NDAQ

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2008, for The NASDAQ OMX Group, Inc. (NASDAQ OMX). The company is a leading global exchange group providing trading, exchange technology, securities listing, and public company services. The reporting period is significantly impacted by the business combination with OMX AB completed on February 27, 2008, as well as subsequent acquisitions of the Philadelphia Stock Exchange (PHLX), the Boston Stock Exchange (BSX), and certain businesses of Nord Pool. Under the purchase method of accounting, Nasdaq is the acquirer, and results for acquired entities are included from their respective acquisition dates.

Key Financial Metrics

Note: 2008 results include significant non-recurring items, including a $57.9 million loss on foreign currency contracts and $42.2 million in asset impairment charges.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 49.7% to $3.65 billion, driven primarily by the inclusion of OMX AB (European operations) and PHLX (U.S. options market). Market Services revenues grew 49.0% to $3.21 billion.
• Profitability Decline: Despite revenue growth, Net Income decreased 38.3% to $319.9 million. This decline is attributed to increased operating expenses from acquisitions, a $57.9 million loss on foreign currency contracts (primarily related to the Nord Pool transaction), and $42.2 million in asset impairment charges.
• Debt Increase: Total debt obligations surged to approximately $2.52 billion from $118.4 million in 2007. This increase was necessary to finance the OMX AB business combination ($4.3 billion purchase price), the PHLX acquisition, and the Nord Pool transaction.
• Cash Position: Cash and cash equivalents decreased 57.3% to $565.8 million due to cash used for acquisitions and debt repayments, partially offset by proceeds from new debt facilities.

Guidance, Outlook, and Risks

Outlook: Management anticipates a challenging economic environment for 2009, characterized by reduced IPO activity and potential declines in trading volumes due to the global recession. However, the company expects to benefit from cost synergies and the integration of its recent acquisitions. Strategic initiatives include launching NASDAQ OMX BX (a second U.S. cash equities market) and expanding clearing services.

Key Risks:

• Global Economic Crisis: Ongoing financial turmoil may reduce customer demand, trading volumes, and the ability of counterparties to meet obligations.
• Integration Risks: The company faces challenges in integrating recently acquired businesses (OMX, PHLX, Nord Pool), which could delay synergy realization.
• Competition: Intense price competition in U.S. and European equity and derivatives markets, exacerbated by new entrants and regulatory changes like MiFID in Europe.
• Leverage: High debt levels limit financial flexibility and increase exposure to economic downturns and interest rate fluctuations.
• Asset Impairment: Significant goodwill ($5.4 billion) and intangible assets ($1.8 billion) are subject to impairment testing; continued economic weakness could trigger future charges.

Investor Verification Checklist

• Acquisition Integration: Verify the progress of integrating OMX, PHLX, and Nord Pool operations and the realization of projected cost synergies.
• Debt Covenants: Review compliance with financial covenants in the $2.075 billion Credit Facilities, specifically the interest coverage and leverage ratios.
• Goodwill Valuation: Assess the risk of future goodwill impairment charges given the $4.49 billion balance and the volatile economic environment.
• Trading Volumes: Monitor U.S. and European trading volumes and market share trends, particularly in the context of the global recession and competitive pricing pressures.
• Foreign Currency Exposure: Evaluate the impact of currency fluctuations on European earnings and the effectiveness of hedging strategies following the $57.9 million loss in 2008.