Floyd Norris wrote a great kick-'em-in-the-nuts piece about NASDAQ (the corporation that owns the exchange, not the index) in today's NYT:
A Snapshot of the Nasdaq
By FLOYD NORRIS
Many companies this year have proclaimed that their annual reports disclose more
financial information than ever before. But that is not a trend being followed by a company
that wants to go public, the Nasdaq stock market.
Nasdaq's first annual report, released last week, has almost no financial information printed
in it, and what information it does contain is misleading.
The report does have page after page of photographs, including four of Hardwick
Simmons, who became Nasdaq's chief executive last year after he stepped down as chief
executive of Prudential Securities. One photo showed him with Michael Jackson, another
with Martina Navratilova.
There is also no shortage of slogans. "The Power of an Idea" is the phrase on the cover.
Inside, across other photos, Nasdaq proclaimed itself to be "the democratization of
capitalism and the desire to move mankind forward" and "an energizing force at the center
of the global economy."
But the pages include no balance sheet, no earnings statement, no cash flow statement. In
his letter to shareholders, which follows 11 pages of photos, Mr. Simmons did briefly
mention profits but offered few details beyond saying that net income rose to $40.5 million
in 2001 from $23.2 million in 2000.
Asked about Nasdaq's decision not to print its financial statements in its annual report,
Bethany Sherman, Nasdaq's senior vice president for corporate communications, stated:
"We are not yet a public company. This is the way our shareholders wanted us to
communicate with them." Ms. Sherman added that Nasdaq's 2,700 shareholders did have
financial statements mailed to them with the annual report.
Those shareholders include brokerage firms and Nasdaq-listed companies, which bought
stock in 2000 and 2001 at the beginning of a process that Nasdaq hopes will conclude with
a public offering. When the process is finished, its former parent, the National Association
of Securities Dealers, will no longer own a stake in Nasdaq but will continue to regulate it.
It is traditional for a new chief executive, in his first letter to shareholders, to note when his
tenure began and to say something nice about his predecessor. But Mr. Simmons made
no mention of Frank G. Zarb, who chose Mr. Simmons to succeed him as chief executive
in February 2001 and as chairman in September. A photo of Mr. Zarb is included in the
annual report, but the caption did not mention him, instead noting that the former New York
Mayor, Rudolph W. Giuliani, appeared with New York paramedics. By contrast, the
captions of all four photos that included Mr. Simmons did identify the new chief.
The annual report may not have made room for conventional financial statements, but it did
devote the better part of a page to its "QQQ" product, tracking shares on the Nasdaq 100
index. It reported how successful the product has been in attracting trading volume but did
not mention that the price of those shares fell 36 percent in 2000 and another 33 percent in
2001.
One problem for Nasdaq these days is that many companies it used to promote have
become disasters for investors. Most of the companies go unmentioned. The company
that received the best play in the report is not what one might expect from one of Nasdaq's
slogans, which proclaims it to be "the new establishment, the better idea, the new
economic landscape."
The company, Silgan Holdings, whose stock rose 191 percent last year while the Nasdaq
composite index fell 21 percent, had a two-page photo of its workers on a factory floor in
Langhorne, Pa., where plastic food containers are made.
Although no financial statements are printed, any worker at Silgan Holdings - or anyone
else - who gets the annual report can learn Nasdaq's financial details by using the right kind
of computer. Attached to the last page of the report is a small CD that has Nasdaq's 10-K
report, as filed with the Securities and Exchange Commission. That CD warns, "Do not
play in slot-loading-type CD player," a message that does not encourage an effort to get the
information. Ms. Sherman said that CD had also been provided to all Nasdaq shareholders.
And there are a few interesting things in the 10-K. It turns out that the increase in net
income mentioned by Mr. Simmons in his letter to shareholders is more than a bit
misleading. A new accounting rule in 2000 led to a large write-off and made 2000 seem
much worse than it was - and the comparison, therefore, much better.</P><P> Mr.
Simmons' letter in the annual report did mention there was a change in accounting rules
but was silent on its effect. The 10-K disclosed that without the change, net income in 2001
would have been $30 million, down 79 percent from $145.2 million in 2000. That is very
different from the 75 percent increase in the net income figures cited by Mr. Simmons.
Near the end of the annual report are the "Guiding Principles of the Nasdaq Stock Market,"
which appear next to a photo of Mr. Simmons. "We believe that complete and accurate
information is required for the capital markets to efficiently allocate capital," states the first
principle.
Asked if the annual report lives up to those principles, Ms. Sherman replied, "All of our
communications are in keeping with our guiding principles." |
