Nasdaq Second Quarter 2002 Results
/FROM PR NEWSWIRE WASHINGTON DC 202-347-5155/
TO BUSINESS EDITOR:
Nasdaq Second Quarter 2002 Results
NEW YORK, Aug. 7 /PRNewswire-FirstCall/ -- The Nasdaq Stock Market, Inc.
(Nasdaq: NDAQ; OTC Bulletin Board), the world's largest electronic stock
market, today reported second quarter results for the period ending June 30,
2002.
"Nasdaq continued to take steps toward strengthening its foundation as we
go about the creation of a for-profit, shareholder owned company," noted Wick
Simmons, Chairman and Chief Executive Officer. "We reduced the costs of
running the business; we took two adjustments related to our investment in
Japan and a technology platform originally designed for that market and,
finished the testing of SuperMontage(SM)."
Net Income
Nasdaq continued to manage and streamline its cost structure, focusing on
fundamental business operations in anticipation of the launch of the
SuperMontage trading platform:
-- Net income for the quarter was $8.8 million as compared to $19.6
million in the second quarter of 2001, a decrease of 55.1%.
-- Basic and diluted earnings per share were $0.08 versus $0.17 and $0.16,
respectively, in the comparable period in 2001.
-- Included in net income were after-tax adjustments totaling $10.3
million. These adjustments are the result of the impairment of
Nasdaq's investment in Nasdaq Japan and the write-down of a
developmental trading platform technology. Net income excluding the
adjustments was $19.1 million, essentially flat with the prior year.
-- Excluding the adjustments, basic and diluted earnings per share were
$0.21. This is an increase from 23.5% in basic earnings per share and
31.3% in diluted earnings per share in the second quarter of 2001.
This increase is the result of Nasdaq's repurchase of approximately
33.8 million shares of common stock from the NASD in the first quarter
of 2002.
-- Total expenses for the quarter, including the adjustments were $190.3
million, about equal to those in the second quarter of 2001. Excluding
adjustments, total expenses were $170.2 million, an improvement of 9.8%
over the same period last year.
-- Net income margin for the quarter was 4.3%. Net income margin,
excluding the adjustments, was 9.3% versus 8.9% for the same period
last year.
Revenue
Nasdaq's revenue declined in the second quarter reflecting difficult
equity market conditions, continued moderation in Nasdaq trading volume and
selected responses by Nasdaq to increased competition:
-- Revenue for the quarter was $205.3 million versus $221.3 million in the
second quarter of 2001, a decrease of 7.2%.
EBITDA(1)
Nasdaq continued to focus on operating performance:
-- EBITDA was $39.8 million versus $54.6 million in the same period last
year, a decrease of 27.1%.
-- EBITDA, excluding the above-mentioned adjustments was $59.9 million, an
increase of 9.7% despite the decline in revenue.
"We continue to implement our strategic initiatives. Upon successful
completion of user testing, SuperMontage began trading 32 test securities on
July 29th to allow our market participants to begin to operate in the
SuperMontage trading environment. We continue to roll out Primex(TM) and are
preparing to launch the ViewSuite line of data products associated with
SuperMontage. Meanwhile, Nasdaq's Market Intelligence Desk has been expanded
to include over 1,400 of our listed companies," continued Mr. Simmons. "The
full implementation of SuperMontage in the United States and Nasdaq's
expansion in Europe, based on SuperMontage's functionality, will provide all
Nasdaq investors opportunities for greater transparency, liquidity and, speed;
ultimately leading to better executions."
"Due to prolonged difficulties in the Japanese economic environment, on
the other hand, we concluded that our investment in Nasdaq Japan will not
return value in the foreseeable future. We believe that the impairment we are
taking captures Nasdaq's full exposure to the investment," said Mr. Simmons.
Business Line Results
Nasdaq Transaction Services
Transaction services revenue was $103.1 million in the second quarter
versus $110.4 million for the same period a year ago, a decrease of 6.6%.
-- Access services revenue declined 17.0% primarily due to cost saving
initiatives among Nasdaq's market participants and the consolidation of
major trading firms, which resulted in fewer subscriber logons to
Nasdaq systems.
-- Execution services revenue increased 2.6% due to the introduction of
new, incremental fees associated with quote updates in Nasdaq quotation
systems.
-- Trade reporting revenue declined 4.1% due to the decline in overall
share and trade volume and the reporting of trades to regional
exchanges.
Underlying this performance during the quarter was a 6.2% decline in
average daily share volume in Nasdaq traded securities to an average of 1.8
billion shares per day. Similarly, average daily trade volume decreased 4.6%
to 2.5 million trades. Economic and financial market-related instability, and
changes in share and trade volume reporting accounted for the declines during
the quarter.
Initiatives
- SuperMontage
After successfully completing its user acceptance testing, Nasdaq launched
the production version of SuperMontage on July 29, 2002 with 32 test
securities, enabling trading firms to gain experience with the system in a
production environment. Live trading in SuperMontage is contingent upon the
resolution of certain outstanding items pending with the U.S. Securities and
Exchange Commission (SEC), including continued evaluation of the NASD's
Alternative Display Facility (ADF). The SEC recently approved the ADF pilot
and is currently expected to meet in August to determine if the SEC's pre-
conditions to operate SuperMontage have been met. Upon resolution of this
review, Nasdaq intends to move rapidly to commence live trading in the
groundbreaking new SuperMontage environment.
"SuperMontage redefines what is possible for a stock market by bringing
new opportunities to investors, market participants and companies," said
Richard Ketchum, president and deputy chairman. "We continue to work closely
with our customers and vendors to ensure a smooth transition to the new
platform once the SEC takes the necessary regulatory action for Nasdaq to
launch SuperMontage."
- Primex Auction System
Primex, an electronic auction platform, is designed to provide Nasdaq
market participants with a centralized, market-driven price improvement and
liquidity facility. Primex is now available to trade Nasdaq and New York
Stock Exchange-listed securities. This improved capacity more than doubles
the available number of stocks eligible to trade in the system. Primex now
trades over 3,000 securities including all components of the Standard & Poors
500 Index, the Dow Jones Industrial Average, the top 1,000 Nasdaq securities
based on market capitalization, and three popular exchange traded funds.
Nasdaq expects to begin earning revenue from Primex in the third quarter of
2002.
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
Market Information services revenue declined 10.3% to $49.8 million during
the quarter from $55.5 million in the same period last year.
The decline in revenue is due to competition for trade reporting with
regional exchanges, revenue sharing with member firms and reduced Level I
usage resulting from weaker market conditions. Partially offsetting the
decline was an increase in revenue generated through Nasdaq's InterMarket
trading system.
Developments
Effective June 1, 2002, the SEC abrogated certain market participant tape
sharing pilot programs. This action was in response to concerns about the
effect of market data rebates on the accuracy of market data and the
regulatory functions of self-regulatory organizations. The SEC's action, which
Nasdaq supports, allows Nasdaq and competing exchanges to retain tape revenue.
Nasdaq continues to share market data revenue with the UTP exchanges based on
their respective share of volume and trades of Nasdaq listed securities. In
addition, Nasdaq InterMarket continues to share tape revenue with Nasdaq
market participants who report trades in NYSE and AMEX listed securities
through Nasdaq.
Market Information services 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 revenue increased 13.4% to $44.0 million
for the second quarter, from $38.8 million in the second quarter of 2001. The
increase was primarily the result of increases in annual listing fees for
Nasdaq-listed companies, implemented at the beginning of 2002.
-- During the second quarter, there were 22 initial public offerings
versus 15 in the same period last year. Despite a 46.7% increase in
initial public offerings during the quarter, year-to-date initial
public offerings are relatively flat and historically below average.
-- The number of secondary offerings, year-to-date, increased 26.3% to
101, up from 80 as of June 2001. During the quarter, secondary
offerings were relatively flat at 47 versus 46 a year ago.
Initiatives
The Corporate Client Group launched the Market Intelligence Desk in June.
This new service redefines Nasdaq's Corporate Client Group's offering by
providing listed companies with a centralized point-of-contact for detailed
information regarding their stocks' trading activity, news coverage, analyst
opinion revisions and chat room activity. Initially, 100 Nasdaq-listed
companies were being tracked. Currently over 1,400 companies have access to
the Market Intelligence Desk. Nasdaq plans to roll the service out to all
Nasdaq-listed companies.
Corporate Client Group services revenue is primarily earned through
initial listing fees, fees associated with the listing of additional shares,
and annual renewal fees for companies listed on Nasdaq. Initial listing fees
and fees associated with the listing of additional shares are amortized over
six-year and four-year periods, respectively, in accordance with the adoption
of SEC Staff Accounting Bulletin 101, applied retroactively as of January 1,
2000.
Other
Other revenue was $8.4 million for the second quarter versus $16.6 million
a year ago, a decline of 49.4%. Partially accounting for the decline in the
quarter was a decrease in trademark license revenue associated with the
exchange-traded fund, QQQ and, in June 2001, a gain on the settlement of
certain variable Nasdaq Japan stock based awards. The decline in trademark
revenue is effectively offset by the higher tape revenue received by
InterMarket as a result of its increased market share.
Nasdaq generates revenue 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, includes the 100 largest non-financial stocks traded
on The Nasdaq Stock Market. 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).
Nasdaq also generated revenue, in the second quarter, associated with
Nasdaq Tools, Nasdaq.com, as well as advertising revenue from the MarketSite
tower.
Expenses
Total expenses were $190.3 million in the second quarter versus $188.6
million a year ago, relatively flat. Included in total expenses is a pre-tax
adjustment of $20.1 million related to:
-- A $15.2 million pre-tax impairment of Nasdaq's investment in Nasdaq
Japan. This impairment represents a complete write-down of the
investment, outstanding and unfunded loans, other receivables, and
foreign exchange translation losses; partially offset by a revaluation
of certain variable Nasdaq Japan stock based awards. Nasdaq is
recognizing this impairment as a result of the depressed level of
market activity in Japan, combined with the suspension of the hybrid
trading system based on the inability to gain exchange approval of
market rules and industry participation. These conditions have lead
management to conclude that Nasdaq Japan will not be profitable in the
foreseeable future.
-- A $4.9 million pre-tax write-down of the development costs related to
an developmental trading platform originally designed for Nasdaq Japan
and later, the Bulletin Board Exchange in the United States.
Excluding these adjustments, total expenses were $170.2 million, an
improvement of 9.8%.
Direct Expenses
Direct expenses increased 5.7% to $172.6 million in the second quarter of
2002 from $163.3 million in the second quarter of 2001. Excluding the pre-tax
adjustments, direct expenses were $152.5 million, an improvement of 6.6%.
Nasdaq continued to benefit from initiatives taken to reduce fundamental
infrastructure costs, namely:
-- An improvement of 23.9%, or $11.1 million in computer operations and
data communications expenses resulting from the renegotiation of
telecommunication contracts, as well as the decrease in the number of
computer trading and presentation devices.
-- A reduction of 4.1%, or $1.9 million in compensation expense as the
result of rationalization and other cost containment initiatives taken
in 2001.
-- Other expense improved 9.7% to $10.2 million from $11.3 million in the
second quarter. Included in Other expense is the $4.9 million pre-tax
write-down of a developmental trading platform technology. Prior year
results included a write-off related to the impairment of certain
assets related to the MarketSite tower.
Offsetting these efficiencies were:
-- Depreciation and amortization which increased $2.9 million due to
capacity and technology infrastructure improvements required to support
market activity and new initiatives.
-- Professional and contract services, which increased $2.3 million due to
costs associated with separation from the NASD.
-- Provision for bad debt increased $1.5 million or 51.7% to $4.4 million
primarily due to an increase in inactive issuers with outstanding
account balances. This is a result of the temporary suspension of
listing requirements following September 11, 2001. These listing
requirements were reactivated on January 1, 2002.
-- Occupancy expense which increased $2.8 million due to direct billing of
real estate costs associated with the separation from the NASD,
previously recorded in support costs.
Support Costs from Related Parties
Support Costs from related parties decreased 30.0% to $17.7 million from
$25.3 million. Two factors contribute to Nasdaq's support costs. The first is
related to the regulatory role that NASD Regulation plays in The Nasdaq Stock
Market, Inc. The second is related to the support functions that the NASD has
traditionally provided Nasdaq. The improvement during the quarter is due to
Nasdaq's decreased reliance on the NASD for administrative support functions
as Nasdaq continues to develop its independent infrastructure.
Net Income and Earnings Per Share
Net income for the quarter was $8.8 million versus $19.6 million a year
ago, a decrease of 55.1%. Net income, excluding the impact of the adjustments
was $19.1 million, relatively flat.
Basic and diluted earnings per share was $0.08 versus $0.17 and $0.16,
respectively. Excluding adjustments, basic and diluted earnings per share
increased 23.5% and 31.3%, respectively to $0.21. The increase is due to
Nasdaq's purchase of approximately 33.8 million shares of common stock from
the NASD in the first quarter of 2002.
"We have made strong improvements in reducing the effective cost to run
our business," noted David Warren, chief financial officer. "Our operating
income margin, excluding the outlined adjustments, improved to 17.1% from
14.8% a year ago. We continue to further examine our cost structure to find
additional opportunities to efficiently optimize Nasdaq's earnings potential,
future growth and shareholder value," continued Mr. Warren.
Conclusion
"Nasdaq continues to take the steps necessary to become a competitive,
for-profit company. We believe the launch of SuperMontage and its
complementary data products, the Market Intelligence Desk for our listed
companies, Nasdaq's initiatives in Europe designed to capture order flow, and
our continued focus on expenses are smart investments in the future of our
business," concluded Mr. Simmons.
"Also significant for our future is the restoration of investor confidence
in the capital markets. At the center of this loss of confidence is the trust
investors place in the quality and integrity of financial information, the
basis on which good investment decisions are made. Financial and operational
information must be truthful and transparent, providing investors with access
to all relevant information needed. To aid in this process, Nasdaq has adopted
more rigorous corporate governance standards to help ensure that publicly
traded companies are run with integrity and honesty. Nasdaq is working with
the SEC, its peers and corporate America to implement these, and other
initiatives promoting complete transparency and accountability in financial
reporting," Simmons stated. "While we continue to work diligently to restore
investor confidence, Nasdaq aims to maintain and promote companies' ability to
take risks, innovate and redefine the world in which we live."
Year-to-Date Financial Summary
Revenue for the six-month period ending June 30, 2002 was $416.6 million,
down 6.2% from $444.1 million for the comparable period in 2001. Total
expenses declined 1.7% to $362.9 million from $369.2 million. Net income
declined to $30.1 million, or 34.3%, from $45.8 million for the first six-
month period versus prior year. Basic earnings per share was $0.28 and
diluted earnings per share was $0.27. This compares to both basic and diluted
earnings per share for the same comparable period a year ago of $0.37.
Nasdaq is the world's largest stock market. With approximately 3,800
companies, Nasdaq lists more companies and on average trades more shares per
day than any other U.S. market. Over the past five years, Nasdaq has outpaced
all other U.S. markets in listing IPOs. It is also home to category-defining
companies that are leaders across all areas of business including technology,
retail, communications, financial services, media and biotechnology
industries. Nasdaq is a key driver of global capital formation.
For more information about Nasdaq, visit the Nasdaq Web site at
nasdaq.com or the Nasdaq Newsroom(SM) at 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 10-K, 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 Six months ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
Revenues
Transaction Services $103,080 $110,398 $207,785 $221,192
Market Information Services 49,781 55,514 101,771 118,670
Corporate Client Group Services 44,004 38,781 87,867 77,085
Other 8,397 16,613 19,132 27,126
Total revenues 205,262 221,306 416,555 444,073
Expenses
Compensation and benefits 44,814 46,713 91,112 85,809
Marketing and advertising 4,216 4,947 8,038 11,649
Depreciation and
amortization 24,795 21,887 50,098 42,664
Professional and contract
services 17,074 14,777 32,033 31,566
Computer operations and
data communications 35,363 46,476 77,879 87,948
Provision for bad debts 4,393 2,947 6,508 13,003
Travel, meetings, and
training 3,725 4,090 6,728 7,478
Occupancy 10,060 7,331 16,973 13,462
Publications, supplies, and
postage 2,782 2,809 5,039 5,654
postage 2,782 2,809 5,039 5,654
Nasdaq Japan impairment loss 15,208 - 15,208 -
Other 10,185 11,299 17,917 18,305
Total direct expenses 172,615 163,276 327,533 317,538
Support costs from
related parties, net 17,677 25,297 35,351 51,708
Total expenses 190,292 188,573 362,884 369,246
Net operating income 14,970 32,733 53,671 74,827
Interest income 3,289 3,807 6,472 9,977
Interest expense (3,837) (1,970) (7,129) (2,450)
Minority interests 2,656 1,765 5,598 1,982
Net income before taxes 17,078 36,335 58,612 84,336
Provision for income taxes (8,308) (16,753) (28,515) (38,561)
Net income $8,770 $19,582 $30,097 $45,775
Net income applicable to
common stockholders:
Net income $8,770 $19,582 $30,097 $45,775
Accretion of preferred
stock dividends 2,441 - 4,882 -
Net income applicable
to common stockholders $6,329 $19,582 $25,215 $45,775
Basic earnings per common share $0.08 $0.17 $0.28 $0.37
Diluted earnings per common share $0.08 $0.16 $0.27 $0.37
The Nasdaq Stock Market, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
June 30, December 31,
2002 2001
(Unaudited)
Assets
Current assets:
Cash and cash equivalents 330,835 293,731
Investments:
Available-for-sale, at fair value 126,673 228,029
Held-to-maturity, at amortized cost 7,089 -
Receivables, net 187,223 194,040
Receivables from related parties 17,303 34,953
Deferred tax asset 58,107 51,170
Other current assets 9,952 13,249
Total current assets 737,182 815,172
Investments:
Held-to-maturity, at amortized cost 21,383 28,569
Property and equipment:
Land, buildings, and improvements 93,469 88,861
Data processing equipment and software 468,473 441,928
Furniture, equipment, and
leasehold improvements 178,586 184,572
740,528 715,361
Less accumulated depreciation
and amortization (370,673) (336,528)
Total property and equipment, net 369,855 378,833
Non-current deferred tax asset 76,390 74,987
Goodwill 10,138 10,138
Other intangible assets 8,113 9,331
Other assets 10,128 9,221
Total assets $1,233,189 $1,326,251
The Nasdaq Stock Market, Inc.
Condensed Consolidated Balance Sheets - (continued)
(in thousands, except share amounts)
June 30, December 31,
2002 2001
(Unaudited)
Liabilities
Current liabilities:
Accounts payable and accrued expenses $115,353 $111,676
Accrued personnel costs 28,912 43,744
Deferred revenue 117,308 65,366
Other accrued liabilities 45,670 47,296
Current obligation under capital lease 4,076 4,454
Due to banks 5,836 11,460
Payables to related parties 16,571 9,556
Total current liabilities 333,726 293,552
Long-term debt:
Senior notes 202,443 48,548
Subordinated notes 240,000 240,000
Non-current obligation under capital lease 10,148 12,125
Accrued pension costs 26,759 24,064
Non-current deferred tax liability 41,377 41,981
Non-current deferred revenue 116,487 121,687
Other liabilities 7,820 20,529
Total long-term liabilities 645,034 508,934
Total liabilities 978,760 802,486
Minority interests 300 5,377
Stockholders' equity
Common stock, $.01 par value,
300,000,000 authorized, shares issued:
130,423,247 at June 30, 2002 and
130,161,823 at December 31, 2001;
shares outstanding: 78,171,034 at June 30, 2002
and 111,700,285 at December 31, 2001 1,304 1,302
Preferred stock,
30,000,000 authorized, Series A:
1,338,402 shares issued and outstanding;
Series B: 1 share issued and outstanding 128,958 -
Additional paid-in capital 357,831 348,457
Common stock in treasury, at cost:
52,252,213 at June 30, 2002 and
18,461,538 shares at December 31, 2001 (669,454) (240,000)
Accumulated other comprehensive income (5,004) (6,976)
Deferred stock compensation (2,863) (3,350)
Common stock issuable 5,252 6,065
Retained earnings 438,105 412,890
Total stockholders' equity 254,129 518,388
Total liabilities, minority interests, and
stockholders' equity $1,233,189 $1,326,251
MAKE YOUR OPINION COUNT - Click Here
tbutton.prnewswire.com
SOURCE The Nasdaq Stock Market, Inc.
/CONTACT: Bethany Sherman, +1-212-768-2699 or Melissa Fox,+1-212-768-2535, both
of The Nasdaq Stock Market, Inc./
/Web site: nasdaqnews.comhttp://www.nasdaq.com/
Aug-07-2002 20:20 GMT
Symbols:
US;NDAQ
Source PRN PR NewsWire
Categories:
NWR/DC NWR/NY NWI/FIN NWI/OTC NWS/ERN MST/R/US/DC MST/R/US/NY
MST/I/BNK MST/I/MKT MST/S/ERN |
