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%
- 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 on-going 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.
- 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 for the full year was $857.2 million versus $832.7 million a year ago, an increase of 2.9%
- Revenue for the fourth quarter was $215.5 million versus $211.5 reported in the fourth quarter of 2000, an increase of 1.9%.
Continued strong operating performance:
- Full year EBITDA, including effect of one-time charges was $153.5 million
- 2001 pre-tax, one-time adjustments totaled $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.
Mr. 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."
Mr. 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 centralized 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% 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' 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 U.S. 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% 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% 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% 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 January 1, 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 amortized 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 recognized for financial reporting purposes.
Client retention for CCGS was strong for the year, achieving a greater-than 99% 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 favorite 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 amortization 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% decrease from the fourth quarter of 2000. Revenue for the year increased 72.5% 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 recognized and respected brand. Nasdaq plans to link global pools of capital thereby democratizing the world's equity markets. Currently, approximately 50% of U.S. citizens are directly or indirectly invested in equities versus less-than 20% in Europe and Asia. Utilizing technology, Nasdaq eliminates the need for a physical trading floor. Our vision is to enable securities to be traded across national boundaries without bearing the burden of multiple listings.
Expenses
Full Year 2001
Direct expenses increased 36.8% to $695.3 million for the year versus $508.2 million in 2000. Included in direct expenses are $40.6 million in pre-tax, one-time adjustments. Excluding the pre-tax adjustments, direct expenses were $654.7 million. Factors accounting for the increase include:
- Nasdaq's work to build critical business functions and infrastructure
- Costs associated with new product introductions including SuperMontage and Primex
- Computer operations and data communications expenses required to support a higher asset base, upgraded bandwidth and improved processing speeds
- Partially offsetting the increase were reductions in marketing and advertising expenses.
Specifically, the year-end one-time pre-tax adjustments were:
- $23.2 million adjustment related to Nasdaq's office relocation to mid-town Manhattan, adjacent to the MarketSite location and, other disaster related expenses associated with September 11
- $10.0 million in technology transition and other costs related to Nasdaq's separation from the NASD
- $7.4 million associated with severance costs. The reduction in force initiative eliminated 137 positions, or approximately 10% of the workforce.
Direct expenses for the quarter were $211.2 million, an increase of 27.6% versus $165.5 million for the fourth quarter 2000.
- Pre-tax one-time adjustments of $36.1 million consist of the disaster related expense, NASD separation costs and, $3.7 million in severance costs
- Excluding pre-tax adjustments, direct expenses were $175.1 million.
Noted Rick Ketchum, President of Nasdaq, "We constantly examine our business and the market environment to ensure that we optimize Nasdaq's cost structure. We will continue to make investments in people, streamline operations and maximize efficiency of the business."
Share Repurchase
Nasdaq announced Board of Directors approval for the purchase of 33.8 million shares of common stock from the National Association of Securities Dealers (NASD). The transaction, is intended to be financed through a combination of cash, debt and the issuance of preferred stock.
"Leveraging our strong operating cash flow and capital resources, this transaction improves our financial structure, further aligning Nasdaq's interests with that of its stakeholders," said Chief Financial Officer David Warren. "We will continue to evaluate other investment opportunities, focusing on accretion and driving ROE."
2001 Notable Milestones
Operational
- Transformed the efficiency of trading with the implementation of SuperSoes, Nasdaq's auto execution interim trading platform that will provide a transition to SuperMontage
- Secured SEC approval for SuperMontage, completed its design phase, and included market participants in the development process
- Executed a seamless transition to decimals resulting in tighter spreads and increased liquidity
- Launched Primex, the e lectronic auction system designed to allow users to seek price improvement.
Mr. Simmons reiterated Nasdaq's commitment to market integrity saying: "Nasdaq stands for full disclosure and absolute transparency. Where we are focused on improving all aspects of our market, timely and accurate investment information holds the key to investor trust. Without it, investors are unable to properly assess risks and rewards. Ultimately disclosure and transparency are all about character and we believe character takes root with senior management and the Board of Directors behind it. Nasdaq is committed to disclosure and transparency and we expect the same from our listing companies. Each of us bears the responsibility to make it happen."
The Nasdaq Stock Market lists over 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 www.nasdaq.com or the Nasdaq NewsroomSM at 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 registration statement on Form 10, 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.
EBITDA throughout this release is defined as earnings before interest, taxes, depreciation, amortization and minority interests.
