NASDAQ Announces First Quarter 2006 Results

Apr 20, 2006

NEW YORK, April 20, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- The NASDAQ Stock Market, Inc. ("NASDAQ(R)"; Nasdaq: NDAQ), today reported first quarter 2006 net income of $18.0 million, or $0.16 per diluted share, an increase of 41.7% from $12.7 million or $0.13 per diluted share in the first quarter of 2005, and an increase of 5.3% from $17.1 million or $0.15 per diluted share in the fourth quarter of 2005. These favorable results are primarily driven by contributions from recent acquisitions, improvements in trading market share, and ongoing efforts to improve operational efficiency.

Gross margin, representing total revenues less cost of revenues, was $162.0 million in the first quarter of 2006, an increase of 28.3% from $126.3 million in the year-ago period, and an increase of 16.9% from $138.6 million in the fourth quarter of 2005.

NASDAQ's Chief Executive Officer, Robert Greifeld commented, "NASDAQ's strong first quarter performance demonstrates our ability to simultaneously execute our integration, cost reduction, and top-line growth initiatives. During the quarter we grew gross margin for the sixth consecutive quarter and witnessed market share gains in the trading of all U.S. listed equities. We also announced the creation of the Global Select Market, a listing tier with the world's highest standards, further broadening NASDAQ's value proposition to our issuers. As the premier equity marketplace, NASDAQ is extremely well positioned to compete aggressively and to capitalize on future growth opportunities. Our strong competitive position allows us to take the necessary strategic steps to enhance shareholder value in the rapidly evolving global capital markets."

Recent Highlights

    * Created the Global Select Market, a new listing tier with highest
      financial listing standards in the world.

    * Acquired, allowing NASDAQ to offer best-in-class
      shareholder communications and intelligence services to issuers.

    * Achieved a new record in trading NYSE-listed stocks, matching a single
      day high of 10.03% on March 24, 2006, representing an approximate 43%
      percent spike in NASDAQ's matched market share.

    * Agreed with First Trust Advisors to launch two new exchange traded funds
      (ETFs): NASDAQ-100 Equal Weighted Fund and NASDAQ-100 Technology Fund.

    * Began offering options routing through the BRUT broker-dealer, providing
      customers connectivity and routing to the major options exchanges.

    * Completed an offering of 15,979,513 shares of common stock at $40.00 per
      share; 8,042,142 shares were sold by NASDAQ with approximately $105
      million in proceeds used to redeem our Series C cumulative preferred
      stock, including accrued and unpaid dividends and a make-whole premium.

    * Acquired a strategic stake in the London Stock Exchange.

Charges Associated with NASDAQ's Cost Reduction Program and INET Integration

Included in total expenses for the first quarter 2006 are pre-tax charges of $13.6 million relating to NASDAQ's continuing efforts to reduce operating expenses, improve the efficiency of its operations, and integrate the INET ECN. These charges include:

* Technology Review -- NASDAQ recorded depreciation and amortization
      expenses of $11.9 million in the quarter associated with its technology
      review, in which it changed the estimated useful life of some assets as
      it migrates to lower cost operating platforms and processes.

    * Workforce Reductions -- NASDAQ recorded charges of $1.7 million in the
      quarter for severance and outplacement costs.

    Follow-on Offering

To primarily pay down debt incurred to purchase the strategic stake in the London Stock Exchange, NASDAQ intends to proceed with a common stock offering. Information about the offering will be available in a prospectus supplement to be filed shortly with the SEC.

2006 Outlook
    NASDAQ is raising guidance for the full-year 2006:

    * Net income in the range of $63.0 million to $73.0 million for the year,
      including the impact of charges associated with NASDAQ's cost reduction
      program, INET integration, and loss on extinguishment of debt noted

    * Gross margin in the range of $625.0 million to $640.0 million.

    * Total expenses in the range of $478.0 million to $488.0 million.

Included in 2006 total expense projections are approximately $65.0 million to $75.0 million of pre-tax charges associated with NASDAQ's continuing efforts to improve efficiencies and reduce operating expenses and to integrate the INET ECN. These charges include:

* Approximately $36.0 million to $40.0 million in depreciation and
      amortization primarily related to NASDAQ's decision to migrate to less
      expensive technology operating platforms.

    * Approximately $5.0 million to $10.0 million in non-cash charges related
      to NASDAQ's plans to exit certain real estate facilities.

    * Approximately $6.0 million to $7.0 million in severance expenses
      associated with NASDAQ's plans for workforce reductions.

    * Approximately $18.0 million loss on extinguishment of debt related to
      our credit facilities, $12.1 million of which is a non-cash charge.

NASDAQ's Chief Financial Officer, David Warren, commented: "NASDAQ's integration of INET is proceeding well, allowing us to move forward as planned with the execution of our core business strategy and our cost reduction plan. Our revised 2006 outlook calls for gross margin and net income growth of approximately 20% and 10%, respectively, from prior year and reflects our confidence in attaining our operating objectives. We are targeting 2006 expenses, excluding charges associated with our debt restructuring, to be in the range of $460.0 million to $470.0 million and remain on track to reduce expenses 20.0% to 25.0% in 2007. We remain focused on continued execution as we finalize exchange status and aggressively pursue our growth strategy."

Q1 Financial Review

Total Revenues and Gross Margin -- First quarter results include NASDAQ's first full quarter of INET operations. First quarter results also include the impact of NASDAQ's Limitation of Liability Rule, which became effective on April 1, 2005, and required NASDAQ to record all execution revenues from transactions executed through The NASDAQ Market Center on a gross basis in revenues and to record liquidity rebate payments from transactions executed through The NASDAQ Market Center as a cost of revenues. This change was made on a prospective basis beginning April 1, 2005.

Gross margin increased 28.3% in the first quarter to $162.0 million, up from $126.3 million in the year-ago quarter, and increased 16.9% from $138.6 million in the fourth quarter of 2005.

Market Services

During the quarter Market Services gross margin increased 44.5% to $102.9 million from prior year.

Three Months Ended                % Variance from
                          Mar. 31,   Mar. 31,     Dec. 31,   Prior     Prior
                           2006       2005         2005       year    quarter
                          (in millions)
    NASDAQ Market Center
     Execution and trade
      reporting revenues    $286.1    $112.7       $150.3       NM      90.4%
     Access services
      revenue                 12.3      20.9         19.3    (41.1)%   (36.3)%
     Liquidity rebates           -     (35.5)           -       NM         -
     Tape fee revenue
      sharing                 (5.3)     (2.1)        (3.5)      NM      51.4%
     NASDAQ General
      Revenue Sharing
      Program                 (0.1)     (0.1)        (0.1)     0.0%      0.0%
        Total NASDAQ
         Market Center
         revenues            293.0      95.9        166.0       NM      76.5%
    Cost of revenues
     Liquidity rebates      (167.2)    (35.4)       (86.1)      NM      94.2%
     Brokerage, clearing
      and exchange fees      (67.0)    (18.5)       (34.8)      NM      92.5%
        Total cost of
         revenues           (234.2)    (53.9)      (120.9)      NM      93.7%
        Gross margin from
         NASDAQ Market
         Center               58.8      42.0         45.1     40.0%     30.4%
    NASDAQ Market Services
      Revenues                52.1      46.9         47.1     11.1%     10.6%
      NASDAQ General
       Revenue Sharing
       Program                (2.9)     (2.0)        (1.2)    45.0%       NM
      UTP Plan revenue
       sharing               (13.7)    (20.1)       (18.8)   (31.8)%   (27.1)%
        Total NASDAQ Market
         revenues             35.5      24.8         27.1     43.1%     31.0%
      Other Market
       revenues                8.6       4.4          7.1     95.5%     21.1%
    Gross Margin from
     Market Services        $102.9     $71.2        $79.3     44.5%     29.8%

    NM - Not meaningful.  Denotes variances equal to or greater than 100%

    * NASDAQ Market Center gross margin increased primarily due to INET
      results and increases in market share of trade executions for U.S.
      listed equities.  Access services revenue declined during the quarter
      due to the retirement of legacy products.

    * Market Services Subscriptions revenues increased as less trading revenue
      was shared under the UTP Plan as INET trades are now reported directly
      to The NASDAQ Market Center.  Also contributing to the revenue increase
      are sales of proprietary data products due to product improvements and
      enhanced sales efforts.

    * Other Market Services revenues increased from the prior year due
      primarily to payments made under a contract between NASD and NASDAQ for
      the operations of the Over-the-Counter Bulletin Board (OTCBB), which
      took effect on October 1, 2005.

    Issuer Services
    During the quarter Issuer Services revenues increased 7.3% to $58.9
million from prior year.

                                    Three Months Ended        % Variance from
                             Mar. 31,    Mar. 31,   Dec. 31,  Prior     Prior
                              2006        2005       2005     year     quarter
                                     (in millions)
    Corporate Client Group
      Annual renewal fees     $25.8      $26.0      $27.8     (0.8)%    (7.2)%
      Listing of additional
       shares fees              8.9        9.3        9.1     (4.3)%    (2.2)%
      Initial listing fees      6.4        7.8        6.8    (17.9)%    (5.9)%
      Insurance commissions
       and other                6.3        1.1        4.9       NM      28.6 %
      Other Corporate Client
       Group revenues           1.3        1.0        1.4     30.0 %    (7.1)%
         Total Corporate
          Client Group
          revenues             48.7       45.2       50.0      7.7 %    (2.6)%
    NASDAQ Financial Products
      Licensing revenues        9.0        8.9        8.2      1.1 %     9.8 %
      Portal revenues           1.2        0.8        1.1     50.0 %     9.1 %
    Total NASDAQ Financial
     Products revenues         10.2        9.7        9.3      5.2 %     9.7 %
    Total Issuer Services
     revenues                 $58.9      $54.9      $59.3      7.3 %    (0.7)%

    NM - Not meaningful.  Denotes variances equal to or greater than 100%

    * Corporate Client Group revenue increased from prior year driven by
      revenues generated from recent acquisitions including Carpenter Moore
      and  The decrease from the prior quarter is due to
      cyclical revenues associated with the NASDAQ Insurance Agency, as well
      as to reductions in issuer fee revenue.

    * NASDAQ Financial Products revenue increased from the prior year due to
      Portal revenue which was driven higher by elevated activity in the
      private placement market.

Total Expenses -- Total expenses increased 16.1% to $120.2 million from $103.5 million in the year-ago quarter and increased 14.0% from $105.4 million in the prior quarter. Expenses increased as a result of the continuing INET integration and recent acquisitions. First quarter 2006 results include $13.6 million in net pre-tax charges noted above. First quarter 2005 included $7.5 million of similar charges.

Earnings Per Share

As stated above, first quarter earnings per diluted share were $0.16 versus $0.15 reported for the fourth quarter of 2005 and $0.13 per diluted share in the year-ago quarter. NASDAQ's weighted average shares outstanding used to calculate diluted earnings per share was 128.0 million in the quarter versus 92.6 million last year and 122.5 million last quarter. The increase from last year is due primarily to the dilutive impact of the convertible notes and related warrants issued in April 2005 as part of the acquisition of INET ECN, and to the shares issued in NASDAQ's February 2006 equity offering.

NASDAQ(R) is the largest electronic equity securities market in the United States. With approximately 3,200 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market. It is home to category-defining companies that are leaders across all areas of business including technology, retail, communications, financial services, transportation, media and biotechnology industries. For more information about NASDAQ, visit the NASDAQ Web site at or the NASDAQ Newsroom(SM) at NDAQF

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. The NASDAQ Stock market, Inc. cautions that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements include projections which have not been reviewed by independent auditors of NASDAQ. Forward-looking statements involve a number of risks, uncertainties or other factors beyond NASDAQ's control. These factors include, but are not limited to, NASDAQ'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 NASDAQ's annual report on Form 10-K, and periodic reports filed with the U.S. Securities and Exchange Commission. In addition, these statements are based on a number of assumptions that are subject to change. Accordingly, actual results may be materially higher or lower than those projected. The inclusion of such projections herein should not be regarded as a representation by NASDAQ that the projections will prove to be correct. We undertake no obligation to release any revisions to any forward-looking statements.

The Nasdaq Stock Market, Inc.
                 Condensed Consolidated Statements of Income
          (in millions, except per share amounts and other drivers)

                                              Three Months Ended (unaudited)
                                             March 31,  December 31, March 31,
                                               2006        2005        2005

     Market Services                          $337.1      $200.2      $125.1
     Issuer Services                            58.9        59.3        54.9
     Other                                       0.2         -           0.2
       Total revenues                          396.2       259.5       180.2
     Cost of revenues
     Liquidity rebates                        (167.2)      (86.1)      (35.4)
     Brokerage, clearance and exchange fees    (67.0)      (34.8)      (18.5)
       Total cost of revenues                 (234.2)     (120.9)      (53.9)
     Gross margin                              162.0       138.6       126.3

     Compensation and benefits                  48.9        41.7        37.3
     Marketing and advertising                   5.0         4.2         1.3
     Depreciation and amortization              24.5        20.2        18.2
     Professional and contract services          8.9         7.7         7.0
     Computer operations and data
      communications                            10.0        14.9        16.2
     Provision for bad debts                     -           3.0         0.6
     Occupancy                                   8.0         7.1         7.1
     General and administrative                  6.8        (3.9)        5.4
       Total direct expenses                   112.1        94.9        93.1
     Support costs from related parties, net     8.1        10.5        10.4
       Total expenses                          120.2       105.4       103.5
     Operating income                           41.8        33.2        22.8
     Interest income                             4.5         4.2         1.4
     Interest expense                          (16.4)       (8.1)       (2.9)
     Minority interest                           0.1         0.1         -
     Pre-tax income                             30.0        29.4        21.3
     Income tax provision                       12.0        12.3         8.6
     Net income                                $18.0       $17.1       $12.7

     Net income applicable to common
        Net income                             $18.0       $17.1       $12.7
        Preferred stock:
             Dividends declared                 (0.4)       (0.7)       (1.0)
             Accretion of preferred stock       (0.3)       (0.3)       (0.9)
     Net income applicable to common
      stockholders                             $17.3       $16.1       $10.8

     Basic and diluted earnings per share:
        Basic                                  $0.20       $0.20       $0.14
        Diluted                                $0.16       $0.15       $0.13

     Weighted average common shares
      outstanding for earnings per share:
        Basic                                   87.9        82.5        79.0
        Diluted                                128.0       122.5        92.6

    Other Drivers
       Average daily share volume in
        NASDAQ-listed securities (in
        millions)                              2,122       1,768       2,004

       Percentage of share volume of
        NASDAQ-listed securities reported
        to The NASDAQ Market Center            74.5%       61.5%       54.9%

       Percentage of share volume of
        NYSE-listed securities reported
        to The NASDAQ Market Center            21.3%       19.3%       15.0%

       Percentage of share volume of
        AMEX-listed securities reported to
        The NASDAQ Market Center               42.1%       32.8%       31.4%

       Initial Public Offerings                   34          35          20
       Secondary Offerings                        69          77          45
       Number of listed companies              3,191       3,208       3,247

                        The Nasdaq Stock Market, Inc.
                    Condensed Consolidated Balance Sheets
                                (in millions)

                                                 March 31,        December 31,
                                                    2006              2005
      Current assets:
         Cash and cash equivalents                  $374.9            $165.2
         Available-for-sale investments, at
          fair value                                 221.3             179.4
         Receivables, net                            241.0             207.6
         Deferred tax assets                          13.3              10.0
         Other current assets                         38.7              34.8
      Total current assets                           889.2             597.0
      Property and equipment:
         Land, buildings and improvements             61.0              60.9
         Data processing equipment and software      178.7             180.0
         Furniture, equipment and leasehold
          improvements                               115.3             115.6
                                                     355.0             356.5
         Less accumulated depreciation
          and amortization                          (247.2)           (233.9)
      Total property and equipment, net              107.8             122.6
      Non-current deferred tax assets                127.8             133.3
      Goodwill                                       988.5             961.9
      Intangible assets, net                         216.5             215.5
      Other assets                                    16.7              16.5
      Total assets                                $2,346.5          $2,046.8

      Current liabilities:
         Accounts payable and accrued expenses      $112.6            $118.9
         Accrued personnel costs                      32.2              55.3
         Deferred revenue                            140.6              53.6
         Other accrued liabilities                    56.7              61.8
         Current portion of debt obligations           7.5               7.5
         Payables to related parties                   9.3              28.2
      Total current liabilities                      358.9             325.3
      Debt obligations                             1,183.1           1,184.9
      Accrued pension costs                           25.3              25.8
      Non-current deferred tax liabilities            93.0              95.2
      Non-current deferred revenue                    93.5              92.0
      Other liabilities                               70.4              69.6
      Total liabilities                            1,824.2           1,792.8
      Minority interest                                0.9               1.0

      Stockholders' equity
      Common stock                                     1.3               1.3
      Preferred stock, Series D                        -                95.0
      Additional paid-in capital                     607.1             383.7
      Common stock in treasury, at cost             (488.9)           (613.4)
      Accumulated other comprehensive loss            (1.2)             (1.3)
      Deferred stock compensation                      -                (4.9)
      Common stock issuable                            -                 6.8
      Retained earnings                              403.1             385.8
      Total stockholders' equity                     521.4             253.0
      Total liabilities, minority interest
       and stockholders' equity                   $2,346.5          $2,046.8


Media: Bethany Sherman of NASDAQ, +1-212-401-8714; Investors: Vincent Palmiere of
NASDAQ, +1-212-401-8742; Jody Burfening or Carolyn Capaccio of Lippert/Heilshorn
& Associates, +1-212-838-3777, both for NASDAQ

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