UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 May 3, 2004 was 93,294,360

INDEX

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

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

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

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

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

[Additional columns below]

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

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

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

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

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INTERACTIVE DATA CORPORATION AND SUBSIDIARIES

     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, 2003 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 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 with 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 March 31, 2004, $922 of the acquisition costs have been paid. The Company expects the remaining costs, consisting mainly of employee severance, to be paid by December 31, 2004.

     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 and liabilities assumed based on their estimated fair values as determined by management with the assistance of an independent third party appraisal firm. The intangible assets are being amortized over a period ranging from two to twenty-five-years. The Company’s financial statements include the results of operations of ComStock subsequent to the acquisition date.

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     The acquisition was accounted for as follows:

     On October 31, 2003, the Company acquired the consolidated market data feed client contracts from HyperFeed Technologies, Inc. for $8,500, consisting of an initial payment of $7,375 with the balance to be paid over 24 months subject to the achievement of certain milestones, offset by cash acquired of $1,011. As of March 31, 2004, the Company expected the achievement of certain of the milestones and as a result recorded an additional $250 to the intangible asset, Service Contract. The Company funded this acquisition from its existing cash resources.

     The acquisition was accounted for as follows:

     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 March 31, 2004, the remaining restructuring accrual associated with these events is $418, which consists of lease termination costs. The Company expects to complete the majority of these payments by December 31, 2004. In 2003, the Company recorded restructuring charges in the UK and US. These restructuring charges totaled $3,311 and were primarily related to severance, lease termination costs and the closure of the Company’s Index Services business in Edinburgh, Scotland. As of March 31, 2004, the remaining restructuring accrual that pertains to the 2003 charges is $1,553. The Company expects to complete the majority of these payments by December 31, 2004. In the first quarter of 2004, the Company recorded a restructuring accrual of $521, relating to employee severance. As of March 31, 2004, the remaining restructuring accrual that pertains to the 2004 charges is $466. The Company expects to complete the majority of these payments by December 31, 2004.

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     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 three months ended March 31, 2004, employees purchased approximately 59,000 shares at a price of $14.37 per share. At March 31, 2004, 1,773,000 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 originally approved by shareholders, the 2000 Plan had no termination date. On February 24, 2004, the 2000 Plan was amended to include a termination date of February 22, 2010. 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 8,966 stock options outstanding under the Plan as of March 31, 2004, with a weighted average exercise price of $12.33 per share. Of these options, 4,317 are currently exercisable and have a weighted average exercise price of $10.30 per share.

     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 three months ended March 31, 2004 and 2003 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.

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     Deferred Stock Compensation

     The Company has awarded deferred stock compensation to certain executives and members of the board of directors under the 2000 Plan. An aggregate of 84 deferred stock units of the Company’s common stock have been granted to date. Under the 2000 Plan, the shares are available for distribution, at no cost, to these individuals at the end of a three-year vesting period. The total deferred compensation cost related to these grants is $1,435, which is included in stockholders’ equity and will be amortized over the three-year vesting period. As of March 31, 2004, $340 has been expensed. The remaining unamortized deferred compensation cost at March 31, 2004 is $1,095.

     6. Segment Information

The Company operates in two reportable segments by providing financial and business information to Institutional and Retail Investors worldwide. The Company evaluates its segments on the basis of revenue and operating income. For comparative purposes we have provided the comparable information for the three months ended March 31, 2004 and 2003.

Segment financial information is as follows (in thousands):

(1)

Corporate and unallocated loss from operations for the periods ended March 31 primarily consists of intangible asset amortization and corporate, 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

     In November 2000, the 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 might have facilitated federal securities laws violations committed by unidentified other parties and advised us of its intention to recommend the commencement of an enforcement action against the Company. None of our officers, directors, or employees was similarly so notified. We later learned that the SEC staff was concerned about evaluated prices for a small number of high-yield municipal bonds provided by the Company in March through early May 2000 and in July-August 2000. FT Interactive Data, the Company’s principal operating subsidiary, entered into a settlement with the SEC without admitting or denying the SEC’s formal findings. The settlement is embodied in an administrative order that was issued by the SEC on December 11, 2003. As reflected in that order, FT Interactive Data was censured, paid a civil penalty of $125,000, and was required to implement some new valuation and record keeping procedures for high-yield municipal securities and other securities for which market quotations are not readily available. We do not expect the SEC settlement to have a material effect on our results of operations or financial condition.

     On a separate but related matter, shareholders of the two Heartland high-yield funds notified us late in 2002 of their intention to proceed against the Company, even though neither the funds nor their advisor had chosen 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 agreed upon a resolution with the shareholders’ counsel. Because it involves a class claim, the agreed settlement is subject to court approval. The shareholders filed a motion for approval of the agreed settlement in February 2004 and a hearing on the motion has been scheduled for June 2004. The overall settlement terms are subject to court approval and will require us to pay $1 million to shareholders of the two Heartland high-yield funds. After adherence to standard class action settlement procedures, we expect that the settlement will be approved. The amount of the settlement is expected to be fully covered by insurance. If approval were not forthcoming and the shareholders were 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. We do not expect that the outcome of any of these matters will have a material adverse impact on our financial condition or results of operations.

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9. Income Taxes

     The Company determines its periodic income tax expense based upon the current forecast of income by the respective countries in which we operate 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. For the three months ended March 31, 2004 and 2003, the estimated annual effective tax rate was 38.25% and 38.50%, respectively.

10. Intangible Assets

     Intangible assets consist of the following:

Estimated amortization expense:

11. New Accounting Pronouncements

     Consolidation of Variable Interest Entities

     In January 2003, the FASB issued FIN No. 46 “Consolidation of Variable Interest Entities, an interpretation of ARB 51.” FIN No. 46 provides guidance on the identification of entities for which control is achieved through means other than through voting rights called “variable interest entities” or “VIEs” and how to determine when and which business enterprise should consolidate the VIE (the “primary beneficiary”). This new model for consolidation applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN No. 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. In October 2003, the FASB deferred the effective date for applying the provisions of FIN 46 to interests held in certain variable interest entities or potential variable interest entities until the end of the first interim or annual period ending after December 15, 2003 if the VIE or potential VIE was created before February 1, 2003 and the entity has not issued financial statements reporting that VIE in accordance with FIN 46, other than in certain disclosures required. The Company does not have any interests that would change its current reporting entity or require additional disclosure outlined in FIN No. 46.

     Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity

     In May 2003, the FASB issued SFAS 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity ( SFAS 150), which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in something other than the fair value of the issuer’s equity shares or variations inversely related to changes in the fair value of the issuer’s equity shares. In

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November 2003, the FASB deferred the effective date for applying the provisions of SFAS 150 for mandatorily redeemable financial instruments that have a fixed redemption period to be effective for fiscal periods beginning after December 15, 2003. For all other mandatorily redeemable financial instruments, the disclosure provisions of SFAS 150 have been deferred for an indefinite period. The Company does not expect the adoption of SFAS 150 to have any impact on its financial position and results of operations.

     Employers’ Disclosures about Pensions and Other Post Retirement Benefits

     In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132 (revised 2003) (SFAS 132), “Employers’ Disclosures about Pensions and Other Post Retirement Benefits,” that improves financial statement disclosures for defined benefit plans. The change replaces existing SFAS 132 disclosure requirements for pensions and other post retirement benefits and revises employers’ disclosures about pension plans and other post retirement benefit plans. It does not change the measurement of recognition of those plans required by SFAS 87, “Employers’ Accounting for Pensions,” SFAS 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS 132 as revised retains the disclosure requirements contained in the original SFAS 132, but requires additional disclosures about the plan assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit post retirement plans. SFAS 132 revised is effective for annual and interim periods with fiscal years ending after December 15, 2003. The Company has adopted the revised disclosure provisions.

12. Retirement Plans

     Pearson Inc., a Pearson U.S. subsidiary, sponsors a defined benefit plan (the “Plan”) for Pearson’s U.S. employees and the Plan also includes certain of the Company’s U.S. employees. Pension costs are actuarially determined. The Company funds pension costs attributable to its employees to the extent allowable under IRS regulations. In 2001, the Company froze the benefits associated with this pension plan. There was no gain or loss recorded as a result of the curtailment. In 2002, the valuation date for the pension plan was changed from September to December. There was no material impact to the financial results of the Company as a result of this change.

The components of net periodic benefit cost for the three months ended March 31,

In 2004, the Company expects to contribute $1,488 to fund its obligations under the pension plan. As of March 31, 2004, the Company has contributed $183 to fund its obligations under the pension plan.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (in thousands)

Introduction

     The Company primarily supplies financial and business information to institutional and retail investors worldwide. The Company is a leading provider of time sensitive pricing (including evaluated pricing), dividend, corporate action and descriptive information for approximately 3.5 million securities. The Company also provides fixed income portfolio analytics, consulting and valuation services to institutional fixed income portfolio managers. At the core of the business are its extensive database expertise and technology resources.

     The Company distributes real-time, end of day and historically archived data to customers through a variety of services featuring Internet, dedicated line, satellite and dialup delivery protocols. Most of the Company’s services are provided on a flat fee subscription basis; others are provided on a usage basis, and some are a combination of a flat minimum fee with additional amounts charged for usage above an established level. Through a broad range of strategic alliances, the Company provides links to leading financial service and software companies offering trading, analysis, portfolio management and valuation services.

     The Company operates in two business segments:

1.		Institutional Services, and
2.		Retail Investor Services.

Institutional Services

The Company operates three different branded divisions within the Institutional Services segment.

•		FT Interactive Data provides a wide range of high quality financial information to trading houses, custodians and fund managers worldwide. The financial information collected, generated and distributed includes pricing, descriptive and corporate action information on securities from all over the world.
•		CMS BondEdge® provides fixed income analytical tools and models designed for investment managers, broker dealers, insurance companies and bank and pension fund managers.

     During 2003, the Company expanded into a third business line in the Institutional Services segment by making two strategic acquisitions.

     The Company acquired from The McGraw-Hill Companies, Inc. the stock of S&P ComStock, Inc. and the assets of certain ComStock related McGraw-Hill businesses in the United Kingdom, France, Australia, Singapore and Hong Kong for $115,972 on February 28, 2003. The Company funded this acquisition from its existing cash resources.

     On October 31, 2003, the Company acquired the consolidated market data feed client contracts from HyperFeed Technologies, Inc. for $8,500, consisting of an initial payment of $7,375 with the balance to be paid over 24 months as agreed upon milestones are reached. The Company expects the achievement of certain of the milestones and as a result recorded an additional $250 to the intangible asset, Service Contract. The Company funded this acquisition from its existing cash resources. The Company is currently migrating the HyperFeed Technologies, Inc. customers from the HyperFeed production platform to the Company’s existing ComStock production platform under a Transition Services agreement negotiated between the Company and HyperFeed Technologies, Inc. This is expected to be concluded by the first quarter of 2005.

     These two businesses form the third branded division within the Institutional Services segment:

•

ComStock offers a real-time information service which provides worldwide financial data, news and historical information. 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.

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     Retail Investor Services

     In the Retail Investor Services segment we have one branded business:

•

eSignal offers real-time, Internet and broadcast delivered subscription quote services primarily for active and professional traders offering charts, news, research, decision support tools and alerts direct to a laptop, PC or telephone.

     Prior to February 29, 2000, our business related primarily to the delivery of historical and end-of-day financial data to institutional customers through what is now our FT Interactive Data business. On February 29, 2000, Data Broadcasting merged with Interactive Data (now known as FT Interactive Data). This merger brought together the businesses of Data Broadcasting Corporation which included eSignal and CMS Bond Edge with the businesses of Interactive Data Corporation (now known as FT Interactive Data). As a result of this transaction, approximately 60% of the shares of the Company are held directly or indirectly by Pearson plc.

     Transactions with Pearson or its affiliates are included on the balance sheets as payable to affiliates.

     Business and Market Trends:

     In the first quarter of 2004, we started to see the first signs of improvement in market conditions for the Company’s core market, the financial services industry. Financial institutions have begun to improve spending following the reporting by many in the sector of strong financial results. The main business within the Institutional Services segment, FT Interactive Data, generated strong sales in the first quarter predominantly in the main US market. However, customers scaling back operations impacted the Company’s financial performance, as expected, as evidenced by a continuing high level of cancellations as customers concluded eliminating duplicate or unnecessary feeds, in connection with integration efforts related to business consolidations. Despite signs of improvement in spending trends, customers remain cost conscious. The Company continues to believe that much of the data supplied by the Company is mission critical to its customers and necessary for their operations regardless of market conditions, but the Company is not immune to cost pressures when market conditions are difficult for its client base.

     There is a continuing trend in North America for major financial institutions to outsource their back office operations to service bureaus and custodian banks. The Company has established relationships with, and is a major data supplier to, many service bureaus and custodian banks, and has and expects to continue to benefit from their growth. Another trend in North America is the consolidation of financial institutions both within and across financial industries. When institutions merge, they look to gain synergies by combining their operations, including eliminating the need for multiple data sources. This contributes to some of the higher than normal cancellations mentioned previously.

     Growth in the FT Interactive Data market is dependent, in large part, on the Company’s ability to continue to expand its data content offerings to meet the current and evolving needs of its clients. This would include responding to changes in the financial markets as well as regulatory and competitive pressures. This would also include continuing to expand the coverage of premium priced fixed income data sets and the launch of new services such as the Company’s Fair Value Information Service, which is primarily oriented toward mutual funds. In addition, the Company will continue to look to expand its market share in continental Europe.

     The CMS BondEdge business experienced strong growth in the first quarter of 2004, driven primarily by new client installations, which nearly doubled in number over the same period last year. In addition, the new business pipeline for the core BondEdge product remained strong. The CMS BondEdge business is dependent on the activity in the US financial markets and the performance of the major financial institutions. If the financial markets continue to improve, we expect this to continue to translate into more favorable operating conditions for CMS BondEdge.

     The ComStock business which was acquired in February 2003 continued to experience strong price pressures with customers remaining focused on cost containment. We expect this trend to continue. We are promoting the ComStock service widely to FT Interactive Data’s core institutional customer base. Revenues for this business also increased in part due to the acquisition of HyperFeed Technologies, Inc.’s consolidated market data feed client contracts at the end of October 2003.

     In the Retail Services segment, the eSignal business continues to strengthen its position as a leading financial data provider primarily for retail and professional investors. eSignal’s Internet subscriber base continued to experience strong growth through both direct and indirect channels. eSignal’s new QuoTrek offering, which delivers streaming, real-time quotes, charts and news to mobile, hand-held devices, was launched in February and subscriptions to this service are growing. As expected, Broadcast revenue in the first quarter of 2004 continued to declined from last year as this service is expected to be phased out by the end of the second quarter of 2004.

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     Results of Operations

Selected Financial Data

Three months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003

Service Revenues

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     Revenue for the Company increased from $99,477 in the first quarter of 2003 to $117,630 in the first quarter of 2004, an increase of $18,153 or 18.2%. Excluding the revenue from the ComStock and HyperFeed businesses, which were acquired in 2003, revenue grew by 5.3%. Excluding the positive effect of foreign exchange, mainly due to the weakness of the US dollar against the UK pound sterling, the underlying growth would be 2.2%.

     Revenue within the Institutional Services segment increased from $88,406 in the first quarter of 2003 to $106,511 in the first quarter of 2004, an increase of $18,105 or 20.5%. Excluding the revenue from the ComStock and HyperFeed businesses, which were acquired in 2003 and the effects of foreign exchange, revenue grew by 2.5%. Revenue for the FT Interactive Data business increased from $74,912 to $76,664, an increase of $1,752 or 2.3%. The main growth for the FT Interactive Data business came from North America, where revenue grew by 7.8%. The performance was helped by a strong sales performance in the final quarter of 2003 and the continuing success of the Company’s Fair Value Information Service and the sale of evaluated prices. FT Interactive Data’s UK business declined by 1.1% year on year on a US dollar basis. If the beneficial effects of foreign exchange are excluded, the decrease would be 13.7%. The main reason for the decline was new sales being more than offset by a high level of cancellations and renegotiations. At the end of 2003 the UK business closed its Index Services business which generated $1,000 of revenue in the first quarter of 2003. The Asia Pacific business grew by 17.0% but, excluding the effects of foreign exchange, revenue declined by 3.6% primarily due to client cancellations.

     The CMS BondEdge business grew revenue by $547 or 7.3% in the first quarter due in large part to a strong sales performance in the final quarter of 2003. In the first quarter of 2004, new customer installations doubled in number over the same period last year.

     The ComStock business generated revenue of $17,931 in the first quarter of 2004 compared with $5,054 in the first quarter of 2003, an increase of $12,877 or 254.8%. The increase was due to there only being one month’s results for ComStock in the first quarter of 2003 and the acquisition of HyperFeed Technologies, Inc.’s consolidated market data feed client contracts on October 31, 2003. The ComStock business is fully engaged in migrating this customer base from the HyperFeed production platform to the existing ComStock production platform. Progress continues to be made in promoting the ComStock real time feed service to the FT Interactive Data customer base.

     Within the Retail Services segment, revenue for the eSignal business grew by $419 or 4.0% from $10,437 in the first quarter of 2003 to $10,856 in the first quarter of 2004. The Broadcast business’ revenue declined by $371 or 58.5% from $634 in the first quarter of 2003 to $263 in the first quarter of 2004. This product is expected to be phased out by the end of the second quarter of 2004.

     Foreign exchange contributed $2,907 to revenue in the first quarter of 2004. This was mainly due to the weakness of the US dollar against the UK pound sterling. The average rate for the US dollar against the UK pound sterling was $1.839 in the first quarter of 2004 compared with $1.603 in the first quarter of 2003.

Total Costs and Expenses:

     Cost of Services

     Cost of services increased by $7,866 or 25.3% from $31,039 in the first quarter of 2003 to $38,905 in the first quarter of 2004. This increase was due to the inclusion of the two acquired businesses in 2003 (ComStock and the HyperFeed Technologies, Inc.’s consolidated market data feed client contracts), and the impact of foreign exchange. Excluding these factors cost of services declined by 0.6%. The main reason for the decline in the core cost of services is the completion of some integration projects in the main FT Interactive Data business to remove reliance on certain legacy production systems and the closure of a small data center in New York. These costs were partially offset by the inclusion of costs relating to the integration of the ComStock business with the existing FT Interactive Data business. Cost of services as a percentage of revenue increased from 31.2% in the first quarter of 2003 to 33.1% in the first quarter of 2004. The main reason for this increase was the additional cost involved in

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integrating the HyperFeed Technologies, Inc.’s consolidated market data feed clients into the ComStock business which in addition has a traditionally higher cost of services to revenue percentage than the existing FT Interactive Data business.

     Selling, General & Administrative Expenses

     Selling, general and administrative expenses increased by $8,316 or 26.7% from $31,153 in the first quarter of 2003 to $39,469 in the first quarter of 2004. This increase was partially due to the inclusion of the two acquired business in 2003 (ComStock and the HyperFeed Technologies, Inc.’s consolidated market data feed client contracts) and the effects of changes in foreign currency. Excluding these costs and those relating to foreign exchange, selling, general and administrative expenses increased by 9.2% or $2,729. The main reasons for this increase included an increase in employee benefit costs and 401K matching contributions attributable to the payments of bonuses in the first quarter of 2004, increased costs relating to staffing and consulting expenditure for various regulatory projects, and costs relating to the data center consolidation initiatives. Overall, selling, general and administrative expenses as a percentage of revenue increased from 31.3% in the first quarter of 2003 to 33.6% in the first quarter of 2004.

     Depreciation

     Depreciation expense increased by $360 or 9.0% from $4,020 in the first quarter of 2003 to $4,380 in the first quarter of 2004. This was mainly due to the inclusion of the two acquired businesses in 2003 referenced above and a small effect from the impact of foreign exchange, mainly due to the weakness of the US dollar against the UK pound sterling referred to above. Core depreciation declined by 6.1% mainly due to the ending of depreciation of a large number of fixed assets in 2003 and in the first quarter of 2004.

     Amortization

     Amortization expense increased from $4,117 in the first quarter of 2003 to $5,522 in the first quarter of 2004, an increase of 34.1% or $1,405. The increase was mainly due to the amortization relating to the acquisition of ComStock and HyperFeed Technologies, Inc.’s consolidated market data feed client contracts. Excluding this, amortization declined by 1.5% due to the ending of amortization of intangibles relating to a previous acquisition.

     Other Condensed Consolidated Financial Information

     Income from operations increased from $29,148 in the first quarter of 2003 to $29,354 in the first quarter of 2004, an increase of $206 or 0.7%. The increase in income from operations was due to the higher operating results discussed above.

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     Other income decreased from $510 in the first quarter of 2003 to $380 in the first quarter of 2004, reflecting the decline in interest rates and lower invested cash following the acquisition of ComStock on February 28, 2003 and HyperFeed Technologies, Inc.’s consolidated market data feed client contracts on October 31, 2003. Both of these were acquired using existing cash resources.

     Income before taxes increased from $29,658 in the first quarter of 2003 to $29,734 in the first quarter of 2004 reflecting the higher income from operations being partially offset by lower other income.

     The Company’s effective tax rate improved from 38.5% in the first quarter of 2003 to 38.25% in the first quarter of 2004 primarily attributable to tax planning initiatives instituted in 2003.

     The Company generated net income of $18,361 in the first quarter of 2004 compared with net income of $18,240 in the first quarter of 2003.

     The Company generated basic net income per share of $0.20 and diluted net income per share of $0.19 in the first quarter of 2004, similar to the levels achieved in the first quarter of 2003.

     Weighted average basic shares outstanding increased by 1.4% and weighted average diluted shares increased by 1.8% in the first quarter of 2004 due to options exercised in 2003 as well as higher level of stock options outstanding in 2003.

Liquidity and Capital Resources

     Cash provided by operating activities was $32,159 in the first quarter of 2004 compared with $34,301 in the first quarter of 2003. The decrease was due to a lower benefit from changes in operating assets and liabilities, net in the first quarter of 2004. This change in working capital pertains to higher income tax payments and higher payments to Pearson and its affiliates in the first quarter of 2004 compared with the first quarter of 2003.

     The Company’s capital expenditures increased in the first quarter of 2004 to $6,297 from $1,775 in the first quarter of 2003 due mainly to the build out of the Company’s new North American East Coast Data Center. In 2004, as we continue the consolidation of the Company’s multiple data centers to the Company’s new North American East Coast Data Center, and improve the resiliency and disaster recovery abilities of all our businesses, we expect capital expenditures to be in the range of $20,000 to $23,000.

     In the first quarter of 2004, the Company received $3,951 from the exercise of 376 stock options and the issuance of 59 shares under the employee stock purchase plan, compared with $3,051 in the first quarter of 2003. In the first quarter of 2003, the Company utilized $1,330 to repurchase 100 shares of outstanding shares. The Company did not repurchase any shares of its common stock in the first quarter of 2004.

     In 2003, the Company acquired from The McGraw-Hill Companies, Inc., the stock of S&P ComStock, Inc for $115,972, in cash. The Company funded this acquisition from its existing cash resources. In 2003, the Company also acquired the consolidated market data feed client contracts from HyperFeed Technologies, Inc. for $8,500, consisting of an initial payment of $7,375 with the balance to be paid over 24 months as agreed upon milestones are reached, offset by cash acquired of $1,011. The Company expects the achievement of certain of the milestones and as a result has recorded an additional $250 to the intangible asset, Service Contract. The Company funded this acquisition from its existing cash resources.

     Management believes that the cash and cash equivalents and expected cash flows generated by operating activities will be sufficient to meet the cash needs of the Company. The Company currently has no long-term debt.

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Income Taxes

     The Company determines its periodic income tax expense based upon the current forecast of income by the respective countries in which we operate 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. For the three months ended March 31, 2004 and 2003, the estimated annual effective tax rate was 38.25% and 38.50%, respectively.

Inflation

     Although management believes that inflation has not had a material effect on the results of its operations during the past three years, there can be no assurance that the Company’s results of operations will not be affected by inflation in the future.

Seasonality and Market Activity

     Historically, the Company has not experienced any material seasonal fluctuations in its business and the Company does not expect to experience seasonal fluctuations in the future. However, financial information market demand is largely dependent upon activity levels in the securities markets. The lower activity levels as a result of the downturn in the financial markets have impacted revenue levels in recent quarters. In the event that the U.S. or international financial markets were to suffer a prolonged downturn that results in a significant decline in investor activity in trading securities, the Company’s sales and revenue could be adversely affected. The degree of such consequences is uncertain. The Company’s exposure in the U.S. in this area could be mitigated in part by the Company’s service offerings in non-U.S. markets.

Recently Issued Accounting Pronouncements

     Consolidation of Variable interest Entities

     In January 2003, the FASB issued FIN No. 46 “Consolidation of Variable Interest Entities, an interpretation of ARB 51.” FIN No. 46 provides guidance on the identification of entities for which control is achieved through means other than through voting rights called “variable interest entities” or “VIEs” and how to determine when and which business enterprise should consolidate the VIE (the “primary beneficiary”). This new model for consolidation applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN No. 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. In October 2003, the FASB deferred the effective date for applying the provisions of FIN 46 to interests held in certain variable interest entities or potential variable interest entities until the end of the first interim or annual period ending after December 15, 2003 if the VIE or potential VIE was created before February 1, 2003 and the entity has not issued financial statements reporting that VIE in accordance with FIN 46, other than in certain disclosures required. The Company does not have any interests that would change its current reporting entity or require additional disclosure outlined in FIN No. 46.

     Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity

     In May 2003, the FASB issued SFAS 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity ( SFAS 150), which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in something other than the fair value of the issuer’s equity shares or variations inversely related to changes in the fair value of the issuer’s equity shares. In November 2003, the FASB deferred the effective date for applying the provisions of SFAS 150 for mandatorily redeemable financial instruments that have a fixed redemption period to be effective for fiscal periods beginning after December 15, 2003. For all other mandatorily redeemable financial instruments, the disclosure provisions of SFAS 150 have been deferred for an indefinite period. The Company does not expect the adoption of SFAS 150 to have any impact on its financial position and results of operations.

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     Employers’ Disclosures about Pensions and Other Post Retirement Benefits

     In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132 (revised 2003) (SFAS 132), “Employers’ Disclosures about Pensions and Other Post Retirement Benefits,” that improves financial statement disclosures for defined benefit plans. The change replaces existing SFAS 132 disclosure requirements for pensions and other post retirement benefits and revises employers’ disclosures about pension plans and other post retirement benefit plans. It does not change the measurement of recognition of those plans required by SFAS 87, “Employers’ Accounting for Pensions,” SFAS 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS 132 revised retains the disclosure requirements contained in the original SFAS 132, but requires additional disclosures about the plan assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit post retirement plans. SFAS 132 revised is effective for annual and interim periods with fiscal years ending after December 15, 2003. The Company has adopted the revised disclosure provisions.

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Information Regarding Forward-Looking Statements

     This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and is subject to the safe-harbor created by such Act. Forward-looking statements include the Company’s statements regarding its goals, beliefs, strategies, objectives, plans or current expectations. Such factors include, but are not limited to: (i) the presence of competitors with greater financial resources than ours and their strategic response to our services and products; (ii) the possibility of a prolonged outage or other major unexpected operational difficulty at any of our data centers; (iii) our ability to maintain relationships with our key suppliers and providers of market data; (iv) our ability to maintain our relationships with service bureaus and custodian banks; (v) a decline in activity levels in the securities markets; (vi) consolidation of financial services companies, both within an industry and across industries; (vii) the continuing impact of cost cutting pressures across the industries we serve; (viii) new product offerings by competitors or new technologies that could cause our products or services to become less competitive or obsolete; (ix) our ability to derive the anticipated benefits from our acquisitions; (x) potential regulatory investigations of us or our customers relating to our services; (xi) the regulatory requirements applicable to our FT Interactive Data subsidiary, which is a registered investment advisor; (xii) our ability to attract and retain key personnel; (xiii) the ability of our majority shareholder to exert influence over our affairs, including the ability to approve or disapprove any corporate actions submitted to a vote of our stockholders; and (xiv) our ability to consolidate our data centers and achieve anticipated benefits. The Company undertakes no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect the Company’s business is described under the heading “Information Regarding Forward-Looking Statements” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2003. Readers are also urged to carefully review and consider the various disclosures we have made, in this document, as well as our other periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     A portion of the Company’s business is conducted outside the United States through its foreign subsidiaries and branches. The Company has foreign currency exposure related to its operations in international markets where it transacts business in foreign currencies and, accordingly, the Company is subject to exposure from adverse movements in foreign currency exchange rates. The Company’s foreign subsidiaries maintain their accounting records in their local currencies. Consequently, changes in currency exchange rates may impact the translation of foreign statements of operations into U.S. dollars, which may in turn affect the Company’s consolidated statements of operations. The Company’s primary exposure to foreign currency exchange rate risks rest with the UK Sterling to US Dollar exchange rate due to the significant size of the Company’s operations in the United Kingdom. The effects of foreign exchange on the Company’s business historically have varied from quarter to quarter and may continue to do so.

     Total revenues and assets for the three months ended March 31, by geographic region, are as follows:

     The Company does not enter into any hedging or derivative arrangements and the Company does not hold any market risk sensitive instruments for investment or other purposes.

     The Company currently invests excess cash balances in money market accounts. These accounts are largely invested in U.S. Government obligations and investment grade commercial paper; accordingly, the Company is exposed to market risk related to changes in interest rates. The Company believes that the effect, if any, of reasonable near-term changes in interest rates on the Company’s financial position, results of operations, and cash flows will not be material.

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Item 4. Controls and Procedures

     The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. As of the end of the period covered by this Form 10-Q (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, such disclosure controls and procedures were effective.

     The Company maintains a system of internal controls over financial reporting that are designed to provide reasonable assurance that the Company’s transactions are properly recorded, that the Company’s assets are safeguarded against unauthorized or improper use and that the Company’s transactions are properly recorded and reported. As part of the evaluation of the Company’s disclosure controls and procedures, the Company evaluated its internal control over financial reporting during the first fiscal quarter of 2004. There were no changes to the Company’s internal control over financial reporting during the first fiscal quarter of 2004 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting, nor were any corrective actions required to be taken with regard to any significant deficiencies or material weaknesses.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     In November 2000, the 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 might have facilitated federal securities laws violations committed by unidentified other parties and advised us of its intention to recommend the commencement of an enforcement action against the Company. None of our officers, directors, or employees was similarly so notified. We later learned that the SEC staff was concerned about evaluated prices for a small number of high-yield municipal bonds provided by the Company in March through early May 2000 and in July-August 2000. FT Interactive Data, the Company’s principal operating subsidiary, entered into a settlement with the SEC without admitting or denying the SEC’s formal findings. The settlement is embodied in an administrative order that was issued by the SEC on December 11, 2003. As reflected in that order, FT Interactive Data was censured, paid a civil penalty of $125,000, and was required to implement some new valuation and record keeping procedures for high-yield municipal securities and other securities for which market quotations are not readily available. We do not expect the SEC settlement to have a material effect on our results of operations or financial condition.

     On a separate but related matter, shareholders of the two Heartland high-yield funds notified us late in 2002 of their intention to proceed against the Company, even though neither the funds nor their advisor had chosen 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 agreed upon a resolution with the shareholders’ counsel. Because it involves a class claim, the agreed settlement is subject to court approval. The shareholders filed a motion for approval of the agreed settlement in February 2004 and a hearing on the motion has been scheduled for June 2004. The overall settlement terms are subject to court approval and will require us to pay $1 million to shareholders of the two Heartland high-yield funds. After adherence to standard class action settlement procedures, we expect that the settlement will be approved. The amount of the settlement is expected to be fully covered by insurance. If approval were not forthcoming and the shareholders were 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. We do not expect that the outcome of any of these matters will have a material adverse impact on our financial condition or results of operations.

Item 6. Exhibits and Reports on Form 8-K

The following exhibits are filed or furnished as part of this report:

b. Reports on Form 8-K:

     On February 12, 2004, the Company furnished a Current Report on Form 8-K, under Item 12, regarding the Company’s Press Release reporting the Company’s results of operations and financial condition for the fourth quarter of 2003 and fiscal year 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	INTERACTIVE DATA CORPORATION
	(Registrant)
Dated: May 7, 2004	By:	/s/ STUART J. CLARK
	Name:		Stuart J. Clark
	President and Chief Executive Officer

Dated: May 7, 2004	By:	/s/ STEVEN G. CRANE
	Name:		Steven G. Crane
	Chief Financial Officer

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