODUCTION
This discussion summarizes the significant factors affecting the results of
operations and financial condition of the Company during the three months ended
March 31, 2001. This discussion is provided to increase the understanding of,
and should be read in conjunction with, the unaudited condensed consolidated
financial statements, accompanying notes and tables included in this quarterly
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-Q may
constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company has tried, 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-Q, in the Company's other filings with the SEC, or in
materials incorporated therein by reference.
OVERVIEW
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 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
The New York Mercantile Exchange demutualized on November 17, 2000 at which
time the book value of the assets and liabilities of the New York Mercantile
Exchange carried over to NYMEX Exchange. Upon
11
12
consummation of the demutualization transaction, all of the assets and
liabilities of NYMEX Exchange were consolidated into the parent company, NYMEX
Holdings. NYMEX Holdings has the right to pay dividends.
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
RESULTS OF OPERATIONS
The Company reported a net loss of $829, which was a loss of $1,016 per
share and represented a decline of $2,364, or 154%, compared to the profit
registered in the first quarter of 2000. This decline was primarily the result
of the following factors:
- a decrease in volume on cleared contracts on both the NYMEX and COMEX
Divisions, primarily due to reduced trading in the natural gas and gold
contracts;
- additional allowances for uncollectible amounts were recorded due to the
bankruptcy filing of a large market data service provider; and
- change in estimate of the useful life for amortization of an internally
developed software project.
The following discussion provides additional information about the
components of the Company's operating results for the first quarter of 2001:
Revenues
Total operating revenues were $33,605 in the first quarter of 2001, down
$1,032, or 3%, from the same period in 2000.
Clearing and transaction fees represent the core business of the Company
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; and
- national and international economic and political conditions.
In the first quarter of 2001, clearing and transaction fees, net of member
fee rebates, were $23,740 compared to $25,148 earned during the same quarter
last year. This 6% decrease was the result of a decline in trading volume on
both the NYMEX and COMEX Divisions which was offset by a board-approved 50%
reduction in NYMEX Division clearing and transaction member fee rebate rates.
Member fee rebates, which apply only to NYMEX Division members, amounted to
$1,552 and $3,299 for the three months ended March 31, 2001 and 2000,
respectively.
The NYMEX Division's clearing and transaction fees, net of member fee
rebates, were $18,566 in the first quarter of 2001, down 4% from the 2000
comparable period. The overall trading volume for the NYMEX Division decreased
during the first quarter of 2001 when compared with the same period a year ago.
- Natural gas commodity trading volume fell 22% compared with the first
quarter of 2000. The Company believes that as a result of unprecedented
price levels, volume was affected due to the higher trading costs,
including margins, volatility and increased risk associated with trading
natural gas.
- Crude oil commodity trading volume, the Company's largest traded
contract, decreased by 5% during the first quarter of 2001 when compared
with the same quarter a year ago. Consolidation in the oil and gas
industry due to mergers and acquisitions of oil companies contributed to
this decline. In addition, the Organization of Petroleum Exporting
Countries' production levels have led to more stable pricing in crude oil
compared to a year ago.
12
13
The COMEX Division's clearing and transaction fees were $5,174 in the first
quarter of 2001, down 11% from the 2000 comparable period. Trading volume
significantly decreased in the COMEX Division's gold and silver contracts.
- Gold commodity trading volume, the COMEX Division's most active contract,
declined by 15%. The Company believes that increasing supplies of gold as
well as the absence of inflationary concerns have caused investor demand
for this metal to decrease; correspondly, the need for hedging gold
investments has also decreased.
- Silver commodity trading volume fell 32%. The Company believes that this
decrease is due to a slowing economy and expectations that supply would
outpace demand for this commodity.
Market data fee revenue, which represented 25% of the Company's total
operating revenues for the first quarter of 2001, remained virtually unchanged
as compared with the same quarter a year ago.
Operating Expenses
Total operating expenses were $34,687 during the first quarter of 2001, up
8% from the comparable period in 2000.
Salaries and employee benefits, which constitute 34% of total operating
expenses for the first quarter of 2001, remained virtually unchanged. Annual
merit increases were offset by savings from the Reduction-in-Workforce plan
implemented last year.
General and administrative expenses increased by $457 during the first
quarter of 2001, up 12% from the comparable period in 2000. Additional
allowances were recorded during the first quarter of 2001 resulting from the
bankruptcy filing of a large market data service provider.
Professional services, while increasing only $121, or 3%, during the first
quarter of 2001 over the same quarter a year ago, continue to remain
historically high. Consulting services rendered on the Company's e-commerce
initiatives contributed to the increase during the first quarter of 2001 over
the same quarter a year ago.
Rent and facility expenses increased by $429, or 12%, during the first
quarter of 2001 compared to the same period in 2000. Higher utility costs due to
the significant rise in energy prices make up the majority of this increase.
This trend is expected to continue during the second quarter of 2001, as utility
rates remain substantially higher than last year's.
Telecommunications, equipment rentals and maintenance increased by $515, or
15%, during the first quarter of 2001 compared to the same quarter last year.
This increase is principally attributable to the Company's increased support for
the NYMEX ACCESS(R) system, its electronic trading platform; specifically,
additional electronic trading terminals were deployed as part of an incentive
program.
Depreciation and amortization of property and equipment, net of deferred
credit amortization, increased by $599, or 19%, in the first quarter of 2001
when compared to the same quarter in 2000. This increase, which is expected to
continue throughout the remainder of the year, is the result of management's
decision to lower the estimated useful life of an internally developed software
project from five years to three years during the fourth quarter of 2000. This
change in estimate is based on management's belief that this software has a
shorter useful life due to advances in technology.
Other expenses increased by $781, or 39%, during the first quarter of 2001
compared to the same period in 2000. This is primarily the result of the change
in accounting presentation for the funding of, and earnings on, the COMEX
members' retention and retirement program. Prior to the demutualization in
November 2000, all earnings and contributions on this plan were presented as a
transfer from members' equity.
Other Income
Investment income, net of investment advisory fees, decreased by $558, or
24%, during the first quarter of 2001 when compared to the same quarter in 2000.
Unrealized losses on equity holdings are the primary reason
13
14
for the decline in investment income, as the equity market experienced a
significant downturn during this quarter.
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. Capital investments were 155% higher during the first quarter of 2001
when compared with the comparable quarter a year ago. A total of $5,474 was
invested in capital expenditures during the first quarter of 2001 as the Company
continued to update and enhance its computer software applications. The Company
had $75,770 in cash, cash equivalents and marketable securities at March 31,
2001.
Cash Flow
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- -------
(IN THOUSANDS)
Net cash provided by (used in):
Operating activities...................................... $ 20,657 $ (724)
Investing activities...................................... (5,379) (2,120)
Financing activities...................................... (33,221) (287)
-------- -------
Net decrease in cash and cash equivalents................... $(17,943) $(3,131)
======== =======
Working Capital
AT MARCH 31, AT DECEMBER 31,
2001 2000
------------ ---------------
(IN THOUSANDS)
Current assets.............................................. $96,685 $131,166
Current liabilities......................................... 23,888 56,274
------- --------
Working capital........................................... $72,797 $ 74,892
======= ========
Current ratio............................................... 4.05:1 2.33:1
Current assets at March 31, 2001 decreased by $34,481, or 26%, from
year-end 2000 primarily as a result of cash payments for the liquidation of the
NYMEX members' retention program. The primary changes in current assets
consisted of a decrease of $16,894 in marketable securities, most of which was
used in the payoff of the plan, and a $17,943, or 54%, decrease in cash and cash
equivalents, also for cash payments made in the January 2001 plan payout.
Current liabilities at March 31, 2001 decreased by $32,386, or 58%, from
year-end 2000, primarily as a result of the termination distribution of the
NYMEX Division members' retention program. This liability of $33,221 was settled
in January 2001. Offsetting this decrease was an increase in interest payable of
$1,920, or 100%, which represents three more months of interest on outstanding
debt.
Future Cash Requirements
As of March 31, 2001, the Company had long-term debt of $97,185 and
short-term debt of $2,815. This debt consisted of the following:
- $31,000 of 7.48% notes, of which $2,815 is short term, 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.
14
15
The Company would incur a redemption premium should it choose to pay off
any series issue prior to its maturity. These notes contain certain limitations
on the Company's ability to incur additional indebtedness.
The Company believes that its cash flows from operations will be sufficient
to meet its needs for the foreseeable future, including capital and operating
expenditures associated with the development and launch of enymex(SM). In
addition, the Company has the ability, and may seek, to raise capital through
issuances of debt or equity in the private and public capital markets. Since
becoming a for-profit entity, the Company considers, on an ongoing basis, cost
containment measures in an effort to ensure fiscal stability.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, 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 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. 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, 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 condensed consolidated financial statements for the three
months ended March 31, 2001. The Company adopted the remaining provisions of
SFAS No. 140 on April 1, 2001, as required. Upon adoption, SFAS No. 140 had no
impact on the Company's financial position or results of operations.
RECENT DEVELOPMENTS
On March 20, 2001, the stockholders of NYMEX Holdings elected a chairman
and seven (7) directors at the annual meeting. They elected Vincent Viola as
chairman of the board with 476 votes. The following individuals were also
elected to the Company's board of directors and won with the following number of
affirmative votes: Gordon Rutledge (272), Madeline Boyd (307), Gary Rizzi (363),
J. Robert Collins (440), Kenneth Garland (206), Robert Steele (380), and Harley
Lippman (182). The following directors term of office continued after the annual
meeting: Mitchell Steinhause, Richard Schaeffer, Robert Coakley, John Conheeney,
Anthony George Gero, David Greenberg, E. Bulkeley Griswold, Jesse Harte, Scott
Hess, Steven Karvellas, Kevin McDonnell and Richard Saitta. There are currently
two (2) vacant director positions on the board.
Additionally, at the annual meeting, the stockholders passed a resolution
by a vote of 469 in favor of, 84 against, to add three (3) new equity holder
representatives to the board. The Board of Directors of the Company is presently
comprised of 22 directors. A special meeting of NYMEX Holdings stockholders has
been scheduled for May 23, 2001 to fill three (3) new equity holder positions
and two (2) current vacancies on the board.
enymex(SM) is the Company's e-commerce initiative which the Company
believes will become the premier, global exchange for trading and clearing a
number of physical commodity based products. The Company has an agreement in
place with Kiodex, Inc., an application service provider of commodity and
derivatives risk
15
16
management solutions, to use its trade engine platform as the order matching
system for enymex(SM). On February 14, 2001, the Company signed an agreement
with GlobalView Software, Inc. to develop the infrastructure for the customer
interface. In March 2001, integration testing of the enymex(SM) system
commenced; however, due to performance issues under the contract, the Company
terminated its relationship with GlobalView Software, Inc. and on April 27, 2001
filed a breach of contract suit in New York State Supreme Court. The Company is
presently evaluating its short-term options with respect to replacing the
affected interface and the anticipated launch date has been delayed from the
second quarter until sometime this summer. In addition, the Company retained
Accenture in 2000 to assist in the project management and to act as an overall
systems integrator for the project. The Company has determined to transfer these
responsibilities to internal Company resources and anticipates that Accenture
will cease to perform its responsibilities in May 2001.
The Company continues to discuss with several potential alliance partners
to provide third-party connectivity to enymex(SM), content and pricing
information for the enymex(SM) web site and clearing services to external
organizations. On May 8, 2001, an agreement was signed with Platts, a division
of the McGraw-Hill Companies, Inc., to enable the Company to license certain
Platts and related affiliates energy and metals products for use with the
development of new products, including products slated to be traded on
enymex(SM).
On April 11, 2001, the Company announced that it intended to develop a
Brent Blend crude oil futures contract. This new contract will be cash-settled
based on an index currently under consideration by the Company and its crude oil
advisory committee, a committee of market participants. On April 17, 2001, the
Company announced that all clearing and exchange fees for the first year of
trading will be waived and that the Company will offer rebates on offsetting
light, sweet crude oil futures contracts. The Company expects to launch this
product in the latter part of this year.
On April 11, 2001, the Company announced its decision to cease trading the
Middle East Sour Crude oil futures contract effective immediately. The contract
was available only on the NYMEX ACCESS(R) system.
RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the preparation, integrity and objectivity of
the unaudited condensed consolidated financial statements and related notes, and
the other financial information contained in this quarterly report. 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 financial position, results of
operations and cash flows. These unaudited condensed consolidated financial
statements include some amounts that are based on management's best estimates
and judgements, giving due consideration to materiality.
16
17
ITEM 3. 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).
PRINCIPAL AMOUNTS BY EXPECTED MATURITY
AT MARCH 31, 2001
TOTAL FAIR MARKET
2006 PRINCIPAL VALUE AS OF
AND CASH MARCH 31,
2001 2002 2003 2004 2005 THEREAFTER FLOWS 2001
------ ------ ------ ------ ------ ---------- --------- -----------
Government Bonds, Federal Agency
Issues............................. $ -- $ -- $ -- $ -- $1,578 $ -- $ 1,578 $ 1,604
Weighted average interest rate....... -- -- -- -- 7.00% --
Municipal Bonds...................... 1,287 2,773 1,535 7,197 7,124 32,311 52,227 55,065
Weighted average interest rate....... 5.60% 6.28% 4.47% 4.83% 4.70% 4.62%
------ ------ ------ ------ ------ ------- ------- -------
Total Portfolio, excluding equity
Securities......................... $1,287 $2,773 $1,535 $7,197 $8,702 $32,311 $53,805 $56,669
====== ====== ====== ====== ====== ======= ======= =======
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
------ ------ ------ ------ ------ ---------- --------- ------------
Government Bonds, Federal Agency
Issues............................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Weighted average interest rate...... -- -- -- -- -- --
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
====== ====== ====== ====== ====== ======= ======= =======
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 the near term and
are classified as trading securities. Unrealized gains and losses are included
in earnings. For the three months ended March 31, 2001 and the year ended
December 31, 2000, the Company had net investment income of $1.7 million and
$9.4 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 March 31, 2001 and December 31, 2000 was $61 million and $78
million. The change in fair value, using a hypothetical 10% decline in prices,
is estimated to be a $6.1 million and $7.8 million loss for March 31, 2001 and
December 31, 2000, respectively. The Company also invests in U.S. government
securities and reverse 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 condensed consolidated balance sheets.
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
17
18
should choose to refinance this debt. Management has not deemed it necessary to
employ any market or interest rate 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.
18
19
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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." 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 then 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. On or about March 26, 2001, a Notice of Appeal
was served on NYMEX Exchange.
Luxembourg Henry and Jose Terrero v. NY Mercantile Exchange. This action is
pending in New York State Supreme Court (Kings 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. On March 30, 2001 the parties
entered into a stipulation to discontinue the action without prejudice, and if
the action is re-commenced, it will be brought in Supreme Court, New York
County. The stipulation was filed with the Court on April 4, 2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 20, 2001, the stockholders of NYMEX Holdings, elected a chairman
and seven (7) directors at the annual meeting. They elected Vincent Viola as
chairman of the board with 476 votes. The following individuals were also
elected to the Company's board of directors and won with the following number of
affirmative votes: Gordon Rutledge (272), Madeline Boyd (307), Gary Rizzi (363),
J. Robert Collins (440), Kenneth Garland (206), Robert Steele (380), and Harley
Lippman (182). The following directors term of office continued after the annual
meeting: Mitchell Steinhause, Richard Schaeffer, Robert Coakley, John Conheeney,
Anthony George Gero, David Greenberg, E. Bulkeley Griswold, Jesse Harte, Scott
Hess, Steven Karvellas, Kevin McDonnell and Richard Saitta. There are currently
two (2) vacant director positions on the board.
Additionally, at the annual meeting, the stockholders passed a resolution
by a vote of 469 in favor of, 84 against, to add three new equity holder
representatives to the board. The Board of Directors of the Company is presently
comprised of 22 directors. A special meeting of NYMEX Holdings stockholders has
been scheduled for May 23, 2001 to fill three (3) new equity holder positions
and two (2) current vacancies on the board.
19
20
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of NYMEX
Holdings, Inc. (incorporated herein by reference to Exhibit
3.1 of Form 10-K (file no. 333-30332)).
3.1A Certificate of Amendment of 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)).
3.2A Amendment to NYMEX Holdings, Inc. Bylaws.
20
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned; thereunto duly authorized, on the 15th day of May, 2001.
NYMEX Holdings, Inc.
By: /S/ PATRICK F. CONROY
------------------------------------
Name: Patrick F. Conroy
Title: Duly Authorized Officer and
Principal Financial Officer
21