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SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the quarterly period ended June 30, 2003

For the transition period from __________ to ___________

Commission file number 0-20311

Interactive Data Corporation

22 Crosby Drive, Bedford, Massachusetts 01730-1402
(Address of principal executive offices)

Registrant’s telephone number, including area code: (781) 687-8800

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]  No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X]  No [  ]

The number of shares of common stock, par value $.01 per share, of the registrant outstanding as of August 6, 2003 was 92,472,299.

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INDEX

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)

The accompanying notes are an integral part of these consolidated financial statements.

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)

The accompanying notes are an integral part of these consolidated financial statements.

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

[Additional columns below]

[Continued from above table, first column(s) repeated]

						Accumulated Other
		Additional Paid				Comprehensive				Accumulated				Total Stockholders’
		in Capital				Loss				Deficit				Equity
Balance, December 31, 2002 (Audited)		$	786,470			$	(4,616	)		$	(94,398	)		$	662,743
Exercise of stock options			5,631				—				—				5,639
Issuance of stock in connection with employee stock purchase plan			644				—				—				645
Tax benefit from exercise of stock options and employee stock purchase plan			2,711				—				—				2,711
Purchase of treasury stock			—				—				—				(1,330	)
Other comprehensive income			—				4,140				—				4,140
Net income			—				—				35,979				35,979
Balance, June 30, 2003		$	795,456			$	(476	)		$	(58,419	)		$	710,527

The accompanying notes are an integral part of these consolidated financial statements.

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
(Unaudited)

1.

Interim Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared by Interactive Data Corporation and its wholly-owned subsidiaries (the “Company”) in accordance with generally accepted accounting principles for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included. All such adjustments are of a normal recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2002 filed with the Securities and Exchange Commission on Form 10-K. The results for interim periods are not necessarily indicative of the results to be expected for the full year.

2.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the Company’s results of operations.

3.

Acquisitions

     On January 31, 2002, the Company, through its FT Interactive Data Corporation subsidiary, acquired certain assets from Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) used in its Securities Pricing Service (“SPS”) business. The price paid in cash for the assets was $48,000 and was funded from the operating cash of FT Interactive Data Corporation. In addition, FT Interactive Data Corporation incurred acquisition costs of $1,233, consisting of severance costs and legal and accounting services. As of June 30, 2003, $975 of the acquisition costs have been paid. The Company expects the remaining costs, which consist entirely of employee severance, to be paid by December 31, 2003.

     The acquisition was accounted for using the purchase method of accounting in accordance with Financial Accounting Standard No. 141, “Business Combinations.” The purchase price has been assigned to the assets acquired based on their fair values as determined by an independent third party appraisal. The intangible asset, customer lists, is being amortized over a fourteen-year period. The Company’s financial statements include the results of operations of SPS subsequent to the acquisition date.

     The acquisition was accounted for as follows:

     On February 28, 2003, the Company acquired from The McGraw-Hill Companies, Inc., the stock of S&P ComStock, Inc. (“ComStock”) and the assets of certain McGraw-Hill businesses in the United Kingdom, France, Australia, Singapore and Hong Kong. This acquisition provides the Company direct access to real-time market data from more than 180 stock exchanges and other sources worldwide. The acquisition also expands the Company’s real-time data feed services, and provides the Company the opportunity to market ComStock’s content and product to several thousand institutional customers worldwide. The price paid in cash for the assets was $115,972 and was funded from the operating cash of the Company. In addition, the Company incurred acquisition costs of $1,250, consisting of severance costs and legal and accounting services. As of June 30, 2003, $917 of the acquisition costs have been paid.

     The acquisition was accounted for using the purchase method of accounting in accordance with Financial Accounting Standard No. 141, “Business Combinations.” The purchase price has been assigned to the assets acquired based on their fair values as determined by an independent third party appraisal. The intangible assets are being amortized over a period ranging from two to twenty-five-years. The Company’s financial statements for the six months ended June 30, 2003 include the results of operations of ComStock subsequent to the acquisition date.

The acquisition was accounted for as follows:

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4.

Restructuring Charges

     In 2002, the Company recorded restructuring charges in the UK and US. These restructuring charges totaled $3,320 and were primarily related to employee severance. As of June 30, 2003, the remaining restructuring accrual is $901. The Company expects to complete the majority of these payments by December 31, 2003.

5.		Stock Based Compensation
		Employee Stock Purchase Plan

     In 2002, the Company adopted an employee stock purchase plan for all eligible employees. Under the plan, shares of the Company’s common stock may be purchased at six-month intervals at 85% of the lower of the fair market value on the first or the last day of each six-month period. During the six months ended June 30, 2003, employees purchased approximately 57,000 shares at a price of $11.24 per share. At June 30, 2003, 1,893,000 shares were reserved for future issuance.

Employee Stock Option Plan

     In 2000, the Company adopted the 2000 Long Term Incentive Plan (the “2000 Plan”). As originally approved by shareholders, under the 2000 Plan, the Compensation Committee of the Board of Directors can grant stock-based awards representing up to 20% of the total number of shares of common stock outstanding at the date of grant. As a result of recent changes to the NYSE rules regarding shareholders approval of equity plans, the shares available for issuance without further shareholder approval is capped at 20% of the total number of shares of common stock outstanding at June 29, 2003, the day proceeding effectiveness of the NYSE transition rules. The 2000 Plan provides for the discretionary issuance of stock-based awards to directors, officers, and employees of the Company, as well as persons who provide consulting or other services to the Company. The exercise price of options granted employees under the 2000 Plan is determined at the discretion of the Compensation Committee. The exercise price for all options granted to date has been equal to the market price of the related shares at the date of grant. Options expire ten years from the date of grant and generally vest over a three to four year period.

     The Company has 9,681,000 stock options outstanding under its 2000 Long Term Incentive Plan as of June 30, 2003, with a weighted average exercise price of $12.00. Of these options, 3,856,000 are currently exercisable and have a weighted average exercise price of $9.56.

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     The Company follows Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), in accounting for its employee stock option and employee stock purchase plans, rather than the fair value method of accounting provided under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Under APB No. 25, the Company accounts for its employee stock options using the intrinsic value method. Under this method the Company does not recognize compensation expense on stock options granted to employees because the exercise price of each option is equal to the market price of the underlying stock on the date of the grant.

     The following pro forma information presents the Company’s net income and basic and diluted net income per share for the six month and three month periods ended June 30, 2003 and 2002 as if compensation cost had been measured under the fair value method of SFAS No. 123, “Accounting for Stock Based Employee Compensation,” for the employee stock option and employee stock purchase plans.

6.

Segment Information

The Company evaluates its segments on the basis of revenue and operating income. As a result of the acquisition of ComStock, revenues from the Company’s eSignal and broadcast business, which comprised the Company’s retail segment, will account for less than 10% of 2003 revenues. Consequently, we will no longer report separately in our financial statements the financial results of this segment. For comparative purposes we have provided the comparable information for the three months ended June 30, 2002 and the six months ended June 30, 2002.

Segment financial information is as follows (in thousands):

(1)

Corporate and unallocated loss from operations for the periods ended June 30 primarily consists of intangible asset amortization and corporate selling, general and administrative expenses.

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7.

Earnings Per Share

A reconciliation of the weighted average number of common shares outstanding is as follows (in thousands, except per share amounts):

8.

Commitments and Contingencies

Early in 2001, seven lawsuits were filed by various stockholders of the Company against the Company’s directors and two Pearson plc (“Pearson”) affiliates. These actions were consolidated in the Delaware Chancery Court for New Castle County under the caption In re Data Broadcasting Corporation Derivative Litigation: Consolidated Civil Action No. 18665-NC (the “Derivative Action”). As is usual in derivative actions, the Company was named as a nominal defendant in the Derivative Action on the theory that the plaintiff stockholders were allegedly suing on its behalf and for its benefit.

The Derivative Action complaint challenges the Company’s January 2001 sale of its 34.4% interest in MarketWatch to Pearson, the parent company of the Company’s majority stockholder, as having been consummated at an allegedly inadequate price due to the supposedly undue influence of the Company’s majority stockholder. Plaintiffs seek to have the Pearson entities and the Company’s directors reimburse the Company for damages that the Company allegedly sustained by reason of an unduly low sale price.

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In January 2003, the named plaintiffs dismissed the case with prejudice as to the three independent director defendants. Plaintiffs have recently advised the Chancery Court that they now intend to dismiss the action as to the remaining defendants.

In November 2000, the United States Securities and Exchange Commission (the “SEC”) began an investigation into management of two Heartland Group high-yield municipal bond funds. The Company was not named in the SEC’s formal order of investigation but cooperated fully with the SEC. The SEC staff subsequently notified us of its view that the Company may have facilitated federal securities laws violations committed by other parties and advised us that the staff might recommend the commencement of an enforcement action against the Company. None of our officers, directors, or employees was similarly so notified. The SEC staff has not identified who the other parties are or specified what their misconduct was. We understand that the SEC staff is concerned about evaluated prices for several small high-yield municipal bonds provided by the Company in March-April 2000 and in July-August 2000. We believe that our evaluations were both appropriate and consistent with our usual practices. We have informed the SEC staff as to the reasons for our belief that no action against the Company would be factually or legally warranted and are discussing the matter with the staff. If the SEC were nonetheless to proceed against the Company, we do not believe that the matter would materially affect our results of operations or financial condition.

On a separate but related matter, shareholders of the two funds have notified us of their intention to proceed against the Company, even though neither the funds nor their advisor chose to do so. We understand that the shareholders’ claims would be related to the September and October 2000 decreases in the funds’ net asset values. While we do not believe that any such claims would have merit or would materially affect the Company’s results of operations or financial condition, we are discussing a possible resolution with the shareholders' counsel. If the shareholders were nonetheless to proceed against the Company, we do not believe that the matter would materially affect our results of operations or financial condition.

In addition to the matters discussed above, the Company is involved in ordinary, routine litigation from time to time in the ordinary course of business with a portion of the defense and/or settlement costs in some such cases being covered by various commercial liability insurance policies. The Company does not expect that the outcome of these matters will have a material impact on its financial position or results of operations.

9.

Income Taxes

The Company determines its periodic income tax expense based upon the current period income and the estimated annual effective tax rate for the Company. The rate is revised, if necessary, as of the end of each successive interim period during the fiscal year to the Company’s best current estimate of its annual effective tax rate.

10.

Intangible Assets

Intangible assets consist of the following: