Nasdaqs 2001 full year/Q4 results

New York: The Nasdaq Stock Market has reported full year and fourth quarter results for the period ending 31 December 2001.

Net income
Nasdaq used 2001 to establish its platform for growth as an independent company for the years ahead:

• Net income for 2001 was $40.5 million as compared to $23.3 million for full year 2000, an increase of 73.6 per cent
• Earnings per share was $0.35 versus $0.21 in 2000
• Impacting net income was a series of one-time after-tax adjustments totaling $24.7 million, resulting primarily from its office relocation and Nasdaq’s ongoing separation from the NASD
• Excluding the impact of one-time adjustments, net income for the year was $65.2 million
• Results for both years reflect the impact of the adoption of the Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) No 101, ‘Revenue Recognition in Financial Statements.’ This included a one-time cumulative adjustment in 2000 of $101.1 million.

For the fourth quarter of 2001:

• Net loss of $13.3 million versus net income of $10.7 million a year ago
• Loss per share was $0.12 versus earnings per share of $0.09 a year ago
• Nasdaq recorded total one-time after-tax adjustments of $21.9 million for the quarter related to its office relocation and the NASD separation
• Excluding the impact of one-time adjustments, net income for the quarter was $8.6 million.

Revenue:
Nasdaq revenue rose in 2001 due to continued usage of its execution systems, data products and licensing fees associated with exchange-traded funds (ETFs):

• Revenue for the full year was $857.2 million versus $832.7 million a year ago, an increase of 2.9 per cent
• Revenue for the fourth quarter was $215.5 million versus $211.5 reported in the fourth quarter of 2000, an increase of 1.9 per cent.

EBITDA1 - continued strong operating performance:

• Full year EBITDA, including effect of one-time charges was $153.5 million
• 2001 pre-tax, one-time adjustments totalled $40.6 million
• EBITDA, excluding impact of one-time adjustments was $194.1 million
• Fourth quarter 2001 EBITDA was $6.4 million
• EBITDA was $42.5 million excluding the pre-tax charge of $36.1 million.

“In 2001, Nasdaq focused on creating an independent, more efficient and more street-smart company by re-examining the fundamentals of our business,” said Nasdaq Stock Market chairman and CEO Wick Simmons. “As a result of our ongoing analyses, we took a number of charges related to our operating structure and separation from the NASD, accelerated in part by the events of 11 September.”

Simmons continued: “While Nasdaq immersed itself in the structural adjustments of becoming an independent company, we also implemented several key business initiatives to improve the market for investors, market participants and listed companies. These efforts resulted in faster executions, increased transparency and enhanced services. In addition, we continued to make more investments in technology based on our strong cash flow, despite the weak overall economic environment.”

Simmons highlighted Nasdaq’s three major new business objectives for 2002:

• The launch of SuperMontagesm, Nasdaq’s next generation trading platform which, when aligned with Primex, will bring new levels of transparency, speed and anonymity to Nasdaq market participants
• The introduction of Nasdaq’s new Corporate Client Center to provide listed companies with integrated trading information and services in a centralised and timely manner
• The global expansion of Nasdaq’s markets, linking pools of capital by leveraging Nasdaq’s technology infrastructure.

Nasdaq Transaction Services
Revenue for Nasdaq Transaction services (NTS) was $103.0 million in the fourth quarter relatively flat as compared to the same period last year and increased 3.5 per cent to $408.8 million for the full year. Driving business performance were new pricing initiatives associated with access services and the launch of SuperSoes.

In 2001, NTS introduced the SuperSoes market execution system. This system provides automatic execution capability for market-makers and ECNs and, streamlines Nasdaq’s transaction systems. The result of SuperSoes is enhanced execution speed and quality and, it encourages market participants to make more shares available for trading. Additionally, SuperSoes augments Nasdaq’s open architecture environment while providing cost-effective regulatory functions and risk management.

NTS’s key strategic initiative is the development and launch of SuperMontage, the new execution system that processes quotes and orders more efficiently, and is the first platform of its kind to offer five aggregated levels of transparency with the option of pre-trade anonymity for market participants.

SuperMontage is designed to attract more orders to Nasdaq by providing a comprehensive display of the interest at or near the inside of the market, thereby increasing competition and transparency. Nasdaq plans to launch SuperMontage in the second half of 2002 in the US and soon thereafter in Japan and Europe.

NTS derives revenue primarily from transactions associated with SelectNet, SuperSOES, SOES, ACT, and system access fees.

Market Information Services
Revenue in Market Information Services (MIS) increased 10.7 per cent to $63.6 million in the fourth quarter from the same period last year. This increase was primarily driven by a higher Nasdaq share of tape data revenue derived from the trading of listed securities through the Nasdaq InterMarket.

Revenue for the full year decreased 6.9 per cent to $240.5 million over the full year of 2000. This decrease was driven by lower demand for non-professional per-query usage partially offset by increased share of tape data revenue.

In conjunction with SuperMontage, MIS plans to launch new data products enabling investors greater depth into the market than ever before, including Nasdaq PrimeView, Nasdaq DepthView, Nasdaq TotalView and Nasdaq PostData. MIS derives revenue primarily from Level 1 and Nasdaq Quotation Dissemination Service (NQDS) data and, receipt of CQA/CTA tape revenue for trades processed through the Nasdaq InterMarket.

Corporate Client Group Services
Corporate Client Group Services (CCGS) revenue was $39.7 million for the fourth quarter, relatively flat versus fourth quarter 2000. Revenue for the year was $156.1 million, a 4.6-per cent increase over 2000. The business continues to be impacted by the relatively weak initial public offering market. In 2001 there were 101 total initial public offerings in the three major US exchanges versus a five-year average of over 412 per year and 451 offerings in 2000.

Results for CCGS reflect the adoption of SAB 101 as of 1 January 2000, which changed the timing of revenue recognition for Nasdaq’s initial listing fees and fees for the listing of additional shares. Revenue for these fees are now deferred and amortised over estimated periods of six and four years, respectively. These changes have no effect on cash receipts, cash flows, or on the underlying economics of the business - merely on the timing of when these revenues are recognised for financial reporting purposes.

Client retention for CCGS was strong for the year, achieving a greater-than 99 per cent retention rate, including all but one of the Nasdaq 100 listed companies. Additionally, Nasdaq Online, a strategic planning tool provided to Nasdaq listed companies was rated first in a recent survey of the top 10 favourite investor relations web sites by the National Investor Relations Institute.

CCGS plans to launch a new Corporate Client Center in 2002 that will provide listed companies with a central point of instant, value-added information about activity in its stock and other valuable market information. Through the use of computer telephony and other information systems, the Corporate Client Center will leverage Nasdaq’s current customer relations management.

CCGS 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
Nasdaq’s other revenue was $9.2 million for the fourth quarter, a 11.6-per cent decrease from the fourth quarter of 2000. Revenue for the year increased 72.5 per cent to $51.8 million over full year 2000 results. Full year growth was primarily due to increased trademark and licensing revenue associated with the Nasdaq-100 Trust and related products.

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; an exchange traded fund (QQQ); mutual funds; index options and; a variety of structured products.

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

Global
Nasdaq is pursuing strategic opportunities to expand its leadership in technology-driven price discovery systems, leveraging its open architecture trading platform and its highly-recognised and respected brand. Nasdaq plans to link global pools of capital thereby democratising the world’s equity markets.

Currently, approximately 50 per cent of US citizens are directly or indirectly invested in equities versus less-than 20 per cent in Europe and Asia. Utilising technology, Nasdaq eliminates the need for a physical trading floor. Nasdaq’s vision is to enable securities to be traded across national boundaries without bearing the burden of multiple listings.