10-Q

 
 
 
 
 
 
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, 2016
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
 
 
 
 
 
INTERCONTINENTAL EXCHANGE, 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)
5660 New Northside Drive,
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 2, 2016, the number of shares of the registrant’s Common Stock outstanding was 119,045,641 shares.
 
 
 
 
 




 
 
INTERCONTINENTAL EXCHANGE, INC.
Form 10-Q
Quarterly Period Ended March 31, 2016
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
PART I.
Financial Statements
 
Item 1
 
 
Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015
 
Consolidated Statements of Income for the three months ended March 31, 2016 and 2015
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015
 
Consolidated Statements of Changes in Equity, Accumulated Other Comprehensive Loss and Redeemable Non-Controlling Interest for the three months ended March 31, 2016 and for the year ended December 31, 2015
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015
 
Item 2
Item 3
Item 4

 
 
 
PART II.
Other Information
 
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6



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

Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
 
As of
 
As of
 
March 31, 2016
 
December 31, 2015
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
468

 
$
627

Short-term investments
25

 
29

Short-term restricted cash and investments
657

 
657

Customer accounts receivable, net of allowance for doubtful accounts of $1 and $2 at March 31, 2016 and December 31, 2015, respectively
941

 
700

Margin deposits and guaranty funds
52,329

 
51,169

Prepaid expenses and other current assets
134

 
131

Total current assets
54,554

 
53,313

Property and equipment, net
1,018

 
1,037

Other non-current assets:
 
 
 
Goodwill
12,104

 
12,079

Other intangible assets, net
10,630

 
10,758

Long-term restricted cash and investments
262

 
263

Long-term investments
352

 
299

Other non-current assets
240

 
238

Total other non-current assets
23,588

 
23,637

Total assets
$
79,160

 
$
77,987

 
 
 
 
Liabilities and Equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
399

 
$
398

Section 31 fees payable
97

 
116

Accrued salaries and benefits
107

 
215

Deferred revenue
429

 
98

Short-term debt
2,048

 
2,591

Margin deposits and guaranty funds
52,329

 
51,169

Other current liabilities
227

 
156

Total current liabilities
55,636

 
54,743

Non-current liabilities:
 
 
 
Non-current deferred tax liability, net
2,893

 
2,837

Long-term debt
4,718

 
4,717

Accrued employee benefits
470

 
478

Other non-current liabilities
329

 
337

Total non-current liabilities
8,410

 
8,369

Total liabilities
64,046

 
63,112

Commitments and contingencies


 


Redeemable non-controlling interest
34

 
35


2

Equity:
 
 
 
Intercontinental Exchange, Inc. shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 100 shares authorized; no shares issued or outstanding at March 31, 2016 and December 31, 2015
—

 
—

Common stock, $0.01 par value; 500 shares authorized; 126 shares issued at March 31, 2016 and December 31, 2015, and 119 shares outstanding at March 31, 2016 and December 31, 2015
1

 
1

Treasury stock, at cost; 7 shares at March 31, 2016 and December 31, 2015
(1,494
)
 
(1,448
)
Additional paid-in capital
12,334

 
12,295

Retained earnings
4,415

 
4,148

Accumulated other comprehensive loss
(208
)
 
(188
)
Total Intercontinental Exchange, Inc. shareholders’ equity
15,048

 
14,808

Non-controlling interest in consolidated subsidiaries
32

 
32

Total equity
15,080

 
14,840

Total liabilities and equity
$
79,160

 
$
77,987


See accompanying notes.

3

Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2016
 
2015
Revenues:
 
 
 
Transaction and clearing, net
$
929

 
$
836

Data services
477

 
200

Listings
103

 
101

Other revenues
45

 
43

Total revenues
1,554

 
1,180

Transaction-based expenses:
 
 
 
Section 31 fees
98

 
92

Cash liquidity payments, routing and clearing
302

 
238

Total revenues, less transaction-based expenses
1,154

 
850

Operating expenses:
 
 
 
Compensation and benefits
236

 
151

Technology and communication
92

 
51

Professional services
32

 
33

Rent and occupancy
18

 
16

Acquisition-related transaction and integration costs
27

 
19

Selling, general and administrative
22

 
29

Depreciation and amortization
143

 
89

Total operating expenses
570

 
388

Operating income
584

 
462

Other income (expense):
 
 
 
Interest expense
(46
)
 
(23
)
Other income, net
2

 
2

Other expense, net
(44
)
 
(21
)
Income before income tax expense
540

 
441

Income tax expense
163

 
118

Net income
$
377

 
$
323

Net income attributable to non-controlling interest
(8
)
 
(8
)
Net income attributable to Intercontinental Exchange, Inc.
$
369

 
$
315

Earnings per share attributable to Intercontinental Exchange, Inc. common shareholders:
 
 
 
Basic
$
3.10

 
$
2.81

Diluted
$
3.08

 
$
2.80

Weighted average common shares outstanding:
 
 
 
Basic
119

 
112

Diluted
120

 
112

Dividend per share
$
0.85

 
$
0.65


See accompanying notes.

4

Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2016
 
2015
Net income
$
377

 
$
323

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments, net of tax (expense) benefit of ($2) and $4 for the three months ended March 31, 2016 and 2015, respectively
(74
)
 
(37
)
Change in fair value of available-for-sale securities
54

 
(70
)
Other comprehensive loss
(20
)
 
(107
)
Comprehensive income
$
357

 
$
216

Comprehensive income attributable to non-controlling interest
(8
)
 
(8
)
Comprehensive income attributable to Intercontinental Exchange, Inc.
$
349

 
$
208


See accompanying notes.

5

Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity, Accumulated Other Comprehensive Loss
and Redeemable Non-Controlling Interest
(In millions)
(Unaudited)
 
Intercontinental Exchange, 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
Loss
 
 
Shares
 
Value
 
Shares
 
Value
 
Balance, as of December 31, 2014
116

 
$
1

 
(3
)
 
$
(743
)
 
$
9,938

 
$
3,210

 
$
(46
)
 
$
32

 
$
12,392

 
$
165

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
(142
)
 
—

 
(142
)
 
—

Stock consideration issued for acquisitions
9

 
—

 
—

 
—

 
2,197

 
—

 
—

 
—

 
2,197

 
—

Exercise of common stock options
—

 
—

 
—

 
—

 
19

 
—

 
—

 
—

 
19

 
—

Repurchases of common stock
—

 
—

 
(3
)
 
(660
)
 
—

 
—

 
—

 
—

 
(660
)
 
—

Payments relating to treasury shares
—

 
—

 
(1
)
 
(45
)
 
—

 
—

 
—

 
—

 
(45
)
 
—

Stock-based compensation
—

 
—

 
—

 
—

 
122

 
—

 
—

 
—

 
122

 
—

Issuance of restricted stock
1

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Tax benefits from stock option plans
—

 
—

 
—

 
—

 
19

 
—

 
—

 
—

 
19

 
—

Adjustment to redemption value
—

 
—

 
—

 
—

 
—

 
(5
)
 
—

 
—

 
(5
)
 
4

Distributions of profits
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(16
)
 
(16
)
 
(11
)
Dividends paid to shareholders
—

 
—

 
—

 
—

 
—

 
(331
)
 
—

 
—

 
(331
)
 
—

Purchase of subsidiary shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(128
)
Net income attributable to non-controlling interest
—

 
—

 
—

 
—

 
—

 
(21
)
 
—

 
16

 
(5
)
 
5

Net income
—

 
—

 
—

 
—

 
—

 
1,295

 
—

 
—

 
1,295

 
—

Balance, as of December 31, 2015
126

 
1

 
(7
)
 
(1,448
)
 
12,295

 
4,148

 
(188
)
 
32

 
14,840

 
35

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
(20
)
 
—

 
(20
)
 
—

Exercise of common stock options
—

 
—

 
—

 
—

 
4

 
—

 
—

 
—

 
4

 
—

Payments relating to treasury shares
—

 
—

 
—

 
(46
)
 
—

 
—

 
—

 
—

 
(46
)
 
—

Stock-based compensation
—

 
—

 
—

 
—

 
35

 
—

 
—

 
—

 
35

 
—

Distributions of profits
—

 
—

 
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
(102
)
 
—

 
—

 
(102
)
 
—

Net income attributable to non-controlling interest
—

 
—

 
—

 
—

 
—

 
(8
)
 
—

 
7

 
(1
)
 
1

Net income
—

 
—

 
—

 
—

 
—

 
377

 
—

 
—

 
377

 
—

Balance, as of March 31, 2016
126

 
$
1

 
(7
)
 
$
(1,494
)
 
$
12,334

 
$
4,415

 
$
(208
)
 
$
32

 
$
15,080

 
$
34


 
As of
 
As of
 
March 31, 2016
 
December 31, 2015
Accumulated other comprehensive loss was as follows:
 
 
 
Foreign currency translation adjustments
$
(119
)
 
$
(45
)
Fair value of available-for-sale securities
28

 
(26
)
Comprehensive income from equity method investment
2

 
2

Employee benefit plans adjustments
(119
)
 
(119
)
Accumulated other comprehensive loss
$
(208
)
 
$
(188
)

See accompanying notes.

6


Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2016
 
2015
Operating activities:
 
 
 
Net income
$
377

 
$
323

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
143

 
89

Stock-based compensation
29

 
24

Deferred taxes
30

 
(24
)
Amortization of fair market value premium on NYSE Notes
—

 
(12
)
Other
3

 
(15
)
Changes in assets and liabilities:
 
 
 
Customer accounts receivable
(229
)
 
(122
)
Other current and non-current assets
(13
)
 
(26
)
Section 31 fees payable
(19
)
 
(45
)
Deferred revenue
338

 
312

Other current and non-current liabilities
(62
)
 
(39
)
Total adjustments
220

 
142

Net cash provided by operating activities
597

 
465

 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(31
)
 
(39
)
Capitalized software development costs
(25
)
 
(21
)
Additional contribution to equity method investment
—

 
(60
)
Decrease (increase) in restricted cash and investments
(3
)
 
34

Net cash used in investing activities
(59
)
 
(86
)
 
 
 
 
Financing activities:
 
 
 
Proceeds from (repayments of) commercial paper, net
(543
)
 
35

Dividends to shareholders
(102
)
 
(73
)
Repurchases of common stock
—

 
(196
)
Payments relating to treasury shares received for restricted stock tax payments and stock option exercises
(47
)
 
(36
)
Distributions of profits to non-controlling interest
(9
)
 
(15
)
Other
4

 
17

Net cash used in financing activities
(697
)
 
(268
)
Effect of exchange rate changes on cash and cash equivalents
—

 
(11
)
Net increase (decrease) in cash and cash equivalents
(159
)
 
100

Cash and cash equivalents, beginning of period
627

 
652

Cash and cash equivalents, end of period
$
468

 
$
752

 
 
 
 
Supplemental cash flow disclosure:
 
 
 
Cash paid for income taxes
$
56

 
$
51

Cash paid for interest
$
7

 
$
2


See accompanying notes.

7

Intercontinental Exchange, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1.
Description of Business
We are a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity and financial markets. We operate regulated marketplaces for trading and clearing a broad array of derivatives and securities contracts across major asset classes, including energy and agricultural commodities, interest rates, equities, equity derivatives, credit derivatives, bonds and currencies.
Our exchanges include futures exchanges in the United States, or U.S., United Kingdom, or U.K., Continental Europe, Canada and Singapore and cash equities exchanges and equity options exchanges in the U.S. We also operate over-the-counter, or OTC, markets for physical energy and credit default swaps, or CDS, trade execution. To serve global derivatives markets, we operate central counterparty clearing houses in the U.S., U.K., Continental Europe, Canada and Singapore (Note 9). We offer a range of data and connectivity services to customers in global financial and commodity markets, including fixed income pricing and reference data, analytics and desktop offerings. Through our trading and clearing, in addition to our listings and data services, we provide our customers liquid markets, benchmark products, access to capital markets, information, and a range of related services to support their investing, trading, risk management and capital raising activities.

2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by us in accordance with U.S. generally accepted accounting principles, or GAAP, pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2015. The accompanying unaudited consolidated financial statements reflect all adjustments that are, in our opinion, necessary for a fair presentation of results for the interim periods presented. These adjustments are of a normal recurring nature.
Preparing financial statements requires us to make certain estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Although these estimates are based on our best knowledge of current events and actions that we may undertake in the future, actual results may be different from these estimates. The results of operations for the three months ended March 31, 2016 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 us and our wholly-owned and controlled subsidiaries. All intercompany balances and transactions between us and our wholly-owned and controlled subsidiaries have been eliminated in the consolidation. For those consolidated subsidiaries in which our ownership is less than 100% and for which we have control over the assets and liabilities and the management of the entity, the outside stockholders’ interests are shown as non-controlling interests. In instances where outside stockholders' hold an option to require us to repurchase the outside stockholders' interest, these interests are shown as redeemable non-controlling interests.
New and Recently Adopted Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. ASU 2016-01 provides updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities, including the requirement that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for annual and interim reporting periods beginning after December 15, 2017. On the adoption of ASU 2016-01, changes in the fair value of our equity investment in Cetip, S.A., or Cetip, will no longer be reflected in accumulated other comprehensive income but will be recognized in net income. As of March 31, 2016, our investment in Cetip included an accumulated unrealized gain of $28 million (Note 10). During the three months ended March 31, 2016, the change in the fair value of the Cetip investment was an increase of $54 million. Once adopted, such fair value changes will be reported as other income (expense) under ASU 2016-01. We are currently evaluating this guidance to determine any additional potential impact on our consolidated financial statements upon adoption.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases, or ASU 2016-02. ASU 2016-02 requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. In transition, lessees and lessors are required to

8

recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating this guidance to determine the potential impact on our consolidated financial statements and whether we will adopt this guidance early.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09. ASU 2016-09 provides updated guidance for the recognition, measurement, presentation, and disclosure of certain components of stock compensation. The guidance includes the recognition of all excess tax benefits/deficiencies in the statement of income and classification as operating activities within the statement of cash flows, as well as the option to account for forfeitures based on awards expected to vest or as they occur. ASU 2016-09 is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. We decided to adopt ASU 2016-09 early for the period ended March 31, 2016 on a prospective basis. As a result, we recorded an $11 million excess tax benefit within our consolidated statement of income for the three months ended March 31, 2016 (Note 8). No other terms of the adopted guidance resulted in any significant impact on our consolidated financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s financial statement presentation. For the three months ended March 31, 2015, we reclassified $24 million of transaction based expenses in transaction and clearing revenues, net to transaction based expenses for consistency of how we report our cash equities markets. The amounts reclassified to transaction based expenses relate to equity options markets. For the three months ended March 31, 2015, we also reclassified $13 million in connectivity fees from other revenues to data services revenues.

3.
Acquisitions
Interactive Data Acquisition
On December 14, 2015, we acquired 100% of Interactive Data Holdings Corporation, or Interactive Data, in a stock and cash transaction. The total purchase price was $5.6 billion comprised of cash consideration of $4.1 billion and 6.5 million shares of our common stock. The cash consideration was funded from $2.5 billion of net proceeds received on November 24, 2015 in connection with the offering of new senior notes and $1.6 billion of borrowing under our commercial paper program (Note 6). Interactive Data is a leading provider of financial market data, analytics and related trading solutions, serving the mutual fund, bank, asset management, hedge fund, securities and financial instrument processing and administration sectors.
The total purchase price was allocated to Interactive Data’s preliminary tangible and identifiable intangible assets and liabilities based on the estimated fair values of those assets as of December 14, 2015, as set forth below. The excess of the purchase price over the preliminary net tangible and identifiable intangible assets was recorded as goodwill. The adjusted preliminary purchase price allocation is as follows (in millions):
Cash and cash equivalents
$
301

Goodwill
3,248

Identifiable intangible assets
2,883

Other assets and liabilities, net
273

Deferred tax liabilities on identifiable intangible assets
(1,071
)
Total purchase price
$
5,634


In performing the preliminary purchase price allocation, we considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of Interactive Data's business. We have 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. However, during the first quarter of 2016, we adjusted the preliminary purchase price allocation based on updated fair value analyses of the Interactive Data tangible and intangible assets and liabilities. The fair value adjustments reflected in the tables above and below primarily result in an increase in data/databases intangible assets of $33 million, a decrease in trade name and trademarks intangible assets of $21 million, a decrease in customer relationships intangible assets of $17 million, a decrease in other assets and liabilities, net of $23 million, an increase in deferred tax liabilities on identifiable intangible assets of $20 million, and a corresponding increase to goodwill of $48 million. The income statement impact for 2015 relating to these fair value adjustments is not significant and has been recorded in the first quarter of 2016 in accordance with ASU 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments.

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 (including uncertain tax positions), certain other tangible assets and liabilities and the allocation of

9

goodwill to the various reporting units. The allocation of the purchase price will be finalized upon the completion of the analysis of the acquired assets and liabilities during the year ended December 31, 2016.

The following table sets forth the components of the preliminary intangible assets associated with the acquisition as of March 31, 2016 (in millions, except years):
Preliminary Intangible Assets
 
Acquisition-Date Preliminary Fair Value
 
Foreign Currency Translation
 
Accumulated Amortization
 
Net Book Value
 
Useful Life (Years)
Customer relationships
 
$
2,452

 
$
(26
)
 
$
(30
)
 
$
2,396

 
20 to 25
Developed technology
 
168

 
(2
)
 
(7
)
 
159

 
5 to 8
In-process research and development
 
129

 
—

 
—

 
129

 
N/A
Data/databases
 
109

 
(2
)
 
(8
)
 
99

 
4
Trade names and trademarks
 
12

 
—

 
(3
)
 
9

 
2
Market data provider relationships
 
11

 
—

 
—

 
11

 
20
Non-compete agreements
 
2

 
—

 
—

 
2

 
1
Total
 
$
2,883

 
$
(30
)
 
$
(48
)
 
$
2,805

 
 
Trayport Acquisition
On December 11, 2015, we acquired 100% of Trayport in a stock transaction. The total purchase price was $620 million, comprised of 2.5 million shares of our common stock. Trayport is a software company that licenses its technology to serve exchanges, OTC brokers and traders to facilitate electronic and hybrid trade execution primarily in the energy markets.
The total purchase price was allocated to Trayport’s preliminary tangible and identifiable intangible assets and liabilities based on the estimated fair values of those assets as of December 11, 2015, as set forth below. The excess of the purchase price over the preliminary net tangible and identifiable intangible assets was recorded as goodwill. The preliminary purchase price allocation is as follows (in millions):
Goodwill
$
389

Identifiable intangible assets
274

Other assets and liabilities, net
7

Deferred tax liabilities on identifiable intangible assets
(50
)
Total purchase price
$
620


In performing the preliminary purchase price allocation, we considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of Trayport's business. We have 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. The allocation of the purchase price will be finalized upon the completion of the analysis of the acquired assets and liabilities during the year ended December 31, 2016.

The following table sets forth the components of the preliminary intangible assets associated with the acquisition as of March 31, 2016 (in millions, except years):
Preliminary Intangible Assets
 
Acquisition-Date Preliminary Fair Value
 
Foreign Currency Translation
 
Accumulated Amortization
 
Net Book Value
 
Useful Life (Years)
Customer relationships
 
$
242

 
$
(14
)
 
$
(3
)
 
$
225

 
20
Developed technology
 
14

 
(1
)
 
(1
)
 
12

 
3 to 5
Trade names and trademarks
 
18

 
(1
)
 
—

 
17

 
Indefinite
Total
 
$
274

 
$
(16
)
 
$
(4
)
 
$
254

 
 
Pro Forma Information
The financial information in the table below summarizes the combined results of operations of us, Interactive Data and Trayport, on a pro forma basis, as though the companies had been combined as of the beginning of the period presented. The pro forma financial

10

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. 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, purchase accounting adjustments. The pro forma financial information does not reflect any synergies or operating cost reductions that have been and may be achieved from the combined operations. The pro forma financial information combines the historical results for us, Interactive Data and Trayport for the three months ended March 31, 2015 in the following table (in millions, except per share amounts).
Total revenues, less transaction-based expenses
$
1,100

Operating income
518

Net income attributable to ICE
333

Earnings per common share:
 
Basic
$
2.76

Diluted
$
2.74

Pending Acquisition
In March 2016, we entered into a definitive agreement to acquire Standard & Poor’s Securities Evaluations, Inc., or SPSE, a provider of fixed income evaluated pricing, and Credit Market Analysis Limited, or CMA, a provider of independent data for the OTC markets from McGraw Hill Financial. When completed, the acquisition will enable us to offer customers new data and valuation services. Under the terms of the agreement, we can elect to satisfy our payment of the purchase price upon closing in either cash or shares of our common stock. The completion of the transaction is subject to regulatory approvals.

4.
Goodwill and Other Intangible Assets

The following is a summary of the activity in the goodwill balance for the three months ended March 31, 2016 (in millions):
Goodwill balance at December 31, 2015
$
12,079

Foreign currency translation
(23
)
Other activity, net
48

Goodwill balance at March 31, 2016
$
12,104

The following is a summary of the activity in the other intangible assets balance for the three months ended March 31, 2016 (in millions):
Other intangible assets balance at December 31, 2015
$
10,758

Foreign currency translation
(40
)
Other activity, net
(6
)
Amortization of other intangible assets
(82
)
Other intangible assets balance at March 31, 2016
$
10,630


The foreign currency translation adjustments in the tables above result from a portion of our goodwill and other intangible assets being held at our U.K., Continental European and Canadian subsidiaries, some of whose functional currencies are not the U.S. dollar. The changes in other activity, net in the tables above primarily relate to adjustments to the fair value of the net tangible and identifiable intangible assets and liabilities relating to the Interactive Data acquisition, with a corresponding charge to goodwill (Note 3). We did not recognize any impairment losses on goodwill or other intangible assets during the three months ended March 31, 2016 and 2015.

5.
Deferred Revenue

Deferred revenue represents cash received that is yet to be recognized as revenue. Total deferred revenue was $528 million as of March 31, 2016, including $429 million in current deferred revenue and $99 million in non-current deferred revenue. The changes in

11

our deferred revenue during the three months ended March 31, 2016 are as follows (in millions):
 
Annual Listings Revenue
 
Original Listings Revenues
 
Other Listings Revenues
 
Data Services and Other Revenues
 
Total
Deferred revenue balance at December 31, 2015
$
—

 
$
50

 
$
59

 
$
81

 
$
190

Additions
363

 
6

 
24

 
143

 
536

Amortization
(91
)
 
(3
)
 
(9
)
 
(95
)
 
(198
)
Deferred revenue balance at March 31, 2016
$
272

 
$
53

 
$
74

 
$
129

 
$
528


6.
Debt

Our total debt, including short-term and long-term debt, consisted of the following as of March 31, 2016 and December 31, 2015 (in millions):
 
As of 
 March 31, 2016
 
As of 
 December 31, 2015
Debt:
 
 
 
Commercial Paper
$
2,048

 
$
2,591

Short-term debt
2,048

 
2,591

NYSE USD Notes (2.00% senior unsecured notes due October 5, 2017)
852

 
852

2018 Senior Notes (2.50% senior unsecured notes due October 15, 2018)
597

 
597

2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020)
1,239

 
1,239

2023 Senior Notes (4.00% senior unsecured notes due October 15, 2023)
789

 
789

2025 Senior Notes (3.75% senior unsecured notes due December 1, 2025)
1,241

 
1,240

Long-term debt
4,718

 
4,717

Total debt
$
6,766

 
$
7,308

Credit Facility
We have entered into a $3.0 billion senior unsecured revolving credit facility, or the Credit Facility, with a maturity date of November 13, 2020. The Credit Facility includes an option for us to propose an increase in the aggregate amount available for borrowing by up to $1.0 billion, subject to the consent of the lenders funding the increase and certain other conditions. On November 13, 2015, we utilized this option to increase the amount of the Credit Facility to $3.4 billion. The commitments under the Credit Facility will automatically reduce to $2.95 billion on April 3, 2019. No amounts were outstanding under the Credit Facility as of March 31, 2016.
Of the $3.4 billion that is currently available for borrowing under the Credit Facility, $2.0 billion is required to back-stop the amount outstanding under our Commercial Paper Program as of March 31, 2016. The amount required to back-stop the amounts outstanding under the Commercial Paper Program will fluctuate as we increase or decrease our commercial paper borrowings. The remaining $1.4 billion as of March 31, 2016 is available to us to use for working capital and general corporate purposes including, but not limited to, acting as a back-stop to the amounts outstanding under the Commercial Paper Program.
364 Day Facility
On November 13, 2015, we entered into a $500 million 364 day senior unsecured revolving credit facility, or the 364 Day Facility. The amounts available under the 364 Day Facility are available for use by us for working capital and general corporate purposes, but specifically excluding any use to back-stop amounts issued under the Commercial Paper Program. The commitments under the 364 Day Credit Facility will be automatically reduced to $375 million on May 13, 2016 and to $250 million on August 13, 2016. No amounts were outstanding under the 364 Day Facility as of March 31, 2016.
Commercial Paper Program
We have entered into a U.S. dollar commercial paper program, or the Commercial Paper Program. Our Commercial Paper Program is currently backed by the borrowing capacity available under the 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 impact our interest expense.

12

Commercial paper notes of $2.0 billion with original maturities ranging from 1 to 89 days were outstanding as of March 31, 2016 under our Commercial Paper Program. As of March 31, 2016, the weighted average interest rate on the $2.0 billion outstanding under our Commercial Paper Program was 0.54% per annum, with a weighted average maturity of 22 days. We repaid a portion of the amounts outstanding under the Commercial Paper Program during the three months ended March 31, 2016 using cash flows from operations and a portion of our unrestricted cash balances.
Senior Notes
On November 24, 2015, we issued $2.5 billion in aggregate senior notes, including $1.25 billion principal amount of 2.75% senior unsecured fixed rate notes due November 2020, or the 2020 Senior Notes, and $1.25 billion principal amount of 3.75% senior unsecured fixed rate notes due November 2025, or the 2025 Senior Notes. We used the net proceeds from the 2020 Senior Notes and 2025 Senior Notes offering, together with $1.6 billion of borrowings under our Commercial Paper Program, to finance the $4.1 billion cash portion of the purchase price of the acquisition of Interactive Data (Note 3).
NYSE Notes
In connection with our acquisition on November 13, 2013 of NYSE Euronext, which we refer to as NYSE following the initial public offering and sale of Euronext in 2014, we assumed the outstanding NYSE debt instruments, which included $850 million of 2.00% senior unsecured fixed rate notes due in October 2017, or the NYSE USD Notes, and €920 million ($1.1 billion) of 5.375% senior unsecured fixed rate notes that were due in June 2015, or the NYSE EUR Notes, and together with the NYSE USD Notes, the NYSE Notes. On June 30, 2015, we repaid the NYSE EUR Notes using cash that had been set aside in July 2014 from the proceeds of the sale of Euronext.
During the three months ended March 31, 2015, the amortization of the increase in the fair value of the NYSE Notes that was recorded in connection with the NYSE acquisition purchase accounting was $12 million. No significant amortization expenses were recorded after the repayment of the NYSE EUR Notes.

7.
Equity
We currently sponsor 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 our consolidated statements of income for stock options and restricted stock were $29 million and $24 million for the three months ended March 31, 2016 and 2015, respectively.
Stock Option Plans
The following is a summary of stock options for the three months ended March 31, 2016:
 
Number of Options
 
Weighted Average
Exercise Price per
Option
Outstanding at December 31, 2015
774,551

 
$
159.66

Granted
150,323

 
250.07

Exercised
(28,098
)
 
145.07

Outstanding at March 31, 2016
896,776

 
175.28

 
Details of stock options outstanding as of March 31, 2016 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
896,776

 
$
175.28

 
6.7
 
$
56

Exercisable
596,892

 
$
148.32

 
5.5
 
$
52

The total intrinsic value of stock options exercised during the three months ended March 31, 2016 and 2015 were $3 million and $5 million, respectively. As of March 31, 2016, there were $13 million in total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 2.1 years as the stock options vest.

13

We use the Black-Scholes option pricing model for purposes of valuing stock option awards. During the three months ended March 31, 2016 and 2015, we 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:
2016
 
2015
Risk-free interest rate
1.51
%
 
1.08
%
Expected life in years
5.0

 
5.0

Expected volatility
24
%
 
24
%
Expected dividend yield
1.36
%
 
1.25
%
Estimated weighted-average fair value of options granted per share
$
49.39

 
$
40.94

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 our stock.
Restricted Stock Plans
In January 2016, we reserved a maximum of 330,924 restricted shares for potential issuance as performance-based restricted shares to certain of our employees. The number of shares that will ultimately be granted under the performance awards will be based on our actual financial performance as compared to financial performance targets set by our board of directors and compensation committee for the year ending December 31, 2016. The maximum compensation expense to be recognized under these performance-based restricted shares is $80 million if the maximum financial performance target is met and all 330,924 shares vest. The compensation expense to be recognized under these performance-based restricted shares will be $39 million if the target financial performance is met, which would result in 165,462 shares vesting. These restricted shares are also subject to a market condition that could reduce the number of shares that are ultimately granted. We will recognize expense on an accelerated basis over the three-year vesting period based on our quarterly assessment of the probable 2016 actual financial performance as compared to the 2016 financial performance targets. As of March 31, 2016, we determined that it is probable that the financial performance level will be at target for 2016. Based on this assessment, we recorded non-cash compensation expense of $5 million for the three months ended March 31, 2016, related to these shares and the remaining $34 million in non-cash compensation expense will be recorded on an accelerated basis over the remaining vesting period, including $19 million of which will be recorded over the remainder of 2016.
The following is a summary of the non-vested restricted shares for the three months ended March 31, 2016:  
 
Number of
Restricted
Stock Shares
 
Weighted Average
Grant-Date Fair
Value per Share
Non-vested at December 31, 2015
1,254,235
 
$
199.44

Granted
536,784
 
247.57

Vested
(412,048)
 
184.66

Forfeited
(19,020)
 
223.31

Non-vested at March 31, 2016
1,359,951
 
223.04

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, 2016, there were $195 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 1.8 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 January 2016. During the three months ended March 31, 2016 and 2015, the total fair value of restricted stock vested under all restricted stock plans was $103 million and $80 million, respectively.
Stock Repurchase Program
During 2015, our stock repurchases were completed under stock repurchase plans authorized by our board of directors. In connection with our acquisition of Interactive Data during the fourth quarter of 2015, we suspended our stock repurchase plan and that plan has now expired. We did not repurchase any of our outstanding common stock during the three months ended March 31, 2016. The timing and extent of future repurchases, if any, that are not made pursuant to a Rule 10b5-1 trading plan will be at our discretion and will depend upon many conditions. Our management and board of directors periodically review whether or not to be active in

14

repurchasing our stock. In making a determination regarding any stock repurchases, we consider multiple factors. The factors may include: overall stock market conditions, our common stock price movements, the remaining amount authorized for repurchases by our board of directors, the potential impact of a stock repurchase program on our corporate debt ratings, our expected free cash flow and working capital needs, our current and future planned strategic growth initiatives, and other potential uses of our cash and capital resources.

8.
Income Taxes
Our effective tax rate was 30% and 27% for the three months ended March 31, 2016 and 2015, respectively. The effective tax rates for the three months ended March 31, 2016 and 2015 were lower than the federal statutory rate primarily due to favorable foreign income tax rate differentials, partially offset by state income taxes. The favorable foreign income tax rate differential results primarily from lower tax rates in the U.K. The effective tax rate for the three months ended March 31, 2016 is higher than the effective tax rate for the comparable period in 2015 primarily due to a mix of foreign versus U.S. based income and an increase to deferred income taxes in the current year, partially offset by the tax benefit from the early adoption of ASU 2016-09 (Note 2).
Our non-U.S. subsidiaries had $3.1 billion in cumulative undistributed earnings as of March 31, 2016. This amount represents the post-income tax earnings under GAAP adjusted for previously taxed income. The earnings from our 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 us 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.

9.
Clearing Organizations
We operate regulated central counterparty clearing houses for the settlement and clearance of derivative contracts. The clearing houses include ICE Clear Europe, ICE Clear Credit, ICE Clear U.S., ICE Clear Canada, ICE Clear Netherlands and ICE Clear Singapore (referred to herein collectively as the “ICE Clearing Houses”).
•
ICE Clear Europe performs the clearing and settlement for all futures and options contracts traded through ICE Futures Europe and ICE Endex, for CDS contracts submitted for clearing in Europe, and for energy futures and options contracts trading through ICE Futures U.S.
•
ICE Clear Credit performs the clearing and settlement for CDS contracts submitted for clearing in North America.
•
ICE Clear U.S. performs the clearing and settlement of agricultural, metals, currencies and financial futures and options contracts traded through ICE Futures U.S.
•
ICE Clear Canada performs the clearing and settlement for all futures and options contracts traded through ICE Futures Canada.
•
ICE Clear Netherlands offers clearing for The Order Machine, a multi-lateral trading facility for equity options.
•
ICE Clear Singapore performs the clearing and settlement for all futures and options contracts traded through ICE Futures Singapore.
Each of the ICE Clearing Houses requires all clearing members to maintain cash on deposit or pledge certain assets, which may include government obligations, non-government obligations, letters of credit or gold to guarantee performance of 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 due to the marking-to-market of 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 the ICE 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”, 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.
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 risk management departments and reviewed by the risk committees and the boards of directors of each of the ICE Clearing Houses and may fluctuate over time. As of March 31, 2016

15

and December 31, 2015, the ICE Clearing Houses have received or have been pledged $88.5 billion and $87.2 billion, respectively, in cash and non-cash collateral in original margin and guaranty fund deposits to cover price movements of underlying contracts for both periods. 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 fail 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 original margin and guaranty fund deposits to make up any 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 their respective clearing members on a pro-rata basis for that purpose.
We have contributed $150 million, $50 million and $50 million in cash to the ICE Clear Europe, ICE Clear Credit and ICE Clear U.S. guaranty funds, respectively, as of March 31, 2016, 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 $250 million combined contributions to the guaranty funds as of March 31, 2016 and December 31, 2015 are included in long-term restricted cash in the accompanying consolidated balance sheets.
As of March 31, 2016, original margin and guaranty fund cash deposits are as follows for the ICE Clearing Houses (in millions):
 
ICE Clear 
Europe
 
ICE Clear
Credit
 
ICE Clear  U.S.
 
Other ICE Clearing Houses
 
Total
Original margin
$
28,795

 
$
14,064

 
$
4,383

 
$
172

 
$
47,414

Guaranty fund
2,981

 
1,596

 
325

 
13

 
4,915

Total
$
31,776

 
$
15,660

 
$
4,708

 
$
185

 
$
52,329

As of December 31, 2015, original margin and guaranty fund cash deposits are as follows for the ICE Clearing Houses (in millions):
 
ICE Clear 
Europe
 
ICE Clear
Credit
 
ICE Clear  U.S.
 
Other ICE Clearing Houses
 
Total
Original margin
$
28,454

 
$
13,750

 
$
3,882

 
$
159

 
$
46,245

Guaranty fund
2,589

 
2,011

 
311

 
13

 
4,924

Total
$
31,043

 
$
15,761

 
$
4,193

 
$
172

 
$
51,169

We have 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 Europe, ICE Clear Credit, ICE Clear U.S., ICE Clear Canada, ICE Clear Netherlands 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.
Except with respect to ICE Clear Credit, the majority of the cash held by the ICE Clearing Houses is secured in reverse repurchase agreements with primarily overnight maturities or direct investment in U.S. government securities. ICE Clear Credit has been designated as a systemically important financial market utility by the Financial Stability Oversight Council and has been authorized to establish and maintain a cash account at the Federal Reserve Bank of Chicago. ICE Clear Credit held $6.8 billion of its U.S. dollar cash in the guaranty fund and in original margin in the cash account at the Federal Reserve Bank of Chicago as of March 31, 2016. The remaining cash deposits at the ICE Clearing Houses are held in demand deposit accounts at large, highly rated financial institutions and directly in U.S. Treasury securities with original maturities of less than 12 months.
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, certain agency and corporate debt, letters of credit or gold to mitigate 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 unless the ICE Clearing Houses have sold or re-pledged the assets or in the event of a clearing member default, where the clearing member is no longer entitled to redeem the assets. Any income, gain or loss accrues to the clearing member. For certain non-cash deposits, the ICE Clearing Houses may impose discount or "haircut" rates to ensure adequate collateral levels to account for fluctuations in the market value of these deposits. As of March 31, 2016 and December 31, 2015, 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):

16

 
As of March 31, 2016
 
As of December 31, 2015
 
ICE Clear 
Europe
 
ICE Clear Credit
 
ICE  Clear  U.S.
 
Other ICE Clearing Houses
 
ICE Clear 
Europe
 
ICE Clear Credit
 
ICE  Clear  U.S.
 
Other ICE Clearing Houses
Original margin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government securities at face value
$
21,153

 
$
5,659

 
$
8,161

 
$
44

 
$
21,690

 
$
4,989

 
$
8,161

 
$
97

Letters of credit
—

 
—

 
—

 
398

 
—

 
—

 
—

 
381

Total
$
21,153

 
$
5,659

 
$
8,161

 
$
442

 
$
21,690

 
$
4,989

 
$
8,161

 
$
478

Guaranty fund:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government securities at face value
$
256

 
$
290

 
$
158

 
$
61

 
$
267

 
$
229

 
$
158

 
$
61


10.
Fair Value Measurements
Our 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 certain other short-term assets and liabilities. The fair value of our 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.
•
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, we use 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 and the supplemental executive savings plans.
Financial assets and liabilities recorded in the accompanying consolidated balance sheets as of March 31, 2016 and December 31, 2015 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, 2016 and December 31, 2015 are as follows (in millions):
 
As of March 31, 2016
 
As of December 31, 2015
 
Level 1
 
Level 2 and 3
 
Total
 
Level 1
 
Level 2 and 3
 
Total
Assets at fair value:
 
 
 
 
 
 
 
 
 
 
 
Long-term investment in equity securities
$
352

 
$
—

 
$
352

 
$
299

 
$
—

 
$
299

U.S. Treasury securities
452

 
—

 
452

 
449

 
—

 
449

Mutual Funds
25

 
—

 
25

 
29

 
—

 
29

Total assets at fair value
$
829

 
$
—

 
$
829

 
$
777

 
$
—

 
$
777

As of March 31, 2016, the fair value of our $1.24 billion 2020 Senior Notes was $1.28 billion, the fair value of our $1.24 billion 2025 Senior Notes was $1.28 billion, the fair value of our $852 million NYSE USD Notes was $859 million, the fair value of our $789 million 2023 Senior Notes was $840 million, and the fair value of our $597 million 2018 Senior Notes was $607 million. The fair values of these fixed rate notes were estimated using quoted market prices for these instruments. The fair value of our commercial paper approximates the carrying value since the rates of interest on this short-term debt approximate market rates as of March 31, 2016. All other financial instruments are determined to approximate carrying value due to the short period of time to their maturities.
The long-term investment in equity securities represents our investment in Cetip, which is recorded as an available-for-sale investment, and is recorded and held in Brazilian reais. Cetip was valued at $352 million as of March 31, 2016, using its quoted market price. Changes in the fair value of the Cetip investment are currently reflected in accumulated other comprehensive income (loss) and do not impact earnings, except to the extent that unrealized losses are deemed to be other than temporary (Note 2). As of March 31, 2016, we had an accumulated unrealized gain related to this investment of $28 million.
The fair value of our investment in Cetip as of March 31, 2016 is based on a stock price of R$40.15 per share. In April 2016, Cetip and BM&FBOVESPA in Brazil entered into a merger agreement. Consummation of the merger remains subject to approval by the shareholders of both companies and the regulatory bodies of the Central Bank of Brazil, the Securities and Exchange Commission of Brazil and Brazil’s Council for Economic Defense. The proposed merger values Cetip at R$42.22 per share based upon the April

17

29, 2016 BM&FBOVESPA closing stock price. Under the terms of the merger agreement, Cetip shareholders will receive a combination of cash (75%) and BM&FBOVESPA stock (25%). Given that a portion of the purchase price consists of BM&FBOVESPA stock, the merger agreement includes an adjustment mechanism that provides for a stock valuation based on the BMF&BOVESPA average trading price during the 30 trading days preceding the last required regulatory approval, with a minimum stock valuation of R$42 per share and a maximum stock valuation of R$48.51 per share. In addition, the merger agreement provides for a CDI interbank rate adjustment for the cash portion of the transaction to account for the period of announcement to closing.  
As of March 31, 2016, we held $452 million in U.S. Treasury securities, all of which had remaining maturities of less than one year at the date of purchase. Of these securities, $28 million were recorded as cash and cash equivalents, $274 million were recorded as short-term restricted cash and investments and $150 million were recorded as long-term restricted cash and investments in the accompanying consolidated balance sheet as of March 31, 2016. All of the U.S. Treasury securities recorded as cash and cash equivalents have remaining maturities of less than 90 days.
We did not use Level 2 and 3 inputs to determine the fair value of assets or liabilities measured at fair value on a recurring basis as of March 31, 2016 or December 31, 2015. We measure 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, 2016 and December 31, 2015, none of these assets were required to be recorded at fair value since no impairment indicators were present. Cost and equity method investments were $116 million as of both March 31, 2016 and December 31, 2015 and are classified as other non-current assets in the accompanying consolidated balance sheets.

11.
Condensed Consolidating Financial Statements (Unaudited)
    
In connection with our acquisition of NYSE, Intercontinental Exchange, Inc., or ICE, and NYSE Holdings LLC, or NYSE Holdings, established various guarantees to protect against structural subordination of each entity’s existing indebtedness. NYSE Holdings is our wholly-owned subsidiary and fully and unconditionally guarantees, on an unsecured and unsubordinated basis, the payment of principal, premium, if any, and interest of our Credit Facility, Commercial Paper Program and our senior notes. Similarly, ICE fully and unconditionally guarantees, on an unsecured and unsubordinated basis, the payment of principal, premium, if any, and interest of the NYSE USD Notes. The guarantees will remain in place until each applicable debt obligation has been satisfied.

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 (Parent); (ii) NYSE Holdings; (iii) the subsidiary non-guarantors; (iv) elimination entries necessary to consolidate each of ICE (Parent) and NYSE Holdings with the non-guarantor subsidiaries; and (v) on a consolidated basis. The condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements.

18

Intercontinental Exchange, Inc.
Condensed Consolidating Balance Sheets
As of March 31, 2016
(In millions)
 

ICE
 (Parent)
 
Subsidiary
Guarantor - NYSE Holdings
 
Subsidiary
Non-Guarantors
 
Consolidating
 Adjustments
 
Consolidated
 Total
Current assets:
 
 
 
 
 
 
 
 
 
   Cash and cash equivalents
$
1

 
$
—

 
$
467

 
$
—

 
$
468

   Intercompany receivable
3,045

 
—

 
—

 
(3,045
)
 
—

   Margin deposits and guaranty funds
—

 
—

 
52,329

 
—

 
52,329

   Notes receivable from affiliate, current
—

 
281

 
38

 
(319
)
 
—

   Other current assets
5

 
—

 
1,752

 
—

 
1,757

Total current assets
3,051

 
281

 
54,586

 
(3,364
)

54,554

Property and equipment, net
—

 
—

 
1,018

 
—

 
1,018

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

 
—

 
22,734

 
—

 
22,734

   Investment in subsidiaries
21,514

 
9,913

 
—

 
(31,427
)
 
—

   Notes receivable from affiliate, non-current
—

 
3,482

 
4,036

 
(7,518
)
 
—

   Other non-current assets
18

 
11

 
825

 
—

 
854

Total other non-current assets
21,532

 
13,406

 
27,595

 
(38,945
)
 
23,588

Total assets
$
24,583

 
$
13,687

 
$
83,199

 
$
(42,309
)
 
$
79,160

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
   Short-term debt
$
2,048

 
$
—

 
$
—

 
$
—

 
$
2,048

   Margin deposits and guaranty funds
—

 
—

 
52,329

 
—

 
52,329

   Intercompany payable
—

 
1,636

 
1,409

 
(3,045
)
 
—

   Notes payable to affiliates, current
319

 
—

 
—

 
(319
)
 
—

   Other current liabilities
61

 
—

 
1,198

 
—

 
1,259

Total current liabilities
2,428

 
1,636

 
54,936

 
(3,364
)
 
55,636

Non-current liabilities:
 
 
 
 
 
 
 
 
 
   Long-term debt
3,866

 
852

 
—

 
—

 
4,718

   Notes payable to affiliates, non-current
3,241

 
795

 
3,482

 
(7,518
)
 
—

   Other non-current liabilities
—

 
—

 
3,692

 
—

 
3,692

Total non-current liabilities
7,107

 
1,647

 
7,174

 
(7,518
)
 
8,410

Total liabilities
9,535

 
3,283

 
62,110

 
(10,882
)
 
64,046

Redeemable non-controlling interest
—

 
—

 
34

 
—

 
34

 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Total shareholders' equity
15,048

 
10,404

 
21,023

 
(31,427
)
 
15,048

Non-controlling interest in consolidated subsidiaries
—

 
—

 
32

 
—

 
32

Total equity
15,048

 
10,404

 
21,055

 
(31,427
)
 
15,080

Total liabilities and equity
$
24,583

 
$
13,687

 
$
83,199

 
$
(42,309
)
 
$
79,160


















19


Intercontinental Exchange, Inc.
Condensed Consolidating Balance Sheets
As of December 31, 2015
(In millions)
 

ICE
 (Parent)
 
Subsidiary
Guarantor - NYSE Holdings
 
Subsidiary
Non-Guarantors
 
Consolidating
 Adjustments
 
Consolidated
 Total
Current assets:
 
 
 
 
 
 
 
 
 
   Cash and cash equivalents
$
1

 
$
—

 
$
626

 
$
—

 
$
627

   Intercompany receivable
3,176

 
—

 
—

 
(3,176
)
 
—

   Margin deposits and guaranty funds
—

 
—

 
51,169

 
—

 
51,169

   Note receivable from affiliate, current
—

 
705

 
77

 
(782
)
 
—

   Other current assets
5

 
—

 
1,512

 
—

 
1,517

Total current assets
3,182

 
705

 
53,384

 
(3,958
)
 
53,313

Property and equipment, net
—

 
—

 
1,037

 
—

 
1,037

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

 
—

 
22,837

 
—

 
22,837

   Investment in subsidiaries
21,120

 
9,840

 
—

 
(30,960
)
 
—

   Note receivable from affiliate, non-current
—

 
3,128

 
3,370

 
(6,498
)
 
—

   Other non-current assets
20

 
10

 
770

 
—

 
800

Total other non-current assets
21,140

 
12,978

 
26,977

 
(37,458
)
 
23,637

Total assets
$
24,322

 
$
13,683

 
$
81,398

 
$
(41,416
)
 
$
77,987

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
   Short-term debt
$
2,591

 
$
—

 
$
—

 
$
—

 
$
2,591

   Margin deposits and guaranty funds
—

 
—

 
51,169

 
—

 
51,169

   Intercompany payable
—

 
1,784

 
1,392

 
(3,176
)
 
—

   Notes payable to affiliates, current
358

 
—

 
424

 
(782
)
 
—

   Other current liabilities
36

 
—

 
947

 
—

 
983

Total current liabilities
2,985

 
1,784

 
53,932

 
(3,958
)
 
54,743

Non-current liabilities:
 
 
 
 
 
 
 
 
 
   Long-term debt
3,865

 
852

 
—

 
—

 
4,717

   Notes payable to affiliates, non-current
2,629

 
741

 
3,128

 
(6,498
)
 
—

   Other non-current liabilities
35

 
—

 
3,617

 
—

 
3,652

Total non-current liabilities
6,529

 
1,593

 
6,745

 
(6,498
)
 
8,369

Total liabilities
9,514

 
3,377

 
60,677

 
(10,456
)
 
63,112

Redeemable non-controlling interest
—

 
—

 
35

 
—

 
35

 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Total shareholders' equity
14,808

 
10,306

 
20,654

 
(30,960
)
 
14,808

Non-controlling interest in consolidated subsidiaries
—

 
—

 
32

 
—

 
32

Total equity
14,808

 
10,306

 
20,686

 
(30,960
)
 
14,840

Total liabilities and equity
$
24,322

 
$
13,683

 
$
81,398

 
$
(41,416
)
 
$
77,987

















20



Intercontinental Exchange, Inc.
Condensed Consolidating Statements of Income
Three Months Ended March 31, 2016
(In millions)
 

ICE
 (Parent)