Van der Moolen Holding N.V.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Accountants F-1
Consolidated Financial Statements:
Consolidated Statements of Financial Condition at December 31, 2002 and 2001 F-2
Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000 F-3
Consolidated Statements of Comprehensive Income for the years ended December 31,
2002, 2001 and F-4 2000 Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 2002, F-5
2001 and 2000
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 F-8
Notes to Consolidated Financial Statements F-9
Report of Independent Accountants
To the Board of Directors and Shareholders of Van der Moolen Holding N.V.
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of income, of comprehensive income, of
cash flows and of changes in shareholders' equity present fairly, in all
material respects, the financial position of Van der Moolen Holding N.V. and its
subsidiaries at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002, in conformity with accounting principles generally accepted in the
United States of America. 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 of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Notes 2 and 8 to the Consolidated Financial Statements, the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, as of January 1, 2002.
PricewaterhouseCoopers Accountants N .V.
Amsterdam, the Netherlands
March 4, 2003, except for Note 27, as to which the date is June 11, 2003
F-1
Van der Moolen Holding N.V.
Consolidated Statements of Financial Condition
(in euro millions, except per share data)
- --------------------------------------------------------------------------------
As of December 31,
2002 2001
ASSETS
Cash and cash equivalents EUR334.0 EUR292.3
Cash segregated under federal and
other regulations - 0.6
Securities purchased under
agreements to resell 244.9 11.3
Receivable from clearing
organizations and professional
parties 398.1 729.0
Securities owned, at market value 456.9 775.5
Secured demand notes 0.1 0.2
Notes receivable 11.9 19.7
Stock borrowed 1,102.1 1,685.0
Memberships in exchanges:
Owned, at cost (market value of
EUR20.6 and EUR28.0,
respectively) 18.1 21.5
Contributed by members, at market
value 21.0 27.5
Deferred tax assets 1.1 -
Property and equipment, net 9.3 11.1
Goodwill, net 141.9 176.5
Other intangible assets, net 266.7 293.7
Other assets 31.0 35.7
--------- --------
Total assets EUR3,037.1 EUR4,079.6
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Short -term borrowings EUR42.5 EUR46.7
Securities sold under agreements
to repurchase 275.1 -
Payable to clearing organizations
and professional parties 69.2 151.9
Securities sold, not yet
purchased, at market value 691.3 1,178.4
Stock loaned 1,126.6 1,690.6
Current taxes payable 20.1 19.0
Accounts payable, accrued
expenses, and other liabilities 22.7 61.8
Deferred tax liabilities, net 11.5 17.1
Notes payable 7.3 69.6
Subordinated borrowings:
Subordinated notes 197.3 180.4
Memberships in exchanges,
contributed by members, at
market value 21.0 27.5
Minority interest
Shareholders' equity: 29.2 31.6
Financing Preferred A shares, EUR
0.60 par value, authorized
1,200,000 shares, issued and
outstanding 251,000 and 241,000
shares, respectively 0.1 0.1
Financing Preferred B shares, EUR
0.60 par value, authorized
1,200,000 shares, issued and
outstanding 391,304 shares 0.3 0.3
Common shares, EUR0.08 par value,
authorized 54,000,000 shares,
issued and outstanding 38,419,282
and 37,502,455 shares,
respectively 3.1 3.0
Additional paid-in capital 272.3 242.8
Retained earnings 275.1 289.3
Accumulated other comprehensive
income (27.6) 69.5
------- -------
Total shareholders' equity EUR523.3 EUR605.0
--------- ---------
Total liabilities and shareholders'
equity EUR3,037.1 EUR4,079.6
=========== ==========
The accompanying notes are an integral part of these financial statements
F-2
Van der Moolen Holding N.V.
Consolidated Statements of Income
(in euro millions, except per share data)
- --------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------
2002 2001 2000
------------ ------------ ------------
Revenues
Specialist activities EUR223.2 EUR225.6 EUR281.8
Proprietary trading activities 56.1 65.0 123.7
Commission income 35.0 38.5 39.0
Net interest income from stock
lending activities 4.2 5.1 6.3
Other revenues 3.3 - -
------------ ------------ ------------
Total revenues EUR321.8 EUR334.2 EUR450.8
------------ ------------ ------------
Expenses:
Exchange, clearing and brokerage
fees 42.8 32.9 28.5
Employee compensation and benefits 93.8 98.3 123.8
Lease of exchange memberships 18.3 14.2 9.0
Information and communication 6.6 6.1 5.3
General and administrative expenses 23.1 29.9 19.2
Depreciation and amortization 12.0 22.7 17.6
Impairment of intangible fixed
assets 33.7 - -
------------ ------------ ------------
Total expenses EUR230.3 EUR204.1 EUR203.4
------------ ------------ ------------
Income from operations EUR91.5 EUR130.1 EUR247.4
------------ ------------ ------------
Income (loss) from associates 0.3 (0.1) 0.2
Gain on disposal of long-term
investments and associates 0.4 29.8 10.9
Interest expense, net (14.1) (10.4) (6.4)
Other income 5.2 7.8 1.5
------------ ------------ ------------
Income before income taxes and
minority interest EUR83.3 EUR157.2 EUR253.6
------------ ------------ ------------
Provision for income taxes (24.7) (39.8) (86.0)
Minority interest (28.5) (25.3) (43.4)
------------ ------------ ------------
Net income EUR30.1 EUR92.1 EUR124.2
============ ============ ============
Financing preferred shares dividends (2.9) (2.9) (2.8)
Net income available to common
shareholders 27.2 89.2 121.4
Weighted average number of common
shares outstanding 1) 38,388,043 38,139,964 36,990,191
Basic earnings per share 1) EUR0.71 EUR2.34 EUR3.28
Diluted earnings per share 1) EUR0.71 EUR2.32 EUR3.25
1) adjusted for stock dividends
The accompanying notes are an integral part of these financial statements.
F-3
Van der Moolen Holding N.V.
Consolidated Statements of Comprehensive Income
(in euro millions)
- --------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------
2002 2001 2000
--------- --------- ------------
Net income EUR30.1 EUR92.1 EUR124.2
Other comprehensive income:
Unrealized holding losses - - (0.5)
Foreign currency translation, net
of tax (97.1) 20.3 21.1
--------- --------- ------------
(97.1) 20.3 20.6
--------- --------- ------------
Comprehensive income EUR(67.0) EUR112.4 EUR144.8
========= ========= ============
Foreign currency translation includes taxation in the amount of euro 6.9
million, euro (1.3) million and euro (7.3) million for the years ended
December 31, 2002, 2001 and 2000, respectively.
The accompanying notes are an integral part of these financial statements.
F-4
Van der Moolen Holding N.V.
Consolidated Statements of Changes in Shareholders' Equity
As of December 31, 2002
(in thousands of euro, except per share data)
- --------------------------------------------------------------------------------
Capital stock Accumulated
-----------------------------------
Additional Other Total
Preference Common Paid -in Retained Comprehensive Shareholders'
Shares Amounts Shares Amounts Capital Earnings Income Equity
----------------------------------------------------------------------------------
Balance at Jan. 1, 2002 632,304 EUR379 37,502,455 EUR3,000 EUR242,832 EUR289,294 EUR69,512 605,017
Net Income 30,068 30,068
Dividends on financing preferred A
shares of EUR2.70 per share (660) (660)
Dividends on financing preferred B
shares of 5.52% (2,255) (2,255)
Dividends on common shares of
EUR1.10 per share (19,784) (19,784)
Issuance of financing preferred A
shares 10,000 6 568 574
Issuance of stock dividend 784,973 63 21,508 (21,571) -
Issuance of common shares through
exercise of stock options 131,854 11 2,140 2,151
Foreign currency translation
adjustments (97,124) (97,124)
Stock options compensation expense 5,500 5,500
Other (181) (181)
----------------------------------------------------------------------------------
Balance at Dec. 31, 2002 642,304 EUR385 38,419,282 EUR3,074 EUR272,367 EUR275,092 EUR(27,612) EUR523,306
==================================================================================
The accompanying notes are an integral part of these financial statements.
F-5
Van der Moolen Holding N.V.
Consolidated Statements of Changes in Shareholders' Equity
As of December 31, 2001
(in thousands of euro, except per share data)
- --------------------------------------------------------------------------------
Capital stock Accumulated
-----------------------------------
Additional Other Total
Preference Common Paid -in Retained ComprehensiveShareholders'
Shares Amounts Shares Amounts Capital Earnings Income Equity
----------------------------------------------------------------------------------
Balance at Jan. 1, 2001 627,304 EUR355 37,061,811 EUR2,804 EUR229,851 EUR257,803 EUR46,588 EUR537,401
Net Income 92,142 92,142
Dividends on financing preferred A
shares of EUR2.70 per share (645) (645)
Dividends on financing preferred B
shares of 5.52% (2,255) (2,255)
Dividends on common shares of EUR1.50
per share (56,017) (56,017)
Issuance of financing preferred A
shares 5,000 3 221 224
Change in par value of shares 21 161 (182) -
Issuance of common shares through
exercise of stock options 440,644 35 7,972 8,007
Foreign currency translation
adjustments 20,350 20,350
Taxes on offering proceeds (46) (1,734) (1,780)
Stock options compensation expense 5,016 5,016
Change in unrealized holding
gains/losses on available for sale
securities, net of tax 2,574 2,574
----------------------------------------------------------------------------------
Balance at Dec. 31, 2001 632,304 EUR379 37,502,455 EUR3,000 EUR242,832 EUR69,512 EUR605,017
==================================================================================
The accompanying notes are an integral part of these financial statements.
F-6
Van der Moolen Holding N.V.
Consolidated Statements of Changes in Shareholders' Equity
As of December 31, 2000
(in thousands of euro, except per share data)
--------------------------------------------------------------------------------
Capital stock
----------------------------------- Accumulated
Additional Other Total
Preference Common Treasury Paid -in Retained Comprehensive Shareholders'
Shares Amounts Shares Amounts Shares Amounts Capital Earnings Income Equity
-----------------------------------------------------------------------------------------------------
Balance at Jan. 1,
2000 607,304 EUR344 34,569,018 EUR2,615 148,518 EUR(3,260) EUR190,837 EUR174,380 EUR25,998 EUR390,624
Net Income 124,248 124,248
Dividends on
financing
preferred A shares
of EUR2.70 per
share (586) (586)
Dividends on
financing
preferred B shares
of 5.52% (2,255) (2,255)
Dividends on common
shares of EUR0.92
per share (17,976) (17,976)
Issuance of
financing
preferred A shares 20,000 11 912 923
Issuance of common
shares through
exercise of stock
options
and warrants 1,582,890 120 20,339 20,459
Issuance of stock
dividend 909,903 69 14,262 (14,331) -
Purchase of common
shares (Treasury
shares) 535,257 (7,995) (7,995)
Treasury shares
used for options
and warrants
exercised (683,775) 11,255 (5,947) 5,308
Foreign currency
translation
adjustments 21,096 21,096
Taxes on offering
proceeds (192) 260 68
Stock options
compensation
expense 3,993 3,993
Change in
unrealized holding
gains/losses on
available for sale
securities, net of
tax (506) (506)
-----------------------------------------------------------------------------------------------------
Balance at Dec. 31,
2000 627,304 EUR355 37,061,811 EUR2,804 - EUR - EUR229,851 EUR257,803 EUR46,588 EUR537,401
=====================================================================================================
The accompanying notes are an integral part of these financial statements.
F-7
Van der Moolen Holding N.V.
Consolidated Statements of Cash Flows
(in euro millions)
- -------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------
2002 2001 2000
----------------------------------------
Cash flows from operating activities:
Net income EUR30.1 EUR92.1 EUR124.2
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 12.0 22.7 17.6
Impairment of intangible fixed assets 33.7 - -
Deferred tax (benefit) expense, net (3.3) 5.3 4.0
Compensation expense related to stock-based
compensation 5.5 5.0 4.0
Pensions 0.8 (1.5) (1.8)
Gain on disposal of long-term investments and
associates (0.4) (29.8) (10.9)
Minority interest 28.5 25.3 43.4
Change in assets and liabilities net of
effects from purchase of subsidiaries:
Cash segregated under federal and other
regulations 0.6 (0.1) 8.8
Receivable from clearing organizations and
professional parties 333.2 (587.6) (33.7)
Securities owned, net 318.6 (302.1) 52.5
Notes receivable 7.8 6.1 9.2
Stock borrowed 582.9 (215.4) (304.1)
Other assets 13.3 (18.8) 4.5
Secured demand notes 0.1 6.2 (2.0)
Payable to clearing organizations and
professional parties (82.7) 81.6 (38.7)
Securities sold, not yet purchased (487.1) 774.6 (14.0)
Stock loaned (564.0) 243.9 293.9
Current taxes payable 1.1 (20.3) 26.9
Accounts payable, accrued expenses and
other liabilities (36.1) (35.8) 47.9
---------- --------------------------
Net cash provided by (used in) operating
activities EUR194.6 EUR51.4 EUR231.7
---------- --------------------------
Cash flows from investing activities:
Purchase of property and equipment, net (2.2) (5.2) (2.0)
Payment for purchase of subsidiaries, net of
cash acquired (63.8) (153.8) (87.0)
Securities purchased under agreements to
resell, net 11.3 145.1 (98.6)
Disposals of investments, net 1.9 55.0 21.3
Purchase of memberships - - (1.5)
---------- --------------------------
Net cash used in investing activities EUR(52.8) EUR41.1 EUR(167.8)
---------- --------------------------
Cash flows from financing activities:
Minority interest, distributions net of
capital contributions (25.2) (21.0) (42.0)
Securities purchased under agreements to
resell, net (244.9) - -
Securities sold under agreements to
repurchase, net 275.1 - -
Net (decrease) increase in short-term
borrowings (4.2) 40.2 3.4
Proceeds (payments) of notes payable, net (62.3) 52.1 (54.1)
Proceeds of subordinated notes 46.2 148.5 32.3
Payments of subordinated notes (8.0) (42.1) (3.2)
Issuance of shares 2.7 8.2 31.5
Purchase of treasury shares - - (8.0)
Dividend paid (22.7) (58.8) (20.8)
Other financing activities, net (0.2) (1.8) (5.3)
---------- --------------------------
Net cash provided by (used in) financing
activities EUR(43.5) EUR125.3 EUR(66.2)
---------- --------------------------
Effects of exchange rate differences (56.6) 9.0 1.4
Net change in cash and cash equivalents EUR41.7 EUR226.8 EUR(0.9)
---------- --------------------------
Cash and cash equivalents at beginning of the
year 292.3 65.5 66.4
Cash and cash equivalents at end of the year EUR334.0 EUR292.3 EUR65.5
========== ==========================
Supplemental information:
Cash paid for
Interest EUR38.3 EUR71.3 EUR98.5
Income taxes EUR23.6 EUR47.0 EUR61.4
The accompanying notes are an integral part of these financial statements.
F-8
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements
1. Organization and Nature of Business
Van der Moolen Holding N.V. and subsidiaries (collectively the "Company") is a
specialist and proprietary trader in securities markets on the New York Stock
Exchange ("NYSE"), Euronext, London Stock Exchange, Deutsche Borse, Swiss
Exchanges, London International Financial Futures and Options Exchange,
Philadelphia Stock Exchange, the Chicago Board Options Exchange and the American
Stock Exchange. The Company trades equities, equity options, equity index
options and bonds. Van der Moolen Holding N.V. is headquartered in Amsterdam.
2. Significant Accounting Policies
Basis of Presentation
The accounting and reporting principles of the Company conform with accounting
principles generally accepted in the United States of America ("US GAAP"). The
preparation of the financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of contingent
liabilities. Actual results could differ from these estimates.
All amounts included in these financial statements are stated in millions of
euros, except if otherwise indicated.
The following is a summary of the significant accounting policies of the
Company.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned and majority-owned subsidiaries. Equity investments with a 20%
to 50% ownership interest are accounted for using the equity method of
accounting and are reported in other assets. The Company's proportional share of
earnings and losses related to these investments is included in Income from
associates. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Foreign Currency Translation
The financial statements of foreign subsidiaries are translated into euros.
Income and expense items of each subsidiary have been translated at average
exchange rates during the period. The assets and liabilities of each subsidiary
have been translated at the period-end exchange rates. Translation adjustments
are recognized in Accumulated Other Comprehensive Income.
Foreign currency transactions are accounted for at the exchange rates prevailing
on the dates of the transactions; gains and losses arising from such
transactions are included in the Consolidated Statement of Income.
Currency translation gains or losses on long-term financing advances to foreign
subsidiaries, net of taxation, are charged or credited to Accumulated Other
Comprehensive Income.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
short-term maturities. The carrying amounts of such cash equivalents approximate
their fair value due to the short-term nature of these instruments. Cash and
cash equivalents include large balances, which are used for purposes of
collateralizing positions and meeting regulatory or exchange requirements. The
unused portion is euro 50 million as of December 31, 2002 (as of December 31,
2001: euro 30 million). Cash and cash equivalents are offset for balances with
the same counterparty covered under legally enforceable rights to set off.
F-9
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
Cash Segregated Under Federal Regulations
In accordance with the SEC's no action letter dated November 3, 1998, the
Company's subsidiary Van der Moolen Specialists USA, LLC (hereafter: "VDM
Specialists") computed a reserve requirement for the proprietary accounts of
introducing firms ("PAIB") as at December 31, 2001. VDM Specialists has no PAIB
deposit funding obligations outstanding as of December 31, 2002 and 2001, and
the PAIB deposit exceeded the requirement by nil and euro 0.6 million,
respectively.
Securities Purchased under Agreement to Resell and Securities Sold under
Agreements to Repurchase
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are accounted for as collateralized financing
transactions and are recorded at amounts at which the securities were acquired
or sold plus accrued interest. The Company minimizes the credit risk associated
with these transactions by monitoring its aggregate credit exposure to each
counterparty and by monitoring collateral value and requiring the counterparty
to deposit additional collateral when deemed necessary. The market value of
securities received for securities purchased under agreement to resell at
December 31, 2002 approximated 97.9% of cash paid. The market value of
securities delivered for securities sold under agreements to repurchase at
December 31, 2002 approximated 103.2% of cash received.
Securities Owned and Sold, Not Yet Purchased
Securities owned and sold, not yet purchased, represent trading assets and
liabilities, respectively. Trading assets and liabilities include securities
held or sold, not yet purchased in anticipation of market movements. Trading
liabilities include obligations to deliver securities not yet purchased. Trading
positions are carried at market value and recorded on a trade date basis. The
Company recognizes changes in the market value of trading positions as they
occur.
Trading securities are valued using quoted market prices, including quotes from
dealers in those securities when available. If quoted market prices are not
available, the fair value is estimated using quoted prices of instruments with
similar characteristics.
Notes Receivable
Notes receivable are reported at the principal amount outstanding, adjusted for
any allowances. Interest on loans is accrued at the contractual rate and
credited to income based on the principal amount outstanding.
Stock Loaned and Stock Borrowed
Stock loaned and stock borrowed for which cash is received or deposited are
treated as a collateralized financing transactions and are recorded at contract
amount. Revenues and expenses from these activities are netted and presented as
Net interest income from stock lending activities.
Exchange Memberships
Exchange memberships owned by the Company are recorded at cost. Additionally,
eleven exchange memberships have been contributed for use by the Company by
members of the Company's subsidiary VDM Specialists. These memberships are
subordinated to claims of the general creditors of VDM Specialists and are
carried at market value with corresponding amounts recorded as subordinated
liabilities. The Company is required to pay annual fees in relation to these
exchange memberships, which have been charged to expense in the Consolidated
Statement of Income.
The Company leases additional memberships from affiliated and non-affiliated
parties and makes lease payments to these parties at prevailing market rates.
F-10
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line method over the estimated useful
lives, which range from two to forty years. Maintenance and repairs are expensed
as incurred.
The estimated useful lives of property and equipment are as follows:
Real Estate 40 years
Furniture and Fixtures 2-10 years
Company Cars 3-5 years
All leases entered into by the Company qualify as operating leases. Payments
made under operating leases are charged to income on a straight-line basis over
the periods of the leases.
Goodwill and Other Intangible Assets
Goodwill arising from business combinations accounted for under the purchase
method was amortized on a straight-line basis over 15 years until December 31,
2001. Effective January 1, 2002, goodwill and intangible assets with an
indefinite useful life are no longer amortized, goodwill is tested for
impairment at the reporting unit level (which is generally an operating segment
or one reporting level below) at least annually, and intangible assets deemed to
have an indefinite life are tested for impairment at least annually as well. Had
this statement not be adopted, the Company would have recognized euro 15.0
million of amortization expense related to goodwill in its Consolidated
Statement of Income for the year ended December 31, 2002.
The impairment test involves a two-step process;
Step 1: The fair value of the Company's reporting units is compared to the
carrying value, including goodwill, of each of those units. For each reporting
unit where the carrying value, including goodwill, exceeds the unit's fair
value, the review moves on to step 2. If a unit's fair value exceeds the
carrying value, no further work is performed and no impairment charge is
necessary.
Step 2: The fair value of the Company's reporting unit is allocated to its
identifiable tangible and non-goodwill intangible assets and liabilities. This
will derive an implied fair value for the reporting unit's goodwill. The implied
fair value of the reporting unit's goodwill is then compared with the carrying
amount of the reporting unit's goodwill. If the carrying amount of the reporting
unit's goodwill is greater than the implied fair value of its goodwill, an
impairment loss must be recognized for the excess amount.
The Company performed the required impairment tests of goodwill during the
fourth quarter of 2002 for its different reporting units and determined
impairments on goodwill paid in relation to the acquisition of VDM Options USA,
LLC and Cohen, Duffy, McGowan, LLC of euro 13.5 million and euro 20.2
million, respectively. These impairments are the result of uncertain market
conditions and the associated estimated lower profitability of the entities
involved. In determining the discounted value of future cash flows of VDM
Options USA, LLC and Cohen, Duffy, McGowan, LLC, valuations by external
independent consultants have been used, and a discount rate of 15% was applied.
The impairment expenses have been recognized in the Consolidated Statement of
Income
Other intangible assets consist of specialist stock lists acquired in connection
with certain business combinations and are amortized on a straight-line basis
over 40 years. The fair value of the specialist stock lists at the date of
acquisition used for purchase price allocation and the determination of the
useful lives were determined based on independent appraisals. The useful lives
are determined based upon analysis of historical turnover characteristics of the
specialist stocks. The Company periodically evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
may warrant revision or that the remaining balance may not be recoverable. When
factors indicate that intangible assets should be evaluated for possible
impairment, the Company uses an estimate of undiscounted projected cash flows
over the remaining life in order to measure whether the assets are recoverable.
As a result of uncertain market conditions and the associated lower
profitability, the Company was required to perform the impairment tests that
F-11
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
took place during the fourth quarter of 2002, as dictated by Statement of
Financial Accounting Standard No. 144 "Accounting for the Impairment on Disposal
of Long-Lived Assets" and determined that there was no impairment charge
necessary.
Other Assets
Other assets include securities available for sale, investments accounted for
under the equity method and other receivables. Securities available for sale are
reported at market value or estimated fair value and unrealized gains and losses
are excluded from earnings and reported as Accumulated Other Comprehensive
Income. Declines in fair value of individual securities available for sale below
their cost that are other than temporary result in the write down of the
individual securities to their fair value. The related write-downs are included
in earnings as realized losses.
Short-term Borrowings
Short-term borrowings comprise bank overdrafts with financial institutions and
clearing organizations. These borrowings are interest bearing at prevailing
market rates.
Specialist Activities
Revenues from specialist activities consist primarily of net trading income from
principal transactions in securities for which the Company acts as specialist.
The net gain on principal transactions represents trading gains net of trading
losses and are earned by the Company when it acts as principal buying and
selling its specialist stocks. These revenues are primarily affected by the
total number of specialist stocks for which the Company acts as specialist, as
well as changes in share volume and fluctuations in the price of the specialist
stocks.
Securities transactions in regular-way trades are recorded on the trade date, as
if they had settled. The profit and loss arising from all securities
transactions entered into for the account and risk of the Company are recorded
on a trade date basis.
Proprietary trading activities
Revenues from proprietary trading activities consist primarily of net trading
income earned by the Company when trading as principal in competition with other
traders. Similar to specialist activities, net trading income from proprietary
trading activities represents trading gains net of trading losses. The profit
and loss arising from all transactions entered into for the account and risk of
the Company are recorded on a trade date basis.
A proprietary trader trades for its own account at its own risk, similar to a
specialist, and thus performs a similar function of providing liquidity to the
market. However, in contrast to a specialist, this function is fulfilled in
competition with others, and the activities do not in principle generate any
commissions.
Commission Income
Commission income is recognized on settlement date basis, which is not
significantly different from trade date. Commission income mainly arises from
the specialist activities performed by VDM Specialists on the New York Stock
Exchange.
Net Interest Income from Stock Lending Activities
Net interest income from stock lending activities represents interest earned net
of interest paid in connection with the stock lending activities that are
carried out by VDM Specialists. VDM Specialists engages in stock lending and
borrowing as a service to other market participants that may require such stocks
in order to assure delivery of stock to their own counterparties. Interest
income earned was euro 23.9 million, euro 40.3 million and euro 57.7
million for the years ended December 31, 2002, 2001 and 2000, respectively.
F-12
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
Interest expense was euro 19.7 million, euro 35.2 million and euro 51.4
million for the years ended December 31, 2002, 2001 and 2000, respectively.
Other Revenues
Other revenues comprise revenues from the direct-access brokerage activities of
Kenny & Co, LLC.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109.
"Accounting for Income Taxes" ("SFAS 109"), which requires the recognition of
tax benefits or expenses on the temporary differences between the financial
reporting and tax bases of its assets and liabilities. The Company's deferred
tax assets and liabilities are presented separately on the face of the balance
sheet. Currently enacted tax rates are used to determine the deferred income
tax.
Stock Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-based Compensation"
("SFAS 123"). Under SFAS 123, stock compensation expense is calculated using the
fair value method. The related expense has been included in Employee
compensation and benefits in the Consolidated Statement of Income with a
corresponding contribution to Additional Paid-in Capital.
Earnings Per Share
Earnings per share ("EPS") is computed in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Basic EPS is
calculated by dividing net earnings by the weighted average number of common
shares outstanding. Diluted EPS includes the determinants of basic EPS and, in
addition, reflects the dilutive effect of the common shares deliverable pursuant
to stock options and warrants.
Derivative Financial Instruments
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133") as amended. SFAS 133
establishes accounting and reporting standards for derivative instruments. It
requires that an entity recognize all derivatives as either assets or
liabilities in the Consolidated Statements of Financial Condition and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative instrument depends on its intended use and the resulting
designation. If a derivative is designated as a qualifying fair value hedge, all
changes in the fair value of the derivative and changes in the fair value of the
hedged item that relate to the hedged risk are recognized in earnings. If the
derivative is designated as a qualifying cash flow hedge, the effective portion
of the change in the fair value of the derivative is recorded in Accumulated
Other Comprehensive Income and recognized in the Consolidated Statements of
Income when the hedged item affects earnings. The ineffective portion of cash
flow hedges is immediately recognized in the Consolidated Statements of Income.
Derivative financial instruments used for trading purposes are carried at market
value. If market prices are not readily available, fair value is utilized.
Market value for exchange-traded derivatives, principally futures and certain
options, is based on quoted market prices. Fair value of over-the-counter
('OTC') derivative instruments, principally forwards and OTC options, are based
on pricing models intended to approximate the amounts that would be received
from or paid to a third party in settlement of the contracts. The gains or
losses on derivatives used for trading purposes are included in revenues from
specialist and proprietary trading activities.
Premiums and unrealized gains or losses for written and purchased option
contracts are recognized gross in the Consolidated Statements of Financial
Condition.
F-13
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
New Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires that a
liability for costs associated with an exit or disposal activity be recognized
and measured initially at its fair value in the period in which the liability is
incurred. Previously a liability for an exit cost was required to be recognized
at the date of an entity's commitment to an exit plan, however, this does not,
by itself, create a present obligation to others that meets the definition of a
liability. SFAS 146 applies to any exit or disposal activities of the Company
that are initiated after December 31, 2002. The Company does not believe the
adoption of SFAS 146 will have a material impact on its results of operations or
financial condition.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that a
liability be recorded in the guarantor's balance sheet at the inception of
certain guarantees, for the fair value of the obligation assumed, and expands
disclosures to be made by a guarantor in its financial statements. The initial
recognition and measurement provisions of FIN 45 are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, irrespective of
the guarantor's fiscal year-end. The disclosure requirements of FIN 45 will be
effective for consolidated financial statements for 2003. The Company does not
believe the adoption of FIN 45 will have a material impact on its results of
operations or financial condition.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46") FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
immediately for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The disclosure requirements of
FIN 46 will be effective for the Company's financial statements for 2003,
regardless of the date on which the variable interest entity was created. The
Company does not believe the adoption of FIN 46 will have a material impact on
its results of operations or financial condition.
3. Significant Acquisitions and Dispositions
Acquisitions
During the years ended December 31, 2000, 2001 and 2002, the Company expanded
its specialist activities and proprietary trading activities in the United
States of America through the acquisitions of several businesses. These
acquisitions were accounted for using the purchase method and were all cash
transactions. The basis of the individual assets and liabilities acquired is the
fair value at the date of acquisition. Any purchase price in excess of the fair
value of assets and liabilities acquired is recorded as goodwill. The Company's
share of operating results of the acquired companies is included in the
Consolidated Statement of Income from the effective date of the acquisition.
On June 1, 2000 the Company acquired a 75% interest in Fagenson, Frankel &
Streicher, LLC ("FFS"), a NYSE specialist. The purchase price of the acquisition
was $ 80.2 million (euro 84.4 million), of which a combined $ 71.7 million
(euro 75.4 million) was recorded as identifiable intangible assets and
goodwill. Also on June 1, 2000 FFS was merged into VDM Specialists.
On July 11, 2001 the Company acquired a 51% share of Cohen, Duffy, McGowan & Co.
LLC, a specialist and proprietary trader active in equity options traded on the
American Stock Exchange, as well as a 24.9% interest in the broker-dealer entity
Cohen, Duffy, McGowan Specialists, LLC, for an aggregate consideration of $ 59.5
million (euro 69.5 million), of which $ 9.8 million (euro 11.5 million) was
recorded as identifiable intangible assets and $ 35.2 million (euro 41.1
million) as goodwill.
F-14
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
On August 1, 2001 the Company acquired a 75% interest in NYSE specialist
Scavone, McKenna, Cloud & Co., LLC for total aggregate consideration of $ 49.6
million (euro 56.7 million) and a 75% interest in the NYSE specialist Stern &
Kennedy for a total aggregate consideration of $ 26.2 million (euro 29.9
million). The combined purchase price of these acquisitions was $ 75.8 million
(euro 86.6 million), of which $ 57.6 million (euro 65.8 million) was
recorded as identifiable intangible assets and $ 8.9 million (euro 10.1
million) as goodwill. Also on August 1, 2001 the two companies were merged into
VDM Specialists.
On October 1, 2001 the Company acquired the remaining 17% interest in Van der
Moolen Options USA, LLC for a total consideration of $ 1.8 million (euro 2.0
million), of which $ 0.9 million (euro 1 million) was recorded as goodwill.
On March 1, 2002 the Company acquired a 75% interest in NYSE specialist Lyden,
Dolan, Nick & Co., LLC for a total aggregate consideration of $ 54.7 million
(euro 63.2 million) of which $ 28.2 million (euro 32.6 million) was recorded
as identifiable intangible assets and $ 25.0 million (euro 28.9 million) as
goodwill. Also on March 1, 2002, Lyden, Dolan, Nick was merged into VDM
Specialists.
The unaudited proforma information for the Company as if each acquisition had
occurred on January 1 of each year prior to the year of acquisition, is as
follows:
------------------------------------------------
Year ended December, 31
------------------------------------------------
2002 2001 2000
---------------- --------------- ---------------
------------------------------------------------
(in euro millions)
Total revenues euro 326.8 euro 375.2 euro 618.2
Net income euro 30.9 euro 95.7 euro 154.5
Earnings per share euro 0.73 euro 2.43 euro 4.10
================ =============== ===============
The impact of these acquisitions on the Statement of Financial Condition as of
December 31, 2001 is not considered to be material, with the exception of the
impact on goodwill and other intangible assets, debt incurred to finance the
acquisition, and on subordinated debt issued by VDM Specialists in order to
fulfill additional net capital and net liquid assets requirements following the
acquisition.
Dispositions
On September 8, 2000, the Company sold its equity interest in Kas Associatie for
euro 14.8 million, as a result of which it realized a net gain of
approximately euro 6.2 million. The Company further sold its equity interest
in London Stock Exchange plc. realizing a gain of euro 4.7 million. These
gains were recorded as gains on disposal of long-term investments and associates
in the Consolidated Statement of Income for the year ended December 31, 2000.
On July 6, 2001, the Company sold its equity interest in Euronext N.V. in
connection with its initial public offering for euro 41.0 million, as a result
of which it realized a net gain of approximately euro 30 million. This gain
was recorded as a gain on disposal of long-term investments and associates in
the Consolidated Statement of Income for the year ended December 31, 2001.
The Company disposed of its ownership interest in Sputz A.G. during the year
2001. Consideration for the sale was an amount of euro 14.0 million. In
connection with this disposal, the Company wrote-off goodwill amounting to
euro 3.0 million during 2001. This amount is included in Depreciation and
amortization in the Consolidated Statement of Income.
In October 2002, the Company disposed of its ownership interest in Midwest
Partners, LLC for a consideration of euro 2.0 million, resulting in a gain of
euro 0.4 million. This gain was recorded as a gain on disposal of long-term
investments and associates in the Consolidated Statement of Income for the year
ended December 31, 2002.
F-15
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
4. Receivable From and Payable to Clearing Organizations and Professional
Parties
Amounts receivable from and payable to clearing organizations and professional
parties at December 31, 2002 and 2001, consist of the following:
------------------------------------------------------------
December 31,
------------------------------------------------------------
----------------------------- -----------------------------
2002 2001
----------------------------- -----------------------------
------------------------------------------------------------
(in euro millions)
Receivable Payable Receivable Payable
Deposits for securities borrowed/loaned euro 1.2 euro -euro 4.8euro -
Securities failed-to-deliver/receive 20.1 3.5 24.3 3.4
Commissions receivable 2.5 - 3.1 -
Payable to clearing organizations and
professional parties - 65.7 - 148.5
Receivable from clearing organizations and
professional parties 374.3 - 696.8 -
----------------- ---------- -------------- -------------
euro 398.1 euro 69.2 euro 729.0 euro 151.9
================= ========== ============== =============
Receivables from and payables to clearing organizations and professional parties
are offset for balances with the same counterparty covered under legally
enforceable rights to set off.
5. Concentrations of Credit Risk/ Financial Instruments
As of December 31, 2002, substantially all of the Company's financial
instruments owned, financial instruments sold, not yet purchased, and receivable
from and payable to clearing organizations and professional parties are amounts
held by or due to its clearing organizations or other professional parties. The
Company monitors the credit worthiness of the clearing organizations and other
professional parties to mitigate the Company's exposure to credit risk.
As of December 31, 2002, cash equivalents in the amount of euro 248.2 million
were invested in tax-exempt money market U.S. municipal funds, held by two
financial institutions. As of December 31, 2001, cash equivalents in the amount
of euro 238.3 million were held by one financial institution.
In the normal course of business, the Company's broker-dealer activities involve
the execution, settlement, and financing of various broker-dealer transactions.
These activities may expose the Company to settlement risk in the event the
other broker or professional party is unable to fulfill its contracted
obligations and the Company has to purchase or sell the financial instruments
underlying the contract at a loss.
F-16
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
6. Securities Owned and Securities Sold, Not Yet Purchased
Marketable securities owned and sold, not yet purchased, consist of trading
securities at market values, as follows:
------------------------------------------------------------
December 31,
------------------------------------------------------------
2002 2001
------------------------------------------------------------
(in euro millions)
Sold, Not Yet Sold, Not Yet
Owned Purchased Owned Purchased
Bonds euro 214.0 euro 172.7 289.3euro 252.6
Common and preferred shares 147.1 264.1 129.0 206.3
Options and warrants 95.8 254.5 357.2 719.5
------------------------------------------------------------
euro 456.9 euro 691.3 euro 775.5euro 1,178.4
============================================================
The agreements with the Company's clearing organizations permit the Company's
securities and financial instruments to be pledged to clearing organizations,
depositories and other financial institutions for the purpose of financing the
Company's trading activities.
7. Notes Receivable
During the year ended December 31, 1999, the Company received various notes
receivable in connection with the sales of certain assets. These notes
receivable are recorded at the original principal amount less allowance for
losses. The notes receivable have interest rates ranging from 4.4% to 4.6 % per
annum (2001: 5.5% to 9.5%) and have remaining terms of two to five years. A
right exists to convert the principal amount of one of the loans receivable into
common shares of the issuer. Based on current market circumstances management
estimates the fair value of this embedded derivative to be nil.
8. Goodwill and Other Intangible Assets
For the years ended December 31, 2002 and 2001 the carrying value of goodwill
amounted to euro 141.9 million and euro 176.5 million, respectively. As a
result of the implementation of SFAS No. 142 "Goodwill and Other Intangible
Assets" goodwill is no longer amortized with effect from financial years
beginning after December 15, 2001. As a result of the impairment test performed
on goodwill, an impairment charge of euro 33.7 million has been recognized in
the Consolidated Statement of Income for the year 2002. See "Significant
Accounting Policies - Goodwill and Other Intangible assets" on page F-11 for
further information related to the impairment of goodwill.
Of the carrying amount of goodwill as of December 31, 2002, an amount of euro
110.5 million is deductible for tax purposes.
----------------------------------------------------
December 31,
----------------------------------------------------
2002 2001
------------------------- --------------------------
(in euro millions)
Specialist stock lists euro 287.9 euro 310.6
Accumulated amortization (21.2) (16.9)
------------------------- --------------------------
Total euro 266.7 euro 293.7
========================= ==========================
For the year ended December 31, 2002 amortization of the specialist stock lists
was euro 7.5 million. Estimated amortization expense on specialist stock lists
for each of the next five years is euro 7.2 million per year, determined at
the US dollar closing rate of December 31, 2002. The weighted average remaining
useful live of the specialist stock lists is 37 years as of December 31, 2002.
F-17
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
For the year ended December 31, 2001 amortization of the specialist stock lists
and goodwill was euro 6.4 million and euro 10.8 million respectively.
Amortization included in the Consolidated Statement of Income for the year 2001
includes a euro 3.0 million write-off of goodwill on equity investments,
related to Sputz A.G.
9. Other Assets
-------------------------------
December 31,
-------------------------------
2002 2001
-------------------------------
(in euro millions)
Investments in associates euro 0.4 euro 2.2
Other investments 2.1 2.9
Taxes 1.0 12.3
Prepaid pension costs (See note 14) 6.0 5.3
Fair value of interest rate swap 10.9 -
Other 10.6 13.0
----------------- -------------
Total euro 31.0 euro 35.7
================= =============
Investments in Associates
The equity method of accounting is used for the Company's investment in
companies in which the Company's ownership interest is between 20% and 50%. The
Company's share of the net income or loss in these companies is presented
separately in the Consolidated Statement of Income.
At December 31, 2002 the Company had one investment in an associate that was
accounted for under the equity method, being:
Country of Percentage of
Incorporation Share of Profits Ownership
------------------ ------------------------ ---------------
Cohen, Duffy, McGowan Specialists, LLC USA 24.9% 24.9%
The net result of associates was a profit of euro 1.4 million and a loss of
euro 1.3 million for the years ended December 31, 2002 and 2001, respectively.
The Company's share of net results was a profit of euro 0.3 million and a loss
of euro 0.1 million for the years ended December 31, 2002 and 2001,
respectively.
In October 2002, the Company's share in Midwest Partners, LLC was sold to a
third party for a consideration of euro 2.0 million, resulting in a gain on
the sale of the equity investment of euro 0.4 million.
Other
Other assets of euro 10.6 million and euro 13.0 million at December 31, 2002
and 2001, respectively, mainly consist of prepaid expenses, miscellaneous
receivables from associates, members of subsidiaries of the Company established
as limited liability companies in the United States, employees and third
parties.
F-18
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
10. Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable, accrued expenses and other liabilities at December 31, 2002
and 2001 comprise the following:
-----------------------------
December 31,
-----------------------------
2002 2001
-----------------------------
(in euro millions)
Other taxes and social security contributions euro 0.4 euro 2.6
Dividends on financing preferred shares 2.9 2.9
Fair value of interest rate swap - 3.0
Accrued bonuses 6.4 20.3
Other accrued liabilities 13.0 33.0
-------------- --------------
Total euro 22.7 euro 61.8
============== ==============
11. Income Taxes
Provision for income taxes consists of the following:
--------------------------------
Year Ended December 31,
--------------------------------
2002 2001 2000
---------- ---------- ----------
(in euro millions)
Current income taxes
Arising in the Netherlands (domestic) euro 4.8 euro 5.7 euro 8.1
Arising outside the Netherlands (foreign) 23.2 28.8 74.0
Deferred income taxes
Liabilities
Arising in the Netherlands (domestic) (0.3) (0.5) 0.6
Arising outside the Netherlands (foreign) (1.9) 5.8 3.3
Assets
Arising in the Netherlands (domestic) - - -
Arising outside the Netherlands (foreign) (1.1) - -
---------- ---------- ----------
Total provision for income taxes euro 24.7 euro 39.8 euro 86.0
========== ========== ==========
Taxes are calculated for each individual entity in the Company and are based on
the local tax rates.
--------------------------------
Year Ended December 31,
--------------------------------
2002 2001 2000
---------- ---------- ----------
(in euro millions)
Income arising outside the Netherlands before tax and
minority interest euro 55.9 euro 97.1 euro 209.4
Minority interest (28.5) (25.3) (43.4)
----------- ---------- ----------
Income arising outside the Netherlands before tax euro 27.4 euro euro 166.0
71.8
Income arising in the Netherlands before tax 27.4 60.1 44.2
----------- ---------- ----------
Total income before taxes less minority interest euro 54.8 euro 131.9 euro 210.2
=========== ========== ==========
F-19
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
--------------------------------
December 31,
--------------------------------
2002 2001 2000
---------- ---------- ----------
(in euro millions)
Deferred tax assets
Tax losses carried forward 1.1 - -
---------- ---------- ----------
Total deferred tax assets 1.1 euro - euro -
========== ========== ==========
The deferred tax assets are of a short-term nature
--------------------------------
December 31,
--------------------------------
2002 2001 2000
---------- ---------- ----------
(in euro millions)
Deferred tax liabilities
Employee benefit plan assets euro 2.8 euro 3.1 euro 3.6
Intangible fixed assets 22.9 14.0 6.5
Offset of deferred tax asset items (14.2) - -
---------- ---------- ----------
Total deferred tax liabilities euro 11.5 euro 17.1 euro 10.1
========== ========== ==========
Deferred tax liabilities are offset against deferred tax assets if the
requirements of SFAS 109 are met. Deferred tax assets included in the net
balance relate to intangible fixed assets. An amount of approximately euro 1.0
million of the deferred tax asset as included in the net balance will be
realized within one year. An amount of euro 17.0 million of total net deferred
tax liabilities will be realized after 5 years.
Income tax in the Netherlands
The statutory tax rate in the Netherlands is 35%. The effective tax rates for
the years ended December 31, 2002, 2001 and 2000 are 16%, 9% and 20%,
respectively. The difference in the tax rates can be explained as follows:
2002 2001 2000
-------------- --------------- ----------------
Statutory tax rate in the Netherlands 35% 35% 35%
Result of the group concern financing entity (22%) (15%) (18%)
Non taxable other revenues (9%) (20%) (8%)
Non-tax deductible costs 11% 10% 7%
Other 1% (1%) 4%
-------------- --------------- ----------------
16% 9% 20%
============== =============== ================
The impact of non taxable other revenues on the effective tax rate in the
Netherlands in 2001 mainly relates to the sale of the 1.8% investment in
Euronext NV during 2001, which under Dutch fiscal regulations is exempt from
taxation.
Income tax outside the Netherlands
Based on the local statutory tax rates in the different countries, the weighted
average tax rate for the years ended December 31, 2002, 2001 and 2000 is 61%,
47% and 46%, respectively. The actual tax rates for the financial years 2002,
2001and 2000 were 74%, 48% and 47%, respectively. The high weighted average tax
rate as well as the high actual tax rate in 2002 reflects the aggregate impact
of relatively higher tax-deductible losses in low taxed jurisdictions and
taxable income in high tax jurisdictions. The difference between the weighted
average tax rate and the actual tax rate incurred in 2002 relates to non-taxable
items.
F-20
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
12. Notes payable
Notes payable at December 31, 2002 and 2001, including their final maturity
date, are listed as follows:
--------------------------------
December 31,
----------------- --------------
2002 2001
----------------- --------------
(in euro millions)
--------------------------------
Notes payable, 4.02%, due Jan. 14, 2002 - 10.0
Notes payable, 3.87%, due Jan. 31, 2002 - 10.0
Notes payable, 3.77%, due Feb. 5, 2002 - 9.1
Notes payable, 3.95%, due Jan. 17, 2002 - 8.2
Notes payable, 3.85%, due Jan. 21, 2002 - 5.0
Notes payable, 3.87%, due Jan. 28, 2002 - 5.0
Notes payable, 5.10%, due March 25, 2004 4.5 4.5
Notes payable, 4.40%, due Aug. 22, 2002 - 3.0
Notes payable, 6.25%, due Jan. 28, 2010 2.8 3.1
Notes payable, 3.85%, due Jan. 21, 2002 - 2.7
Notes payable, 3.95%, due Jan. 21, 2002 - 2.3
Notes payable, 4.05%, due Jan. 7, 2002 - 2.2
Notes payable, 4.40%, due March 21, 2002 - 2.0
Notes payable, 3.70%, due Jan. 15, 2002 - 1.8
Other notes payable - 0.7
----------------------------------
7.3 69.6
=================================
As of December 31, 2002 and 2001 an amount of euro 6.9 million and euro 7.3
million, respectively, is repayable after one year, of which euro 1.1 million
and euro 1.4 million is due after more than five years.
13. Subordinated Notes
The subordinated notes at December 31, 2002 and 2001, including their final
maturity date, are listed as follows:
--------------------------------
December 31,
----------------- --------------
2002 2001
----------------- --------------
--------------------------------
(in euro millions)
Subordinated notes, 5.66%, due Dec. 14, 2005 10.0 13.2
Subordinated notes, 8.00%, due Dec. 30, 2005 14.3 22.6
Subordinated notes, 7.54%, due August 3, 2008 62.0 73.8
Subordinated notes, 7.80%, due August 3, 2011 62.0 73.8
Subordinated notes, 7.11%, due March 1, 2008 38.1 -
----------------------------------
Subordinated notes, principal amounts outstanding 186.4 183.4
Fair value adjustment arising on qualifying fair value hedge 10.9 (3.0)
----------------------------------
----------------------------------
197.3 180.4
==================================
Subordinated borrowings, excluding the 5.66% loan due December 14, 2005, are
subordinated to claims of general creditors of the Company's subsidiary VDM
Specialists. These subordinated borrowings are recognized as capital for
regulatory purposes under the exchange's net capital rules applicable to VDM
Specialists. These borrowings are used by VDM Specialists to comply with its
minimum net liquidity and capital requirements.
F-21
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
The following table presents the contractual repayment schedules for the
subordinated notes:
(in euromillions) 5.66% 8% 7.11% 7.54% 7.8% Total
Subordinated Subordinated Subordinated Subordinated Subordinated
Note Note Note Note Note
2003 3.2 4.8 8.0
2004 3.2 4.8 8.0
2005 3.6 4.7 9.5 17.8
2006 9.5 20.6 30.1
2007 9.5 20.7 12.4 42.6
2008 9.6 20.7 12.4 42.7
2009 12.4 12.4
2010 12.4 12.4
2011 12.4 12.4
The subordinated notes, 8.00% due December 31, 2005, 7.11% due March 1, 2008,
7.54% due August 3, 2008 and the 7.80% due August 3, 2011 contain certain
financial reporting and other restrictive covenants.
In connection with its subordinated borrowings, the Company entered into
interest rate swap agreements to convert the fixed rate subordinated notes 7.11%
due March 1, 2008, 7.54% due August 3, 2008 and the 7.80% due August 3, 2011
into floating rate obligations based on US London Interbank Offer Rate. The
effective interest rate for the year ended December 31, 2002 on these
subordinated borrowings after hedging activities is 3.574%. The fair value of
the interest rate swaps is euro 10.9 million (gain), which is also reflected
as an adjustment to the carrying value of subordinated notes in accordance with
the requirement of SFAS 133.
14. Pension and Other Postretirement Benefit Plans
The Company has employee pension plans in Germany, the United States and the
Netherlands. The German subsidiary has a defined contribution plan in place for
management team members as well as certain employees. The annual contribution
under this plan during the years ended December 31, 2002, 2001 and 2000 was
euro 40,143, euro 54,029 and euro 52,274, respectively. The German plan
does not have a projected benefit obligation. In the United States, the Company
sponsors a 401(k) plan covering all eligible full-time employees. Under certain
circumstances prescribed by law, the Company may be required to make
contributions to this plan. This plan is a defined contribution scheme and thus
does not have a projected benefit obligation. The annual contribution to the 401
(k) plan during the years ended December 31, 2002, 2001 and 2000 was euro
595,251, euro 892,026 and euro 464,500, respectively. In the Netherlands,
both contributory and non-contributory defined-benefit pension plans exist,
covering substantially all employees. Plan benefits are based on years of
service and compensation levels at the time of retirement. The Dutch plan is a
defined benefit final average pay plan. These pension plans and their respective
costs are determined using the projected unit credit method in accordance with
US GAAP as defined by SFAS No. 87, "Employers'Accounting for Pensions".
The change in the projected benefit obligations is as follows:
--- ---------- ---- ---------- --- ----------
2002 2001 2000
--- ---------- ---- ---------- --- ----------
(in euro millions)
Projected benefit obligation at January 1 euro (16.0) euro (15.3) euro (15.1)
Service cost (0.4) (0.3) (0.3)
Interest cost (0.9) (1.0) (0.9)
Prior service cost (0.5) - -
Actuarial gains/(losses) 0.9 0.2 0.3
Benefits paid 2.9 0.4 0.7
---------- ---------- ----------
Projected benefit obligation at December 31 euro (14.0) euro (16.0) euro (15.3)
========== ========== ==========
F-22
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
The change in plan assets is as follows:
--- ---------- ---- ---------- --- ----------
2002 2001 2000
--- ---------- ---- ---------- --- ----------
(in euro millions)
Fair value of plan assets at January 1 euro 20.9 euro 20.9 euro 19.3
Actual return on plan assets 0.6 (0.5) 1.9
Employer contributions 0.4 0.9 0.3
Benefits paid (2.9) (0.4) (0.6)
---------- ---------- ----------
Fair value of plan assets at December 31 euro 19.0 euro 20.9 euro 20.9
========== ========== ==========
The funded status of all defined benefit pension plans based on the projected
benefit obligation is as follows:
--- -----------------------------------------
December 31,
--- ---------- ---- ---------- --- ----------
2002 2001 2000
--- ---------- ---- ---------- --- ----------
(in euro millions)
Funded status euro 5.0 euro 4.9 euro 5.6
Unrecognized net transition cost (0.6) (1.3) (1.9)
Unrecognized net actuarial loss (gain) 1.6 1.7 (0.6)
---------- ---------- ----------
Prepaid benefit cost euro 6.0 euro 5.3 euro 3.1
========== ========== ==========
Components of net periodic pension cost for all defined benefit plans recorded
under employee compensation and benefits in the consolidated statements of
income are as follows:
--- ---------- ---- ---------- --- ----------
2002 2001 2000
--- ---------- ---- ---------- --- ----------
(in euro millions)
Service cost euro (0.4) euro (0.3) euro (0.3)
Interest cost (0.9) (1.0) (0.9)
Expected return on plan assets 1.5 1.5 1.4
Amortization of transition cost 0.6 0.6 0.6
Prior service cost (0.5) - -
Other costs (0.2) (0.1) (0.1)
---------- ---------- ----------
Net periodic pension benefit/ (cost) euro 0. 1 euro 0.7 euro 0.7
========== ========== ==========
Weighted average actuarial assumptions for the Company's defined benefit pension
plans are as follows:
--------------------------------------
December 31,
--------------------------------------
--------------------------------------
2002 2001 2000
--------------------------------------
--------------------------------------
Discount rate 5.50% 5.75% 6.25%
Rate of compensation increase 3.00% 2.50% 2.00%
Expected rate of return on plan assets 5.50% 7.00% 7.00%
Rate of benefit increase 3.50% 3.50% 3.00%
15. Shareholders' Equity
The authorized share capital at December 31, 2002 was 54,000,000 shares with a
par value of euro 0.08 and 1,200,000 financing preferred A shares, 1,200,000
financing preferred B shares, 1,200,000 financing preferred C shares, 1,200,000
financing preferred D shares and 1,200,000 financing preferred E shares with a
par value of euro 0.60 per share, of which 38,419,282 common shares, 251,000
financing preferred A shares and 391,304 financing preferred B shares have been
issued. Additionally, authorized share capital includes 13,200,000 preferred
shares with a par value of euro 0.60, none of which have been issued.
The financing preferred A shares have a cumulative dividend that is calculated
on the basis of a percentage equal to the average effective yield on three
government bonds, the remaining term of which to the extent possible equals 10
years, increased by 100 basis points to be rounded up to whole cents. The profit
basis of the financing preferred A shares is equal to the issuance rate of the
F-23
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
financing preferred A shares issued on January 16, 1997, being euro 40.21.
The financing preferred B shares have a cumulative dividend that is calculated
on the basis of a percentage equal to the calculated average, over the last five
stock exchange days prior to the day of payment, of the effective yield on
government bonds with a (remaining) term of 6 to 7 years and 7 to 8 years (as
calculated by the Centraal Bureau voor de Statistiek and published in the
Officiele Prijscourant of Euronext Amsterdam) increased by 175 basis points,
rounded up to whole cents, and being distributed in cash. The profit basis is
equal to the issuance rate of euro 104.37.
16. Comprehensive Income
The components of Accumulated other comprehensive income are as follows:
-----------------------------------------------------
Accumulated
Foreign currency Other
translation Unrealized Comprehensive
adjustments holding gains Income
-----------------------------------------------------
(in euro millions)
-----------------------------------------------------
Balance at December 31, 1999 euro 28.1 euro (2.1) euro 26.0
Change in 2000 21.1 (0.5) 20.6
-----------------------------------------------------
Balance at December 31, 2000 49.2 (2.6) 46.6
Change in 2001 20.3 2.6 22.9
-----------------------------------------------------
Balance at December 31, 2001 69.5 - 69.5
Change in 2002 (97.1) - (97.1)
-----------------------------------------------------
Balance at December 31, 2002 euro (27.6) euro - euro (27.6)
=====================================================
17. Related Party Transactions
As at December 31, 2002 financing has been provided by ING Group. As at December
31, 2001 ING Group held a 7.6% ownership interest in the Company, which it has
subsequently disposed of during 2002. Interest expenses paid on subordinated
notes purchased by ING Group amounted to euro 1.7 million in 2002.
As at December 31, 2002, Fortis Utrecht NV had a 6.9% ownership interest in the
Company (unchanged compared to December 31, 2001). This entity also acts as a
clearing organization and finance institution for the Company.
As of December 31, 2002, Mr. Cleaver, a member of the Company's management
board, held a 1.24% partnership interest in VDM Specialists. The profit share
relating to this partnership interest in VDM Specialists amounted to euro 2.1
million for the year ended December 31, 2002.
The Company is required to pay minority stakeholders of VDM Specialists a fee
relating to exchange memberships contributed for use. This fee is based on the
market value of the exchange memberships and amounted to euro 4.9 million
during 2002, euro 3.4 million during 2001 and euro 1.4 million during 2000.
These amounts are included in Interest expense.
The Company further leases additional exchange memberships from certain
employees and a minority stakeholder of VDM Specialists through operational
lease agreements. The leases are based on NYSE published lease rates at the date
of the renewal and amounted to euro 2.0 million during 2002. Such amount is
included in Lease of exchange memberships.
See further note 24 "Commitments and Contingent Liabilities" for guarantees
issued in relation to related parties.
F-24
18. Kroon Warrants
On March 24, 1997, the Company issued 347,071 Kroon warrants as a dividend. Each
warrant is convertible into 7 1/2 common shares of the Company for euro 19.67.
The warrants had a three-year term and expired on March 23, 2000. Kroon warrants
were traded on the Euronext Amsterdam.
19. Stock Option Plans
Effective December 1, 1996, the stock option plan became effective after
adoption by the Supervisory Board of the Company. The stock option plan provides
for the grant of incentive stock options to certain directors and employees.
Each option is exercisable into one common share.
The Company has stock option plans in the Netherlands, the United Kingdom, the
United States and Germany. In 2000, 2001 and 2002, stock options were granted
under each plan with an exercise price equal to or higher than the market value
of the underlying stock. These options granted are immediately exercisable, with
the exception of the options granted to employees of Van der Moolen U.K., which
may not be exercised for a period of three years from the date of grant. Also,
the Company has granted certain options in the past, which could not be
exercised for a period of up to four years from the date of grant. The exercise
period of the options ranges from four to ten years.
If employees cease to be employed by the Company their unexercised options are
generally cancelled. Furthermore, any options exercised are subject to a
forfeiture period of three years during which the relevant employee must remain
employed with the Company or forfeit 80% of any benefits derived from the
exercise of the options, less taxation if any. Any exceptions to this policy
must be approved by the Management Board.
The exercise price for options granted in December 2002 was based on the opening
price of Van der Moolen Holding N.V. common shares on Euronext Amsterdam on
December 16, 2002.
New shares may be issued or shares may be repurchased to meet the obligations
arising from the exercise of employee options. Since 2002, granting of new
employee options is limited to a maximum of 1% of the issued share capital on
the date of the grant (prior years: 2%).
F-25
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
The following table summarizes the option activity for the year ended December
31, 2002:
Weighted Weighted
Average Average
Weighted Average Remaining Fair Value
Exercise Price Contractual Life in Range of at Grant
Options Years Exercise Prices Date
------------------------------------------------------------------------------------
Outstanding at January 1, 2002 21,929 euro 7.15 0.48 euro 6.63-8.62 euro 1.85
Outstanding at January 1, 2002 458,700 euro 17.26 2.71 euro 16.17-20.95 euro 4.70
Outstanding at January 1, 2002 1,646,251 euro 31.17 4.19 euro 27.30-35.22 euro 7.32
Granted 358,750 euro 21.06 4.96 euro 21.00-24.79 euro 7.12
Exercised (21,929) euro 7.15 0.23 euro 6.63-8.62 euro 1.85
Exercised (106,925) euro 17.80 1.76 euro 16.17-20.95 euro 4.66
Exercised (3,000) euro 30.18 3.58 euro 27.30-35.22 euro 7.89
Forfeited (1,200) euro 18.11 1.58 euro 16.17-20.95 euro 4.12
Forfeited (43,971) euro 31.35 2.82 euro 27.30-35.22 euro 7.40
------------------------------------------------------------------------------------
Outstanding at December 31, 2002 350,575 euro 17.09 1.89 euro 16.17-20.95 euro 4.17
Outstanding at December 31, 2002 358,750 euro 21.06 4.96 euro 21.00-24.79 euro 7.12
Outstanding at December 31, 2002 1,599,280 euro 31.17 3.22 euro 27.30-35.22 euro 7.32
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Total outstanding at December 31, 2002 2,308,605 3.29
euro 27.46 euro 16.17- 35.22 euro 6.89
====================================================================================
Exercisable (vested) options 2,221,605 euro 27.46 3.26 euro 16.17- 35.22 euro 6.86
====================================================================================
The following table summarizes the option activity for the year ended December
31, 2001:
Weighted Weighted
Average Average
Weighted Average Remaining Fair Value
Exercise Price Contractual Life in Range of at Grant
Options Years Exercise Prices Date
------------------------------------------------------------------------------------
Outstanding at January 1, 2001 51,954 euro 7,53 1.59 euro 5.33-8.62 euro 1.95
Outstanding at January 1, 2001 815,850 euro 17,17 3.61 euro 16.17-20.95 euro 4.67
Outstanding at January 1, 2001 790,200 euro 31,19 4.64 euro 30.18-33.81 euro 7.61
Granted 923,500 euro 31.10 4.81 euro 27.30-35.22 euro 7.11
Exercised (30,025) euro 7.81 1.17 euro 5.33-8.62 euro 2.02
Exercised (351,450) euro 17.03 2.99 euro 16.17-20.95 euro 4.63
Exercised (59,169) euro 30.21 4.41 euro 30.18-33.81 euro 7.88
Forfeited (5,700) euro 17.60 2.68 euro 16.17-18.11 euro 4.25
Forfeited (8,280) euro 31.89 3.95 euro 30.18-33.81 euro 7.42
------------------------------------------------------------------------------------
Outstanding at December 31, 2001 21,929 euro 7.15 0.48 euro 6.63-8.62 euro 1.85
Outstanding at December 31, 2001 458,700 euro 17.26 2.71 euro 16.17-20.95 euro 4.70
Outstanding at December 31, 2001 1,646,251 euro 31.17 4.19 euro 27.30-35.22 euro 7.32
------------------------------------------------------------------------------------
Total outstanding at December 31, 2001 2,126,880 euro 27.92 3.83 euro 6.63-35.22 euro 6.70
====================================================================================
Exercisable (vested) options 2,051,880 euro 27.92 3.82 euro 6.63-35.22 euro 6.68
====================================================================================
F-26
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
The following table summarizes the option activity for the year ended December
31, 2000:
Weighted Weighted
Average Average
Weighted Average Remaining Fair Value
Exercise Price Contractual Life in Range of at Grant
Options Years Exercise Prices Date
------------------------------------------------------------------------------------
Outstanding at January 1, 2000 155,079 euro 7.50 2.58 euro 4.54-8.62 euro 1.94
Outstanding at January 1, 2000 1,714,275 euro 17.29 4.45 euro 16.17-20.95 euro 4.67
Granted 790,200 euro 31.19 4.72 euro 30.18-33.81 euro 7.61
Exercised (103,125) euro 7.48 2.07 euro 4.54-8.62 euro 1.94
Exercised (841,425) euro 17.35 3.83 euro 16.17-19.62 euro 4.68
Forfeited (57,000) euro 17.83 3.66 euro 16.17-19.62 euro 4.68
------------------------------------------------------------------------------------
Outstanding at December 31, 2000 51,954 euro 7.53 1.59 euro 5.33-8.62 euro 1.95
Outstanding at December 31, 2000 815,850 euro 17.17 3.61 euro 16.17-20.95 euro 4.67
Outstanding at December 31, 2000 790,200 euro 31.19 4.64 euro 30.18-33.81 euro 7.61
------------------------------------------------------------------------------------
Total outstanding at December 31, 2000 1,658,004 euro 23.55 4.07 euro 5.33-33.81 euro 5.98
====================================================================================
Exercisable (vested) options 1,619,004 euro 23.52 4.11 euro 5.33-33.81 euro 5.96
====================================================================================
For the years ended December 31, 2002, 2001 and 2000, the Company recognized a
stock option expense of euro 5.5 million, euro 5.0 million and euro 4.0
million, respectively.
The fair value of the options granted is calculated on the date of the grant
using the Black-Scholes option-pricing model. The weighted average assumptions
used for grants made in 2002, 2001 and 2000 are as follows:
---------------------------------
December 31,
---------------------------------
2002 2001 2000
---------- ----------- ----------
Dividend yield 3.5% 4.8% 5.0%
Expected volatility 50% 37.5% 45.0%
Risk-free interest rate 3.60% 4.47% 5.04%
Expected option life 3 years 3 years 3 years
---------- ----------- ----------
20. Earnings Per Share
Basic earnings per share is calculated by dividing the net income applicable to
ordinary shares outstanding by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed using the
same method as basic earnings per share, but reflects the potential dilution
that could occur if other equity instruments were converted or exercised into
common shares.
For purposes of calculating (diluted) earnings per share, net income available
for common shares is adjusted, if applicable for any financing preferred share
dividends. During the years under review, the Company had one category of
dilutive potential common shares: shares issuable on exercise of share options
granted to employees.
For the share options, a calculation is performed to determine the number of
shares that could have been issued at market price (determined as the average
annual share price of the Company's shares). This calculation serves to
determine the "unpurchased shares" to be added to the ordinary shares
outstanding for the purposes of computing the dilution.
F-27
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
--------------------------------------------------------
Year ended December 31,
2002 2001 2000
---- ------------- ---- ------------- ---- -------------
(in euro millions, except per share data)
Basic Earnings per Share:
Net income euro 30.1 euro 92.1 euro 124.2
Less: Financing preferred shares dividends (2.9) (2.9) (2.8)
------------- ------------- -------------
Net income available to common shareholders 27.2 euro 89.2 euro 121.4
============= ============= =============
Weighted average number of common shares in issue 38,388,043 38,139,964 36,990,191
Basic earnings per share euro 0.71 euro 2.34 euro 3.28
Diluted Earnings per Share:
Net income available to common shareholders euro 27.2 euro 89.2 euro 121.4
Weighted average number of common shares in issue 38,388,043 38,139,964 36,990,191
Dilutive effect of stock options 137,847 311,991 398,046
------------- ------------- -------------
Diluted weighted average number of common shares
outstanding 38,525,890 38,451,955 37,388,237
============= ============= =============
Diluted earnings per share euro 0.71 euro 2.32 euro 3.25
The (diluted) weighted average number of common shares outstanding and (diluted)
earnings per share for prior reporting periods have been adjusted for stock
dividends.
21. Segmental Information
The Company has four main segments: VDM Specialists, U.S. Option Business,
European Trading and Other. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies. The
Company evaluates performance based on the income from operations before
amortization and impairment of intangible assets, tax and finance charges by
segments and by the underlying business units comprising these segments.
This categorization differs from the segmentation adopted in the past, which
comprised: "VDM Specialists", "Other specialists", "Van der Moolen Trading",
"Other market makers" and "Other". It is the Company's opinion that the new
classification more accurately reflects the Company's organizational and
managerial structure and its sources of profitability.
Financial information is reviewed by subsidiary on a monthly basis. In 2001 and
2002, the only subsidiary representing more than 10% of the revenues and net
income of the Company was VDM Specialists. In terms of 2000, there were two
subsidiaries that represented more than 10% of the revenues and net income of
the Company: VDM Specialists and Van der Moolen Trading, a proprietary trader.
F-28
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
The following table summarizes segment information for the year ended December
31, 2002:
U.S.
VDM Option European Other Total
Specialists Business Trading
------------- ----------- ------------ ------------ ---------------
(in euro millions)
Revenues
Specialist activities euro 227.0 euro euro euro euro 223.2
Proprietary trading activities 2.1 (3.8) - - 56.1
Commissions 33.4 0.9 53.1 - 35.0
Net income from stock - 1.6 -
lending activities 4.2 4.2
Other revenues - - - - 3.3
- - 3.3
------------- ----------- ------------ ------------ ---------------
Total euro 266.7 euro (2.9) euro 54.7 euro 3.3 euro 321.8
============= =========== ============ ============ ===============
Corporate costs (excluding
amortization and impairment of
intangible fixed assets) euro 103.9 euro 15.2 euro 49.5 euro 20.5 euro 189.1
Amortization and impairment of
intangible fixed assets 1) 7.3 33.9 - - 41.2
Income from operations 155.5 (52.0) 5.2 (17.2) 91.5
Provision for income taxes 2) (42.8) 20.8 (3.1) 0.4 (24.7)
Segment assets 1,807.8 529.0 646.4 53.9 3,037.1
Segment goodwill 92.9 17.6 31.4 - 141.9
Additions to long-lived assets 40.8 - 1.2 1.2 43.2
1) Impairment of intangible assets amounting to euro 33.7 million fully
relate to U.S. Option Business. See "Significant Accounting Policies -
Goodwill and Other Intangible assets" on page F-11 for further information.
2) Provision for income taxes included in segment other reflects the
activities of the concern financing entity.
VDM Trading as included in European Trading generated euro 11.0 million of
revenues.
F-29
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
The following table summarizes segment information for the year ended December
31, 2001:
------------- ----------- ------------ ------------ ---------------
U.S.
VDM Option European Other Total
Specialists Business Trading
------------- ----------- ------------ ------------ ---------------
(ineuromillions)
Revenues
Specialist activities euro 222.4 euro (8.0) euro 11.2 euro - euro 225.6
Proprietary trading activities 4.1 6.7 54.2 - 65.0
Commissions 30.8 - 7.7 - 38.5
Net income from stock
lending activities 5.1 - - - 5.1
------------- ----------- ------------ ------------ ---------------
Total euro 262.4 euro (1.3) euro 73.1 euro - euro 334.2
============= =========== ============ ============ ===============
Corporate costs (excluding
amortization and impairment of
intangible fixed assets) euro 95.2 euro 18.8 euro 24.4 euro 45.5 euro 183.9
Amortization and impairment of
intangible fixed assets 12.1 1.6 3.5 3.0 20.2
Income from operations 155.1 (21.7) 24.1 (27.4) 130.1
Provision for income taxes 1) (41.5) 6.6 (9.7) 4.8 (39.8)
Segment assets 2,436.2 932.2 523.3 187.9 4,079.6
Segment goodwill 84.0 60.9 31.4 - 176.5
Additions to long-lived assets 90.2 53.2 5.6 1.8 150.8
1) Provision for income taxes included in segment other reflects the activities
of the concern financing entity.
VDM Trading as included in European Trading generated euro 29.1 million of
revenues and income from operations of euro 12.0 million for the year ended
December 31, 2001.
F-30
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
The following table summarizes segment information for the year ended December
31, 2000:
U.S.
VDM Option European Other Total
Specialists Business Trading
------------- ----------- ------------ ------------ ---------------
(in euro millions)
Revenues
Specialist activities euro 248.0 euro 8.1 euro 25.7 euro - euro 281.8
Proprietary trading activities 6.0 7.9 109.8 - 123.7
Commissions 29.6 - 9.4 - 39.0
Net income from stock
lending activities 6.3 - - - 6.3
------------- ----------- ------------ ------------ ---------------
Total euro 289.9 euro 16.0 euro 144.9 euro - euro 450.8
============= =========== ============ ============ ===============
Corporate costs (excluding
amortization and impairment of
intangible fixed assets) euro 88.1 euro 15.2 euro 66.0 euro 19.3 euro 188.6
Amortization and impairment of
intangible fixed assets 9.8 1.5 3.5 - 14.8
Income from operations 192.0 (0.7) 75.4 (19.3) 247.4
Provision for income taxes 1) (56.0) 0.7 (32.8) 2.1 (86.0)
Segment assets 2,038.6 267.1 316.7 120.1 2,742.5
Segment goodwill 73.7 20.3 35.0 - 129.0
Additions to long-lived assets 79.6 - 1.5 2.2 83.3
1) Provision for income taxes included in segment other reflects the activities
of the concern financing entity.
VDM Trading as included in European Trading generated euro 73.9 million of
revenues and income from operations of euro 43.1 million for the year ended
December 31, 2000.
Reconciliation from operating income to income before taxes:
----------------------------------
2002 2001 2000
----------------------------------
(in euro millions)
Income from operations euro 91.5 euro 130.1 euro 247.4
Income (loss) from associates 0.3 (0.1) 0.2
Gain on disposal of long-term investments and
associates 0.4 29.8 10.9
Interest expense, net (14.1) (10.4) (6.4)
Other income 5.2 7.8 1.5
----------------------------------
Income before income taxes and minority interest euro 83.3 euro 157.2 euro 253.6
==================================
F-31
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
Enterprise Wide Disclosures
Revenues attributed to the Company's country of domicile (the Netherlands) and
to the other countries in which the Company's subsidiaries operate are as
follows:
----------------------------------
2002 2001 2000
----------------------------------
(in euro millions)
United States euro 267.1 euro 260.9 euro 305.9
The Netherlands 29.4 34.1 64.3
Germany 11.0 29.1 73.9
United Kingdom 14.3 10.1 6.7
----------------------------------
Total euro 321.8 euro 334.2 euro 450.8
==================================
The Company's long-lived assets mainly comprise assets in the United States of
America and goodwill relating to European Trading segment as included in the
segmental information.
22. Fair Value of Financial Instruments
The following section summarizes the methods and assumptions used by the
Company, by financial instrument, in estimating fair value:
Assets and liabilities for which fair value approximates carrying value: The
fair values of certain financial assets and liabilities carried at cost,
including cash and cash equivalents, receivables and payables from and to
clearing organizations and other professional parties and accounts payable,
accrued expenses and other liabilities. The fair value of these assets and
liabilities approximate market value due to their short-term nature.
Securities and trading liabilities: Fair values of trading assets, securities
available for sale and trading liabilities are the amounts recognized in the
consolidated balance sheets, which are based on market prices, where available.
If quoted prices are not available, fair values are determined based on quoted
market prices of comparable instruments.
Stock loaned and borrowed: Stock loaned and borrowed is stated at contract
value, which approximates market value.
Notes receivable: Notes receivable are net of specific provisions for
impairment. The carrying value approximates fair value.
Short-term borrowings and notes payable: The carrying value of short-term
borrowings and notes payable approximates market value due to the fact that
interest rates are comparable with market rates.
Subordinated notes: The subordinated notes bear market rates of interest, taking
into account interest rate swaps in place, and their carrying amounts are
reasonable estimates of their fair value.
23. Derivatives and Risk Management
The Company enters into interest rate and foreign exchange derivative contracts
in connection with its balance sheet management activities, which involve the
management of interest rate and foreign exchange rate risk, and trading
activities. These derivative contracts involve, to varying degrees, credit risk
and market risk. Market risk is the risk that a change in the level of one or
more market factors, such as interest rates, indices, volatilities,
correlations, or other factors will result in losses for a specified position or
portfolio. Credit risk represents the loss that the Company would incur if a
counterparty fails to perform its contractual obligation to the Company. In
managing derivative credit risk, both the current exposure, which is the
replacement cost of contracts on the measurement date, as well as an estimate of
the potential change in value of contracts over their remaining lives are
considered. Where applicable, to minimize credit risk, the Company enters into
F-32
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
legally enforceable netting arrangements, which reduce risk by permitting the
settlement and netting of transactions with the same counterparty upon
occurrence of certain events. All option trading is conducted on recognized
exchanges. With respect to the Company's option trading activities, the
Company's clearing brokers, through industry clearing organizations, act as the
counterparty and therefore bears the risk of delivery to and from
counterparties. Derivative contracts are reported on a net-by-counterparty basis
on the Company's Consolidated Statements of Financial Condition where it is
determined a legal right of setoff exists under an enforceable netting
agreement.
The majority of the Company's derivatives are entered into for trading purposes
and the accounting treatment was not materially affected by the adoption of SFAS
133 as of January 1, 2001.
Derivatives designated as hedges for accounting purposes must be considered to
be highly effective at reducing the risk associated with the exposure being
hedged. Each derivative must be designated as a hedge, with documentation of the
risk management objective and strategy for the hedge, including identification
of the hedging instrument, the hedged item and the risk exposure, and how
effectiveness is to be assessed both prospectively and retrospectively.
The Company's qualifying fair value hedges relate to interest rate swaps used to
modify exposure to interest rate risk by converting fixed rate debt into a
floating rate. All changes in the fair value of the derivative and changes in
the fair value of the hedged item have been included in earnings consistent with
the classification of the hedged transaction, in Net interest expense. The fair
value of interest rate swaps designated as qualifying fair value hedges,
determined in accordance with the Company's netting policy, was euro 10.9
million at December 31, 2002 (December 31, 2001: euro (3.0) million).
Market risk is the risk that price changes could affect the value of the equity,
option or bond positions that arise from normal trading activity. Market risk
increases when markets move sharply and volatility increases. The management of
market risk is primarily based at each of the Company's operating units, with
central oversight, analysis and formation of risk policy based at the Company's
headquarters. The central risk control department establishes, in consultation
with the Management Board and the management of the operating units, specific
maximum risk levels to which the operating units must adhere, monitors
compliance with those limits and reports the risk profile of the group directly
to the Management Board on a daily basis.
Liquidity risk relates to the Company's capacity to finance security positions.
The Company's financial resources, relative to its capital employed, and the
liquid nature of most of the instruments traded, limit this risk. In addition,
the Company maintains credit lines with commercial banks.
Credit risk that could result from counterparties defaulting is limited for the
Company's operations that operate on regulated exchanges, since the settlement
risk is essentially transferred to recognized clearing organizations. The
exception to this is the bond trading business in the United Kingdom, which
trades outside exchange frameworks. Its exposure to counterparties is monitored
closely and is subject to limits. The Company has established minimum standards
for the credit quality of its counterparties, which are monitored on a
continuous basis.
24. Commitments and Contingent Liabilities
Van der Moolen Holding N.V. has issued guarantees to third parties for a total
amount of euro 9.5 million ($ 10 million). These guarantees are issued in
relation to loans granted to members of VDM Specialists, LLC in order to acquire
seats on the New York Stock Exchange.
Van der Moolen Holding NV is liable for the liabilities of its wholly owned
Dutch subsidiaries, which arise from legal acts by these subsidiaries, pursuant
to the statements that have been issued in accordance with section 2:403 of the
Dutch Civil Code.
On March 10, 2001, Van der Moolen Holding N.V. provided an irrevocable and
unconditional guarantee in the maximum amount of euro 28.6 million ($30
million) in respect of the payment of all liabilities of Van der Moolen UK
Limited incurred in connection with the conduct of its business. Furthermore, a
guarantee is provided in connection with Van der Moolen UK Limited's clearing
F-33
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
and settlement obligations to banks in the maximum amount of euro 4.7 million
($ 5 million).
Van der Moolen Holding N.V. has extended financial support for a minimum period
of 1 year to one of its 100%-owned foreign subsidiaries.
VDM Specialists has issued so-called 325(e) guarantees to the New York Stock
Exchange in the total amount of euro 5.3 million ($ 5.6 million).
VDM Specialists has issued guarantees to third parties in the amount of euro
0.9 million ($ 1 million) in relation to rental agreements for New York Stock
Exchange seats.
The Company and its subsidiaries have obligations under operating leases with
initial noncancellable terms in excess of one year. Minimum rental commitments
under noncancellable leases for 2003 and the succeeding four years and
thereafter are as follows:
Year (in euro millions)
2003 euro 1.9
2004 1.9
2005 1.9
2006 1.7
2007 1.2
Later years 3.2
--------------------
Total minimum lease euro
payments 11.8
====================
Certain leases contain renewal options and escalation clauses. The rent expense
for the year ended December 31, 2002, 2001 and 2000 was euro 2.1 million,
euro 2.5 million and euro 1.8 million, respectively.
At December 31, 2002, the Company had undrawn credit lines in the total amount
of euro 140 million.
The Company can be a party to various legal proceedings that arise in the
ordinary course of business. Management believes, based on currently available
information including evaluations by outside counsel, that the results of such
proceedings, in the aggregate, will not have a material adverse effect on the
Company's financial condition.
At December 31, 2002, the market value of collateral received by the Company
that can be sold or repledged totaled euro 1,287.9 million (December 31, 2001:
euro 1,609.0 million). Such collateral is generally obtained under resale and
securities borrowing agreements. Of this collateral, euro 1,197.5 million
(December 31, 2001: euro 1,577.2 million) has been repledged, generally as
collateral under stock loan agreements or to cover short sales and consists
primarily of common stocks.
25. Net Capital Requirements
Three subsidiaries of the Company, VDM Specialists, Van der Moolen Options USA
and Cohen, Duffy, McGowan & Co., are subject to the SEC Uniform Net Capital Rule
(SEC Rule 15c3-1) and to the Rules of the Chicago Board of Options Exchange and
the American Stock Exchange, if applicable, which specify minimum net capital
requirements. At December 31, 2002, the three subsidiaries' net capital, as
defined in SEC Rule 15c3-1 taking into account the capital requirements of other
exchanges, was euro 246.6 million in excess of their net capital requirements.
The Company is also subject to capital requirements for the subsidiaries in the
Netherlands. The net capital requirements at December 31, 2002 for Van der
Moolen Effecten Specialist, Van der Moolen Obligaties, and Van der Moolen Opties
Amsterdam are euro 0.73 million, euro 0.73 million, and euro 0.5 million,
respectively. For each of the companies, the net capital at December 31, 2002
exceeds requirements.
Van der Moolen UK Limited, has a net capital requirement at December 31, 2002 of
euro 10.8 million. The net capital at December 31, 2002 exceeds the
requirement.
Van der Moolen Equities Limited, has a net capital requirement at December 31,
2002 of euro 1.2 million. The net capital at December 31, 2002 exceeds the
requirement.
The Company's German subsidiary, Van der Moolen Trading has a net capital
requirement at December 31, 2002 of euro 6.8 million. Van der Moolen Trading's
net capital at December 31, 2002 exceeds the requirement.
F-34
Van der Moolen Holding N.V.
Notes to Consolidated Financial Statements - (Continued)
26. Net Liquid Assets Requirements
VDM Specialists is subject to New York Stock Exchange Rule 104.22, which specify
minimum net liquid assets requirements. As of December 31, 2002, VDM
Specialists' minimum net liquid asset requirement was euro 231.7 million and
its actual net liquid assets were euro 239.2 million.
27. Subsequent Events
At the General Meeting of Shareholders held on April 10, 2002 and on April 9,
2003, the shareholders approved a resolution authorizing the Company to
repurchase common shares of the Company. In accordance with the authorization,
the Company can repurchase up to a maximum of 2.3 million of its common shares
to cover its potential obligations deriving from management and employee stock
option programs. As at June 11, 2003, 732,182 shares were repurchased for an
aggregate consideration of euro 6.7 million.
At the General Meeting of Shareholders held on April 9, 2003, the proposed
appropriation of income for 2002 was approved, resulting in a cash dividend on
common shares of euro 0.72 per share, which was subsequently paid on April 25,
2003.
F-35
SUMMARY OF SIGNIFICANT ACCOUNTING DIFFERENCES BETWEEN
DUTCH GAAP AND U.S. GAAP
The consolidated financial statements of Van der Moolen Holding
N.V. are presented in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP"). U.S. GAAP
differs in certain respects from generally accepted accounting
principles in the Netherlands ("Dutch GAAP").
The following is a summary of the significant differences:
(a) Purchase accounting and goodwill
Goodwill represents the difference between the purchase price and
the fair value of the net assets acquired in a business combination
accounted for as a purchase under U.S. GAAP. The purchase price is
allocated to the individual tangible and intangible assets and
liabilities acquired based on their respective fair values at the
acquisition date. Goodwill and intangible assets are amortized over
their estimated useful lives.
Under Dutch GAAP, goodwill arising from acquisitions before
January 1, 2001 was written off directly against shareholders' equity
at the acquisition date. Effective January 1, 2001, the guidelines in
the Netherlands have been revised and the preferred accounting
treatment is to capitalize and amortize goodwill and other intangible
assets for all acquisitions occurring after January 1, 2001.
In accordance with US GAAP, starting January 1, 2002 goodwill is
no longer amortized but subject to annual impairment tests according
to Statement of Financial Accounting Standards 142. Under Dutch GAAP,
such goodwill is amortized over an estimated useful life of 15 years.
(b) Stock options
Under U.S. GAAP, compensation expense has been recorded in
accordance with the Statement of Financial Accounting Standards No.
123, "Accounting for Stock-based Compensation" ("SFAS 123"). Under
SFAS 123, the stock compensation expense is calculated using the fair
value method. The related expense has been included in employee
benefits and compensation in the consolidated statement of income.
For Dutch GAAP purposes, no compensation expense is recorded for
stock options.
(c) Marketable securities
Under U.S. GAAP, securities held for investment are classified as
follows:
- -- trading, at which the investments are valued at fair value with changes in
fair value recorded through current period earnings,
- -- held-to-maturity, which are carried at amortized cost, or
- -- available-for-sale, which are carried at fair value with changes in the
fair value recorded as a separate component of shareholders' equity.
For Dutch GAAP, the changes in respect to fair value of the
investments held by the company are recognized through the
consolidated statement of income.
(d) Provisions and Restructuring Provisions
Under U.S. GAAP, the criteria for providing, maintaining and
charging liabilities and reserves for contingencies are stringent and
include, among others, that a liability is incurred at the date of the
financial statements for the related costs. Provisions cannot be
recognized for future expenses unless (i) an obligation exists or (ii)
the occurrence of a contingency is probable and its amount is
reasonably estimable, at the balance sheet date.
A-1
For restructuring, under U.S. GAAP, only costs that qualify as
exit costs under the guidelines set out in EITF 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity" and therefore do not relate to the ongoing
operations of the Company may be provided for. In addition, a number
of specific criteria also must be met before these costs that do not
qualify as restructuring or exit costs can be recognized as an
expense. Among these is the requirement that all the significant
actions to be taken as part of a reorganization must be identified
along with the expected completion dates, and the exit program must be
approved by the balance sheet date. Costs that do not qualify as exit
costs are expensed when incurred.
Under Dutch GAAP, provisions can be made for a subsequent
financial year, provided that such expenses originated in the current
year. When a decision has been made by management to reorganize part
of the business, provisions are made for redundancy as well as other
closing, integration and moving costs.
From January 1, 2001, more stringent rules regarding provisions
are applicable under Dutch GAAP. As of December 31, 2001, no
differences exist between the accounting treatment of provisions under
both U.S. GAAP and Dutch GAAP as a result of changes in Dutch
accounting principles.
(e) Pension liabilities and pension costs
Under U.S. GAAP, the pension plans in the Netherlands are defined
benefit plans under SFAS No. 87, "Employers' Accounting for Pensions".
Plan benefits are based on years of service and compensation levels at
the time of retirement. In accordance with SFAS 87, the excess of plan
assets over projected benefit obligation, as of January 1, 1997, the
transition date, is recognized as a part of periodic pension costs on
a prospective basis. The fair value of the plan assets and the pension
obligation is recorded on the balance sheet.
Under Dutch GAAP, contributions are expensed as paid and the back
service liability for each year is expensed.
(f) (Deferred) taxation
The difference in (deferred) taxation results from the differences
between accounting principles applied to intangible fixed assets and
pensions under both U.S. GAAP and Dutch GAAP.
(g) Balance sheet/Income statement
For U.S. GAAP, there were reclassifications on the consolidated
balance sheet and consolidated statement of income for presentational
purposes.
A-2
Selected Dutch GAAP Financial Data
The following selected Dutch GAAP historical financial data has
been provided for informational purposes only. We have extracted the
summary financial data set out below from our audited Dutch GAAP
financial statements for the years ended December 31, 1998, 1999,
2000, 2001 and 2002. These financial statements have been prepared in
accordance with Dutch GAAP, and PricewaterhouseCoopers Accountants
N.V., independent auditors, have audited them.
We have restated amounts from Dutch guilders into euro for the
year ended December 31, 1998 by dividing the amounts in Dutch guilders
by the exchange rate of NLG2.20371 = EUR1.00, the rate of exchange
between the Dutch guilder and the euro fixed on January 1, 1999.
The comparative financial statements we present for periods prior
to January 1, 1999 and reported in euro depict the same trends as the
financial statements would have shown if we had continued to present
them in Dutch guilders. However, the financial statements for periods
prior to January 1, 1999 will not be comparable to the financial
statements of other companies that report in euro and that restated
their prior period financial statements from a currency other than the
Dutch guilder.
Year ended December 31,
-------------------------------------------------
1998 1999 2000 2001 2002
------ -------- -------- -------- -----------
(in EUR millions)
Consolidated Profit and Loss Account
Data:
Revenues 149.0 240.3 452.2 345.1 327.6
Transaction costs (10.7) (18.4) (28.4) (32.9) (42.8)
------ -------- -------- -------- -----------
Net revenues 138.3 221.9 423.8 312.2 284.8
------ -------- -------- -------- -----------
Personnel expenses, fixed (14.2) (23.8) (34.7) (48.1) (53.6)
Personnel expenses, variable (16.0) (30.8) (84.1) (43.0) (33.9)
Lease of exchange memberships (1) -- (3.6) (9.0) (14.2) (18.3)
Information and communication
expenses (1) (5.7) (4.7) (5.3) (6.1) (6.6)
Depreciation of tangible fixed
assets (1.5) (1.6) (2.8) (2.5) (2.8)
Amortization of intangible fixed
assets -- -- -- (2.5) (9.1)
Impairment of intangible fixed
assets -- -- -- -- (21.5)
General and administrative expenses(2)(11.0) (14.2) (18.9) (20.8) (21.5)
------ -------- -------- -------- -----------
Operating income 89.9 143.2 269.0 175.0 117.5
------ -------- -------- -------- -----------
Net interest income (expense) 0.5 (2.4) (6.4) (10.4) (14.1)
------ -------- -------- -------- -----------
Income from ordinary activities
before taxes 90.4 140.8 262.6 164.6 103.4
------ -------- -------- -------- -----------
Taxation (2) (27.4) (44.6) (82.0) (38.6) (19.7)
------ -------- -------- -------- -----------
Income from ordinary activities
after taxes 63.0 96.2 180.6 126.0 83.7
------ -------- -------- -------- -----------
Net extraordinary income 9.6 29.4 7.8 26.0 --
------ -------- -------- -------- -----------
Income after extraordinary income 72.6 125.6 188.4 152.0 83.7
------ -------- -------- -------- -----------
Minority interests (3.8) (20.2) (43.4) (25.3) (25.2)
------ -------- -------- -------- -----------
Net income 68.8 105.4 145.0 126.7 58.5
------ -------- -------- -------- -----------
A-3
Notes:
(1) Cost of lease of exchange memberships were formerly included in information
and communication expenses. Comparative financial data for the years ended
December 31, 1999 and 2000 have been restated for purposes of comparison.
The financial information for the year ended December 31, 1998 has not been
restated. This reclassification has no impact on net income.
(2) Unincorporated business tax expenses were included in general expenses.
Starting in 2001, these expenses have been included in taxation.
Comparative financial data for the years ended December 31, 1999 and 2000
have been restated for purposes of comparison. The financial information
for the year ended December 31, 1998 has not been restated. This
reclassification has no impact on net income.
A-4
Year ended December 31,
--------------------------------------------------
1998 1999 2000 2001 2002
-------- -------- -------- -------- ----------
(in EUR millions)
Consolidated Balance Sheet Data:
Fixed assets:
Intangible fixed assets 1.2 -- -- 159.4 163.2
Tangible fixed assets 5.6 7.3 7.9 11.1 9.3
Financial fixed assets (1) 83.5 100.4 83.4 67.1 121.6
-------- -------- -------- -------- ----------
Total fixed assets 90.3 107.7 91.3 237.6 294.1
-------- -------- -------- -------- ----------
Current assets:
Long positions securities 306.1 522.8 479.7 775.7 457.0
Clearing organizations and professional
parties 14.2 78.6 143.7 723.1 398.1
Accrued and other receivables 38.8 15.2 11.9 31.0 11.5
Cash and cash equivalents 45.2 130.4 221.9 304.2 334.0
-------- -------- -------- -------- ----------
Total current assets 404.3 747.0 857.2 1,834.0 1,200.6
-------- -------- -------- -------- ----------
Total assets 494.6 854.7 948.5 2,071.6 1,494.7
======== ======== ======== ======== ==========
Shareholders' equity (2) 111.0 122.0 188.5 265.7 312.2
Minority interests 9.3 21.8 26.7 64.1 62.0
-------- -------- -------- -------- ----------
Group equity 120.3 143.8 215.2 329.8 374.2
-------- -------- -------- -------- ----------
Provisions 4.3 11.9 14.1 14.7 12.3
-------- -------- -------- -------- ----------
Subordinated debt (1) 47.8 60.6 86.5 207.7 199.4
Long-term loans 31.7 13.2 7.6 7.3 6.9
-------- -------- -------- -------- ----------
Long-term liabilities 79.5 73.8 94.1 215.0 206.3
Short-term liabilities:
Short positions securities 175.6 416.5 403.8 1,178.4 691.3
Clearing organizations and professional
parties 19.3 77.3 70.3 151.6 123.8
Short-term loans (3) -- -- 13.1 65.5 8.3
Advanced by clearing organizations 48.8 64.7 9.2 46.7 42.5
Accrued and other liabilities (2) 46.8 66.7 128.7 69.9 36.0
-------- -------- -------- -------- ----------
Total short-term liabilities 290.5 625.2 625.1 1,512.1 901.9
-------- -------- -------- -------- ----------
Total liabilities and shareholders'
equity 494.6 854.7 948.5 2,071.6 1,494.7
======== ======== ======== ======== ==========
Notes:
(1) With effect from the beginning of 2001 exchange memberships contributed by
members for use by VDM Specialists, LLC have been capitalized in the
balance sheet at fair value, and a corresponding subordinated debt has been
recognized. The prior years' financial data have been adjusted accordingly.
This change in accounting policy increases financial fixed assets with a
corresponding increase in subordinated debt.
A-5
(2) In 2001, the financial statements under Dutch GAAP were prepared before
appropriation of income in accordance with International Accounting
Practice. The prior years' financial data have been adjusted accordingly.
This results in a restatement of proposed dividends from accrued and other
liabilities to shareholders' equity.
(3) Short-term loans were formerly included in accrued and other liabilities.
Comparative financial data for the year ended December 31, 2000 have been
restated for purposes of comparison. The financial information for the
years ended December 31, 1998 and 1999 have not been restated given the
fact that the amounts involved are not material.
A-6
Exhibit Index
The following instruments and documents are included as exhibits
to this annual report.
Exhibit Number Description
- ---------------- --------------------------------------------------------------------
1.1** Articles of Association of the Company.
2.1** Deposit Agreement among the Company, The Bank of New York, as
depositary, and the owners and beneficial owners from time to time
of American Depositary Receipts evidencing American Depositary
Shares each representing one common share of the Company.
2.2** Form of American Depositary Receipt.
4.1** Amended and Restated Operating Agreement of VDM Specialists, LLC.
8* Subsidiaries of the registrant.
12.1* Certification of the Chief Executive Officer pursuant to section 302
of the Sarbanes-Oxley Act of 2002.
12.2* Certification of the Chief Financial Officer pursuant to section 302
of the Sarbanes-Oxley Act of 2002.
12.3* Certification of the Chief Executive Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-
Oxley Act of 2002.
12.4* Certification of the Chief Financial Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-
Oxley Act of 2002.
* Filed herewith.
** Incorporated by reference to the Company's Registration Statement on Form
20-F (SEC File No. 333-1-16731) filed with the Securities and Exchange
Commission on October 15, 2001.