NASDAQ Announces Fourth Quarter 2005 Results

Jan 30, 2006

NEW YORK, Jan 30, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- The NASDAQ Stock Market, Inc. ("NASDAQ(R)") (Nasdaq: NDAQ), today reported fourth quarter 2005 net income of $17.1 million or $0.15 per diluted share versus net income of $17.8 million or $0.16 per diluted share in the third quarter of 2005 and net income of $7.4 million or $0.02 per diluted share in the fourth quarter of 2004. 2004 results reflect continuing and discontinued operations, and include a net gain of $9.6 million from discontinued operations. Net loss from continuing operations for the fourth quarter 2004 was $2.2 million or $(0.10) per diluted share. The remainder of this discussion reflects results from continuing operations, which includes INET operations beginning December 8, 2005.

Net income from continuing operations for the full year 2005 was $61.7 million or $0.57 per diluted share versus net income of $1.8 million or a loss of $(0.14) per diluted share for the full year 2004.

Gross margin, which represents total revenues less cost of revenues, was $138.6 million for the fourth quarter of 2005, an increase of 14.2% from $121.4 million in the year-ago period and 6.1% from $130.6 million in the third quarter of 2005. Gross margin for the full year 2005 was $526.0 million, an increase of 8.5% from $484.6 million in 2004.

"2005 was a highly successful year for NASDAQ, both as a stock market and as a public company," commented NASDAQ's Chief Executive Officer, Robert Greifeld. "Our financial performance was exceptional, with strong fourth quarter earnings growth from last year capping off a period of increased productivity. We continue to transform our organization by accelerating the pace of innovation in every aspect of our business, expanding our scale and functionality, and pioneering new products and services."

Mr. Greifeld concluded, "The hard work completed over the past two years gives NASDAQ a formidable competitive position. In 2006 we will begin operations as an independent registered exchange on the threshold of historic changes in our industry. Our 2006 priorities are to: complete the INET integration; increase our market share of U.S equity trading and company listings; and raise the value of our proprietary market data products; while maintaining the discipline necessary to complete our cost reduction program. In this increasingly competitive world, NASDAQ is committed to maintaining its position as the premier equity marketplace through sustained execution of our well-founded strategy."

Recent Highlights

    * Received unanimous SEC approval to operate as a national securities
      exchange, allowing NASDAQ to take the final steps needed to complete its
      separation from NASD.
    * Completed the acquisition of the INET ECN, designed to provide NASDAQ
      with a technologically superior trading platform, enhance NASDAQ's
      ability to compete with U.S. and international market centers, and
      generate significant savings through technology.
    * Welcomed Charles Schwab and Cadence Design Systems as sole NASDAQ
      issuers. Both switched their listings to NASDAQ from NYSE after
      participating in NASDAQ's dual listing program.  We also welcomed
      Harmony Gold as our first dual listed international company.
    * Entered into a definitive agreement to acquire, a
      shareholder communications and investor intelligence firm, enabling
      NASDAQ to offer's comprehensive suite of services to its
      listed and other public companies.

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

Included in total expenses for the fourth quarter and full year 2005 are net pre-tax charges of $2.1 million and $20.0 million, respectively, relating to NASDAQ's continuing efforts to reduce operating expenses and improve the efficiency of its operations, as well as fourth quarter charges associated with the acquisition and integration of the INET ECN. Included in the fourth quarter 2005 charges is the release of a $12.1 million sublease loss reserve which was recorded in the third quarter 2004 as this space will now be used to support INET operations. Excluding the release of the sublease loss reserve, total pre-tax charges taken during fourth quarter and full year 2005 are $14.2 million and $32.1 million, respectively.

The net pre-tax charges of $2.1 million and $20.0 million recorded in the fourth quarter and full year 2005 include:

* Workforce Reductions -- NASDAQ recorded charges of $2.7 million in the
      quarter and $4.6 million in the year for severance and outplacement
    * Real Estate -- NASDAQ recorded a net benefit of $9.8 million in the
      quarter and $5.4 million in the year as part of its real estate
      consolidation plans.  As stated above, the benefit results from the
      fourth quarter 2005 release of a previously recorded sublease loss
    * Technology Review -- NASDAQ recorded depreciation and amortization
      expenses of $9.2 million in the quarter and $20.8 million in the year
      associated with its technology review, in which it changed the estimated
      useful life of some assets and changed the terms on some operating
      leases as it migrates to lower cost operating platforms and processes.

    2006 Outlook
    NASDAQ expects the following results for the full-year 2006:

    * Net income in the range of $57.0 million to $69.0 million for the year,
      or approximately $0.52 to $0.60 per diluted share, including the impact
      of charges associated with NASDAQ's cost reduction program and INET
      integration, noted below.
    * Gross margin in the range of $615.0 million to $635.0 million.
    * Total expenses in the range of $465.0 million to $475.0 million.

Included in 2006 total expense projections are approximately $60.0 million to $70.0 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 $19.0 million to $24.0 million in non-cash charges related
      to NASDAQ's plans to exit certain real estate facilities.
    * Approximately $5.0 million to $6.0 million in severance expenses
      associated with NASDAQ's plans for workforce reductions.

The impact of these charges is expected to be in the range of $0.28 to $0.32 per diluted share for the year. In future years, NASDAQ expects to fully realize synergies associated with the INET acquisition, with benefits recognized as both gross margin increases and reductions to expenses. Total expenses for the full year 2007 are anticipated to decline 20.0% to 25.0% from 2006 levels, the year immediately following completion of the integration.

These projections reflect the impact of the issuance of primary shares in an offering, announced earlier this month. NASDAQ plans to sell its own shares in this offering to redeem its Series C preferred stock, with any further proceeds to be used for general corporate purposes, including potential acquisitions.

NASDAQ's Chief Financial Officer, David Warren, commented: "In 2005, NASDAQ executed very well to plan, growing the top-line, reducing our baseline expenses and generating a significant increase in net income. From its inception in 2003, our strategic review and cost reduction road map has removed more than $260.0 million in real estate, overhead, and technology expenses from our cost structure. This record of consistent, focused achievement demonstrates our ability to maintain this momentum throughout the remainder of the roadmap while also accomplishing a successful INET integration, already underway. Our entire organization is energized to accomplish our objectives and to continue NASDAQ's impressive record of financial, operational, and competitive achievement."

Q4 Financial Review

Total Revenues and Gross Margin -- Fourth quarter results include INET operations following the completion of the acquisition on December 8, 2005. Prior to the second quarter 2005, NASDAQ's other execution revenues were reported net of liquidity rebates as NASDAQ does not act as principal. However, in the second quarter 2005, under NASDAQ's new Limitation of Liability Rule, NASDAQ has recorded all execution revenues from transactions executed through the NASDAQ Market Center on a gross basis in revenues and has recorded liquidity rebate payments from transactions executed through the NASDAQ Market Center as cost of revenues as NASDAQ now has risk associated with trade execution subject to rule limitations. This change was made on a prospective basis beginning April 1, 2005 as required under U.S. generally accepted accounting principles.

For the fourth quarter 2005, gross margin increased 14.2% to $138.6 million from $121.4 million in the year-ago quarter and increased 6.1% from $130.6 million in the third quarter of 2005.

* Market Services -- Gross margin increased 14.1% to $79.3 million from
      $69.5 million in the year-ago period and increased 6.0% from $74.8
      million in the prior quarter.  Of this, NASDAQ Market Center gross
      margin of $45.1 increased 4.6% from $43.1 million in the year-ago
      quarter and 4.2% from $43.3 million last quarter.  Gross margin
      increased primarily from INET activity and increases in market share of
      trade executions.  Offsetting these increases were declines in the
      subscriber base for Access Services legacy products, which have been
      discontinued.  Market Services Subscriptions revenues, net of revenue
      sharing plans, increased 19.4% to $27.1 million from $22.7 million in
      the year-ago quarter and decreased 0.4% from $27.2 million last quarter.
      The increase from the prior year is due to increases in revenues
      generated from proprietary data products through product improvements
      and enhanced sales efforts as well as reduced sharing under the NASDAQ
      General Revenue Sharing Program. Other Market Services revenues
      increased $3.4 million from the year-ago quarter due primarily to a new
      contract between NASD and NASDAQ for the operations of the Over-the-
      Counter Bulletin Board ("OTCBB"), which took effect on October 1, 2005.
      NASDAQ transferred responsibility for the OTCBB back to NASD, but agreed
      to continue to operate the OTCBB on a contract basis for two years,
      subject to renewals.
    * Issuer Services -- Revenues increased 14.3% to $59.3 million from $51.9
      million in the year-ago period and increased 6.3% from $55.8 million in
      the prior quarter.  Of this, Corporate Client Group revenues increased
      18.2% to $50.0 million from $42.3 million in the year-ago quarter and
      increased 7.8% from $46.4 million in the prior quarter.  The increases
      were primarily due to an increase in annual listing fees implemented in
      2005 and to revenues from the NASDAQ Insurance Agency, including the
      acquisition of Carpenter Moore.  NASDAQ Financial Products revenues of
      $9.3 million decreased 3.1% from the year-ago quarter and decreased 1.1%
      from $9.4 million in the prior quarter.

Total Expenses -- Total expenses decreased 13.2% to $105.4 million from $121.4 million in the year-ago quarter and increased 6.1% from $99.3 million in the prior quarter. The fourth quarter of 2005 includes the $2.1 million in net pre-tax charges noted above. The fourth quarter 2004 included $25.5 million of similar charges.

Earnings Per Share

As stated above, fourth quarter earnings (loss) per diluted share were $0.15 versus $0.16 reported for the third quarter of 2005, and $(0.10) per diluted share in the year-ago quarter. NASDAQ's weighted average shares outstanding used to calculate diluted earnings (loss) per share was 122.5 million in the quarter versus 79.3 million last year and 119.4 million last quarter, due primarily to the dilutive impact of the convertible notes and related warrants issued in April 2005 in connection with the acquisition of INET ECN.

NASDAQ(R) is the largest electronic screen-based 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. ("NASDAQ") 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. Such 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.

(tables follow)

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

                                     Three Months Ended
                                         (unaudited)           Year Ended
                                December September December December December
                                    31,      30,      31,      31,      31,
                                   2005     2005     2004     2005     2004
     Market Services              $200.2   $164.6  $116.2    $653.6  $334.5
     Issuer Services                59.3     55.8    51.9     226.1   205.8
     Other                            -        -       -        0.2     0.1
       Total revenues              259.5    220.4   168.1     879.9   540.4
     Cost of revenues
     Liquidity rebates              86.1     64.8    30.6     255.5    38.1
     Brokerage, clearance and
      exchange fees                 34.8     25.0    16.1      98.4    17.7
       Total cost of revenues      120.9     89.8    46.7     353.9    55.8
     Gross margin                  138.6    130.6   121.4     526.0   484.6

     Compensation and benefits      41.7     36.2    35.7     152.1   148.2
     Marketing and advertising       4.2      1.5     3.8       9.0    12.8
     Depreciation and amortization  20.2     13.6    21.3      67.0    76.3
     Professional and contract
      services                       7.7      7.4     7.1      29.1    23.7
     Computer operations and data
      communications                14.9     15.4    17.7      62.4    98.9
     Provision for bad debts         3.0      0.1    (0.2)      3.0     1.1
     Occupancy                       7.1      7.2     7.4      28.4    28.7
     General and administrative     (3.9)     7.4    17.3      19.5    41.1
       Total direct expenses        94.9     88.8   110.1     370.5   430.8
     Support costs from related
      parties, net                  10.5     10.5    11.3      41.8    45.6
       Total expenses              105.4     99.3   121.4     412.3   476.4
     Operating income               33.2     31.3      -      113.7     8.2
     Interest income                 4.2      4.0     1.2      12.7     5.9
     Interest expense               (8.1)    (4.7)   (2.9)    (20.3)  (11.5)
     Minority interest               0.1      0.1      -        0.2      -
     Pre-tax operating income
      (loss)                        29.4     30.7    (1.7)    106.3     2.6
     Income tax provision           12.3     12.9     0.5      44.6     0.8
     Net income (loss) from
      continuing operations         17.1     17.8    (2.2)     61.7     1.8
     Net income from discontinued
      operations, net of tax          -        -      9.6        -      9.6
     Net income                    $17.1    $17.8    $7.4     $61.7   $11.4

     Net income (loss) applicable
      to common stockholders:
        Net income                 $17.1    $17.8    $7.4     $61.7   $11.4
        Preferred stock:
             Loss on exchange of
              securities              -        -     (3.9)       -     (3.9)
             Dividends declared     (0.7)    (0.7)   (1.0)     (3.2)   (8.4)
             Accretion of
              preferred stock       (0.3)    (0.7)   (0.9)     (3.4)   (0.9)
     Net income (loss) applicable
      to common stockholders       $16.1    $16.4    $1.6     $55.1   $(1.8)

     Basic and diluted earnings
      (loss) per share:
        Basic earnings (loss) per
         Continuing operations      $0.20   $0.20  $(0.10)    $0.68  $(0.14)
         Discontinued operations       -       -     0.12        -     0.12
     Total basic earnings (loss)
      per share                     $0.20   $0.20   $0.02     $0.68  $(0.02)
        Diluted earnings (loss)
         per share:
         Continuing operations      $0.15   $0.16  $(0.10)    $0.57  $(0.14)
         Discontinued operations       -       -     0.12        -     0.12
     Total diluted earnings (loss)
      per share                     $0.15   $0.16   $0.02     $0.57  $(0.02)

     Weighted average common shares
        outstanding for earnings
        (loss) per share:
        Basic                        82.5    81.2    78.8      80.5    78.6
        Diluted                     122.5   119.4    79.3     111.9    78.6

    Other Drivers
       Average daily share volume
        (in millions)               1,768   1,653   1,891     1,799   1,808

       Percentage of share volume
        of NASDAQ-listed securities
        reported to the NASDAQ
        Market Center                61.5%   56.0%   57.1%     57.0%   51.3%

       Initial Public Offerings        35      46      43       126     148
       Secondary Offerings             77      50      52       222     233
       Number of Listed Companies   3,208   3,214   3,271     3,208   3,271

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

                                              December 31,      December 31,
                                                  2005              2004
      Current assets:
         Cash and cash equivalents               $165.2             $58.2
           Available-for-sale, at fair value      179.4             174.9
           Held-to-maturity, at amortized cost       -               28.6
         Receivables, net                         207.6             104.3
         Receivables from related parties            -                3.2
         Deferred tax assets                       10.0              24.2
         Other current assets                      34.8              12.8
      Total current assets                        597.0             406.2
      Held-to-maturity investments, at
       amortized cost                                -                2.0
      Property and equipment:
         Land, buildings and improvements          60.9              97.3
         Data processing equipment and software   180.0             205.3
         Furniture, equipment and
          leasehold improvements                  115.6             140.0
                                                  356.5             442.6
         Less accumulated depreciation
          and amortization                       (233.9)           (268.8)
      Total property and equipment, net           122.6             173.8
      Non-current deferred tax assets             133.3              48.8
      Goodwill                                    961.9             141.4
      Intangible assets, net                      215.5              40.8
      Other assets                                 16.5               1.8
      Total assets                             $2,046.8            $814.8

      Current liabilities:
         Accounts payable and accrued expenses   $118.9             $40.2
         Accrued personnel costs                   55.3              49.4
         Deferred revenue                          53.6              59.5
         Other accrued liabilities                 61.8              42.5
         Current portion of long-term debt          7.5                -
         Payables to related parties               28.2              16.7
      Total current liabilities                   325.3             208.3
      Long-term debt                            1,184.9             265.0
      Accrued pension costs                        25.8              25.7
      Non-current deferred tax liabilities         95.2              29.5
      Non-current deferred revenue                 92.0              89.8
      Other liabilities                            69.6              39.9
      Total liabilities                         1,792.8             658.2

      Minority interest                             1.0                -

      Stockholders' equity
      Common stock                                  1.3               1.3
      Preferred stock, Series D (Series B at
       December 31, 2004) Series C                 95.0             130.1
      Additional paid-in capital                  373.5             356.0
      Common stock in treasury, at cost          (613.4)           (662.0)
      Warrants underlying common stock             10.2                -
      Accumulated other comprehensive loss         (1.3)             (1.1)
      Deferred stock compensation                  (4.9)             (1.0)
      Common stock issuable                         6.8               2.6
      Retained earnings                           385.8             330.7
      Total stockholders' equity                  253.0             156.6
      Total liabilities, minority interest
       and stockholders' equity                $2,046.8            $814.8


Media Contact: Silvia Davi, +1-212-401-8714, Investor Contact: Vincent Palmiere,
+1-212-401-8742, both of NASDAQ; or Jody Burfening or Carolyn Capaccio of
Lippert-Heilshorn & Associates, +1-212-838-3777

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