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 Nasdaq Reports First Quarter 2002 Results
   Wednesday, May 15, 2002 4:02:50 PM ET

NEW YORK, May 15, 2002 PRNewswire -- The Nasdaq Stock Market, Inc., the world’s largest electronic stock market, today reported first quarter results for the period ending March 31, 2002.

Net Income

The first quarter reflected both Nasdaq’s response to less robust markets and a continuation of its investment in the soon-to-be launched SuperMontage(SM) trading platform:

    *  Net income for the quarter was $21.3 million as compared to $26.2
       million in the first quarter of 2001, a decrease of 18.7%.

    *  Basic earnings per share were $0.19 versus $0.21 in the same comparable
       period in 2001.

    *  Total expenses for the quarter were $172.6 million versus $180.7
       million in the first quarter of 2001, an improvement of 4.5%.

    *  Net income margin for the quarter was 10.1%. 

Revenue

Nasdaq’s revenue declined modestly in the first quarter due to moderation in trading volume and increased competition:

    *  Revenue for the quarter was $211.3 million versus $222.8 million in the
       first quarter of 2001, a decrease of 5.2%.

    EBITDA(1)
    Continued strong operating performance:
    *  EBITDA was $64.0 million versus $62.9 million in the same period last
       year, an increase of 1.7%. 

"In the first quarter, we continued to narrow our focus to the objectives that will assure Nasdaq’s leadership as we become an independent, shareholder owned company," noted Wick Simmons, chairman and chief executive officer of The Nasdaq Stock Market, Inc. "While the economic environment remains challenging and competition intense, we remain focused on the launch of SuperMontage, the continued roll-out of Primex(TM), and further refinement of our operating structure, emphasizing cost control, particularly in the discretionary expense lines." Mr. Simmons continued, "This is the platform from which Nasdaq will further its strategy of leveraging its strong brand and technology infrastructure, to remain a center of liquidity while exploring opportunities to ultimately broaden the capital base globally."

    Business Line Results

    Nasdaq Transaction Services 

Revenue

Revenue was $104.7 million in the first quarter versus $110.8 million a year ago, a decrease of 5.5%. Economic and competitive factors contributed to the decline, including a slight decrease in average daily share volume when compared to the first quarter of 2001.

Access Services revenue declined 3.9% relative to the first quarter of 2001, primarily due to cost saving initiatives at major investment firms. Trade Reporting revenue declined 17.9% from the first quarter of 2001, due to the reduction of fees for a trade report, as well as decreased demand for certain trade reporting functionality.

Strong Pipeline

The new product pipeline is strong. Primex(TM), the electronic auction system, now serves the stocks all of the major indices. Over 60% of orders entered into Primex result in price improvement. The release of SuperMontage is on schedule. It progressed through the design phase and is now being integrated into operations for launch this summer. Nasdaq’s Quality Control department began testing the software in January 2002 and has commenced tests with member firms on production equipment. Most recently, Nasdaq successfully completed three external user tests. Testing will continue through implementation in late July.

Nasdaq Transaction Services derives revenue primarily from transactions associated with SuperSOES, SelectNet, SOES, trade reporting fees associated with ACT, and system access fees.

    Market Information Services 

Revenue

Revenue declined 17.7% to $52.0 million during the quarter from $63.2 million in the same period last year.

The decline is due to overall market conditions, as well as the reporting of trades to regional exchanges. Nasdaq is exploring a number of initiatives aimed at mitigating current regulatory fee imbalances between the Company and these exchanges, and announced on May 3, 2002, a pilot program to increase the amount of tape revenue to be shared with market participants that report trades to Nasdaq, as well as a new process to assess regulatory costs.

New Data Products

The launch of SuperMontage(SM) is expected to provide a series of new data products. These products will be proprietary and Nasdaq is expected to capture the full economic benefit of these new revenue streams; specifically, products such as DepthView(SM) and TotalView(SM), which combined with other products, will offer subscribers greater transparency into the depth of the markets in Nasdaq listed companies.

Market Information Services derives revenue primarily from Level 1 and Nasdaq Quotation Dissemination Service (NQDS/Level II) data and, receipt of CQA/CTA tape revenue for trades processed through the Nasdaq InterMarket.

    Corporate Client Group Services 

Revenue

Revenue was $43.9 million for the first quarter, up from $38.3 million in the first quarter of 2001, an increase of 14.6%. The increase is primarily the result of fee increases to listed companies implemented at the beginning of 2002.

The Corporate Client Group is on pace to launch the Market Intelligence Center in June. This center will provide Nasdaq listed companies a single point of contact to access critical data pertaining to the equity markets and individual stocks.

Corporate Client Group Services revenue is primarily earned through the amortization of initial listing fees, fees associated with the listing of additional shares, and annual renewal fees for companies listed on Nasdaq.

    Other 

Revenue

Revenue was $10.7 million for the first quarter, flat relative to year-ago levels. Continued softness in revenue generated from the Nasdaq MarketSite, offset gains in revenue generated from trademark and licensing agreements.

Other revenue is related to the licensing of the Nasdaq-100 Index(R) for financial products such as the exchange-traded fund QQQ. The Index, launched in 1985, generally includes the 100 largest non-financial stocks traded on Nasdaq. The Nasdaq-100 Index has become the basis for a wide variety of financial instruments, including futures contracts, mutual funds, index options, structured products and an exchange traded fund (QQQ).

Other revenue also includes revenue associated with Nasdaq Tools, Nasdaq.com, as well as advertising revenue from the MarketSite tower.

Expenses

Total expenses were $172.6 million versus $180.7 million a year ago, an improvement of 4.5%.

Direct Expenses

Direct expenses were relatively flat at $154.9 million in the first quarter of 2002, up less than 1% from $154.3 million in the first quarter of 2001. Driving these results were decreases in discretionary spending, most notably in Contract services and in Marketing.

Other expenses declined as a result of the reduction in bad debt expense related to the bankruptcy filing by a large data customer, which was reflected in first quarter 2001 results.

    These efficiencies were offset by increases in:

    *  Compensation as Nasdaq filled critical positions related to becoming an
       independent company.

    *  Depreciation resulting from network expansion initiatives in 2001
       supporting decimalization, as well as new product development and
       introductions.

    *  The consolidation of Nasdaq Europe, which was not included in results
       for the first quarter of 2001. 

Support Costs and Other

Support Costs from related parties decreased 33.0% to $17.7 million from $26.4 million. Two factors contribute to Nasdaq’s support costs. The first is related to the regulatory role that the NASD Regulation plays in The Nasdaq Stock Market, Inc. The second is related to the support functions that NASD has traditionally provided Nasdaq. The improvement during the quarter is due to Nasdaq’s decreased reliance on the NASD for these support functions as Nasdaq continues to build out its independent infrastructure.

Net Interest during the quarter, excluding Minority Interest, declined $5.8 million, down from income of $5.7 million in the first quarter of 2001. This decrease primarily reflects interest expenses associated with the Hellman & Friedman convertible debt and decreased interest income due to reduced interest rates.

"We are pleased with the progress we have made in reducing our expenses while continuing to develop The Nasdaq Stock Market into an independent, for- profit entity," noted David Warren, Chief Financial Officer. "We are committed to optimizing Nasdaq’s earnings potential, shareholder value and prospects for future growth," continued Mr. Warren.

Private Placement Notes Offering

In early May, the company completed a $150 million private placement of five-year senior notes due in 2007. The proceeds of the transaction are to be used to replace a portion of the cash used to repurchase 33.8 million shares of Nasdaq common stock from the NASD during the first quarter of the year.

Conclusion

"In addition to delivering on our goal of increased value for our many constituencies, Nasdaq continues to be committed to promoting excellence in corporate governance," Mr. Simmons noted. He continued, "Nasdaq recently hosted a series of Corporate Governance Summits fostering dialogue around Nasdaq’s ’Responsibilities We All Share’ market integrity initiative, which was signed by Nasdaq’s board members, distributed to our listed companies and published in a number of national publications. We continue to be diligent advocates of market efficiency and integrity."

The Nasdaq Stock Market lists approximately 4,000 companies and trades more shares per day than any other U.S. market. For more information about Nasdaq, visit the Nasdaq Web site at http://www.nasdaq.com or the Nasdaq Newsroom(SM) at http://www.nasdaqnews.com .

Cautionary Note Regarding Forward-Looking Statements

The matters described herein may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks, uncertainties or other factors beyond the control of The Nasdaq Stock Market, Inc. (the "Company"), which could cause actual results to differ materially from historical results, performance or other expectations and from any opinions or statements expressed or implied with respect to future periods. These factors include, but are not limited to, the Company’s ability to implement its strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors detailed in the Company’s annual report on Form 10K, as amended, and periodic reports filed with the U.S. Securities and Exchange Commission. We undertake no obligation to release any revisions to any forward-looking statements.

(1) EBITDA throughout this release is defined as earnings before interest, taxes, depreciation, amortization and minority interests.

                        The Nasdaq Stock Market, Inc.
                 Condensed Consolidated Statements of Income
                                 (Unaudited)
                   (in thousands, except per share amounts)


                                                        Three months ended
                                                      March 31,     March 31,
                                                        2002          2001
    Revenues
    Transaction services                              $104,705      $110,794
    Market information services                         51,990        63,156
    Corporate Client Group services                     43,863        38,304
    Other                                               10,735        10,513
      Total revenues                                   211,293       222,767

    Expenses
    Compensation and benefits                           46,298        39,096
    Marketing and advertising                            3,822         6,702
    Depreciation and amortization                       25,303        20,777
    Professional and contract services                  14,959        16,789
    Computer operations and data communications         42,516        41,472
    Provision for bad debts                              2,115        10,056
    Travel, meetings, and training                       3,003         3,388
    Occupancy                                            6,913         6,131
    Publications, supplies, and postage                  2,257         2,845
    Other                                                7,732         7,006
      Total direct expenses                            154,918       154,262
    Support costs from related parties, net             17,674        26,411
      Total expenses                                   172,592       180,673
    Net operating income                                38,701        42,094
    Interest income                                      3,183         6,170
    Interest expense                                    (3,292)         (480)
    Minority interests                                   2,942           217
    Net income before taxes                             41,534        48,001
    Provision for income taxes                         (20,207)      (21,808)
    Net income                                         $21,327       $26,193

    Net income applicable to common stockholders:
    Net income                                         $21,327       $26,193
    Accretion of preferred stock dividends               2,441             -
      Net income applicable to common stockholders     $18,886       $26,193
    Basic earnings per common share                      $0.19         $0.21
    Diluted earnings per common share                    $0.18         $0.21



                        The Nasdaq Stock Market, Inc.
                    Condensed Consolidated Balance Sheets
                     (in thousands, except share amounts)


                                                     March 31,    December 31,
                                                        2002          2001
                                                    (Unaudited)
    Assets
    Current assets:
      Cash and cash equivalents                       $172,411      $293,731

      Investments:
        Available-for-sale, at fair value              131,678       228,029
        Held-to-maturity, at amortized cost              3,050             -
      Receivables, net                                 201,804       194,040
      Receivables from related parties                  39,241        34,953
      Deferred tax asset                                50,113        51,170
      Other current assets                               6,954        13,249
    Total current assets                               605,251       815,172

    Investments:
      Held-to-maturity, at amortized cost               25,486        28,569

    Property and equipment:
      Land, buildings and improvements                  91,548        88,861
      Data processing equipment and software           463,464       441,928
      Furniture, equipment and leasehold improvements  176,131       184,572
                                                       731,143       715,361
      Less accumulated depreciation and amortization  (358,869)     (336,528)
    Total property and equipment, net                  372,274       378,833
    Non-current deferred tax asset                      70,200        74,987
    Goodwill                                            10,138        10,138
    Other intangible assets                              8,831         9,331
    Other assets                                        13,063         9,221
    Total assets                                    $1,105,243    $1,326,251



                        The Nasdaq Stock Market, Inc.
             Condensed Consolidated Balance Sheets -- (continued)
                     (in thousands, except share amounts)


                                                      March 31,   December 31,
                                                        2002          2001
                                                     (Unaudited)
    Liabilities
    Current liabilities:
      Accounts payable and accrued expenses            $112,384     $111,676
      Accrued personnel costs                            23,561       43,744
      Deferred revenue                                  141,258       65,366
      Other accrued liabilities                          44,523       47,296
      Current obligation under capital lease              4,228        4,454
      Due to banks                                        5,836       11,460
      Payables to related parties                        37,955        9,556
    Total current liabilities                           369,745      293,552

    Long-term debt:
      Senior notes                                       49,165       48,548
      Subordinated notes                                240,000      240,000
    Non-current obligation under capital lease           10,986       12,125
    Accrued pension costs                                18,185       24,064
    Non-current deferred tax liability                   39,597       41,981
    Non-current deferred revenue                        115,054      121,687
    Other liabilities                                    19,788       20,529
    Total long-term liabilities                         492,775      508,934
    Total liabilities                                   862,520      802,486

    Minority interests                                    2,956        5,377

    Stockholders’ equity
    Common stock, $.01 par value, 300,000,000
     authorized, shares issued: 130,291,126
     at March 31, 2002 and 130,161,823 at
     December 31, 2001; shares outstanding:
     78,038,913 at March 31, 2002 and 111,700,285
     at December 31, 2001                                 1,303        1,302
    Preferred stock, 30,000,000 authorized, Series
     A: 1,338,402 shares issued and outstanding;
     Series B: 1 share issued and outstanding           126,516            -
    Additional paid-in capital                          356,372      348,457
    Common stock in treasury, at cost: 52,252,213 at
     March 31, 2002 and 18,461,538 shares at
     December 31, 2001                                 (669,454)    (240,000)
    Accumulated other comprehensive income               (8,804)      (6,976)
    Deferred stock compensation                          (2,874)      (3,350)
    Common stock issuable                                 4,932        6,065
    Retained earnings                                   431,776      412,890
    Total stockholders’ equity                          239,767      518,388
    Total liabilities, minority interests, and
     stockholders’ equity                            $1,105,243   $1,326,251



                        The Nasdaq Stock Market, Inc.
               Condensed Consolidated Statements of Cash Flows
                         (Unaudited -- in thousands)

                                                        Three months ended
                                                       March 31,     March 31,
                                                         2002          2001
    Reconciliation of net income to cash provided by
     operating activities
    Net income                                          $21,327      $26,193
    Non-cash items included in net income:
      Depreciation and amortization                      25,303       20,777
      Amortization of restricted stock awards and
       other stock-based compensation                     1,309          426
      Minority interests                                 (2,942)        (217)
      Provision for bad debts                             2,115       10,056
      Loss from equity-method affiliates                  5,360        3,584
      Deferred taxes                                      3,460          238
      Other non-cash items included in net income        (2,034)       6,435
    Net change in:
      Receivables, net                                   (9,879)     (47,639)
      Receivables from related parties                   (4,288)     (32,592)
      Other current assets                                6,295         (716)
      Other assets                                         (887)      (3,976)
      Accounts payable and accrued expenses                 708      (11,344)
      Accrued personnel costs                           (18,997)     (22,608)
      Deferred revenue                                   69,259       52,192
      Other accrued liabilities                          (2,773)      19,310
      Obligation under capital leases                    (1,365)       1,381
      Payables to related parties                        28,169         (428)
      Accrued pension costs                              (5,879)       2,013
      Other liabilities                                  (2,551)      13,552
    Cash provided by operating activities               111,710       36,637

    Cash flow from investing activities
      Proceeds from redemptions of available-for-sale
       investments                                      163,512       62,925
      Purchases of available-for-sale investments       (67,863)    (126,793)
      Purchases of held-to-maturity investments               -         (125)
      Acquisition, net of cash acquired                       -          268
      Capital contribution to LIFFE joint venture        (8,400)           -
      Purchases of property and equipment               (29,861)     (32,963)
      Proceeds from sales of property and equipment      11,925        3,349
    Cash provided by (used in) investing activities      69,313      (93,339)

    Cash flow from financing activities
      (Decrease) in due to banks                         (5,624)      (4,132)
      Proceeds from Phase II private placement
       offering                                               -       63,688
      Payments for treasury stock purchases            (305,155)           -
      Increase in long-term debt                          1,515            -
      Purchase of minority interests in Nasdaq Europe
       Planning Company Limited                               -      (20,000)
      Issuances of common stock                              54            -
      Issuances of subsidiary stock                       1,298            -
      Contribution from the NASD                          5,569            -
    Cash (used in) provided by financing activities    (302,343)      39,556

    Increase in cash and cash equivalents              (121,320)     (17,146)
    Cash and cash equivalents at beginning of period    293,731      262,257
    Cash and cash equivalents at end of period         $172,411     $245,111

    Supplemental Disclosure of Non-Cash Flow
     Activities:
       Payments for treasury stock purchases with
        issuance of preferred stock                    $124,075          $ -

                    

SOURCE The Nasdaq Stock Market, Inc.

              

Copyright (C) 2002 PR Newswire. All rights reserved.



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