Total revenues for the second quarter were $221.3 million, a 4.6% increase from $211.5 million for the same period last year. Total expenses for the quarter were $188.6 million, an increase of 34.9% from the $139.8 million the prior year. These expense increases were anticipated and represented investments in technology and global initiatives.
"The first six months of 2001 presented Nasdaq with both challenges and opportunities," said Wick Simmons, Nasdaq Chief Executive Officer. "From a financial point-of-view, Nasdaq directly felt the impact of the softening economy, demonstrated by a weaker IPO market and a recent decline in average daily trading activity. Anticipating these market conditions, we have moved to aggressively reduce expenses from budgeted levels to position ourselves better for the second half of the year." In June, Nasdaq reduced its workforce by 10%.
"Despite the financial challenges, we are committed to making significant investments in our infrastructure and have achieved progress in several of our announced strategic initiatives," Simmons added. "These included successful implementation of SuperSOES, our new automated execution system; SEC approval of SuperMontage, our next generation trading platform scheduled for implementation in 2002; the enhancement of our international presence with the launch of Nasdaq Europe; and the successful conversion to decimal pricing.
"We expect the current soft market conditions to continue for at least the balance of the year," Simmons said. "Despite this, we remain confident in the longer-term prospects for our business. Our continued investments in technology and our global strategic initiatives are clearly improving our competitive position as the superior equity marketplace for our companies and investors. The actions we are taking now will, I believe, position us even better to benefit from the business upturn," he concluded.
Change in Accounting Principle
In the fourth quarter of 2000, the U.S. Securities and Exchange Commission's (SEC) Staff Accounting Bulletin No. 101- "Revenue Recognition in Financial Statements" (referred to as SAB 101), became effective for SEC public reporting companies. Nasdaq initiated discussions with the SEC as it prepared to become a SEC public reporting company this year. As a result of these discussions, which concluded last Friday, Nasdaq adopted a change in accounting principle for revenue recognition of its initial listing fees and fees for listing of additional shares.
Revenues for these fees are now deferred and amortized over estimated periods of six and four years, respectively. As a result, reported earnings for 2000 - a period of robust listing and capital raising activity -- substantially decreased and earnings for the first six months of 2001 - a period of reduced listing and capital raising activity -- increased. 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. As a result of the adoption of SAB 101, Nasdaq recognized a negative one-time $101.1 million adjustment to revenue in the first quarter of 2000. This adjustment will be recognized as an addition to future revenue streams. The impact of this change is described more fully in the Form 10-Qs filed August 20, 2001.
Six Months Results
Results for the six months ending June 30, 2001 are shown below and are compared to the six months ending June 30, 2000 before the cumulative effect of the change in accounting principle:
- Net income of $45.8 million versus the same period of the prior year net income of $91.6 million.
- Diluted earnings per share of $0.37, versus diluted earnings per share of $0.91 from the same period of 2000.
- Total revenues of $444.1 million, up 6.1% from the same period of the prior year total revenues of $418.5 million.
- Total expenses of $369.2 million, up 36.2% from the same period of the prior year total expenses of $271.0.
- Annualized return on average stockholders' equity was 14.6%.
Results for the first quarter ended March 31, 2001, are shown below and are compared to the first quarter 2000 before the cumulative effect of the change in accounting principle.
- Net income of $26.2 million, versus the same period of the prior year of $46.4 million.
- Diluted earnings per share of $0.21, down from the same period of the prior year of $0.46.
- Total revenues of $222.8 million, up 7.6% from the same period of the prior year of $207.0 million.
- Total expenses of $180.7 million, up 37.7% from the same period of the prior year total expenses of $131.2 million.
- Annualized return on average stockholders' equity was 15.4%.
- Major events so far this year have included:
- SEC approved SuperMontage, Nasdaq's order display window.
- Nasdaq and the NASD completed the second phase of their private placement, raising an aggregate of $516 million from over 2,900 investors.
- Hardwick Simmons became CEO of Nasdaq.
- Private equity firm Hellman & Friedman LLC invested $240.0 million in Nasdaq, reducing NASD's ownership interest in Nasdaq on a fully diluted basis to approximately 27%.
- Nasdaq and the London International Financial Futures and Options Exchange (LIFFE) created a partnership to develop a single stock futures market.
- Nasdaq acquired a majority stake in EASDAQ, a pan-European electronic stock market, changing its name to Nasdaq Europe S.A./N.V.
- Nasdaq completed the successful implementation of decimals trading.
- Nasdaq approved in principle steps to prepare for an IPO of its common stock - the earliest time being sometime in 2002.
- Nasdaq successfully implemented SuperSOES, its new automated execution system.
Transaction Services
For the six months ended June 30, 2001, transaction services revenues of $221.2 million increased $21.3 million from $199.9 million for the six months ended June 30, 2000, an increase of 10.7%. Transaction services consist of SelectNet, SOES, ACT, the Nasdaq Workstation, and other related execution services. Average daily share volume was 2.0 billion for the first half, compared to 1.7 billion for the first half of 2000. The recent trend in average daily shares traded has been downward.
Market Information Services
For the six months ended June 30, 2001, market information revenues of $118.7 million decreased $15.9 million or 11.8% from $134.6 million for the six months ended June 30, 2000. Market information consists of Level 1, Nasdaq Quotation Dissemination Service (NDQS) and Nasdaq InterMarket tape revenues. The decline in market information revenue has been largely the result of a decrease in demand for non-professional data services and the introduction of a lower priced non-professional NQDS service.
Issuer Services
Issuer services revenues increased to $77.1 million for the six months ended June 30, 2001 from $71.0 million for the six months ended June 30, 2000, an increase of 8.6%. As noted earlier, issuer services' revenues represent the amortization of fees for initial listings, listings of additional shares, and annual renewal fees for companies listed on Nasdaq. These fees are initially deferred and amortized over the estimated periods for which the services may be provided. Initial listings on Nasdaq for the first six months totaled 69, compared to 342 for the first six months of 2000.
Other revenues
Other revenues for the six months ended June 30, 2001 totaled $27.1 million, up from $12.9 million from the first half of 2000, primarily attributable to increased revenues related to the licensing of the Nasdaq-100 Index for financial products such as QQQ.
Investor Conference Call
An investor conference call to discuss the firm's results, outlook and related matters will be held at 10:00 am, E.T. on Tuesday, August 21. Members of the public and the media who would like to listen to the conference call can access it through an audio webcast available at www.nasdaq.com. For those unable to listen to the live broadcast, a replay will be available on the Nasdaq Web site at www.nasdaq.com or the Nasdaq Newsroom at www.nasdaqnews.com or by dialing 1-888-566-0402 (U.S. domestic) or 1-402-998-0586 (international), pass code number 37265, beginning approximately one hour after the event. The replay number will be available until 4:00 pm ET on August 27. Please direct any questions regarding obtaining access to the conference call to Nasdaq Media Relations, via e-mail, to michael.demeo@nasdaq.com or judith.inosanto@nasdaq.com.
Nasdaq Financial Statements
The following attachments (on the Nasdaq web-site) summarize the results reported on the Form 10-Q's:
- Attachment 1: Statement of Operations, Second Quarter, 2001
- Attachment 2: Statement of Operations, First Quarter, 2001
- Attachment 3: Statement of Operations, First Half, 2001
- Attachment 4: Statement of Financial Condition, First Half, 2001
Cautionary-Note Regarding Forward-Looking Statements
The matters described herein, and the matters described in the Company's webcast 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 Company's control, 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 and periodic reports filed with the U.S. Securities and Exchange Commission.
The Nasdaq Stock Market lists over 4,300 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.
