ICE 2014.3.31 10Q

 
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
 
Form 10-Q
 
 
 
(Mark One)
 
þ
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


 
For the quarterly period ended March 31, 2014
Or
¨
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 001-36198
 
 
 
 
 
INTERCONTINENTALEXCHANGE GROUP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
46-2286804
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification Number)
2100 RiverEdge Parkway,
Suite 500, Atlanta,
Georgia
30328
(Zip Code)
(Address of principal executive offices)
 
(770) 857-4700
Registrant’s telephone number, including area code 
 
 
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
 
 
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
   Smaller reporting company  ¨   
 
 
 
 
 
 
(Do not check if a smaller company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨   No   þ
As of May 5, 2014, the number of shares of the registrant’s Common Stock outstanding was 115,156,938 shares.
 
 
 
 
 




 
 
INTERCONTINENTALEXCHANGE GROUP, INC.
Form 10-Q
Quarterly Period Ended March 31, 2014
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
PART I.
Financial Information
 
Item 1
Consolidated Financial Statements (Unaudited):
 
 
Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013
 
Consolidated Statements of Income for the three months ended March 31, 2014 and 2013
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013
 
Consolidated Statements of Changes in Equity, Accumulated Other Comprehensive Income (Loss) and Redeemable Non-Controlling Interest for the three months ended March 31, 2014 and for the year ended December 31, 2013
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013
 
Notes to Consolidated Financial Statements
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3
Quantitative and Qualitative Disclosures About Market Risk
Item 4
Controls and Procedures

 
 
 
PART II.
Other Information
 
Item 1
Legal Proceedings
Item 1A
Risk Factors
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3
Defaults Upon Senior Securities
Item 4
Mine Safety Disclosures
Item 5
Other Information
Item 6
Exhibits



PART I. Financial Information
Item 1.    Consolidated Financial Statements (Unaudited)

IntercontinentalExchange Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
 
As of
March 31, 2014
 
As of
December 31, 2013
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
964

 
$
961

Short-term investments
57

 
74

Short-term restricted cash and investments
289

 
277

Customer accounts receivable, net of allowance for doubtful accounts of $1 at March 31, 2014 and December 31, 2013
544

 
482

Margin deposits and guaranty funds
42,826

 
42,216

Prepaid expenses and other current assets
574

 
249

Total current assets
45,254

 
44,259

Property and equipment, net
898

 
891

Other non-current assets:
 
 
 
Goodwill
9,482

 
9,501

Other intangible assets, net
9,410

 
9,404

Long-term restricted cash
212

 
161

Long-term investments
384

 
324

Other non-current assets
281

 
278

Total other non-current assets
19,769

 
19,668

Total assets
$
65,921

 
$
64,818

 
 
 
 
Liabilities and Equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
357

 
$
343

Accrued salaries and benefits
192

 
301

Deferred revenue
348

 
48

Short-term debt
1,297

 
1,135

Margin deposits and guaranty funds
42,826

 
42,216

Other current liabilities
383

 
299

Total current liabilities
45,403

 
44,342

Non-current liabilities:
 
 
 
Non-current deferred tax liability, net
2,809

 
2,771

Long-term debt
3,584

 
3,923

Accrued employee benefits
392

 
412

Other non-current liabilities
497

 
433

Total non-current liabilities
7,282

 
7,539

Total liabilities
52,685

 
51,881

Commitments and contingencies


 


Redeemable non-controlling interest
290

 
322


2

Equity:
 
 
 
IntercontinentalExchange Group, Inc. shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 100 shares authorized; no shares issued or outstanding at March 31, 2014 and December 31, 2013
—

 
—

Common stock, $0.01 par value; 500 shares authorized; 116 and 115 shares issued and outstanding at March 31, 2014, respectively, and 115 shares issued and outstanding at December 31, 2013
1

 
1

Treasury stock, at cost
(89
)
 
(53
)
Additional paid-in capital
9,835

 
9,794

Retained earnings
2,704

 
2,482

Accumulated other comprehensive income
464

 
359

Total IntercontinentalExchange Group, Inc. shareholders’ equity
12,915

 
12,583

Non-controlling interest in consolidated subsidiaries
31

 
32

Total equity
12,946

 
12,615

Total liabilities and equity
$
65,921

 
$
64,818


See accompanying notes.

3

IntercontinentalExchange Group, Inc. and Subsidiaries
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2014
 
2013
Revenues:
 
 
 
Transaction and clearing fees, net
$
840

 
$
300

Market data fees
133

 
41

Listing fees
91

 
—

Other revenues
134

 
11

Total revenues
1,198

 
352

Transaction-based expenses:
 
 
 
Section 31 fees
71

 
—

Cash liquidity payments, routing and clearing
195

 
—

Total revenues, less transaction-based expenses
932

 
352

Operating expenses:
 
 
 
Compensation and benefits
199

 
66

Technology and communication
48

 
11

Professional services
64

 
8

Rent and occupancy
31

 
8

Acquisition-related transaction and integration costs
61

 
18

Selling, general and administrative
32

 
9

Depreciation and amortization
88

 
32

Total operating expenses
523

 
152

Operating income
409

 
200

Other income (expense):
 
 
 
Interest expense
(27
)
 
(10
)
Other income (expense), net
(2
)
 
1

Other expense, net
(29
)
 
(9
)
Income from continuing operations before income tax expense
380

 
191

Income tax expense
107

 
54

Income from continuing operations
273

 
137

Income from discontinued operations, net of tax
2

 
—

Net income
$
275

 
$
137

Net income from continuing operations attributable to non-controlling interest
(13
)
 
(2
)
Net income attributable to IntercontinentalExchange Group, Inc.
$
262

 
$
135

Basic earnings per share attributable to IntercontinentalExchange Group, Inc. common shareholders:
 
 
 
Continuing operations
$
2.27

 
$
1.86

Discontinued operations
0.01

 
—

Basic earnings per share
$
2.28

 
$
1.86

Basic weighted average common shares outstanding
115

 
73

Diluted earnings per share attributable to IntercontinentalExchange Group, Inc. common shareholders:
 
 
 
Continuing operations
$
2.26

 
$
1.85

Discontinued operations
0.01

 
—

Diluted earnings per share
$
2.27

 
$
1.85

Diluted weighted average common shares outstanding
116

 
73

Dividend per share
$
0.65

 
$
—

See accompanying notes.

4

IntercontinentalExchange Group, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2014
 
2013
Net income
$
275

 
$
137

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments, net of tax benefit of $1 for the three months ended March 31, 2013
45

 
(42
)
Change in fair value of available-for-sale securities
60

 
(16
)
Other comprehensive income (loss)
105

 
(58
)
Comprehensive income
$
380

 
$
79

Comprehensive income attributable to non-controlling interest
(13
)
 
(2
)
Comprehensive income attributable to IntercontinentalExchange Group, Inc.
$
367

 
$
77


See accompanying notes.

5

IntercontinentalExchange Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity, Accumulated Other Comprehensive Income (Loss)
and Redeemable Non-Controlling Interest
(In millions)
(Unaudited)
 
IntercontinentalExchange Group, Inc. Shareholders' Equity
 
Non-
Controlling
Interest in
Consolidated
Subsidiaries
 
Total
Equity
 
Redeemable Non-Controlling Interest
 
Common
 Stock
 
Treasury Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Shares
 
Value
 
Shares
 
Value
 
Balance, as of December 31, 2012
80

 
$
1

 
(7
)
 
$
(717
)
 
$
1,903

 
$
2,509

 
$
(52
)
 
$
33

 
$
3,677

 
$
—

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
411

 
—

 
411

 
—

Stock consideration issued for NYSE Euronext acquisition
42


—


—


(53
)

8,347


—


—

 
—


8,294


—

Exercise of common stock options
—

 
—

 
—

 
—

 
13

 
—

 
—

 
—

 
13

 
—

Payments relating to treasury shares received for restricted stock tax payments and stock option exercises
—

 
—

 
(1
)
 
(24
)
 
—

 
—

 
—

 
—

 
(24
)
 
—

Issuance of restricted stock
1

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—


—


—


—


69


—


—

 
—


69


—

Tax benefits from stock option plans
—

 
—

 
—

 
—

 
8

 
—

 
—

 
—

 
8

 
—

Adjustment to redemption value of redeemable non-controlling interest
—


—


—


—


—


(6
)

—

 
—


(6
)

6

Acquisition of non-controlling interest
—


—


—


—


—


—


—

 
30


30


—

Acquisition of redeemable non-controlling interest
—


—


—


—


—


—


—

 
—


—


313

Distributions of profits to non-controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(12
)
 
(12
)
 
—

Purchase of subsidiary shares from non-controlling interest
—

 
—

 
—

 
—

 
(5
)
 
—

 
—

 
(32
)
 
(37
)
 
—

Treasury shares retired in connection with formation of ICE Group
(8
)

—


8


741


(541
)

(200
)

—

 
—


—


—

Dividends paid to shareholders
—


—


—


—


—


(75
)

—

 
—


(75
)

—

Net income attributable to non-controlling interest
—

 
—

 
—

 
—

 
—

 
(16
)
 
—

 
13

 
(3
)
 
3

Net income
—

 
—

 
—

 
—

 
—

 
270

 
—

 
—

 
270

 
—

Balance, as of December 31, 2013
115

 
1

 
—

 
(53
)
 
9,794

 
2,482

 
359

 
32

 
12,615

 
322

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
105

 
—

 
105

 
—

Exercise of common stock options
1

 
—

 
—

 
—

 
2

 
—

 
—

 
—

 
2

 
—

Payments relating to treasury shares received for restricted stock tax payments and stock option exercises
—

 
—

 
—

 
(36
)
 
—

 
—

 
—

 
—

 
(36
)
 
—

Stock-based compensation
—

 
—

 
—

 
—

 
25

 
—

 
—

 
—

 
25

 
—

Tax benefits from stock option plans
—

 
—

 
—

 
—

 
14

 
—

 
—

 
—

 
14

 
—

Adjustment to redemption value of redeemable non-controlling interest
—

 
—

 
—

 
—

 
—

 
36

 
—

 
—

 
36

 
(36
)
Distributions of profits to non-controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(7
)
 
(7
)
 
(2
)
Dividends paid to shareholders
—


—


—


—


—


(76
)

—

 
—


(76
)

—

Net income attributable to non-controlling interest
—

 
—

 
—

 
—

 
—

 
(13
)
 
—

 
6

 
(7
)
 
6

Net income
—

 
—

 
—

 
—

 
—

 
275

 
—

 
—

 
275

 
—

Balance, as of March 31, 2014
116

 
$
1

 
—

 
$
(89
)
 
$
9,835

 
$
2,704

 
$
464

 
$
31

 
$
12,946

 
$
290

 
As of
March 31, 2014
 
As of
December 31, 2013
Accumulated Other Comprehensive Income (Loss) was as follows:
 
 
 
Foreign currency translation adjustments
$
422

 
$
377

Fair value of available-for-sale securities
60

 
—

Fair value of net investment hedge
(21
)
 
(21
)
Employee benefit plans adjustments
3

 
3

Accumulated other comprehensive income
$
464

 
$
359


See accompanying notes.

6


IntercontinentalExchange Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2014
 
2013
Operating activities:
 
 
 
Net income
$
275

 
$
137

Less: income from discontinued operations, net of tax
(2
)
 
—

Income from continuing operations
273

 
137

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 
 
 
Depreciation and amortization
88

 
32

Stock-based compensation
22

 
15

Deferred taxes
(26
)
 
(9
)
Excess tax benefits from stock-based compensation
(14
)
 
(3
)
Other
(10
)
 
1

Changes in assets and liabilities:
 
 
 
Customer accounts receivable
(74
)
 
(60
)
Other current and non-current assets
(12
)
 
—

Income taxes payable
67

 
28

Deferred revenue
320

 
14

Accrued salaries and benefits
(144
)
 
(35
)
Other current and non-current liabilities
29

 
30

Total adjustments
246

 
13

Net cash provided by operating activities from continuing operations
519

 
150

 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(31
)
 
(15
)
Capitalized software development costs
(20
)
 
(9
)
Cash paid for acquisitions, net of cash acquired
(142
)
 
(44
)
Proceeds from sales of available-for-sale investments
10

 
—

Purchases of available-for-sale investments
(6
)
 
—

Increase in restricted cash and investments
(60
)
 
(48
)
Net cash used in investing activities from continuing operations
(249
)
 
(116
)
 
 
 
 
Financing activities:
 
 
 
Repayments of debt facilities
(161
)
 
(222
)
Dividends to shareholders
(76
)
 
—

Payments relating to treasury shares received for restricted stock tax payments and stock option exercises
(36
)
 
(20
)
Excess tax benefits from stock-based compensation
14

 
3

Proceeds from exercise of common stock options
2

 
4

Distributions of profits to non-controlling interest
(9
)
 
(6
)
Purchase of subsidiary shares from non-controlling interest
—

 
(10
)
Other
—

 
(1
)
Net cash used in financing activities from continuing operations
(266
)
 
(252
)
Net change in cash and cash equivalents from discontinued operations
—


—

Effect of exchange rate changes on cash and cash equivalents
(1
)
 
(3
)
Net increase (decrease) in cash and cash equivalents
3

 
(221
)
Cash and cash equivalents, beginning of period
961

 
1,612

Cash and cash equivalents, end of period
$
964

 
$
1,391

 
 
 
 
Supplemental cash flow disclosure:
 
 
 
Cash paid for income taxes
$
46

 
$
29

Cash paid for interest
$
5

 
$
2


See accompanying notes.

7

IntercontinentalExchange Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1.
Description of Business
IntercontinentalExchange Group, Inc. (the “Company” or “ICE Group”) is a leading global network of exchanges and clearing houses. The Company operates 17 global exchanges and six central clearing houses. ICE Group was organized on March 6, 2013 as a direct, wholly-owned subsidiary of IntercontinentalExchange, Inc. for the purpose of effecting the acquisition of NYSE Euronext Holdings LLC ("NYSE Euronext"), which occurred on November 13, 2013 (Note 3). Upon the completion of the acquisition, IntercontinentalExchange, Inc. and NYSE Euronext each became wholly-owned subsidiaries of the Company.
The Company is a holding company that, through its subsidiaries, operates regulated global markets and clearing houses, including futures exchanges, over-the counter markets and derivatives clearing houses, and is a provider of post-trade services. The Company operates these global marketplaces for trading and clearing of a broad array of energy, environmental and agricultural commodities, credit derivatives, equity indexes and currency contracts. Following the NYSE Euronext acquisition, the Company operates securities exchanges in the United States and the European-based exchanges that comprise Euronext N.V. ("Euronext") and is a global markets operator and provider of securities listing, trading, market data products, and software and technology services.

2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended December 31, 2013. The accompanying unaudited consolidated financial statements reflect all adjustments that are, in the opinion of the Company’s management, necessary for a fair presentation of results for the interim periods presented. These adjustments are of a normal recurring nature.
Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from these estimates. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned and controlled subsidiaries. All intercompany balances and transactions between the Company and its wholly-owned and controlled subsidiaries have been eliminated in consolidation. As discussed in Note 3, the Company completed an acquisition during the three months ended March 31, 2014 and has included the financial results of this company in its consolidated financial statements effective from the acquisition date.
For those consolidated subsidiaries in which the Company’s ownership is less than 100% and for which the Company has control over the assets and liabilities and the management of the entity, the outside stockholders’ interests are shown as non-controlling interests.
Segment Information
The Company previously operated as a single reportable business segment as of December 31, 2013. As of March 31, 2014, the Company is reporting two business segments, the ICE segment and the Euronext segment, which is reflective of how the Company's chief operating decision maker reviews and operates the business (Note 15). The Company plans to spin the Euronext segment off in an initial public offering in the second quarter of 2014, subject to certain regulatory approvals and other conditions, and expects to revert to one operating segment after the initial public offering.

3.
Acquisitions
NYSE Euronext Acquisition
On November 13, 2013, the Company acquired 100% of NYSE Euronext for a combination of cash and stock. The total purchase price was $11.1 billion and included cash consideration of $2.7 billion and the issuance of 42.4 million shares of the

8

Company's common stock to NYSE Euronext stockholders. The fair value of the shares issued was $8.4 billion based on the closing share price of the Company's common stock of 197.80 per share on November 12, 2013.
Under purchase accounting, the total purchase price was allocated to NYSE Euronext’s preliminary net tangible and identifiable intangible assets based on the estimated fair values of those assets as of November 13, 2013, as set forth below. The excess of the purchase price over the preliminary net tangible and identifiable intangible assets was recorded as goodwill. Goodwill represents potential revenue synergies related to clearing and new product development, expense synergies related to technology and clearing, and opportunities to enter new markets. The preliminary purchase price allocation is as follows (in millions):
Property and equipment
641

Goodwill
7,394

Identifiable intangible assets
8,521

Other assets and liabilities, net
152

Deferred tax liabilities on identifiable intangible assets
(2,763
)
Short-term and long-term debt
(2,529
)
Non-controlling interests
(327
)
Total preliminary purchase price allocation
$
11,089


In performing the preliminary purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of NYSE Euronext’s business. The preliminary allocation of the purchase price will be finalized upon the completion of the fair value analysis of the acquired assets and liabilities, including the preliminary intangible assets. During the first quarter of 2014, the Company adjusted the preliminary purchase price allocation based on updated fair value analyses of the NYSE Euronext tangible and intangible assets and liabilities. The fair value adjustments reflected in the tables above and below, primarily result in an increase in the customer relationships intangible assets of $60 million, an increase in the deferred tax liabilities on identifiable intangible assets of $29 million and a corresponding decrease to goodwill of $28 million. The income statement impact for 2013 relating to these fair value adjustments is not significant. The Company has not yet obtained all of the information related to the fair value of the acquired assets and liabilities related to the acquisition to finalize the purchase price allocation. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of the identifiable intangible assets, income taxes and certain other tangible assets and liabilities, and the allocation of the goodwill to the various reporting units.

The following table sets forth the components of the preliminary intangible assets and the net book value as of March 31, 2014 (in millions, except years):
Preliminary Intangible Assets
 
 Preliminary
   Acquisition-Date Fair Value
 
Foreign Currency Translation
 
Accumulated Amortization
 
   Net Book
   Value
 
 
   Useful Life
Exchange registrations and licenses
 
$
6,960

 
$
154

 
$
—

 
$
7,114

 
Indefinite
Customer relationships
 
1,128

 
22

 
(21
)
 
1,129

 
17-25 years
Trade names
 
320

 
2

 
(1
)
 
321

 
3 years to Indefinite
Developed technology
 
113

 
1

 
(14
)
 
100

 
3 years
Total
 
$
8,521

 
$
179

 
$
(36
)
 
$
8,664

 
 

The Company has incurred $30 million in employee termination costs during the three months ended March 31, 2014 following the acquisition, which are included in acquisition-related transaction and integration costs.

The financial information in the table below summarizes the combined results of operations of the Company and NYSE Euronext, on a pro forma basis, as though the companies had been combined as of January 1, 2013. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the period presented. Such pro forma financial information is based on the historical financial statements of the Company and NYSE Euronext. This pro forma financial information is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information, including, without limitation, preliminary purchase accounting adjustments. The pro forma financial information does not reflect any synergies or operating cost reductions that may be achieved from the combined operations. The pro forma financial information combines the historical results for the Company and NYSE Euronext for the three months ended March 31, 2013 in the following table (in millions, except per share amounts):

9

Total revenues, less transaction-based expenses
$
927

Operating income
$
412

Net income attributable to the Company
$
265

Earnings per common share — Basic
$
2.31

Earnings per common share — Diluted
$
2.30

SMX Acquisition
On February 3, 2014, the Company acquired 100% of Singapore Mercantile Exchange Pte. Ltd. (“SMX”). The acquisition includes Singapore Mercantile Exchange Clearing Corporation Pte. Ltd. (“SMXCC”), a wholly owned subsidiary of SMX, and the clearing house for all SMX trades. SMX operates futures markets in Singapore across metals, currencies, energy and agricultural commodities and SMXCC clears the contracts executed on SMX. SMX and SMXCC retain licenses to operate as an approved exchange and an approved clearing house, regulated by the Monetary Authority of Singapore. These licenses provide the Company with exchange and clearing licenses in Asia. The exchange and clearing infrastructures are expected to transition to the ICE trading and clearing platforms in the second half of 2014. As a result, a period of business transition is currently underway and the exchange and clearing house have been temporarily shut down and are expected to re-launch by year end. The financial results of SMX are not expected to be material to the 2014 results for the Company. On April 22, 2014, SMX and SMXCC were renamed ICE Futures Singapore and ICE Clear Singapore, respectively.
The SMX purchase price was allocated to the preliminary net tangible and identifiable intangible assets based on the preliminary fair value of those assets as of February 3, 2014. The preliminary net tangible and identifiable intangible assets acquired were $49 million. The Company has recorded preliminary intangible assets of $31 million for exchange registrations and licenses, which have been assigned an indefinite life. The excess of the purchase price over the preliminary net tangible and identifiable intangible assets was $101 million and was recorded as goodwill.
The preliminary allocation of the purchase price will be finalized upon the completion of the fair value analysis of the acquired assets and liabilities, including the preliminary intangible assets. The Company has not yet obtained all of the information related to the fair value of the acquired assets and liabilities related to the acquisition to finalize the purchase price allocation. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the valuation of the identifiable intangible assets, income taxes and certain other tangible assets and liabilities.

4.
Short-Term and Long-Term Restricted Cash and Investments
The Company classifies all cash and cash equivalents that are not available for general use by the Company, either due to regulatory requirements or through restrictions in specific agreements, as restricted in the accompanying consolidated balance sheets.
In connection with ICE Clear U.S.’s election to be subject to Subpart C of the Commodity Futures Trading Commission's ("CFTC") regulation (which accordingly, permits recognition as a Qualified Central Counter Party ("QCCP")), the Company contributed $50 million to ICE Clear U.S.’s guaranty fund on January 1, 2014 (Note 9), with such amount being reflected as long-term restricted cash in the accompanying consolidated balance sheet as of March 31, 2014.

5.
Goodwill and Other Intangible Assets

The following is a summary of the activity in the goodwill balance for the three months ended March 31, 2014 (in millions):
Goodwill balance at December 31, 2013
$
9,501

Acquisition
101

Foreign currency translation
102

Reclassification of goodwill relating to discontinued operations (Note 13)
(194
)
Other activity, net
(28
)
Goodwill balance at March 31, 2014
$
9,482


10

The following is a summary of the activity in the other intangible assets balance for the three months ended March 31, 2014 (in millions):
Other intangible assets balance at December 31, 2013
$
9,404

Acquisition
31

Foreign currency translation
20

Reclassification of other intangible assets relating to discontinued operations (Note 13)
(63
)
Other activity, net
60

Amortization of other intangible assets
(42
)
Other intangible assets balance at March 31, 2014
$
9,410


 The Company completed the SMX acquisition during the three months ended March 31, 2014 (Note 3). The foreign currency translation adjustments in the tables above result from a portion of the Company’s goodwill and other intangible assets being held at the Company’s United Kingdom ("U.K."), European, Singapore and Canadian subsidiaries, some of whose functional currencies are not the U.S. dollar. The other activity, net in the tables above results from adjustments to the fair value of the net tangible and identifiable intangible assets and liabilities relating to the NYSE Euronext acquisition, with a corresponding charge to goodwill (Note 3). The Company did not recognize any impairment losses on goodwill or other intangible assets during the three months ended March 31, 2014 and 2013.

6.
Debt

The Company’s total debt, including short-term and long-term debt, consisted of the following as of March 31, 2014 and December 31, 2013 (in millions):
 
As of
March 31, 2014
 
As of
December 31, 2013
Debt:
 
 
 
Commercial Paper
$
930

 
$
1,080

2011 Credit Facilities - Term Loan Facility
367

 
55

Short-term debt
1,297

 
1,135

Senior Notes:
 
 
 
2018 Senior Notes (2.5% senior unsecured notes due October 15, 2018)
600

 
599

2023 Senior Notes (4.0% senior unsecured notes due October 15, 2023)
794

 
794

NYSE Euronext Notes:
 
 
 
NYSE Euronext EUR Notes (5.375% senior unsecured notes due June 30, 2015)
1,336

 
1,353

NYSE Euronext USD Notes (2.0% senior unsecured notes due October 5, 2017)
854

 
854

2011 Credit Facilities - Term Loan Facility
—

 
323

Long term debt
3,584

 
3,923

Total debt
$
4,881

 
$
5,058

2014 Credit Facility
On April 3, 2014, the Company, as parent borrower, and its subsidiary ICE Europe Parent Limited, as subsidiary borrower, entered into a new $3.0 billion senior unsecured revolving credit facility (the “2014 Credit Facility”) pursuant to a credit agreement dated as of April 3, 2014 with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, issuing lender and swingline lender, Bank of America, N.A., as syndication agent, and the lenders party thereto. The 2014 Credit Facility includes an option for the Company to propose an increase in the aggregate amount by up to $1.0 billion, subject to the consent of the lenders funding the increase and certain other conditions. The Company incurred $11 million in debt issuance costs in connection with the 2014 Credit Facility, which will be amortized over the term of the agreement.
The 2014 Credit Facility matures on April 3, 2019. Amounts borrowed under the 2014 Credit Facility may be prepaid at any time without premium or penalty. The 2014 Credit Facility provides for a $3.0 billion multi-currency revolving facility, with sub-limits for non-dollar borrowings, swingline borrowings and letters of credit. No amounts have been drawn under the 2014 Credit Facility. As of April 3, 2014, of the $3.0 billion that was available for borrowing under the 2014 Credit Facility, $1.3 billion is required to back stop the amount outstanding at that time under the Company's commercial paper program and $303 million is reserved for our clearing houses, both as discussed below. As of April 3, 2014, the remaining $1.4 billion is available to the Company to use for working capital

11

and general corporate purposes, and any portion of the revolving credit facility no longer necessary in the future to be reserved for the foregoing purposes will be available to the Company to use for working capital and general corporate purposes.
Borrowings under the 2014 Credit Facility will bear interest on the principal amount outstanding at either (a) LIBOR plus an applicable margin rate or (b) a “base rate” plus an applicable margin rate; provided, however, that all loans denominated in a foreign currency will bear interest at LIBOR plus an applicable margin rate. The “base rate” equals the higher of (i) Wells Fargo’s prime rate, (ii) the federal funds rate plus 0.50%, or (iii) the one month LIBOR rate plus 1.00%. The applicable margin rate is based upon the Company’s public long term debt ratings and ranges from 0.875% to 1.5% on LIBOR borrowings and from 0.00% to 0.50% on base rate borrowings.
The 2014 Credit Facility includes an unutilized revolving credit commitment fee that is equal to the unused maximum revolver amount, multiplied by an applicable commitment fee rate and is payable in arrears on a quarterly basis. The applicable commitment fee rate ranges from 0.080% to 0.200% and is determined based on the Company's long term debt rating. As of April 3, 2014, the applicable commitment fee rate was 0.125% based on the Company’s current long term debt ratings.
Of the amounts available under the 2014 Credit Facility: (i) $150 million of such amounts has been reserved to provide liquidity or required financial resources for the clearing operations of ICE Clear Europe, (ii) $100 million of such amounts has been reserved to provide liquidity or required financial resources for the clearing operations of ICE Clear Credit, (iii) $50 million of such amounts has been reserved to provide liquidity or required financial resources for the clearing operations of ICE Clear U.S., and (iv) $3 million of such amounts has been reserved to provide liquidity or required financial resources for the clearing operations of ICE Clear Canada. From time to time, the Company may agree to provide additional liquidity to its subsidiaries to meet regulatory capital requirements, general corporate purposes or short term liquidity needs.
The 2014 Credit Facility contains customary representations and warranties, covenants and events of default, including a leverage ratio, as well as limitations on liens on the Company's assets, indebtedness of non-obligor subsidiaries, the sale of all or substantially all of the Company's assets, and other matters.
Revolving Facility and Term Loan Facility (2011 Credit Facilities)
In November 2011, the Company entered into senior unsecured credit facilities in the aggregate amount of $2.6 billion (the “2011 Credit Facilities”). The 2011 Credit Facilities consisted of (i) an aggregate $500 million five-year senior unsecured term loan facility (the “Term Loan Facility”) and (ii) an aggregate $2.1 billion five-year senior unsecured multicurrency revolving credit facility (the “Revolving Facility”). The 2011 Credit Facilities were scheduled to mature on November 9, 2016. As of March 31, 2014, the Company had $367 million aggregate principal amount of borrowings outstanding under the Term Loan Facility, in the form of a LIBOR rate loan with a stated interest rate of 2.0275% per annum.
In connection with the Company entering into the 2014 Credit Facility on April 3, 2014, the 2011 Credit Facilities were terminated and the $367 million outstanding under the Term Loan Facility was repaid through the issuance of new commercial paper, as discussed below. As of March 31, 2014, the $367 million was reflected as short-term debt and there were no amounts were outstanding under the Revolving Facility.
364 Day Facility
In July 2013, the Company entered into a $600 million 364 day senior unsecured revolving credit facility (the “364 Day Facility”). The 364 Day Facility was available for working capital and general corporate purposes. In connection with the Company entering into the 2014 Credit Facility, the 364 Day Facility was terminated on April 3, 2014, at which time no amounts were outstanding.
Commercial Paper Program
In December 2013, the Company entered into a U.S. dollar commercial paper program (the “Commercial Paper Program”). The Commercial Paper Program is currently backed by the borrowing capacity available under the 2014 Credit Facility, equal to the amount of the commercial paper that is issued and outstanding at any given point in time. The effective interest rate of commercial paper issuances does not materially differ from short term interest rates (such as USD LIBOR). The fluctuation of these rates due to market conditions may therefore impact the interest expense incurred by the Company.
Commercial paper notes of $930 million and original maturities ranging from 1 to 60 days were outstanding as of March 31, 2014 under the Commercial Paper Program. As of March 31, 2014, the weighted average interest rate on the $930 million outstanding under the Commercial Paper Program was 0.33% per annum, with a weighted average maturity of 35 days. The Company used the net proceeds from $367 million in new commercial paper issued under the Commercial Paper Program on April 1, 2014 to repay the $367 million that was outstanding under the Term Loan Facility as discussed above.

12

Senior Notes and NYSE Euronext Notes
In October 2013, the Company issued $600 million aggregate principal amount of 2.50% senior unsecured fixed rate notes due October 2018 (the “2018 Senior Notes”) and $800 million aggregate principal amount of 4.00% senior unsecured fixed rate notes due October 2023 (the “2023 Senior Notes”, together with the 2018 Senior Notes, the “Senior Notes”). In connection with the acquisition of NYSE Euronext, one of the Company's subsidiaries assumed the outstanding NYSE Euronext debt instruments, which included $850 million of 2.0% senior unsecured fixed rate notes due in October 2017 (the “NYSE Euronext USD Notes”) and €920 million ($1.3 billion) of 5.375% senior unsecured fixed rate notes due in June 2015 (the “NYSE Euronext EUR Notes”, and together with the NYSE Euronext USD Notes, the "NYSE Euronext Notes").

7.
Equity
The Company currently sponsors employee and director stock option and restricted stock plans. Stock options and restricted stock are granted at the discretion of the compensation committee of the board of directors. All stock options and restricted stock awards are granted at an exercise price equal to the fair value of the common stock on the date of grant. The grant date fair value is based on the closing stock price on the date of grant. The fair value of the stock options and restricted stock on the date of grant is recognized as expense over the vesting period, net of estimated forfeitures. The non-cash compensation expenses recognized in the Company’s consolidated statements of income for stock options and restricted stock were $17 million and $15 million for the three months ended March 31, 2014 and 2013, respectively. The following is a summary of stock options for the three months ended March 31, 2014:
 
Number of Options
 
Weighted Average
Exercise Price per
Option
Outstanding at December 31, 2013
872,347

 
$
97.92

Granted
154,202

 
206.87

Exercised
(66,593
)
 
37.11

Outstanding at March 31, 2014
959,956

 
119.64

 
Details of stock options outstanding as of March 31, 2014 are as follows:
 
Number of Options
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining
Contractual Life
(Years)
 
Aggregate
Intrinsic
Value
(In millions)
Vested or expected to vest
959,956

 
$
119.64

 
6.0
 
$
76

Exercisable
690,712

 
$
99.21

 
4.8
 
$
68

The total intrinsic value of stock options exercised during the three months ended March 31, 2014 and 2013 was $12 million and $7 million, respectively. As of March 31, 2014, there were $11 million in total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 2.3 years as the stock options vest.
The Company uses the Black-Scholes option pricing model for purposes of valuing stock option awards. During the three months ended March 31, 2014 and 2013, the Company used the weighted-average assumptions in the table below to compute the value of all options for shares of common stock granted to employees:
 
 
Three Months Ended March 31,
Assumptions
 
2014
 
2013
Risk-free interest rate
 
1.23
%
 
0.53
%
Expected life in years
 
5.0

 
4.0

Expected volatility
 
27
%
 
37
%
Expected dividend yield
 
1.26
%
 
0
%
Estimated weighted-average fair value of options granted per share
 
$
45.23

 
$
38.41

The risk-free interest rate is based on the zero-coupon U.S. Treasury yield curve in effect at the time of grant. The expected life computation is derived from historical exercise patterns and anticipated future patterns. Expected volatilities are based on historical volatility of the Company’s stock. Expected dividend yields have historically been 0% prior to the November 13, 2013 acquisition of NYSE Euronext since the Company did not (and had not contemplated) paying a dividend prior to the acquisition of NYSE Euronext. The Company's new dividend policy will impact the expected dividend yield on all stock options granted post-acquisition.

13

In February 2014, the Company reserved a maximum of 351,310 restricted shares for potential issuance as performance-based restricted shares to certain Company employees. The number of shares that will ultimately be granted under the performance awards will be based on the Company’s actual financial performance as compared to financial performance targets set by the Company’s board of directors and compensation committee for the year ending December 31, 2014. These restricted shares are also subject to a market condition that could reduce the number of shares that are ultimately granted. The reduction would occur if the Company’s 2014 total shareholder return falls below the 2014 return of the S&P 500 Index and the Company achieves an above “target” financial performance level threshold. If the Company’s 2014 total shareholder return were to fall below the 2014 return of the S&P 500 Index, the reduction would be either 10% or 20% of the number of shares granted, depending on the difference in the aforementioned returns.
The grant date of this award was February 27, 2014, which was the date when the Company and the employees reached a mutual understanding of award terms. February 27, 2014 is also the service inception date as that is the date when the requisite service period began. The maximum compensation expense to be recognized under these performance-based restricted shares is $71 million if the maximum financial performance target is met and all 351,310 shares vest. The compensation expense to be recognized under these performance-based restricted shares will be $35 million if the target financial performance is met, which would result in 175,655 shares vesting. The Company will recognize expense on an accelerated basis over the three-year vesting period based on the Company’s quarterly assessment of the probable 2014 actual financial performance as compared to the 2014 financial performance targets. If the market condition is not achieved, compensation cost will not be affected since the grant date fair value of the award gave consideration to the probability of market condition achievement.
As of March 31, 2014, the Company determined that it is probable that the target financial performance level will be met for 2014. Based on this assessment as of March 31, 2014, the Company recorded non-cash compensation expense of $2 million for the three months ended March 31, 2014 related to these shares and the remaining $33 million in non-cash compensation expense will be recorded on an accelerated basis over the remaining vesting period, including $16 million of which will be recorded over the remainder of 2014.
The following is a summary of the non-vested restricted shares for the three months ended March 31, 2014:  
 
Number of
Restricted
Stock Shares
 
Weighted Average
Grant-Date Fair
Value per Share
Non-vested at December 31, 2013
1,234,552
 
$
147.00

Granted
415,097
 
206.20

Vested
(393,728)
 
119.15

Forfeited
(12,592)
 
140.41

Non-vested at March 31, 2014
1,243,329
 
175.65

Restricted stock shares granted in the table above include both time-based and performance-based grants. Performance-based shares have been adjusted to reflect the actual shares to be issued based on the achievement of past performance targets. Non-vested performance-based restricted shares granted are presented in the table above at the maximum number of restricted shares that would vest if the maximum performance targets are met. As of March 31, 2014, there were $160 million in total unrecognized compensation costs related to the time-based restricted stock and the performance-based restricted stock. These costs are expected to be recognized over a weighted-average period of 2.5 years as the restricted stock vests. These unrecognized compensation costs assume that a target performance level will be met on the performance-based restricted shares granted in February 2014. During the three months ended March 31, 2014 and 2013, the total fair value of restricted stock vested under all restricted stock plans was $84 million and $50 million, respectively.

8.
Income Taxes from Continuing Operations
The Company’s effective tax rate from continuing operations was 28% for both the three months ended March 31, 2014 and 2013. The effective tax rates for the three months ended March 31, 2014 and 2013 are lower than the federal statutory rate primarily due to favorable foreign tax rate differentials, partially offset by state income taxes. Favorable foreign income tax rate differentials result primarily from lower tax rates in the United Kingdom, the Netherlands and various other lower tax jurisdictions.
The Company’s non-U.S. subsidiaries had $1.8 billion billion in cumulative undistributed earnings as of March 31, 2014. This amount represents the post-income tax earnings under U.S. GAAP adjusted for previously taxed income. The earnings from the Company’s non-U.S. subsidiaries are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes has been made in the accompanying consolidated financial statements. Further, a determination of the unrecognized deferred tax liability is not practicable. Any future distribution by way of dividend of these non-U.S. earnings may subject the Company to both U.S. federal and state income taxes, as adjusted for non-U.S. tax credits, and withholding taxes payable to various non-U.S. countries.


14

9.
Clearing Organizations
The Company operates six regulated central counterparty clearing houses for the settlement and clearance of derivative contracts. The six central counterparty clearing houses include ICE Clear Europe, ICE Clear U.S., ICE Clear Canada, ICE Clear Credit, The Clearing Corporation ("TCC") and ICE Clear Singapore, and are referred to herein collectively as the “ICE Clearing Houses”.
Each of the ICE Clearing Houses requires all clearing members to maintain cash on deposit or pledge certain assets, which may include government obligations, letters of credit, gold or emission allowances to guarantee performance on the clearing members’ open positions. Such amounts in total are known as “original margin.” The ICE Clearing Houses may make intraday original margin calls in circumstances where market conditions require additional protection. The daily profits and losses from and to the ICE Clearing Houses in respect of marking to market open contracts is known as “variation margin”. The ICE Clearing Houses mark all outstanding contracts to market, and therefore pay and collect variation margin, at least once daily, and in some cases multiple times throughout the day. Marking-to-market allows our clearing houses to identify any clearing members that may be unable to satisfy the financial obligations resulting from changes in the prices of their open contracts before those financial obligations become exceptionally large and jeopardize the ability of the ICE Clearing Houses to ensure financial performance of clearing members’ open positions.
Each of the ICE Clearing Houses requires that each clearing member make deposits into a fund known as a guaranty fund (“Guaranty Fund”), which is maintained by the relevant ICE Clearing House. These amounts serve to secure the obligations of a clearing member to the ICE Clearing House to which it has made the Guaranty Fund deposit and may be used to cover losses sustained by the respective ICE Clearing House in the event of a default of a clearing member.
Each of the ICE Clearing Houses has equal and offsetting claims to and from their respective clearing members on opposite sides of each cleared contract. This arrangement allows the ICE Clearing Houses to serve as the central financial counterparty on every cleared contract. Each ICE Clearing House bears financial counterparty credit risk in the event that market movements create conditions that lead to its clearing members failing to meet their financial obligations to that ICE Clearing House. Accordingly, the ICE Clearing Houses account for this central counterparty guarantee as a performance guarantee. Given that each contract is margined and marked or settled on at least a daily basis for each clearing member, the ICE Clearing Houses’ maximum estimated exposure for this guarantee, excluding the risk management program discussed below, is $59.9 billion as of March 31, 2014, which represents the maximum estimated value by the ICE Clearing Houses of a hypothetical one day movement in pricing of the underlying unsettled contracts. This amount is based on calculations determined using proprietary risk management software that simulates gains and losses based on historical market prices, volatility and other factors present at that point in time for those particular unsettled contracts. Future actual market price volatility could result in the exposure being significantly different than the amount estimated by the ICE Clearing Houses. The net notional value of unsettled contracts was $2.7 trillion as of March 31, 2014. The Company performed calculations to determine the fair value of its counterparty performance guarantee taking into consideration factors such as daily settlement of contracts, margining requirements, other elements of the Company’s risk management program, historical evidence of default payments, and estimated probability of potential default payouts by the ICE Clearing Houses. Based on these analyses, the estimated counterparty performance guaranty liability was determined to be nominal and no liability was recorded as of March 31, 2014 and December 31, 2013.
The ICE Clearing Houses seek to reduce their exposure through a risk management program that includes initial and ongoing financial standards for clearing member admission and continued membership, original and variation margin requirements, and mandatory deposits to the Guaranty Fund. The amounts that the clearing members are required to maintain in the original margin and Guaranty Fund accounts are determined by standardized parameters established by the margin or risk committees, risk management departments and the boards of directors of each of the ICE Clearing Houses and may fluctuate over time. As of March 31, 2014 and December 31, 2013, the ICE Clearing Houses have received or have been pledged $74.5 billion and $68.2 billion, respectively, in cash and non-cash collateral in original margin, unsettled variation margin, performance collateral for delivery and Guaranty Fund deposits to cover price movements of underlying contracts. The ICE Clearing Houses also have powers of assessment that provide the ability to collect additional funds from their clearing members to cover a defaulting member’s remaining obligations up to the limits established under the respective rules of each ICE Clearing House.
Should a particular clearing member fail to deposit original margin, or to make a variation margin payment, when and as required, the relevant ICE Clearing House may liquidate or hedge the clearing member’s open positions and use the clearing member’s margin and Guaranty Fund deposits to make up the amount owed. In the event that those deposits are not sufficient to pay the amount owed in full, the ICE Clearing Houses may utilize the respective Guaranty Fund deposits of all clearing members on a pro-rata basis for that purpose. The Company has contributed $110 million, $50 million and $50 million to the ICE Clear Europe, ICE Clear Credit and ICE Clear U.S. Guaranty Funds, respectively, as of March 31, 2014, and such amounts are at risk and could be used in the event of a clearing member default where the amount of the defaulting clearing member’s original margin and Guaranty Fund deposits are insufficient. The $210 million combined contributions as of March 31, 2014 are included in long-term restricted cash in the accompanying consolidated balance sheet and includes $50 million contributed to ICE Clear U.S. on January 1, 2014 (Note 4).

15

As of March 31, 2014, original margin and Guaranty Fund cash deposits are as follows for the ICE Clearing Houses (in millions):
 
ICE Clear U.S.
 
ICE Clear 
Europe
 
ICE Clear 
Canada
 
ICE Clear
Credit
 
TCC and ICE Clear Singapore
 
Total
Original margin
$
3,055

 
$
19,560

 
$
56

 
$
14,730

 
$
—

 
$
37,401

Guaranty Fund
257

 
2,661

 
11

 
2,492

 
4

 
5,425

Total
$
3,312

 
$
22,221

 
$
67

 
$
17,222

 
$
4

 
$
42,826

As of December 31, 2013, original margin and Guaranty Fund cash deposits are as follows for the ICE Clearing Houses (in millions):
 
ICE Clear U.S.
 
ICE Clear 
Europe
 
ICE Clear 
Canada
 
ICE Clear
Credit
 
TCC
 
Total
Original margin
$
1,642

 
$
22,007

 
$
61

 
$
13,274

 
$
—

 
$
36,984

Guaranty Fund
242

 
2,542

 
11

 
2,434

 
3

 
5,232

Total
$
1,884

 
$
24,549

 
$
72

 
$
15,708

 
$
3

 
$
42,216

The Company has recorded these cash deposits in the accompanying consolidated balance sheets as current assets with corresponding current liabilities to the clearing members of the relevant ICE Clearing House. All cash, securities and letters of credit are available only to meet the financial obligations of that clearing member to the relevant ICE Clearing House. ICE Clear U.S., ICE Clear Europe, ICE Clear Canada, ICE Clear Credit, TCC and ICE Clear Singapore are separate legal entities and are not subject to the liabilities of the other ICE Clearing Houses or the obligations of the members of the other ICE Clearing Houses. The amount of these cash deposits may fluctuate due to the types of margin collateral choices available to clearing members and the change in the amount of deposits required. As a result, these assets and corresponding liabilities may vary significantly over time.
The $17.2 billion of ICE Clear Credit cash deposits as of March 31, 2014 primarily represent funds invested under reverse repurchase agreements with several counterparty banks, none of which are clearing members, through a third party custodian bank. Under these arrangements, ICE Clear Credit purchases U.S. Treasury securities and other U.S. securities and the various counterparties agree to repurchase the instruments the following business day at a set price, plus interest. Of the $22.2 billion of ICE Clear Europe cash deposits as of March 31, 2014, $19.6 billion represent funds invested under reverse repurchase agreements through two third party investment and custody agents, with several different counterparty banks, some of which are also our clearing members and are large commercial financial institutions, and $2.6 billion represent funds invested directly in sovereign debt. Under these arrangements, ICE Clear Europe primarily purchases U.S. Treasury securities and certain sovereign debt obligations from the seven largest industrialized nations, and the various counterparties agree to repurchase the instruments on the set repurchase date at the set repurchase price, plus interest. The carrying value of these securities approximates their fair value due to the short-term nature of the instruments and repurchase agreements. The remaining cash deposits at the ICE Clearing Houses are held in demand deposit accounts at various financial institutions.
In addition to the cash deposits for original margin and the Guaranty Fund, the ICE Clearing Houses have also received other assets from clearing members, which may include government obligations, letters of credit, gold or emission allowances to mitigate its credit risk. These assets are not reflected in the accompanying consolidated balance sheets as the risks and rewards of these assets remain with the clearing members. These assets are held in safekeeping and any interest and gain or loss accrues to the clearing member. For certain non-cash deposits, the ICE Clearing Houses may impose haircut rates to ensure adequate collateral levels to account for fluctuations in the market value of these deposits. As of March 31, 2014 and December 31, 2013, the assets pledged by the clearing members as original margin and Guaranty Fund deposits for each of the ICE Clearing Houses are detailed below (in millions):
 
As of March 31, 2014
 
As of December 31, 2013
 
ICE Clear U.S.
 
ICE Clear 
Europe
 
ICE Clear 
Canada
 
ICE Clear
Credit
 
TCC and ICE Clear Singapore
 
ICE Clear U.S.
 
ICE Clear 
Europe
 
ICE Clear 
Canada
 
ICE Clear
Credit
 
TCC
Original margin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government securities at face value
$
6,763

 
$
20,214

 
$
89

 
$
2,350

 
$
—

 
$
5,011

 
$
15,670

 
$
93

 
$
2,620

 
$
—

Letters of credit
—

 
1,327

 
4

 
—

 
—

 
—

 
1,386

 
4

 
—

 
—

Gold
—

 
98

 
—

 
—

 
—

 
—

 
92

 
—

 
—

 
—

Total
$
6,763

 
$
21,639

 
$
93

 
$
2,350

 
$
—

 
$
5,011

 
$
17,148

 
$
97

 
$
2,620

 
$
—

Guaranty Fund: Government securities at face value
$
223

 
$
335

 
$
18

 
$
241

 
$
1

 
$
267

 
$
268

 
$
19

 
$
516

 
$
1



16

10.
Commitments and Contingencies
Legal Proceedings
The Company is subject to legal proceedings and claims, like the ones described below, that arise in the ordinary course of business. Typically, the Company does not believe that the resolution of these matters will have a material adverse effect on the Company’s consolidated financial condition, results of operations, or liquidity. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially and adversely affected by any developments relating to the legal proceedings and claims.
On April 18, 2014, a purported class action lawsuit was filed in the U.S. District Court for the Southern District of New York (the "Southern District") by the City of Providence, Rhode Island, against more than 40 defendants, including "Exchange Defendants", "Brokerage Defendants" and “HFT [High Frequency Trading] Defendants”. New York Stock Exchange LLC and NYSE Arca, Inc., two of the Company's subsidiaries, are among the named Exchange Defendants. Plaintiff is suing on behalf of a class of “all public investors” who bought  or sold stock on a U.S.-based exchange or alternative trading venue from April 18, 2009 to the present. The complaint asserts violations by all Exchange Defendants of Sections 10(b) and 6(b) of the Securities Exchange Act of 1934. The complaint seeks unspecified compensatory damages against all defendants, jointly and severally, as well as various forms of equitable relief. On May 2, 2014, a purported class action lawsuit with similar allegations and legal claims was filed in the Southern District by American European Insurance Company against most of the same entities (including New York Stock Exchange LLC and NYSE Arca, Inc.) named as defendants in the City of Providence lawsuit. Additional information may be obtained from the complaints, which are styled, respectively, as City of Providence v. BATS Global Markets, Inc. et al., Case No. 14-cv-2811 (S.D.N.Y.), and American European Insurance Company v. BATS Global Markets, Inc. et al., Case No. 14-cv-3133 (S.D.N.Y.). The ultimate outcome of these matters cannot reasonably be predicted at this time. 
Tax Audits
The Company is engaged in ongoing discussions and audits with taxing authorities on various tax matters, the resolutions of which are uncertain. Currently, there are matters that may lead to assessments involving the Company or one of its subsidiaries, some of which may not be resolved for several years. Based on currently available information, the Company believes it has adequately provided for any assessments that could result from those proceedings where it is more likely than not that the Company will be assessed. The Company continuously reviews its positions as these matters progress.

11.
Pension and Other Benefit Programs
In connection with the Company’s acquisition of NYSE Euronext on November 13, 2013 (Note 3), the Company assumed NYSE Euronext’s pension plans covering its U.S. and certain European operations, as well as other benefit plans. The following table provides the components of net periodic expense (benefit) associated with the pension plans, the supplemental executive retirement ("SERP") plans and the post-retirement benefit plans for the three months ended March 31, 2014 in the accompanying consolidated statement of income (in millions):
 
 
Pension Plans
 
SERP Plans
 
Post-retirement Benefit Plans
Service costs
 
$
1

 
$
—

 
$
—

Interest costs
 
9

 
1

 
2

Estimated return on plan assets
 
(12
)
 
—

 
—

Net periodic expense (benefit)
 
$
(2
)
 
$
1

 
$
2

During the three months ended March 31, 2014, the Company contributed $4 million to its pensions plans. Based on current actuarial assumptions, the Company anticipates funding an additional $47 million to its pension plans during 2014.

12.
Fair Value Measurements
The Company’s financial instruments consist primarily of cash and cash equivalents, short-term and long-term restricted cash and investments, short-term and long-term investments, customer accounts receivable, margin deposits and guaranty funds, cost and equity method investments, short-term and long-term debt and other short-term assets and liabilities. The fair value of the Company’s financial instruments are measured based on a three-level hierarchy:
Level 1 inputs — quoted prices for identical assets or liabilities in active markets.
Level 2 inputs — observable inputs other than Level 1 inputs such as quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are directly observable.

17

Level 3 inputs — unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
In general, the Company uses Level 1 inputs to determine fair value. The Level 1 assets consist of U.S. Treasury securities, equity and other securities listed in active markets, and investments in publicly traded mutual funds held for the purpose of providing future payments of the supplemental executive retirement plan and supplemental executive savings plan. The fair value of each of these assets are based on quoted prices. If quoted prices are not available to determine fair value, the Company uses other inputs that are observable either directly or indirectly. Level 2 assets consist of foreign exchange derivative contracts not designated as hedging instruments. Such values are based on published currency rates. As of March 31, 2014, the fair values of the Company’s $1.39 billion Senior Notes and $2.19 billion NYSE Euronext Notes are $1.44 billion and $2.2 billion, respectively. The fair values of these fixed rate notes were estimated using quoted market prices for these instruments. The fair value of the Company’s other short-term and long-term debt approximates the carrying value since the rates of interest on the debt approximate market rates as of March 31, 2014. All other financial instruments are determined to approximate carrying value due to the short period of time to their maturities.
Financial assets and liabilities recorded in the accompanying consolidated balance sheets as of March 31, 2014 and December 31, 2013 are classified in their entirety based on the lowest level of input that is significant to the asset or liability’s fair value measurement. Financial instruments measured at fair value on a recurring basis as of March 31, 2014 are as follows (in millions):
 
Level 1
 
Level 2
 
Total
Assets at fair value:
 
 
 
 
 
Long-term investment in equity securities
$
384


$
—


$
384

U.S. Treasury securities
75


—


75

Mutual Funds
28


—


28

Foreign exchange derivative contracts
—

 
1

 
1

Total assets at fair value
$
487


$
1


$
488

Financial instruments measured at fair value on a recurring basis as of December 31, 2013 are as follows (in millions):
 
Level 1
 
Level 2
 
Total
Assets at fair value:
 
 
 
 
 
Long-term investment in equity securities
$
324


$
—


$
324

U.S. Treasury securities
100


—


100

Mutual Funds
33


—


33

Foreign exchange derivative contracts
—


4


4

Total assets at fair value
$
457


$
4


$
461

The long-term investment in equity securities as of March 31, 2014 and December 31, 2013 represents the Company's 12% investment in Cetip, S.A., recorded at its fair value using its quoted market price. The mutual funds represent equity and fixed income mutual funds held for the purpose of providing future payments to the supplemental executive retirement plan and supplemental executive savings plan. As of March 31, 2014, the Company is holding $75 million in U.S. Treasury securities, all of which had maturities of less than one year from the date of purchase. The Company accounts for these U.S. Treasury securities using the available-for-sale method. Of these U.S. Treasury securities, $26 million are recorded as short-term investments and $49 million are recorded as short-term restricted cash and investments in the accompanying consolidated balance sheet as of March 31, 2014.
The Company did not use Level 3 inputs to determine the fair value of assets or liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The Company measures certain assets, such as intangible assets and cost and equity method investments, at fair value on a non-recurring basis. These assets are recognized at fair value if they are deemed to be impaired. As of March 31, 2014 and December 31, 2013, none of these assets were required to be recorded at fair value since no impairment indicators were present. Cost and equity method investments were $177 million as of both March 31, 2014 and December 31, 2013.

13.
Discontinued Operations
Following the Company’s acquisition of NYSE Euronext in November 2013, the Company evaluated the long-term strategy and financial performance of NYSE Euronext’s commercial technology business, NYSE Technologies, which provides comprehensive transaction, data and infrastructure services and managed solutions for buy-side, sell-side and exchange communities. NYSE Technologies operates five business lines: Global Market Data, Global Connectivity, Exchange Solutions, Trading Solutions and Transaction Services. The Company is integrating Global Market Data and Global Connectivity into its operations where they will be

18

integrated with the exchange businesses and technology infrastructure. Exchange Solutions was transferred to Euronext as part of the planned initial public offering of Euronext, currently expected to occur in the second quarter of 2014, subject to certain regulatory approvals and other conditions.
In January 2014, the Company formalized its plans to divest NYSE Technologies' two remaining business lines, Trading Solutions and Transaction Services, or “the NYSE Technologies divestiture group”. The Company is actively marketing the sale of these businesses, the NYSE Technologies divestiture group is available for immediate sale in its present condition, and the divestiture is expected to be completed this summer. The NYSE Technologies divestiture group primarily consists of the NYFIX, Wombat and Metabit technologies. NYFIX is a provider of FIX-based electronic trading technologies and includes the FIX Marketplace and Appia Business Suite. Wombat is a market data distribution platform, developing technology and supporting services for direct access to real-time global market data. Metabit is a Tokyo-based technology service offering proprietary market access products across Asia.
The Company has reflected the results of the NYSE Technologies divestiture group as discontinued operations in the accompanying consolidated statement of income and consolidated statement of cash flows for the three months ended March 31, 2014. No comparable data for the prior year period is presented as the Company did not complete the acquisition of NYSE Euronext until November 2013. The results below include external advisory costs related to the planned sale of the divestiture group of $5 million. None of the Company’s interest expense has been allocated to the results of the NYSE Technologies divestiture group. The NYSE Technologies divestiture group is included in the ICE segment. Results of discontinued operations were as follows for the three months ended March 31, 2014 related to the NYSE Technologies divestiture group (in millions):
Total revenues, less transaction-based expenses
$
27

Total operating expenses and other expense, net
26

Income before income tax expense
1

Income tax benefit
1

Income from discontinued operations, net of tax
$
2

The following table presents the carrying value of the assets and liabilities of the NYSE Technologies divestiture group, which was reflected as $300 million in prepaid expenses and other current assets and $75 million in other current liabilities, in the accompanying consolidated balance sheet as of March 31, 2014 (in millions):
Assets:
 
Customer accounts receivable, net
$
21

Other current assets
7

Total current assets
28

Property and equipment, net
12

Goodwill and other intangible assets, net
257

Other non-current assets
3

Total non-current assets
260

Total assets
$
300

Liabilities:
 
Accounts payable and accrued liabilities
$
33

Other current liabilities
20

Total current liabilities
53

Total non-current liabilities
22

Total liabilities
$
75


14.
Condensed Consolidating Financial Statements
    
In connection with the Company's acquisition of NYSE Euronext in November 2013, ICE Group, IntercontinentalExchange, Inc. and NYSE Euronext established various guarantees to protect against structural subordination of each entities’ existing indebtedness. Each of IntercontinentalExchange, Inc. and NYSE Euronext are wholly owned subsidiaries of ICE Group, and each fully and unconditionally guaranteed, on an unsecured and unsubordinated basis, the payment of principal, premium, if any, and interest of ICE Group’s Senior Notes and, following its establishment, the Commercial Paper Program. Similarly, ICE Group and IntercontinentalExchange, Inc. each fully and unconditionally guaranteed, on an unsecured and unsubordinated basis, the payment of principal, premium, if any, and interest of the NYSE Euronext Notes. Finally, ICE Group and NYSE Euronext each fully and unconditionally guaranteed, on an unsecured and unsubordinated basis, the payment of principal, premium, if any, and interest of the 2011 Credit Facilities and the 364 Day Facility. All of the guarantees are joint and several with all other guarantees and

19

indebtedness. ICE Group’s guarantees, as a standalone entity, will remain in place until each applicable debt obligation has been satisfied.

As discussed in Note 6, the Company entered into the 2014 Credit Facility and terminated the 2011 Credit Facilities and the 364 Day Facility on April 3, 2014. Upon the termination of the 2011 Credit Facilities and the 364 Day Facility, IntercontinentalExchange, Inc.'s guarantees were no longer required and therefore IntercontinentalExchange, Inc.'s guarantees were automatically released in accordance with their terms on April 3, 2014. In connection with the Company's entry into the 2014 Credit Facility, NYSE Euronext agreed to guarantee the 2014 Credit Facility as a subsidiary guarantor.

For as long as NYSE Euronext remains a guarantor of the 2014 Credit Facility, it will remain a guarantor of the Senior Notes and the Commercial Paper Program. The Company expects that NYSE Euronext’s guarantee of the 2014 Credit Facility, the Senior Notes and the Commercial Paper Program will be released when the NYSE Euronext Notes have been repaid, as the 2014 Credit Facility provides that NYSE Euronext’s guarantee will be released in accordance with their terms if certain conditions are satisfied, including compliance with the covenant limiting the amount of indebtedness of non-obligor subsidiaries and an investment-grade credit rating.

The following consolidating financial information sets forth, under the equity method of accounting, the condensed consolidating statements of income and comprehensive income, the condensed consolidating balance sheets, and the condensed consolidating statements of cash flows for (i) ICE Group; (ii) IntercontinentalExchange, Inc.; (iii) NYSE Euronext; (iv) the subsidiary non-guarantors; (v) elimination entries necessary to consolidate each of ICE Group, IntercontinentalExchange, Inc. and NYSE Euronext with the non-guarantor subsidiaries; and (vi) the Company on a consolidated basis. As discussed in Note 1, the Company was formed on March 6, 2013 for purposes of effecting the acquisition of NYSE Euronext. Therefore, the condensed consolidating statements for periods prior thereto reflect how these statements would have been presented had the Company been established for all periods presented. The condensed consolidating financial statements only include activity related to NYSE Euronext for the period subsequent to November 13, 2013, the closing date of the acquisition, for the condensed consolidating statements of income, comprehensive income and cash flows, and as of March 31, 2014 and December 31, 2013 for the condensed consolidating balance sheets. The condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements.



20

IntercontinentalExchange Group, Inc.
Condensed Consolidating Balance Sheets
As of March 31, 2014
(in millions)
 

ICE Group.
 (Parent)
 
Subsidiary Guarantor - Intercontinental-Exchange, Inc.
 
Subsidiary
Guarantor - NYSE Euronext
 
Subsidiary
Non-Guarantors
 
Consolidating
 Adjustments
 
Consolidated
 Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
   Cash and cash equivalents
$
7

 
$
11

 
$
—

 
$
946

 
$
—

 
$
964

   Intercompany receivable
1,379

 
—

 
2,261

 
—

 
(3,640
)
 
—

   Margin deposits and guaranty funds
—

 
—

 
—

 
42,826

 
—

 
42,826

   Notes receivable from affiliate, current
—

 
499

 
257

 
87

 
(843
)
 
—

   Other current assets
11

 
31

 
—

 
1,422

 
—

 
1,464

Total current assets
1,397

 
541

 
2,518

 
45,281

 
(4,483
)

45,254

Property and equipment, net
—

 
173

 
—

 
725

 
—

 
898

Other non-current assets:
 
 
 
 
 
 
 
 
 
 
 
   Goodwill and other intangible assets, net
—

 
—

 
—

 
18,892

 
—

 
18,892

   Investment in subsidiaries
14,395

 
3,763

 
11,527

 
—

 
(29,685
)
 
—

   Notes receivable from affiliate, non-current
—

 
—

 
—

 
—

 
—

 
—

   Other non-current assets
11

 
17

 
17

 
832

 
—

 
877

Total other non-current assets
14,406

 
3,780

 
11,544

 
19,724

 
(29,685
)
 
19,769

Total assets
$
15,803

 
$
4,494

 
$
14,062

 
$
65,730

 
$
(34,168
)
 
$
65,921

 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
   Short-term debt
$
930

 
$
367

 
$
—

 
$
—

 
$
—

 
$
1,297

   Margin deposits and guaranty funds
—

 
—

 
—

 
42,826

 
—

 
42,826

   Intercompany payable
—

 
1,234

 
—

 
2,406

 
(3,640
)
 
—

   Notes payable to affiliates, current
538

 
33

 
269

 
3

 
(843
)
 
—

   Other current liabilities
26

 
35

 
—

 
1,219

 
—

 
1,280

Total current liabilities
1,494

 
1,669

 
269

 
46,454

 
(4,483
)
 
45,403

Non-current liabilities:
 
 
 
 
 
 
 
 
 
 
 
   Long-term debt
1,394

 
—

 
2,190

 
—

 
—

 
3,584

   Notes payable to affiliates, non-current
—

 
—

 
—

 
—

 
—

 
—

   Other non-current liabilities
—

 
33

 
—

 
3,665

 
—

 
3,698

Total non-current liabilities
1,394

 
33

 
2,190

 
3,665

 
—

 
7,282

Total liabilities
2,888

 
1,702

 
2,459

 
50,119

 
(4,483
)
 
52,685

Redeemable non-controlling interest
—

 
—

 
—

 
290

 
—

 
290

 
 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
   Retained earnings
2,702

 
63

 
210

 
289

 
(560
)
 
2,704

   Equity from parent
—

 
2,591

 
11,069

 
14,550

 
(28,210
)
 
—

   Other shareholders' equity
10,213

 
138

 
324

 
451

 
(915
)
 
10,211

Total shareholders' equity
12,915

 
2,792

 
11,603

 
15,290

 
(29,685
)
 
12,915

Non-controlling interest in consolidated subsidiaries
—

 
—

 
—

 
31

 
—

 
31

Total equity
12,915

 
2,792

 
11,603

 
15,321

 
(29,685
)
 
12,946

Total liabilities and equity
$
15,803

 
$
4,494

 
$
14,062

 
$
65,730

 
$
(34,168
)
 
$
65,921

















21

IntercontinentalExchange Group, Inc.
Condensed Consolidating Balance Sheets
As of December 31, 2013
(in millions)
 

ICE Group
 (Parent)
 
Subsidiary Guarantor - Intercontinental-Exchange, Inc.
 
Subsidiary
Guarantor - NYSE Euronext
 
Subsidiary
Non-Guarantors
 
Consolidating
 Adjustments
 
Consolidated
 Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
   Cash and cash equivalents
$
2

 
$
10

 
$
—

 
$
949

 
$
—

 
$
961

   Intercompany receivable
1,395

 
—

 
2,398

 
—

 
(3,793
)
 
—

   Margin deposits and guaranty funds
—

 
—

 
—

 
42,216

 
—

 
42,216

   Note receivable from affiliate, current
—

 
3

 
—

 
25

 
(28
)
 
—

   Other current assets
4

 
27

 
1

 
1,050

 
—

 
1,082

Total current assets
1,401

 
40

 
2,399

 
44,240

 
(3,821
)
 
44,259

Property and equipment, net
—

 
167

 
—

 
724

 
—

 
891

Other non-current assets:
 
 
 
 
 
 
 
 
 
 
 
   Goodwill and other intangible assets, net
—

 
—

 
—

 
18,905