New York: The Nasdaq Stock Market, the world's largest electronic stock market, has reported its first quarter results for the period ending 31 March 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 trading platform: - The 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 per cent.
- 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 per cent.
- The net income margin for the quarter was 10.1 per cent.
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 per cent.
EBITDA
Continued strong operating performance: - EBITDA was $64.0 million versus $62.9 million in the same period last year - an increase of 1.7 per cent.
''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,'' says Nasdaq Stock Market chairman and CEO Wick Simmons. ''While the economic environment remains challenging and competition intense, we remain focused on the launch of SuperMontage, the continued roll-out of Primex, and further refinement of our operating structure, emphasizing cost control, particularly in the discretionary expense lines.''
Simmons adds: ''This is the platform from which Nasdaq will further its strategy of leveraging its strong brand and technology infrastructure, to remain a centre 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 - decrease of 5.5 per cent. 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 per cent relative to the first quarter of 2001, primarily due to cost saving initiatives at major investment firms. Trade Reporting revenue declined 17.9 per cent 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, the electronic auction system, now serves the stocks all of the major indices. Over 60 per cent 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 per cent 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 3 May 2002, a pilot programme 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 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 and TotalView, 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 per cent. 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 Centre in June. This centre 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 amortisation 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 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 per cent. Direct expenses
Direct expenses were relatively flat at $154.9 million in the first quarter of 2002, up less than 1 per cent 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 per cent 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. 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. The 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,'' says David Warren, chief financial officer. ''We are committed to optimising Nasdaq's earnings potential, shareholder value and prospects for future growth.''
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,'' Simmons says. ''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, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
| | Three months ended | | | | | | March 31, 2002 | March 31, 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, 2002 | December 31, 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, 2002 | December 31, 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, 2002 | March 31, 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 | - | Other reports on world markets
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