NDAQ

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2007, for The Nasdaq Stock Market, Inc. (Nasdaq). Nasdaq operates as a holding company with two primary business segments: Market Services (transaction-based business and market information) and Issuer Services (securities listings, insurance, and financial products). The reporting period is significantly impacted by the sale of Nasdaq's investment in the London Stock Exchange (LSE) and ongoing strategic initiatives regarding the proposed acquisition of OMX.

Key Financial Metrics

Note: Net income for the period is heavily influenced by a one-time gain on the sale of the LSE investment.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 61.8% year-over-year for the quarter and 46.4% for the nine-month period. Market Services revenues grew 68.7% (quarter) and 51.9% (nine months), driven by increased trade execution market share in NYSE and Amex-listed securities and higher Section 31 fees collected as a national securities exchange.
• Profitability Surge: Net income for the quarter jumped from $30.2 million in 2006 to $365.0 million in 2007. This increase is primarily attributable to a $431.4 million pre-tax gain from the sale of Nasdaq's share capital in the LSE.
• Debt Reduction: Nasdaq used approximately $1.06 billion of the LSE sale proceeds to repay in full and terminate its Credit Facilities (senior credit agreement and secured term loan). Total debt obligations decreased from $1.49 billion at December 31, 2006, to $443.1 million at September 30, 2007, consisting primarily of 3.75% convertible notes.
• Investment Portfolio: Available-for-sale investments decreased by approximately $1.6 billion due to the LSE divestiture, while cash and cash equivalents increased by $936.7 million.

Guidance, Outlook, and Risks

• Strategic Acquisitions: Nasdaq entered into definitive agreements to acquire OMX (via Borse Dubai) with a total consideration of approximately $4.2 billion, expected to close in Q1 2008. Additionally, Nasdaq agreed to acquire the Boston Stock Exchange ($61 million) and the Philadelphia Stock Exchange ($652 million), both expected to close in Q1 2008.
• Financing: Nasdaq has received a debt commitment letter for up to $2.2 billion to finance the OMX acquisition. The new credit facility is expected to include customary covenants limiting dividends and additional indebtedness.
• Market Risks: Management cites risks related to the proposed transactions with Borse Dubai and OMX, competition, economic conditions, and regulatory changes. The business environment is characterized by high volatility and concerns over credit markets.
• Unusual Items: The financial results include significant non-recurring items: the $431.4 million LSE gain, a $35.2 million gain on foreign currency option contracts (hedging OMX), a $19.5 million tax sharing payment to Silver Lake Partners (SLP), and a $5.8 million loss on early debt extinguishment.

Investor Verification Checklist

• LSE Gain Sustainability: Verify that the $431.4 million gain is recognized as a one-time event and does not reflect core operating performance.
• OMX Transaction Status: Monitor the regulatory approvals and shareholder votes required for the $4.2 billion OMX acquisition, noting the increased cash component.
• Debt Covenants: Review the terms of the new $2.2 billion credit facility commitment, specifically regarding dividend restrictions and leverage ratios.
• Market Share Trends: Confirm the sustainability of the increased matched market share in NYSE and Amex securities (18.0% matched share in Q3 2007 vs. 12.1% in Q3 2006).
• Tax Liability: Note the $160.8 million income tax payable on the balance sheet, a significant portion of which is expected to be paid in Q4 2007 related to the LSE sale.