ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons. See the factors set forth under the heading “Forward Looking Statements” at the beginning of Part 1 of this Annual Report and in Item 1(A) under the heading “Risk Factors.” The following discussion is qualified in its entirety by, and should be read in conjunction with, the more detailed information contained in Item 6 “Selected Financial Data” and our consolidated financial statements included in this Annual Report. For discussion related to the results of operations and changes in financial condition for fiscal 2018 compared to fiscal 2017 refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission on February 7, 2019.
Overview
We are a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, financial, fixed income and equity markets. We operate regulated marketplaces for listing, trading and clearing a broad array of derivatives contracts and securities across major asset classes, including energy and agricultural commodities, metals, interest rates, equities, ETFs, credit derivatives, digital assets, bonds and currencies, and also offer mortgage and technology services. In addition, we offer comprehensive data services to support the trading, investment, risk management and connectivity needs of customers around the world and across asset classes.
Our exchanges include derivative exchanges in the U.S., U.K., EU, Canada and Singapore, and cash equities, equity options and bond trading venues in the U.S. We also operate OTC markets for physical energy, fixed income and CDS trade execution. To serve global derivatives markets, we operate clearing houses in the U.S., U.K., EU, Canada and Singapore. We offer a range of data services, globally, for financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, desktops and connectivity solutions. Through our markets, clearing houses, listings and data services, we provide comprehensive solutions for our customers to manage risk and raise capital through liquid markets, benchmark products, access to capital markets and related services. Our business is conducted as two reportable business segments, our Trading and Clearing segment and our Data and Listings segment, and the majority of our identifiable assets are located in the U.S. and U.K.
Recent Developments
Acquisition of Simplifile
On June 12, 2019, we acquired Simplifile for $338 million in cash. The cash consideration was gross of $12 million in cash held by Simplifile on the date of acquisition. Simplifile offers an array of mortgage services, primarily serving as an electronic liaison between lenders, settlement agents and county recording offices, streamlining the local recording of residential mortgage transactions. Simplifile has a presence in over half of U.S. counties, representing over 80% of the U.S. population. The transaction expands the ICE Mortgage Services portfolio, which includes MERS.
Launch of Bakkt Bitcoin Futures Contract
On September 23, 2019, the Bakkt Bitcoin Futures contract launched and on December 9, 2019, options on Bitcoin futures launched. These contracts are traded on ICE Futures U.S. and cleared through ICE Clear U.S. Bakkt was approved by the New York State Department of Financial Services to take custody of digital assets through Bakkt Trust Company, LLC, a qualified custodian. Bakkt Trust takes custody of bitcoin for physically-delivered futures, creating the first fully regulated marketplace to transact physically-delivered digital asset futures. In connection with the launch of the Bakkt Bitcoin Futures contract, Bakkt contributed $35 million to the ICE Clear U.S. guaranty fund in September 2019, solely applicable to any losses associated with a default in Bitcoin contracts and other digital asset contracts that ICE Clear U.S. might clear in the future. Since launch, 2019 volume in physically-delivered Bakkt Bitcoin Daily and Monthly Futures was 85,413 contracts with open interest of 505 contracts at December 31, 2019. Bakkt Bitcoin options volume was 68 contracts in 2019 with open interest of 51 contracts at December 31, 2019.
Launch of ETF Hub
On October 21, 2019, we launched ICE ETF Hub, a new platform designed to bring efficiencies and standardization to the ETF primary trading market, where shares of ETFs are created and redeemed. ICE ETF Hub aims to offer a standardized, automated process for assembling and placing creation and redemption baskets. ICE ETF Hub plans to include ICE Data Services’ pricing, reference data and analytics, connectivity and feeds, as well as connections to ICE Bonds, which provides fixed income execution protocols for asset classes including municipals, corporates, treasuries, agencies and certificates of deposit.
Agreement to Acquire Bridge2 Solutions
On February 5, 2020, we agreed to acquire Bridge2 Solutions, a leading provider of loyalty solutions for merchants and consumers, contingent on completion of Hart-Scott-Rodino review. Following the completion of the transaction, Bakkt intends to acquire Bridge2 Solutions from ICE. Bridge2 Solutions enables some of the world’s leading brands to engage customers and drive loyalty. It powers incentive and employee perk programs for companies across a wide spectrum of industries.
Consolidated Financial Highlights
The following summarizes our results and significant changes in our consolidated financial performance for the periods presented (dollars in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Revenues, less transaction-based expenses
|
$
|
5,202
|
|
|
$
|
4,979
|
|
|
4
|
%
|
|
$
|
4,979
|
|
|
$
|
4,638
|
|
|
7
|
%
|
Operating expenses
|
$
|
2,529
|
|
|
$
|
2,396
|
|
|
6
|
%
|
|
$
|
2,396
|
|
|
$
|
2,259
|
|
|
6
|
%
|
Adjusted operating expenses(1)
|
$
|
2,189
|
|
|
$
|
2,071
|
|
|
6
|
%
|
|
$
|
2,071
|
|
|
$
|
1,947
|
|
|
6
|
%
|
Operating income
|
$
|
2,673
|
|
|
$
|
2,583
|
|
|
3
|
%
|
|
$
|
2,583
|
|
|
$
|
2,379
|
|
|
9
|
%
|
Adjusted operating income(1)
|
$
|
3,013
|
|
|
$
|
2,908
|
|
|
4
|
%
|
|
$
|
2,908
|
|
|
$
|
2,691
|
|
|
8
|
%
|
Operating margin
|
51
|
%
|
|
52
|
%
|
|
(1 pt)
|
|
|
52
|
%
|
|
51
|
%
|
|
1 pt
|
|
Adjusted operating margin(1)
|
58
|
%
|
|
58
|
%
|
|
—
|
|
|
58
|
%
|
|
58
|
%
|
|
—
|
|
Other income (expense), net
|
$
|
(192
|
)
|
|
$
|
(63
|
)
|
|
203
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%
|
|
$
|
(63
|
)
|
|
$
|
147
|
|
|
n/a
|
|
Income tax expense (benefit)
|
$
|
521
|
|
|
$
|
500
|
|
|
4
|
%
|
|
$
|
500
|
|
|
$
|
(28
|
)
|
|
n/a
|
|
Effective tax rate
|
21
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%
|
|
20
|
%
|
|
1 pt
|
|
|
20
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%
|
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(1
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)%
|
|
21 pts
|
|
Net income attributable to ICE
|
$
|
1,933
|
|
|
$
|
1,988
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|
|
(3
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)%
|
|
$
|
1,988
|
|
|
$
|
2,526
|
|
|
(21
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)%
|
Adjusted net income attributable to ICE(1)
|
$
|
2,194
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|
|
$
|
2,077
|
|
|
6
|
%
|
|
$
|
2,077
|
|
|
$
|
1,764
|
|
|
18
|
%
|
Diluted earnings per share attributable to ICE common stockholders
|
$
|
3.42
|
|
|
$
|
3.43
|
|
|
—
|
%
|
|
$
|
3.43
|
|
|
$
|
4.25
|
|
|
(19
|
)%
|
Adjusted diluted earnings per share attributable to ICE common stockholders(1)
|
$
|
3.88
|
|
|
$
|
3.59
|
|
|
8
|
%
|
|
$
|
3.59
|
|
|
$
|
2.97
|
|
|
21
|
%
|
Cash flows from operating activities
|
$
|
2,659
|
|
|
$
|
2,533
|
|
|
5
|
%
|
|
$
|
2,533
|
|
|
$
|
2,085
|
|
|
21
|
%
|
(1) The adjusted figures exclude items that are not reflective of our ongoing core operations and business performance. Adjusted net income attributable to ICE and adjusted diluted earnings per share attributable to ICE common stockholders are presented net of taxes. These adjusted numbers are not calculated in accordance with GAAP. See “- Non-GAAP Financial Measures” below.
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•
|
Revenues, less transaction-based expenses, increased $223 million in 2019 from 2018. The increase in revenues includes $34 million in unfavorable foreign exchange effects arising from the stronger U.S. dollar in 2019 from 2018.
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|
•
|
Revenues, less transaction-based expenses, increased $341 million in 2018 from 2017. The increase in revenues includes $26 million in favorable foreign exchange effects arising from the weaker U.S. dollar in 2018 from 2017.
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|
•
|
Operating expenses increased $133 million in 2019 from 2018. The increase in operating expenses includes $14 million in favorable foreign exchange effects arising from the stronger U.S. dollar in 2019 from 2018.
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|
|
•
|
Operating expenses increased $137 million in 2018 from 2017. The increase in operating expenses includes $11 million in unfavorable foreign exchange effects arising from the weaker U.S. dollar in 2018 from 2017.
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|
|
•
|
In connection with our acquisition of MERS, we recorded a $110 million gain in other income during 2018. In connection with Cetip’s merger with BM&FBOVESPA S.A., now B3, we recognized a $167 million net realized investment gain in other income/(expense), net in 2017. We also recognized a net gain of $110 million in connection with our divestiture of Trayport in other income/(expense), net in 2017.
|
|
|
•
|
The 2019 effective tax rate is higher than the 2018 effective tax rate primarily due to the 2018 discrete tax benefits from the acquisition of MERS and the divestiture of Trayport exceeding the net increased tax benefits recorded in 2019 from certain international tax provisions under the U.S. Federal Tax Cuts and Jobs Act, or TCJA.
|
|
|
•
|
Excluding the 2017 deferred tax benefit from the U.S. tax law changes, the 2018 effective tax rate is lower than the 2017 effective tax rate due to the TCJA, which reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, tax benefits from our acquisition of MERS, our divestiture of Trayport and deferred tax benefits from the U.S. tax rate reduction resulting from changes in estimates.
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Business Environment and Market Trends
Our business environment has been characterized by:
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•
|
globalization of marketplaces, customers and competitors;
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•
|
commodity, interest rate and financial markets uncertainty;
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•
|
growing demand for data to inform customers' risk management and investment decisions;
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|
•
|
evolving, increasing and disparate regulation across multiple jurisdictions;
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|
•
|
price volatility increasing customers' demand for risk management services;
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|
•
|
increasing focus on capital and cost efficiencies;
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|
•
|
customers' preference to manage risk in markets demonstrating the greatest depth of liquidity and product diversity;
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•
|
the evolution of existing products and new product innovation to serve emerging customer needs and changing industry agreements;
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•
|
rising demand for speed, data, data capacity and connectivity by market participants, necessitating increased investment in technology; and
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•
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consolidation and increasing competition among global markets for trading, clearing and listings.
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Recent changes with regard to global financial reform have emphasized the importance of transparent markets, centralized clearing and access to data, all of which are important aspects of our product offering. However, some of the proposed rules have yet to be implemented and some rules that have already been partially implemented are being reconsidered. In addition, some of the global regulations have not been fully harmonized and several non-U.S. regulations are inconsistent with U.S. rules. As the evolution continues, legislative and regulatory actions may change the way we conduct our business and may create uncertainty for market participants, which could affect trading volumes or demand for market data. As a result, it is difficult to predict all of the effects that the legislation and its implementing regulations will have on us. As discussed more fully in Item 1 “- Business - Regulation” included in this Annual Report, Brexit, the implementation of MiFID II and other regulations may result in operational, regulatory and/or business risk.
We have diversified our business so that we are not dependent on volatility or trading activity in any one asset class. In addition, we have increased our portion of non-transaction and clearing revenues from 34% in 2014 to 51% in 2019. This non-transaction revenue includes data services and listings.
We have invested, and continue to invest significant resources, in our proprietary ICE Global Network and cybersecurity protections to minimize the potential impact of a wide-scale cyber interruption, system outages or global regulatory drive to
move critical infrastructure and/or sensitive financial transactions away from the public Internet. We believe that our current and historic investments in this space position us well competitively to accommodate increased costs of compliance, assurance, or incident response, however, trends in nationalism and data privacy could result in requirements that necessitate increases in staffing or the introduction of local data collection, and such requirements could undermine our synergistic centralized service model. Further, a prolonged and impactful cyber-attack on any of our market participants could drive the industry away from electronification and reduce the market advantages we have realized through automation.
Many of the data products we sell and services we provide are required for our clients’ business operations regardless of market volatility or shifts in business profitability levels. We anticipate that there will continue to be growth in the financial information services sector driven by a number of global trends, including the following:
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|
•
|
increasing global regulatory demands;
|
|
|
•
|
greater use of fair value accounting standards and reliance on independent valuations;
|
|
|
•
|
greater emphasis on risk management;
|
|
|
•
|
market fragmentation driven by regulatory changes;
|
|
|
•
|
the move to passive investing and indexation;
|
|
|
•
|
ongoing growth in the size and diversity of financial markets;
|
|
|
•
|
increased automation of fixed income and other less automated markets;
|
|
|
•
|
the development of new data products;
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|
|
•
|
the demand for greater data capacity and connectivity;
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|
|
•
|
increasing demand for outsourced services by financial institutions.
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We continue to focus on our strategy to grow each of our revenue streams, and prudently manage expenses, in order to mitigate these uncertainties and to build on our growth opportunities by leveraging our proprietary data, clearing and markets.
Segment Results
Our business is conducted through two reportable business segments:
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|
•
|
Trading and Clearing, which comprises our transaction-based execution and clearing businesses; and
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|
|
•
|
Data and Listings, which comprises our subscription-based data services and securities listings businesses.
|
While revenues are recorded specifically in the segment in which they are earned or to which they relate, a significant portion of our operating expenses are not solely related to a specific segment because the expenses serve functions that are necessary for the operation of both segments. We use a pro-rata revenue approach as the allocation method for the expenses that do not relate solely to one segment. Further, we did not allocate expenses to specific revenue streams within these segments since such an allocation is not reasonably possible. Our two segments do not engage in intersegment transactions. For details on trends in recent prior year periods, refer to our 2018 and 2017 Annual Reports on Form 10-K.
Trading and Clearing Segment
The following presents selected statements of income data for our Trading and Clearing segment (dollars in millions):
(1) The adjusted numbers in the charts above are calculated by excluding items that are not reflective of our cash operations and core business performance. As a result, these adjusted numbers are not calculated in accordance with U.S. GAAP. See “- Non-GAAP Financial Measures” below.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Energy futures and options contracts
|
$
|
992
|
|
|
$
|
965
|
|
|
3
|
%
|
|
$
|
965
|
|
|
$
|
909
|
|
|
6
|
%
|
Agricultural and metals futures and options contracts
|
251
|
|
|
251
|
|
|
—
|
|
|
251
|
|
|
216
|
|
|
16
|
|
Financial futures and options contracts
|
332
|
|
|
354
|
|
|
(6
|
)
|
|
354
|
|
|
326
|
|
|
9
|
|
Cash equities and equity options
|
1,643
|
|
|
1,624
|
|
|
1
|
|
|
1,624
|
|
|
1,491
|
|
|
9
|
|
Fixed income and credit
|
364
|
|
|
240
|
|
|
52
|
|
|
240
|
|
|
139
|
|
|
72
|
|
OTC and other transactions
|
45
|
|
|
49
|
|
|
(8
|
)
|
|
49
|
|
|
50
|
|
|
(2
|
)
|
Transaction and clearing, net
|
3,627
|
|
|
3,483
|
|
|
4
|
|
|
3,483
|
|
|
3,131
|
|
|
11
|
|
Other revenues
|
260
|
|
|
234
|
|
|
11
|
|
|
234
|
|
|
202
|
|
|
16
|
|
Revenues
|
3,887
|
|
|
3,717
|
|
|
5
|
|
|
3,717
|
|
|
3,333
|
|
|
12
|
|
Transaction-based expenses
|
1,345
|
|
|
1,297
|
|
|
4
|
|
|
1,297
|
|
|
1,205
|
|
|
8
|
|
Revenues, less transaction-based expenses
|
2,542
|
|
|
2,420
|
|
|
5
|
|
|
2,420
|
|
|
2,128
|
|
|
14
|
|
Other operating expenses
|
763
|
|
|
686
|
|
|
11
|
|
|
686
|
|
|
592
|
|
|
16
|
|
Depreciation and amortization
|
268
|
|
|
215
|
|
|
24
|
|
|
215
|
|
|
187
|
|
|
16
|
|
Acquisition-related transaction and integration costs
|
2
|
|
|
10
|
|
|
(81
|
)
|
|
10
|
|
|
2
|
|
|
n/a
|
|
Operating expenses
|
1,033
|
|
|
911
|
|
|
13
|
|
|
911
|
|
|
781
|
|
|
17
|
|
Operating income
|
$
|
1,509
|
|
|
$
|
1,509
|
|
|
—
|
%
|
|
$
|
1,509
|
|
|
$
|
1,347
|
|
|
12
|
%
|
Transaction and Clearing Revenues
Our transaction and clearing revenues are reported on a net basis, except for the NYSE transaction-based expenses discussed below, and consist of fees collected from our derivatives, fixed income, cash equities and equity options trading and derivatives clearing. Rates per-contract, or RPC, are driven by the number of contracts or securities traded and the fees charged per contract, net of certain rebates. Our per-contract transaction and clearing revenues will depend upon many factors, including, but not limited to, market conditions, transaction and clearing volume, product mix, pricing, applicable revenue sharing and market making agreements, and new product introductions. Because transaction and clearing revenues are generally assessed on a per-contract basis, revenues and profitability fluctuate with changes in contract volume and due to product mix.
In 2019 and 2018, 19% and 20%, respectively, of our Trading and Clearing segment revenues, less transaction-based expenses, were billed in pounds sterling or euros. Due to the fluctuations of the pound sterling and euro compared to the
U.S. dollar, our Trading and Clearing segment revenues, less transaction-based expenses, were lower by $25 million in 2019 from 2018.
Our transaction and clearing revenues are presented net of rebates. We recorded rebates of $860 million and $844 million in 2019 and 2018, respectively. We offer rebates in certain of our markets primarily to support market liquidity and trading volume by providing qualified participants in those markets a discount to the applicable commission rate. Such rebates are calculated based on volumes traded. The increase in the rebates is due primarily to increased volumes in products with higher rates per contract, an increase in the number of rebate programs offered and an increase in the number of participants within our energy futures and options programs.
|
|
•
|
Energy Futures and Options Contracts: Total energy volume decreased 3% and revenues increased 3% in 2019 from 2018.
|
|
|
–
|
Total oil volume decreased 2% in 2019 from 2018 primarily driven by lower volumes within Brent, partially offset by strength in our Other Crude and Refined Products complex.
|
|
|
–
|
Our global natural gas futures and options volume decreased 6% in 2019 from 2018. The volume decrease was primarily due to lower Henry Hub volumes and was partially offset by increased volumes in our European TTF gas contract. The strength in our European TTF gas volumes was driven by the continued emergence of TTF as the European benchmark for natural gas as natural gas continues to globalize.
|
|
|
–
|
Emission futures and options volumes increased 2% in 2019 from 2018 driven by higher carbon prices and supply-demand dynamics impacted by regulatory uncertainty.
|
|
|
•
|
Agricultural and Metals Futures and Options Contracts: Total volume in our agricultural and metals futures and options markets increased 4% and revenues were flat in 2019 from 2018. The overall increase in agricultural volumes was primarily driven by price volatility resulting from supply and demand dynamics, including weather concerns and geopolitical events.
|
|
|
–
|
Sugar futures and options volumes increased 2% in 2019 from 2018.
|
|
|
–
|
Other agricultural and metal futures and options volume increased 5% in 2019 from 2018.
|
|
|
•
|
Financial Futures and Options Contracts: Total volume and revenues in our financial futures and options markets decreased 11% and 6%, respectively, in 2019 from 2018.
|
|
|
–
|
Interest rate futures and options volume and revenue decreased 13% and 15%, respectively, in 2019 from 2018 driven, in part, by a muted European economic backdrop. Interest rate futures and options revenues were $196 million and $230 million in 2019 and 2018, respectively.
|
|
|
–
|
Other financial futures and options volume, which includes our MSCI®, FTSE® and NYSE FANG+ equity index products, decreased 1% and revenue increased 10% in 2019 from 2018. Other financial futures and options volume decreased due to lower equity market volatility than in the prior year while revenues increased due to strong volumes in our MSCI® complex. Other financial futures and options revenues were $136 million and $124 million in 2019 and 2018, respectively.
|
|
|
•
|
Cash Equities and Equity Options: Cash equities handled volume was flat in 2019 from 2018. Cash equities revenues, net of transaction-based expenses, were $203 million and $220 million in 2019 and 2018, respectively. Equity options volume decreased 6% in 2019 from 2018 due to lower equity market volatility than in the prior year. Equity options revenues, net of transaction-based expenses, were $95 million and $107 million in 2019 and 2018, respectively.
|
|
|
•
|
Fixed Income and Credit: Fixed income and credit includes revenues from ICE Mortgage Services, ICE Bonds and CDS execution and clearing. Fixed income transaction revenues in 2019 include an increase of $133 million due to acquisitions made in these businesses in late 2018 and 2019.
|
CDS clearing revenues were $132 million and $139 million in 2019 and 2018, respectively. The notional value of CDS cleared was $14.7 trillion and $16.4 trillion in 2019 and 2018, respectively. CDS clearing revenues decreased in 2019 from 2018 due to lower market volatility, partially offset by record buy-side participation at our U.S. CDS clearing house, ICE Clear Credit, in terms of number of participants and single name notional cleared.
|
|
•
|
OTC and Other Transactions: OTC and other transactions include revenues from our OTC energy business and other trade confirmation services.
|
Other Revenues
Other revenues primarily include interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of our U.S. securities exchanges, designated market maker service fees, technology development fees, exchange membership fees and agricultural grading and certification fees. The increase in other revenues in 2019 from 2018 is primarily due to increased interest income earned on certain clearing margin deposits reflecting higher balances and increased interest rates, as well as due to the acquisition of Simplifile.
Selected Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
Year Ended
December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Number of contracts traded (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Energy futures and options
|
669
|
|
|
692
|
|
|
(3
|
)%
|
|
692
|
|
|
685
|
|
|
1
|
%
|
Agricultural and metals futures and options
|
111
|
|
|
107
|
|
|
4
|
%
|
|
107
|
|
|
94
|
|
|
15
|
%
|
Financial futures and options
|
630
|
|
|
710
|
|
|
(11
|
)%
|
|
710
|
|
|
647
|
|
|
10
|
%
|
Total
|
1,410
|
|
|
1,509
|
|
|
(7
|
)%
|
|
1,509
|
|
|
1,426
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
Year Ended
December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Average Daily Volume of contracts traded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Energy futures and options
|
2,655
|
|
|
2,747
|
|
|
(3
|
)%
|
|
2,747
|
|
|
2,731
|
|
|
1
|
%
|
Agricultural and metals futures and options
|
442
|
|
|
427
|
|
|
4
|
%
|
|
427
|
|
|
374
|
|
|
14
|
%
|
Financial futures and options
|
2,460
|
|
|
2,770
|
|
|
(11
|
)%
|
|
2,770
|
|
|
2,536
|
|
|
9
|
%
|
Total
|
5,557
|
|
|
5,944
|
|
|
(7
|
)%
|
|
5,944
|
|
|
5,641
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
Year Ended
December 31,
|
|
|
Rate per contract:
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Energy futures and options
|
$
|
1.48
|
|
|
$
|
1.39
|
|
|
6
|
%
|
|
$
|
1.39
|
|
|
$
|
1.33
|
|
|
5
|
%
|
Agricultural and metals futures and options
|
$
|
2.25
|
|
|
$
|
2.34
|
|
|
(4
|
)%
|
|
$
|
2.34
|
|
|
$
|
2.30
|
|
|
2
|
%
|
Financial futures and options
|
$
|
0.52
|
|
|
$
|
0.49
|
|
|
6
|
%
|
|
$
|
0.49
|
|
|
$
|
0.49
|
|
|
—
|
%
|
Open interest is the aggregate number of contracts (long or short) that clearing members hold either for their own account or on behalf of their clients. Open interest refers to the total number of contracts that are currently “open,” – in other words, contracts that have been traded but not yet liquidated by either an offsetting trade, exercise, expiration or assignment. Open interest is also a measure of the future activity remaining to be closed out in terms of the number of contracts that members and their clients continue to hold in the particular contract and by the number of contracts held for each contract month listed by the exchange. The following charts and table present our year-end open interest for our futures and options contracts (in thousands, except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
As of December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Open interest — in thousands of contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Energy futures and options
|
37,433
|
|
|
35,019
|
|
|
7
|
%
|
|
35,019
|
|
|
33,906
|
|
|
3
|
%
|
Agricultural and metals futures and options
|
3,836
|
|
|
3,643
|
|
|
5
|
%
|
|
3,643
|
|
|
3,391
|
|
|
7
|
%
|
Financial futures and options
|
29,369
|
|
|
29,061
|
|
|
1
|
%
|
|
29,061
|
|
|
24,025
|
|
|
21
|
%
|
Total
|
70,638
|
|
|
67,723
|
|
|
4
|
%
|
|
67,723
|
|
|
61,322
|
|
|
10
|
%
|
The following charts and tables present selected cash and equity options trading data. All trading volume below is presented as average net daily trading volume, or ADV, and is single counted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
NYSE cash equities (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Total cash handled volume
|
1,740
|
|
|
1,735
|
|
|
—
|
%
|
|
1,735
|
|
|
1,521
|
|
|
14
|
%
|
Total cash market share matched
|
24.2
|
%
|
|
23.2
|
%
|
|
1.0 pts
|
|
|
23.2
|
%
|
|
22.8
|
%
|
|
0.4 pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NYSE equity options (contracts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
NYSE equity options volume
|
3,172
|
|
|
3,386
|
|
|
(6
|
)%
|
|
3,386
|
|
|
2,375
|
|
|
43
|
%
|
Total equity options volume
|
17,542
|
|
|
18,217
|
|
|
(4
|
)%
|
|
18,217
|
|
|
14,697
|
|
|
24
|
%
|
NYSE share of total equity options
|
18.1
|
%
|
|
18.6
|
%
|
|
(0.5) pts
|
|
|
18.6
|
%
|
|
16.2
|
%
|
|
2.4 pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue capture or rate per contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equities rate per contract (per 100 shares)
|
$0.046
|
|
$0.050
|
|
(8
|
)%
|
|
$0.050
|
|
$0.051
|
|
(2
|
)%
|
Equity options rate per contract
|
$0.12
|
|
$0.12
|
|
(5
|
)%
|
|
$0.12
|
|
$0.15
|
|
(17
|
)%
|
Handled volume represents the total number of shares of equity securities, ETFs and crossing session activity internally matched on our exchanges or routed to and executed on an external market center. Matched volume represents the total number of shares of equity securities, ETFs and crossing session activity executed on our exchanges.
Transaction-Based Expenses
Our equities and equity options markets pay fees to the SEC pursuant to Section 31 of the Exchange Act. Section 31 fees are recorded on a gross basis as a component of transaction and clearing fee revenue. These Section 31 fees are assessed to recover the government’s costs of supervising and regulating the securities markets and professionals and are subject to change. We, in turn, collect corresponding activity assessment fees from member organizations clearing or settling trades on the equities and options exchanges, and recognize these amounts in our transaction and clearing revenues when invoiced. The activity assessment fees are designed to equal the Section 31 fees. As a result, activity assessment fees and the corresponding Section 31 fees do not have an impact on our net income, although the timing of payment by us may vary from collections. Section 31 fees were $379 million and $357 million in 2019 and 2018, respectively. The fees we collect are included in cash at the time of receipt and we remit the amounts to the SEC semi-annually as required. The total amount is included in accrued liabilities and was $138 million as of December 31, 2019.
We make liquidity payments to cash and options trading customers, as well as routing charges made to other exchanges which are included in transaction-based expenses. We incur routing charges when we do not have the best bid or offer in the market for a security that a customer is trying to buy or sell on one of our securities exchanges. In that case, we route the customer’s order to the external market center that displays the best bid or offer. The external market center charges us a fee per share (denominated in tenths of a cent per share) for routing to its system. We record routing charges on a gross basis as a component of transaction and clearing fee revenue. Cash liquidity payments, routing and clearing fees were $966 million and $940 million in 2019 and 2018, respectively.
Operating Expenses, Operating Income and Operating Margin
The following chart summarizes our Trading and Clearing segment's operating expenses, operating income and operating margin (dollars in millions). See “- Consolidated Operating Expenses” below for a discussion of the significant changes in our operating expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading and Clearing Segment:
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Operating expenses
|
$
|
1,033
|
|
|
$
|
911
|
|
|
13
|
%
|
|
$
|
911
|
|
|
$
|
781
|
|
|
17
|
%
|
Adjusted operating expenses(1)
|
$
|
908
|
|
|
$
|
824
|
|
|
10
|
%
|
|
$
|
824
|
|
|
$
|
714
|
|
|
16
|
%
|
Operating income
|
$
|
1,509
|
|
|
$
|
1,509
|
|
|
—
|
%
|
|
$
|
1,509
|
|
|
$
|
1,347
|
|
|
12
|
%
|
Adjusted operating income(1)
|
$
|
1,634
|
|
|
$
|
1,596
|
|
|
2
|
%
|
|
$
|
1,596
|
|
|
$
|
1,414
|
|
|
13
|
%
|
Operating margin
|
59
|
%
|
|
62
|
%
|
|
(3 pts)
|
|
|
62
|
%
|
|
63
|
%
|
|
(1 pt)
|
|
Adjusted operating margin(1)
|
64
|
%
|
|
66
|
%
|
|
(2 pts)
|
|
|
66
|
%
|
|
66
|
%
|
|
—
|
|
(1) The adjusted figures exclude items that are not reflective of our ongoing core operations and business performance. These adjusted numbers are not calculated in accordance with GAAP. See “- Non-GAAP Financial Measures” below.
Data and Listings Segment
The following charts and table present our selected statements of income data for our Data and Listings segment (dollars in millions):
(1) The adjusted numbers in the charts above are calculated by excluding items that are not reflective of our cash operations and core business performance. As a result, these adjusted numbers are not calculated in accordance with U.S. GAAP. See “- Non-GAAP Financial Measures” below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Pricing and analytics
|
$
|
1,083
|
|
|
$
|
1,043
|
|
|
4
|
%
|
|
$
|
1,043
|
|
|
$
|
970
|
|
|
7
|
%
|
Exchange data and feeds
|
704
|
|
|
670
|
|
|
5
|
|
|
670
|
|
|
632
|
|
|
6
|
|
Desktops and connectivity
|
424
|
|
|
402
|
|
|
5
|
|
|
402
|
|
|
482
|
|
|
(17
|
)
|
Data services
|
2,211
|
|
|
2,115
|
|
|
5
|
|
|
2,115
|
|
|
2,084
|
|
|
1
|
|
Listings
|
449
|
|
|
444
|
|
|
1
|
|
|
444
|
|
|
426
|
|
|
4
|
|
Revenues
|
2,660
|
|
|
2,559
|
|
|
4
|
|
|
2,559
|
|
|
2,510
|
|
|
2
|
|
Other operating expenses
|
1,102
|
|
|
1,090
|
|
|
1
|
|
|
1,090
|
|
|
1,096
|
|
|
(1
|
)
|
Acquisition-related transaction and integration costs
|
—
|
|
|
24
|
|
|
n/a
|
|
|
24
|
|
|
34
|
|
|
(29
|
)
|
Depreciation and amortization
|
394
|
|
|
371
|
|
|
6
|
|
|
371
|
|
|
348
|
|
|
6
|
|
Operating expenses
|
1,496
|
|
|
1,485
|
|
|
1
|
|
|
1,485
|
|
|
1,478
|
|
|
—
|
|
Operating income
|
$
|
1,164
|
|
|
$
|
1,074
|
|
|
8
|
%
|
|
$
|
1,074
|
|
|
$
|
1,032
|
|
|
4
|
%
|
Our Data and Listings segment represents largely subscription-based, or recurring, revenues from data services and listings services offered across our trading and clearing businesses and ICE Data Services. Through ICE Data Services, we generate revenues from a range of global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, desktops and connectivity solutions. Through NYSE, NYSE American and NYSE Arca, we generate listings revenue related to the provision of listings services for public companies and ETFs, and related corporate actions for listed companies.
In 2019 and 2018, 7% and 8%, respectively, of our Data and Listings segment revenues were billed in pounds sterling or euros (all relating to our data services revenues). As the pound sterling or euro exchange rate changes, the U.S. equivalent of revenues denominated in foreign currencies changes accordingly. Due to the strengthening of the U.S. dollar compared to the pound sterling and euro during 2019, our data services revenues were lower by $9 million in 2019 than in 2018.
Data Services Revenues
Our data services revenues are primarily subscription-based and increased 5% in 2019 from 2018 primarily due to the strong retention rate of existing customers, the addition of new customers, increased purchases by existing customers and increases in pricing of our products.
|
|
•
|
Pricing and Analytics: Our pricing and analytics revenues increased 4% in 2019 from 2018. The increase in revenue was due to strength in our pricing and reference data and index businesses driven by the strong retention rate of existing customers, the addition of new customers, increased purchases by existing customers and increases in pricing of our products. This growth was partially offset by $5 million of unfavorable fluctuations in the U.S. dollar as compared to the pound sterling and euro.
|
|
|
•
|
Exchange Data and Feeds: Our exchange data and feeds revenues increased 5% in 2019 from 2018. The increase in revenue was largely due to strength in our futures exchange data and to a lesser extent cash equities exchange data. The growth was driven by the strong retention rate of existing customers, the addition of new customers, increased purchases by existing customers, a larger share of the NMS Plan revenue and increases in pricing of our products.
|
|
|
•
|
Desktops and Connectivity: Our desktop and connectivity revenues increased 5% in 2019 from 2018. The increase in revenue was driven primarily by growth in our connectivity services including the ICE Global Network, coupled with stronger desktop revenues.
|
Annual Subscription Value, or ASV, represents, at a point in time, the data services revenues subscribed for the succeeding 12 months. ASV does not include new sales, contract terminations or price changes that may occur during that 12-month period. ASV also does not include certain data services revenue streams that are not subscription-based. Revenue from ASV businesses has historically represented approximately 90% of our data revenues. Thus, while it is an indicative forward-looking metric, it does not provide a growth forecast of the next 12 months of data services revenues.
As of December 31, 2019, ASV was $2.014 billion, which increased 5.5% compared to the ASV as of December 31, 2018. This does not adjust for year-over-year foreign exchange fluctuations or impacts of acquisitions.
Listings Revenues
Listings revenues in our securities markets arise from fees applicable to companies listed on our cash equities exchanges– original listing fees and annual listing fees. Original listing fees consist of two components: initial listing fees and fees related to corporate actions. Initial listing fees, subject to a minimum and maximum amount, are based on the number of shares that a company initially lists. All listings fees are billed upfront and the identified performance obligations are satisfied over time. Revenue related to the investor relations performance obligation is recognized ratably over the period these services are provided, with the remaining revenue recognized ratably over time as customers continue to list on our exchanges.
In addition, we earn corporate actions-related listing fees in connection with actions involving the issuance of new shares, such as stock splits, rights issues and sales of additional securities, as well as mergers and acquisitions. Listings fees related to other corporate actions are considered contract modifications of our listing contracts and are recognized ratably over time as customers continue to list on our exchanges.
In 2019, NYSE and NYSE American raised the most capital globally with approximately $112 billion raised in IPOs and follow-on offerings from over 300 transactions.
Operating Expenses, Operating Income and Operating Margin
The following chart summarizes our Data and Listings segment's operating expenses, operating income and operating margin (dollars in millions). See “- Consolidated Operating Expenses” below for a discussion of the significant changes in our operating expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and Listings Segment:
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Operating expenses
|
$
|
1,496
|
|
|
$
|
1,485
|
|
|
1
|
%
|
|
$
|
1,485
|
|
|
$
|
1,478
|
|
|
—
|
%
|
Adjusted operating expenses(1)
|
$
|
1,281
|
|
|
$
|
1,247
|
|
|
3
|
%
|
|
$
|
1,247
|
|
|
$
|
1,233
|
|
|
1
|
%
|
Operating income
|
$
|
1,164
|
|
|
$
|
1,074
|
|
|
8
|
%
|
|
$
|
1,074
|
|
|
$
|
1,032
|
|
|
4
|
%
|
Adjusted operating income(1)
|
$
|
1,379
|
|
|
$
|
1,312
|
|
|
5
|
%
|
|
$
|
1,312
|
|
|
$
|
1,277
|
|
|
3
|
%
|
Operating margin
|
44
|
%
|
|
42
|
%
|
|
2 pts
|
|
|
42
|
%
|
|
41
|
%
|
|
1 pt
|
|
Adjusted operating margin(1)
|
52
|
%
|
|
51
|
%
|
|
1 pt
|
|
|
51
|
%
|
|
51
|
%
|
|
—
|
|
(1) The adjusted figures exclude items that are not reflective of our ongoing core operations and business performance. These adjusted numbers are not calculated in accordance with GAAP. See “- Non-GAAP Financial Measures” below.
Consolidated Operating Expenses
The following presents our consolidated operating expenses (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
Year Ended
December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Compensation and benefits
|
$
|
1,042
|
|
|
$
|
994
|
|
|
5
|
%
|
|
$
|
994
|
|
|
$
|
946
|
|
|
5
|
%
|
Professional services
|
125
|
|
|
131
|
|
(5
|
)
|
|
131
|
|
|
121
|
|
8
|
|
Acquisition-related transaction and integration costs
|
2
|
|
|
34
|
|
(94
|
)
|
|
34
|
|
|
36
|
|
(5
|
)
|
Technology and communication
|
469
|
|
|
432
|
|
8
|
|
|
432
|
|
|
397
|
|
9
|
|
Rent and occupancy
|
68
|
|
|
68
|
|
1
|
|
|
68
|
|
|
69
|
|
(2
|
)
|
Selling, general and administrative
|
161
|
|
|
151
|
|
7
|
|
|
151
|
|
|
155
|
|
(3
|
)
|
Depreciation and amortization
|
662
|
|
|
586
|
|
13
|
|
|
586
|
|
|
535
|
|
10
|
|
Total operating expenses
|
$
|
2,529
|
|
|
$
|
2,396
|
|
|
6
|
%
|
|
$
|
2,396
|
|
|
$
|
2,259
|
|
|
6
|
%
|
The majority of our operating expenses do not vary directly with changes in our volume and revenues, except for certain technology and communication expenses, including data acquisition costs, licensing and other fee-related arrangements and a portion of our compensation expense that is tied directly to our data sales or overall financial performance.
We expect our operating expenses to increase in absolute terms in future periods in connection with the growth of our business, and to vary from year-to-year based on the type and level of our acquisitions, our integrations and other investments.
In 2019 and 2018, 12% and 13%, respectively, of our operating expenses were incurred in pounds sterling or euros. Due to fluctuations in the U.S. dollar compared to the pound sterling and euro, our consolidated operating expenses were $14 million lower in 2019 than in 2018. See Item 7(A) “- Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Exchange Rate Risk” below for additional information.
Compensation and Benefits Expenses
Compensation and benefits expense is our most significant operating expense and includes non-capitalized employee wages, bonuses, non-cash or stock compensation, certain severance costs, benefits and employer taxes. The bonus component of our compensation and benefits expense is based on both our financial performance and individual employee performance. The performance-based restricted stock compensation expense is also based on our financial performance. Therefore, our compensation and benefits expense will vary year-to-year based on our financial performance and fluctuations in our number of employees. The below chart summarizes the significant drivers of our compensation and benefits expense results for the periods presented (dollars in millions, except employee headcount).
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
Employee headcount
|
5,989
|
|
|
5,161
|
|
|
16
|
%
|
Employee severance and retention costs excluding acquisitions
|
$
|
18
|
|
|
$
|
30
|
|
|
(41
|
)%
|
Stock-based compensation expenses
|
$
|
139
|
|
|
$
|
130
|
|
|
7
|
%
|
Employee headcount and compensation and benefits expenses increased in 2019 from 2018 primarily due the acquisitions of Simplifile in 2019 and CHX Holdings, Inc., the parent company of the Chicago Stock Exchange, or CHX, TMC Bonds and MERS in 2018 and the 2018 launch of Bakkt. Employee headcount also increased due to new employees in our ICE India office, who had previously been our contractors, during the three months ended December 31, 2019. These new businesses resulted in additional compensation and benefits expense of $57 million in 2019 from 2018. Stock-based compensation expenses in the table above relate to employee stock option and restricted stock awards.
Professional Services Expenses
Professional services expense includes fees for consulting services received on strategic and technology initiatives, temporary labor, as well as regulatory, legal and accounting fees, and may fluctuate as a result of changes in consulting and technology services, temporary labor, and regulatory, accounting and legal proceedings.
Professional services expenses decreased in 2019 from 2018 primarily due to lower consulting service fees on regulatory, accounting, technology and reference data services. This was partially offset by higher legal fees associated with regulatory matters, litigation matters and consulting work related to strategic initiatives.
Acquisition-Related Transaction and Integration Costs
In 2019, we incurred $2 million in acquisition-related transaction and integration costs, primarily related to professional services costs from our 2019 acquisition of Simplifile and other strategic opportunities.
In 2018, we incurred $34 million in acquisition-related transaction and integration costs, primarily relating to employee terminations and lease terminations in connection with our integrations of Interactive Data, Securities Evaluations and Credit Market Analysis, professional services costs from our 2018 acquisitions, and a $5 million banker success fee in connection with our acquisition of TMC Bonds. The integration of Interactive Data was completed by June 30, 2018.
We expect to continue to explore and pursue various potential acquisitions and other strategic opportunities to strengthen our competitive position and support our growth. As a result, we may incur acquisition-related transaction costs in future periods.
Technology and Communication Expenses
Technology support services consist of costs for running our wholly-owned data centers, hosting costs paid to third-party data centers, and maintenance of our computer hardware and software required to support our technology and cybersecurity. These costs are driven by system capacity, functionality and redundancy requirements. Communication expenses consist of costs for network connections for our electronic platforms and telecommunications costs.
Technology and communications expense also includes fees paid for access to external market data, licensing and other fee agreement expenses, which may be impacted by growth in electronic contract volume, our capacity requirements, changes in the number of telecommunications hubs and connections with customers to access our electronic platforms directly. Beginning in the second quarter of 2019, we have reflected amounts owed under certain third-party revenue share arrangements as technology and communication operating expenses rather than as had been previously recorded net within transaction and clearing revenues, which resulted in an increase in technology and communications expense of $37 million in 2019 from 2018.
Total technology and communications expenses also increased in 2019 from 2018, due to $16 million in costs related to our acquisitions of CHX, TMC Bonds and MERS in 2018 and Simplifile in 2019, and our launch of Bakkt. The increase in 2019 was offset by additional costs related to data migrations, hardware support upgrades and cybersecurity investments of $17 million in 2018.
Rent and Occupancy Expenses
Rent and occupancy expense relates to leased and owned property and includes rent, maintenance, real estate taxes, utilities and other related costs. We have significant operations located in and around Atlanta, New York and London with smaller offices located throughout the world. See Item 2 “- Properties” above for additional information regarding our leased and owned property.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include marketing, advertising, public relations, insurance, bank service charges, dues and subscriptions, travel and entertainment, non-income taxes and other general and administrative costs. Selling, general and administrative expenses increased in 2019 from 2018, primarily due to $5 million in costs related to our 2018 acquisitions of CHX, TMC Bonds, and MERS, our 2019 acquisition of Simplifile and our launch of Bakkt, and increased travel and entertainment and other general and administrative costs, partially offset by the release of non-income tax reserves.
Depreciation and Amortization Expenses
Depreciation and amortization expense results from depreciation of long-lived assets such as buildings, leasehold improvements, aircraft, hardware and networking equipment, software, furniture, fixtures and equipment over their estimated useful lives. This expense includes amortization of intangible assets obtained in our acquisitions of businesses, as well as on various licensing agreements, over their estimated useful lives. Intangible assets subject to amortization consist primarily of customer relationships, trading products with finite lives and technology. This expense also includes amortization of internally-developed and purchased software over its estimated useful life.
We recorded amortization expenses on intangible assets acquired as part of our acquisitions, as well as on other intangible assets, of $311 million and $289 million in 2019 and 2018, respectively. Amortization expense increased in 2019 from 2018, as a result of CHX, TMC Bonds and MERS intangible assets, and the $31 million impairment loss on exchange registration intangible assets on ICE Futures Singapore, partially offset by the 2018 $4 million impairment loss on exchange registration intangible assets related to our closure of ICE Futures Canada and ICE Clear Canada.
We recorded depreciation expenses on our fixed assets of $320 million and $293 million in 2019 and 2018, respectively. The increase in 2019 over 2018 was primarily due to depreciation resulting from increased software development and networking equipment.
Consolidated Non-Operating Income (Expense)
Income and expenses incurred through activities outside of our core operations are considered non-operating. The following tables present our non-operating income (expenses) (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
Year Ended
December 31,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
35
|
|
|
$
|
22
|
|
|
55
|
%
|
|
$
|
22
|
|
|
$
|
8
|
|
|
174
|
%
|
Interest expense
|
(285
|
)
|
|
(244
|
)
|
|
17
|
|
|
(244
|
)
|
|
(187
|
)
|
|
31
|
|
Other income, net
|
58
|
|
|
159
|
|
|
(63
|
)
|
|
159
|
|
|
326
|
|
|
(51
|
)
|
Total other income (expense), net
|
$
|
(192
|
)
|
|
$
|
(63
|
)
|
|
203
|
%
|
|
$
|
(63
|
)
|
|
$
|
147
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interest
|
$
|
(27
|
)
|
|
$
|
(32
|
)
|
|
(17
|
)%
|
|
$
|
(32
|
)
|
|
$
|
(28
|
)
|
|
12
|
%
|
Interest Income
Interest income increased in 2019 from 2018 primarily due to a rise in short-term interest rates on various investments, as well as higher cash and restricted cash balances at ICE Clear Europe related to our guaranty fund contributions and increased regulatory capital.
Interest Expense
Interest expense increased in 2019 from 2018 primarily due to an increase in the principal and coupon of our bond refinancing in August 2018, as well as a rise in short-term interest rates impacting our Commercial Paper Program. See “- Debt” below.
Other income, net
In connection with our equity investment in Euroclear, we recognized dividend income of $19 million and $15 million in 2019 and 2018, respectively, which is included in other income.
In September 2019, we recorded promissory note impairment charges of $16 million on work performed by the original plan processor on the CAT. Due to delays and failures in implementation and functionality by the original plan processor, as well as recently-published proposals by the SEC for an amended timeline and implementation structure, we believe the risk that execution venues are not reimbursed has increased, resulting in this impairment.
Our equity method investments include the Options Clearing Corporation, or OCC, and prior to purchasing the remaining minority stake in MERS in October 2018, our majority investment in MERS. We recognized $62 million and $46 million in equity income as other income related to these investments during 2019 and 2018, respectively.
Prior to October 2018, we owned a majority stake in MERS and treated it as an equity method investment because we did not have the ability to control its operations. On October 3, 2018, we completed the purchase of all remaining interests of MERS and recognized a $110 million gain on our initial investment value as other income.
We own a 40% interest in the OCC, which is regulated by the SEC and the CFTC. On February 13, 2019, the SEC disapproved the OCC capital plan that was established in 2015. Following the SEC disapproval, the OCC also announced that it will not be providing a refund to clearing members or declaring a dividend to shareholders for the year ended December 31, 2018, which resulted in higher reported OCC 2018 net income than we had estimated. During 2019, we recognized $62 million of equity earnings as our share of estimated OCC profits, including $19 million related to 2018 earnings which was recognized during 2019. Refer to Note 4 to our consolidated financial statements, included in this Annual Report for additional details on our OCC investment.
In connection with our adoption of Accounting Standards Update, or ASU, 2017-07, Compensation Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU 2017-07, we are recognizing the other components of net benefit cost of our defined benefit plans in the income statement as non-operating income on a full retrospective basis. The combined net periodic expense of these plans was $4 million and $8 million in 2019 and 2018, respectively.
We incurred foreign currency transaction losses of $5 million and $2 million in 2019 and 2018, respectively. This was primarily attributable to the fluctuations of the pound sterling and euro relative to the U.S. dollar. Foreign currency transaction gains
and losses are recorded in other income, net, when the settlement of foreign currency assets, liabilities and payables that occur in non-functional currencies due to the increase or decrease in the period-end foreign currency exchange rates between periods. See Item 7A “- Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Exchange Rate Risk” included elsewhere in this Annual Report for more information on these items.
Non-controlling Interest
For consolidated subsidiaries in which our ownership is less than 100%, and for which we have control over the assets, liabilities and management of the entity, the outside stockholders’ interests are shown as non-controlling interests. As of December 31, 2019, our non-controlling interests include those related to the non-ICE limited partners in our CDS clearing subsidiaries and the redeemable non-controlling interests of the non-ICE partners in Bakkt.
During September 2018, we purchased a 3.2% interest in a non-ICE limited partner of our CDS clearing subsidiaries, and the remaining non-ICE limited partners hold a 26.7% ownership interest as of December 31, 2019. Refer to Note 3 to our consolidated financial statements contained elsewhere in this Annual Report.
In December 2018, Bakkt Holdings, LLC, or Bakkt, was capitalized with $183 million in initial funding with ICE as the majority owner, along with a group of other minority investors. We hold a call option over these interests subject to certain terms. Similarly, the non-ICE partners in Bakkt hold a put option to require us to repurchase their interests subject to certain terms. These minority interests are reflected as redeemable non-controlling interests in temporary equity within our consolidated balance sheet.
Consolidated Income Tax Provision
Consolidated income tax expense was $521 million and $500 million in 2019 and 2018, respectively. The change in consolidated income tax expense between years is primarily due to the tax impact of changes in our pre-tax income and the changes in our effective tax rate. Our effective tax rate was 21% and 20% in 2019 and 2018, respectively.
The 2019 effective tax rate is higher than the 2018 effective tax rate primarily due to the 2018 discrete tax benefits from the acquisition of MERS and the divestiture of Trayport exceeding the net increased tax benefits recorded in 2019 from certain international tax provisions under the TCJA.
On December 22, 2017, the TCJA was signed into law. The TCJA enacted broad changes to the U.S. federal income tax code, including reducing the federal corporation income tax rate from 35% to 21%. The reductions in U.S. corporate income tax rates resulted in deferred tax benefits in the period of enactment. The impact of the deferred tax benefits lowered the 2017 effective tax rate by 30% and resulted in a deferred tax benefit of $764 million.
See Note 13 to our consolidated financial statements and related notes, which are included in this Annual Report, for additional information on these tax items.
Quarterly Results of Operations
The following quarterly unaudited condensed consolidated statements of income data has been prepared on substantially the same basis as our audited consolidated financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our consolidated results of operations for the quarters presented. The historical results for any quarter do not necessarily indicate the results expected for any future period. This unaudited condensed consolidated quarterly data should be read together with our consolidated financial statements and related notes included in this Annual Report. The following table sets forth quarterly consolidated statements of income data (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
December 31,
2019
|
|
September 30, 2019
|
|
June 30, 2019
|
|
March 31, 2019
|
|
December 31,
2018
|
|
September 30, 2018
|
|
June 30, 2018
|
|
March 31, 2018
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy futures and options contracts
|
$
|
243
|
|
|
$
|
265
|
|
|
$
|
255
|
|
|
$
|
229
|
|
|
$
|
257
|
|
|
$
|
223
|
|
|
$
|
250
|
|
|
$
|
235
|
|
Agricultural and metals futures and options contracts
|
57
|
|
|
60
|
|
|
72
|
|
|
62
|
|
|
54
|
|
|
58
|
|
|
74
|
|
|
65
|
|
Financial futures and options contracts
|
80
|
|
|
91
|
|
|
78
|
|
|
83
|
|
|
92
|
|
|
77
|
|
|
94
|
|
|
91
|
|
Cash equities and equity options
|
442
|
|
|
401
|
|
|
410
|
|
|
390
|
|
|
462
|
|
|
335
|
|
|
389
|
|
|
438
|
|
Fixed income and credit
|
96
|
|
|
101
|
|
|
80
|
|
|
87
|
|
|
83
|
|
|
56
|
|
|
45
|
|
|
56
|
|
OTC and other transactions
|
11
|
|
|
11
|
|
|
12
|
|
|
11
|
|
|
13
|
|
|
11
|
|
|
12
|
|
|
13
|
|
Total transaction and clearing, net
|
929
|
|
|
929
|
|
|
907
|
|
|
862
|
|
|
961
|
|
|
760
|
|
|
864
|
|
|
898
|
|
Pricing and analytics
|
274
|
|
|
273
|
|
|
270
|
|
|
266
|
|
|
264
|
|
|
263
|
|
|
262
|
|
|
254
|
|
Exchange data and feeds
|
176
|
|
|
172
|
|
|
180
|
|
|
176
|
|
|
174
|
|
|
168
|
|
|
164
|
|
|
164
|
|
Desktops and connectivity
|
109
|
|
|
108
|
|
|
103
|
|
|
104
|
|
|
101
|
|
|
99
|
|
|
100
|
|
|
102
|
|
Total data services
|
559
|
|
|
553
|
|
|
553
|
|
|
546
|
|
|
539
|
|
|
530
|
|
|
526
|
|
|
520
|
|
Listings
|
113
|
|
|
114
|
|
|
111
|
|
|
111
|
|
|
112
|
|
|
112
|
|
|
111
|
|
|
109
|
|
Other revenues
|
66
|
|
|
67
|
|
|
63
|
|
|
64
|
|
|
65
|
|
|
61
|
|
|
55
|
|
|
53
|
|
Total revenues
|
1,667
|
|
|
1,663
|
|
|
1,634
|
|
|
1,583
|
|
|
1,677
|
|
|
1,463
|
|
|
1,556
|
|
|
1,580
|
|
Transaction-based expenses
|
369
|
|
|
327
|
|
|
336
|
|
|
313
|
|
|
369
|
|
|
263
|
|
|
310
|
|
|
355
|
|
Total revenues, less transaction-based expenses
|
1,298
|
|
|
1,336
|
|
|
1,298
|
|
|
1,270
|
|
|
1,308
|
|
|
1,200
|
|
|
1,246
|
|
|
1,225
|
|
Compensation and benefits
|
274
|
|
|
261
|
|
|
259
|
|
|
248
|
|
|
262
|
|
|
251
|
|
|
241
|
|
|
240
|
|
Professional services
|
28
|
|
|
35
|
|
|
29
|
|
|
33
|
|
|
40
|
|
|
32
|
|
|
29
|
|
|
30
|
|
Acquisition-related transaction and integration costs
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
6
|
|
|
15
|
|
|
12
|
|
Technology and communication
|
123
|
|
|
126
|
|
|
113
|
|
|
107
|
|
|
112
|
|
|
107
|
|
|
108
|
|
|
105
|
|
Rent and occupancy
|
16
|
|
|
17
|
|
|
18
|
|
|
17
|
|
|
18
|
|
|
17
|
|
|
16
|
|
|
17
|
|
Selling, general and administrative
|
45
|
|
|
33
|
|
|
41
|
|
|
42
|
|
|
42
|
|
|
37
|
|
|
39
|
|
|
33
|
|
Depreciation and amortization
|
189
|
|
|
158
|
|
|
157
|
|
|
158
|
|
|
157
|
|
|
148
|
|
|
143
|
|
|
138
|
|
Total operating expenses
|
676
|
|
|
630
|
|
|
618
|
|
|
605
|
|
|
632
|
|
|
598
|
|
|
591
|
|
|
575
|
|
Operating income
|
622
|
|
|
706
|
|
|
680
|
|
|
665
|
|
|
676
|
|
|
602
|
|
|
655
|
|
|
650
|
|
Other income (expense), net (1)
|
(35
|
)
|
|
(66
|
)
|
|
(52
|
)
|
|
(39
|
)
|
|
62
|
|
|
(48
|
)
|
|
(44
|
)
|
|
(33
|
)
|
Income tax expense
|
134
|
|
|
103
|
|
|
150
|
|
|
134
|
|
|
119
|
|
|
89
|
|
|
149
|
|
|
143
|
|
Net income
|
$
|
453
|
|
|
$
|
537
|
|
|
$
|
478
|
|
|
$
|
492
|
|
|
$
|
619
|
|
|
$
|
465
|
|
|
$
|
462
|
|
|
$
|
474
|
|
Net income attributable to non-controlling interest
|
(5
|
)
|
|
(8
|
)
|
|
(6
|
)
|
|
(8
|
)
|
|
(8
|
)
|
|
(7
|
)
|
|
(7
|
)
|
|
(10
|
)
|
Net income attributable to Intercontinental Exchange, Inc.
|
$
|
448
|
|
|
$
|
529
|
|
|
$
|
472
|
|
|
$
|
484
|
|
|
$
|
611
|
|
|
$
|
458
|
|
|
$
|
455
|
|
|
$
|
464
|
|
(1) Other income (expense), net for the three months ended December 31, 2018 includes a $110 million gain in connection with our acquisition of MERS.
Liquidity and Capital Resources
Below are charts that reflect our capital allocation. The acquisition and integration costs in the chart below includes cash paid for acquisitions, net of cash received for divestitures, cash paid for equity investments, cash paid for non-controlling interest and redeemable non-controlling interest, and acquisition-related transaction and integration costs, in each year.
We have financed our operations, growth and cash needs primarily through income from operations and borrowings under our various debt facilities. Our principal capital requirements have been to fund capital expenditures, working capital, strategic acquisitions and investments, stock repurchases, dividends and the development of our technology platforms. We believe that our cash on hand and cash flows from operations will be sufficient to repay our outstanding debt, but we may also need to incur additional debt or issue additional equity securities in the future. See “- Future Capital Requirements” below.
See “- Recent Developments” above for a discussion of the acquisitions that we made during 2019. These acquisitions were funded from borrowing under our Commercial Paper Program along with cash flows from operations.
Our Commercial Paper Program enables us to borrow efficiently at reasonable short-term interest rates and provides us with the flexibility to de-lever using our strong annual cash flows from operating activities whenever our leverage becomes elevated as a result of investment or acquisition activities. We had net issuances of $360 million under our Commercial Paper Program during 2019.
Upon maturity of our commercial paper and to the extent old issuances are not repaid by cash on hand, we are exposed to the rollover risk of not being able to issue new commercial paper. To mitigate this risk, we maintain an undrawn back-stop bank revolving credit facility for an aggregate amount which meets or exceeds the amount issued under our Commercial Paper Program at any time. If we were not able to issue new commercial paper, we have the option of drawing on the back-stop revolving facility. However, electing to do so would result in higher interest expense. For a discussion of our Commercial Paper Program and other indebtedness, see “- Debt” below.
Consolidated cash and cash equivalents were $841 million and $724 million as of December 31, 2019 and 2018, respectively. We had $1.3 billion and $1.1 billion in short-term and long-term restricted cash and cash equivalents as of December 31, 2019 and 2018, respectively.
As of December 31, 2019, the amount of unrestricted cash held by our non-U.S. subsidiaries was $459 million. Due to U.S. tax reform, the majority of our foreign earnings since January 1, 2018 have been subject to immediate U.S. income taxation, and consequently, the existing non-U.S. unrestricted cash balance can be distributed to the U.S. in the future with no material additional income tax consequences.
Our cash and cash equivalents and financial investments are managed as a global treasury portfolio of non-speculative financial instruments that are readily convertible into cash, such as overnight deposits, term deposits, money market funds, mutual funds for treasury investments, short duration fixed income investments and other money market instruments, thus ensuring high liquidity of financial assets. We may invest a portion of our cash in excess of short-term operating needs in investment-grade marketable debt securities, including government or government-sponsored agencies and corporate debt securities.
Repurchases of our common stock may be made from time to time on the open market, through established trading plans, in privately-negotiated transactions or otherwise, in accordance with all applicable securities laws, rules and regulations. In 2019 and 2018, we repurchased 17.4 million shares and 16.3 million shares, respectively, of our outstanding common stock at a cost of $1.5 billion and $1.2 billion, respectively. In 2019, we repurchased 16.1 million shares of our outstanding common stock at a cost of $1.4 billion under our Rule 10b5-1 trading plan and 1.3 million shares at a cost of $100 million on the open market. Shares repurchased are held in treasury stock.
From time to time, we enter into Rule 10b5-1 trading plans, as authorized by our Board of Directors, to govern some or all of the repurchases of our shares of common stock. The timing and extent of future repurchases that are not made pursuant to a Rule 10b5-1 trading plan will be at our discretion and will depend upon many conditions. In making a determination regarding any stock repurchases, management considers multiple factors, including overall stock market conditions, our common stock price performance, 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.
In September 2018, our Board of Directors approved an aggregate of $2.0 billion for future repurchases of our common stock with no fixed expiration date that became effective January 1, 2019. In December 2019, our Board of Directors approved an aggregate of $2.4 billion for future repurchases of our common stock with no fixed expiration date that became effective January 1, 2020. The $2.4 billion replaced the previous amount approved by the Board of Directors. We expect this authorization to provide us with capacity for buybacks over six quarters and flexibility to act opportunistically. We expect funding for any share repurchases to come from our operating cash flow or borrowings under our Commercial Paper Program or our debt facilities.
We may discontinue stock repurchases at any time and may amend or terminate a Rule 10b5-1 trading plan at any time. The approval of our Board of Directors for the share repurchases does not obligate us to acquire any particular amount of our common stock. In addition, our Board of Directors may increase or decrease the amount of capacity we have for repurchases from time to time.
Cash Flow
The following table presents the major components of net changes in cash, cash equivalents, and restricted cash and cash equivalents (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2019
|
|
2018
|
|
2017
|
Net cash provided by (used in):
|
|
|
|
|
|
Operating activities
|
$
|
2,659
|
|
|
$
|
2,533
|
|
|
$
|
2,085
|
|
Investing activities
|
(594
|
)
|
|
(1,755
|
)
|
|
92
|
|
Financing activities
|
(1,753
|
)
|
|
(463
|
)
|
|
(1,971
|
)
|
Effect of exchange rate changes
|
4
|
|
|
(11
|
)
|
|
12
|
|
Net increase in cash, cash equivalents, and restricted cash and cash equivalents
|
$
|
316
|
|
|
$
|
304
|
|
|
$
|
218
|
|
Operating Activities
Net cash provided by operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation and amortization and the effects of changes in working capital.
The $126 million increase in net cash provided by operating activities in 2019 from 2018, is primarily a result of an increase in net income, excluding certain non-cash adjustments such as the 2018 non-cash gain on MERS and the $31 million impairment loss on the ICE Futures Singapore exchange registration intangible asset in 2019. The remaining increase is due to fluctuations in our working capital and the timing of various payments such as transaction-related expenses and taxes.
Investing Activities
Consolidated net cash provided by (used in) investing activities in 2019 and 2018 relates to cash paid for acquisitions, purchases of investments, proceeds from term deposits, a return of capital related to our investment in OCC, proceeds from investments related to MERS and changes in capital expenditures and capitalized software development costs.
We paid cash for acquisitions, net of the cash of the companies acquired, of $352 million and $1.2 billion in 2019 and 2018, respectively, primarily relating to the Simplifile acquisition during 2019 and the BondPoint, TMC Bonds and MERS acquisitions during 2018. We made cash investments of $306 million during 2018 related to Euroclear and MERS.
In 2019, we had a $60 million return of capital related to our equity method investment in the OCC. Refer to Note 4 to our consolidated financial statements, included in this Annual Report for additional details on our OCC investment.
We had capital expenditures of $153 million and $134 million in 2019 and 2018, respectively, and we had capitalized software development expenditures of $152 million and $146 million in 2019 and 2018, respectively. The capital expenditures primarily relate to hardware and software purchases to continue the development and expansion of our electronic platforms, data services and clearing houses and leasehold improvements associated with the new and renovated office spaces in Atlanta, New York, London and India. The software development expenditures primarily relate to the continued development and expansion of our electronic trading platforms, data services and clearing houses.
Financing Activities
Consolidated net cash used in financing activities in 2019 primarily relates to $1.5 billion in repurchases of common stock, $360 million in net borrowings under our Commercial Paper Program, $621 million in dividend payments to stockholders and $65 million in cash payments related to treasury shares received for restricted stock tax payments and stock options exercises.
Consolidated net cash used in financing activities in 2018 primarily relates to $1.2 billion in repurchases of common stock, $600 million in repayments of our October 2018 Senior Notes, $555 million in dividend payments to our stockholders, $283 million in net repayments under our Commercial Paper Program, and $80 million in cash payments related to treasury shares received for restricted stock tax payments and stock options exercises, partially offset by $2.2 billion in net proceeds from our Senior Notes issued in 2018 (the September 2023, 2028 and 2048 Senior Notes). See Note 10 to our consolidated financial statements, included in this Annual Report.
Debt
As of December 31, 2019, we had $7.8 billion in outstanding debt, consisting of $6.5 billion of senior notes and $1.3 billion under the U.S. dollar commercial paper program, or the Commercial Paper Program. The commercial paper notes had
original maturities ranging from two to 87 days as of December 31, 2019, with a weighted average interest rate of 1.84% per annum, and a weighted average remaining maturity of 22 days. Commercial paper notes of $951 million with original maturities ranging from two to 77 days were outstanding as of December 31, 2018, with a weighted average interest rate of 2.48% per annum, and a weighted average remaining maturity of 12 days.
We currently have a $3.4 billion senior unsecured revolving credit facility, or the Credit Facility, pursuant to a credit agreement with Wells Fargo Bank, N.A., as primary administrative agent, issuing lender and swing-line lender, Bank of America, N.A., as syndication agent, backup administrative agent and swing-line lender, and the lenders party thereto. As of December 31, 2019, of the $3.4 billion that is currently available for borrowing under the Credit Facility, $1.3 billion is required to back-stop the amount outstanding under our Commercial Paper Program and $160 million is required to support certain broker dealer subsidiary commitments. The amount required to backstop the amounts outstanding under the Commercial Paper Program will fluctuate as we increase or decrease our commercial paper borrowings. The remaining $1.9 billion is available for working capital and general corporate purposes, including, but not limited to, acting as a back-stop to future increases in the amounts outstanding under the Commercial Paper Program.
For additional details of our debt instruments, refer to Note 10 to our consolidated financial statements, included in this Annual Report.
Future Capital Requirements
Our future capital requirements will depend on many factors, including the rate of growth across our Trading and Clearing and Data and Listings segments, strategic plans and acquisitions, available sources for financing activities, required and discretionary technology and clearing initiatives, regulatory requirements, the timing and introduction of new products and enhancements to existing products, the geographic mix of our business and potential stock repurchases.
We currently expect to incur capital expenditures (including operational and real estate capital expenditures) and to incur software development costs that are eligible for capitalization ranging in the aggregate between $290 million and $320 million in 2020, which we believe will support the enhancement of our technology, business integration and the continued growth of our businesses.
In December 2019, our Board of Directors approved an aggregate of $2.4 billion for future repurchases of our common stock with no fixed expiration date that became effective on January 1, 2020. We expect this authorization to provide us with capacity for buybacks over six quarters and flexibility to act opportunistically. Refer to Note 12 to our consolidated financial statements, included in this Annual Report, for additional details on our stock repurchase plans.
Our Board of Directors has adopted a quarterly dividend policy providing that dividends will be approved quarterly by the board or its Audit Committee taking into account factors such as our evolving business model, prevailing business conditions, our current and future planned strategic growth initiatives and our financial results and capital requirements, without a predetermined net income payout ratio. During 2019, we paid cash dividends of $1.10 per share of our common stock in the aggregate, including quarterly dividends of $0.275 per share, for an aggregate payout of $621 million, which includes the payment of dividend equivalents on unvested employee restricted stock units. Refer to Note 12 to our consolidated financial statements included in this Annual Report, for details on the amounts of our quarterly dividend payouts for the last three years. For the first quarter of 2020, we announced a $0.30 per share dividend payable on March 31, 2020 to stockholders of record as of March 17, 2020.
Other than the facilities for the ICE Clearing Houses, our Credit Facility and our Commercial Paper Program are currently the only significant agreements or arrangements that we have for liquidity and capital resources with third parties. See Notes 10 and 14 to our consolidated financial statements where discussed further. In the event of any strategic acquisitions, mergers or investments, or if we are required to raise capital for any reason or desire to return capital to our stockholders, we may incur additional debt, issue additional equity to raise necessary funds, repurchase additional shares of our common stock or pay a dividend. However, we cannot provide assurance that such financing or transactions will be available or successful, or that the terms of such financing or transactions will be favorable to us. See “-Risk Factors" and Note 10 to our consolidated financial statements, included in this Annual Report.
Non-GAAP Measures
We use certain financial measures internally to evaluate our performance and make financial and operational decisions that are presented in a manner that adjusts from their equivalent GAAP measures or that supplement the information provided by our GAAP measures. We use these adjusted results because we believe they more clearly highlight trends in our business
that may not otherwise be apparent when relying solely on GAAP financial measures, since these measures eliminate from our results specific financial items that have less bearing on our core operating performance.
We use these measures in communicating certain aspects of our results and performance, including in this Annual Report, and believe that these measures, when viewed in conjunction with our GAAP results and the accompanying reconciliation, can provide investors with greater transparency and a greater understanding of factors affecting our financial condition and results of operations than GAAP measures alone. In addition, we believe the presentation of these measures is useful to investors for making period-to-period comparisons of results because the adjustments to GAAP are not reflective of our core business performance.
These financial measures are not presented in accordance with, or as an alternative to, GAAP financial measures and may be different from non-GAAP measures used by other companies. We encourage investors to review the GAAP financial measures included in this Annual Report, including our consolidated financial statements, to aid in their analysis and understanding of our performance and in making comparisons.
The table below outlines our adjusted operating expenses, adjusted operating income, adjusted operating margin, adjusted net income attributable to ICE common stockholders and adjusted earnings per share, which are non-GAAP measures that are calculated by making adjustments for items we view as not reflective of our cash operations and core business performance. These measures, including the adjustments and their related income tax effect and other tax adjustments (in millions, except for percentages and per share amounts), are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading and Clearing Segment
|
|
Data and Listings Segment
|
|
Consolidated
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Total revenues, less transaction-based expenses
|
$
|
2,542
|
|
|
$
|
2,420
|
|
|
$
|
2,128
|
|
|
$
|
2,660
|
|
|
$
|
2,559
|
|
|
$
|
2,510
|
|
|
$
|
5,202
|
|
|
$
|
4,979
|
|
|
$
|
4,638
|
|
Operating expenses
|
1,033
|
|
|
911
|
|
|
781
|
|
|
1,496
|
|
|
1,485
|
|
|
1,478
|
|
|
2,529
|
|
|
2,396
|
|
|
2,259
|
|
Less: Interactive Data transaction and integration costs and acquisition-related success fees
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|
31
|
|
|
—
|
|
|
30
|
|
|
31
|
|
Less: Amortization of acquisition-related intangibles
|
94
|
|
|
73
|
|
|
53
|
|
|
215
|
|
|
214
|
|
|
208
|
|
|
309
|
|
|
287
|
|
|
261
|
|
Less: Impairment of exchange registration intangible assets on ICE Futures Singapore
|
31
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
—
|
|
Less: Accruals relating to investigations and inquiries
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Less: Impairment on divestiture of NYSE Governance Services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Less: Impairment of exchange registration intangible assets on closure of ICE Futures Canada and ICE Clear Canada
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Less: Employee severance costs related to ICE Futures Canada and ICE Clear Canada operations
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Adjusted operating expenses
|
$
|
908
|
|
|
$
|
824
|
|
|
$
|
714
|
|
|
$
|
1,281
|
|
|
$
|
1,247
|
|
|
$
|
1,233
|
|
|
$
|
2,189
|
|
|
$
|
2,071
|
|
|
$
|
1,947
|
|
Operating income
|
$
|
1,509
|
|
|
$
|
1,509
|
|
|
$
|
1,347
|
|
|
$
|
1,164
|
|
|
$
|
1,074
|
|
|
$
|
1,032
|
|
|
$
|
2,673
|
|
|
$
|
2,583
|
|
|
$
|
2,379
|
|
Adjusted operating income
|
$
|
1,634
|
|
|
$
|
1,596
|
|
|
$
|
1,414
|
|
|
$
|
1,379
|
|
|
$
|
1,312
|
|
|
$
|
1,277
|
|
|
$
|
3,013
|
|
|
$
|
2,908
|
|
|
$
|
2,691
|
|
Operating margin
|
59
|
%
|
|
62
|
%
|
|
63
|
%
|
|
44
|
%
|
|
42
|
%
|
|
41
|
%
|
|
51
|
%
|
|
52
|
%
|
|
51
|
%
|
Adjusted operating margin
|
64
|
%
|
|
66
|
%
|
|
66
|
%
|
|
52
|
%
|
|
51
|
%
|
|
51
|
%
|
|
58
|
%
|
|
58
|
%
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ICE common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,933
|
|
|
$
|
1,988
|
|
|
$
|
2,526
|
|
Add: Interactive Data transaction and integration costs and acquisition-related success fees
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
30
|
|
|
31
|
|
Add: Amortization of acquisition-related intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
309
|
|
|
287
|
|
|
261
|
|
Add: Impairment of CAT promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
—
|
|
|
—
|
|
Add: Impairment of exchange registration intangible assets on ICE Futures Singapore
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
—
|
|
|
—
|
|
Less: Gain on acquisition of MERS
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(110
|
)
|
|
—
|
|
Add: Accruals relating to investigations and inquiries
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Add: Impairment on divestiture of NYSE Governance Services
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Add: Impairment of exchange registration intangible assets on closure of ICE Futures Canada and ICE Clear Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Add: Employee severance costs related to ICE Futures Canada and ICE Clear Canada operations
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Add/(Less): Gain on divestiture of Trayport, net
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
1
|
|
|
(110
|
)
|
Less: Cetip investment gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(167
|
)
|
Less: Income tax effect for the above items
|
|
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
(98
|
)
|
|
(43
|
)
|
Less: Deferred tax adjustments from U.S. tax rate reduction
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(11
|
)
|
|
(764
|
)
|
Add/(Less): Deferred tax adjustments on acquisition-related intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
(5
|
)
|
|
10
|
|
Add/(Less): Other tax adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
(13
|
)
|
|
—
|
|
Adjusted net income attributable to ICE common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,194
|
|
|
$
|
2,077
|
|
|
$
|
1,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to ICE common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.44
|
|
|
$
|
3.46
|
|
|
$
|
4.29
|
|
Diluted earnings per share attributable to ICE common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.42
|
|
|
$
|
3.43
|
|
|
$
|
4.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted basic earnings per share attributable to ICE common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.91
|
|
|
$
|
3.61
|
|
|
$
|
2.99
|
|
Adjusted diluted earnings per share attributable to ICE common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.88
|
|
|
$
|
3.59
|
|
|
$
|
2.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
561
|
|
|
575
|
|
|
589
|
|
Diluted weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
565
|
|
|
579
|
|
|
594
|
|
Acquisition-related transaction costs are included as part of our core business expenses, except for those that are directly related to the announcement, closing, financing or termination of a transaction. However, we adjust for the acquisition-related transaction and integration costs relating to Interactive Data given the magnitude of the $5.6 billion purchase price of this acquisition. The integration of Interactive Data was completed by June 2018. Amortization of acquisition-related intangibles are included in non-GAAP adjustments as excluding these non-cash expenses provides greater clarity regarding our financial strength and stability of cash operating results.
We include the 2019 impairment of exchange registration intangible assets on ICE Futures Singapore as a non-GAAP adjustment. This impairment is not based on our core business operations, but rather was a result of the estimated fair value of an acquired intangible asset falling below its carrying value. See Note 8 to our consolidated financial statements, included in this Annual Report.
We include the 2019 promissory note impairment charges on work performed by the original plan processor on the CAT as a non-GAAP adjustment. This is included as a non-GAAP adjustment as this is not considered a part of our core business operations. See additional discussion on the CAT, above, in Item 1(A) "-Risk Factors" in this Annual Report.
In addition, we also include the following items as non-GAAP adjustments, as each of these are not considered a part of our core business operations:
|
|
•
|
2018: the gain recognized on our initial majority investment in MERS in connection with our acquisition of 100% of the remaining MERS interests;
|
|
|
•
|
2018: the impairment loss on exchange registration intangible assets and employee severance costs related to the closure of ICE Futures Canada and ICE Clear Canada;
|
|
|
•
|
2017: the net gain on the divestiture of Trayport, and in 2018, a subsequent adjustment to reduce of the gain on the divestiture;
|
|
|
•
|
2017: the realized investment gain and the foreign exchange loss and transaction expenses on the sale of our investment in Cetip;
|
|
|
•
|
2017: accruals relating to investigations and inquiries; and
|
|
|
•
|
2017: the NYSE Governance Services net impairment loss on its divestiture.
|
The tax items in non-GAAP adjustments are either the tax impacts of the pre-tax non-GAAP adjustments or tax items as described below that are not in the normal course of business and are not indicative of our core business performance. The following tax-related items are included as non-GAAP adjustments:
|
|
•
|
The income tax effects relating to all non-GAAP adjustments;
|
|
|
•
|
Deferred tax adjustments on acquisition-related intangibles, including the impact of U.S. state tax law changes and apportionment updates, as well as foreign tax law changes which resulted in deferred tax (benefit) expense of ($8 million), ($5 million) and $10 million in 2019, 2018 and 2017, respectively;
|
|
|
•
|
Deferred tax benefits of $11 million and $764 million in 2018 and 2017, respectively, resulting from changes in estimates as a result of the enactment of the TCJA which reduced the corporate income tax rate from 35% to 21%; and
|
|
|
•
|
Other tax adjustments of $3 million in 2019 for additional audit settlement payments primarily related to pre-acquisition tax matters in conjunction with our acquisition of NYSE in 2013; and other tax adjustments in 2018 including a $17 million tax benefit on the sale of Trayport, partially offset by an audit settlement for a pre-acquisition period in connection with our acquisition of NYSE in 2013.
|
For additional information on these items, refer to our consolidated financial statements included in this Annual Report and “- Recent Developments,” “- Consolidated Operating Expenses”, “- Consolidated Non-Operating Income (Expenses)” and “-Consolidated Income Tax Provision” above.
Off-Balance Sheet Arrangements
As described in Notes 3 and 14 to our consolidated financial statements, which are included elsewhere in this Annual Report, certain clearing house collateral and Bakkt custodial assets are reported off-balance sheet. We do not have any relationships with unconsolidated entities or financial partnerships, often referred to as structured finance or special purpose entities.
Contractual Obligations and Commercial Commitments
The following presents our contractual obligations (which we intend to fund from existing cash as well as cash flow from operations) and commercial commitments as of December 31, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Total
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
4-5 Years
|
|
After
5 Years
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
Short-term and long-term debt and interest
|
$
|
10,265
|
|
|
$
|
2,794
|
|
|
$
|
891
|
|
|
$
|
1,522
|
|
|
$
|
5,058
|
|
Operating lease obligations
|
376
|
|
|
62
|
|
|
128
|
|
|
86
|
|
|
100
|
|
Purchase obligations
|
263
|
|
|
187
|
|
|
71
|
|
|
5
|
|
|
—
|
|
Total contractual cash obligations
|
$
|
10,904
|
|
|
$
|
3,043
|
|
|
$
|
1,090
|
|
|
$
|
1,613
|
|
|
$
|
5,158
|
|
Purchase obligations include our estimate of the minimum outstanding obligations under agreements to purchase goods or services that we believe are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancellable at any time without penalty.
We have excluded from the contractual obligations and commercial commitments listed above $65.0 billion in cash margin deposits, guaranty funds and delivery contracts payable. Clearing members of our clearing houses are required to deposit original margin and variation margin and to make deposits to a guaranty fund. The cash deposits made to these margin accounts and to the guaranty fund are recorded in the consolidated balance sheet as current assets with corresponding current liabilities to the clearing members that deposited them. ICE NGX administers the physical delivery of energy trading contracts. It has an equal and offsetting claim to and from its respective participants on opposite sides of the physically-settled contract, each of which is reflected as a delivery contract receivable with an offsetting delivery contract payable. See Note 14 to our consolidated financial statements included in this Annual Report for additional information on our clearing houses and the margin deposits, guaranty funds and delivery contracts payable.
We have also excluded unrecognized tax benefits, or UTBs. As of December 31, 2019, our cumulative UTBs were $103 million, and interest and penalties related to UTBs were $33 million. We are under examination by various tax authorities. We are unable to make a reasonable estimate of the periods of cash settlement because it is not possible to reasonably predict the amount of tax, interest and penalties, if any, that might be assessed by a tax authority or the timing of an assessment or payment. It is also not possible to reasonably predict whether or not the applicable statutes of limitations might expire without us being examined by any particular tax authority. See Note 13 to our consolidated financial statements for additional information on our UTBs.
As of December 31, 2019, we, through NYSE, have net obligations of $150 million related to our pension and other benefit programs. The date of payment under these net obligations cannot be determined and have been excluded from the table above. See Note 16 to our consolidated financial statements for additional information on our pension and other benefit programs.
In addition, the future funding of the implementation and operation of the CAT is ultimately expected to be provided by both the SROs and broker-dealers. To date, however, funding has been provided solely by the SROs, and future funding is expected to be repaid if industry member fees are approved by the SEC and subsequently collected by industry members. See "- Non-GAAP Measures" above.
New and Recently Adopted Accounting Pronouncements
Refer to Note 2 to our consolidated financial statements included in this Annual Report for information on the new and recently adopted accounting pronouncements that are applicable to us.
Critical Accounting Policies
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact of, and any associated risks related to, these policies on our business operations is discussed throughout “- Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For a detailed discussion on the application of these and other accounting policies, see Note 2 to our consolidated financial statements included in this Annual Report.
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period.
We base our estimates and judgments on our historical experience and other factors that we believe to be reasonable under the circumstances when we make these estimates and judgments and re-evaluate them on a periodic basis. Based on these factors, we make estimates and judgments about, among other things, the carrying values of assets and liabilities that are not readily apparent from market prices or other independent sources and about the recognition and characterization of our revenues and expenses. The values and results based on these estimates and judgments could differ significantly under different assumptions or conditions and could change materially in the future.
We believe that the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements and could materially increase or decrease our reported results, assets and liabilities.
Goodwill and Other Identifiable Intangible Assets
Assets acquired and liabilities assumed in connection with our acquisitions are recorded at their estimated fair values. Goodwill represents the excess of the purchase price of an acquired company over the fair value of its identifiable net assets, including identified intangible assets. We recognize specifically identifiable intangibles, such as customer relationships, trademarks, technology, trading products, data, exchange registrations, trade names and licenses when a specific right or contract is acquired. Our determination of the fair value of the intangible assets and whether or not these assets may be impaired following their acquisition requires us to apply significant judgments and make significant estimates and assumptions regarding future cash flows. If we change our strategy or if market conditions shift, our judgments and estimates may change, which may result in adjustments to recorded asset balances. Intangible assets with finite useful lives are amortized over their estimated useful lives whereas goodwill and intangible assets with indefinite useful lives are not.
In performing the allocation of the acquisitions' purchase price to assets and liabilities, we consider, among other factors, the intended use of the acquired assets, analysis of past financial performance and estimates of future performance of the acquired business. At the acquisition date, a preliminary allocation of the purchase price is recorded based upon a preliminary valuation performed with the assistance of a third-party valuation specialist. We continue to review and assess our estimates, assumptions and valuation methodologies during the measurement period provided by GAAP, which ends as soon as we receive the information about facts and circumstances that existed as of the acquisition date or we learn that more information is not obtainable, which usually does not exceed one year from the date of acquisition. Accordingly, these estimates and assumptions are subject to change, which could have a material impact on our consolidated financial statements. Estimation uncertainty may exist due to the sensitivity of the respective fair value to underlying assumptions about the future performance of an acquired business in our discounted cash flow models. Significant assumptions typically include revenue growth rates and expense synergies that form the basis of the forecasted results and the discount rate.
Our goodwill and other indefinite-lived intangible assets are evaluated for impairment annually in our fiscal fourth quarter or more frequently if conditions exist that indicate that the value may be impaired. We test our goodwill for impairment at the reporting unit level, and we have identified four reporting units: our Futures reporting unit, our Data and Listings reporting unit, our Cash Equities reporting unit, and our Fixed Income and Credit reporting unit. These impairment evaluations are performed by comparing the carrying value of the goodwill or other indefinite-lived intangibles to its estimated fair value.
Goodwill impairment testing consists of a two-step methodology. The initial step requires us to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill and other intangible assets, of such reporting unit. If the fair value exceeds the carrying value, no impairment loss is recognized and the second step, which is a calculation of the impairment, is not performed. However, if the carrying value exceeds its fair value, an impairment charge is recorded equal to the extent that the carrying amount of goodwill exceeds its implied fair value. For annual goodwill impairment testing, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If we conclude that this is the case, we must perform the two-step methodology described above. Otherwise, no further testing is required. For annual indefinite-lived intangible asset impairment testing, we also have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the indefinite-lived intangible assets is less than its carrying amount. For our goodwill impairment testing, we have elected to bypass the qualitative assessment and apply the quantitative approach. For our testing of indefinite-lived intangible assets, we apply qualitative and quantitative approaches.
Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We have historically determined the fair value of our reporting units based on various valuation techniques, including discounted cash flow analysis and a multiple of earnings approach. In assessing whether goodwill and other intangible assets are impaired, we must make estimates and assumptions regarding future cash flows, long-term growth rates of our business, operating margins, discount rates, weighted average cost of capital and other factors to determine the fair value of our assets. These estimates and assumptions require management’s judgment, and changes to these estimates and assumptions, as a result of changing economic and competitive conditions, could materially affect the determination of fair value and/or impairment. During 2019, we recorded an impairment charge of $31 million on the remaining value of exchange registration intangible assets on ICE Futures Singapore as a result of a decrease in fair value determined during our annual impairment testing.
We are also required to evaluate other finite-lived intangible assets for impairment by first determining whether events or changes in circumstances indicate that the carrying value of these assets to be held and used may not be recoverable. If impairment indicators are present, then an estimate of undiscounted future cash flows produced by these long-lived assets is compared to the carrying value of those assets to determine if the asset is recoverable. If an asset is not recoverable, the loss is measured as the difference between fair value and carrying value of the impaired asset. Fair value of these assets is based on various valuation techniques, including discounted cash flow analysis.
Income Taxes
We are subject to income taxes in the U.S., U.K. and other foreign jurisdictions where we operate. The determination of our provision for income taxes and related accruals, deferred tax assets and liabilities requires the use of significant judgment, estimates, and the interpretation and application of complex tax laws. We recognize a current tax liability or tax asset for the estimated taxes payable or refundable on tax returns for the current year. We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of our assets and liabilities. We establish valuation allowances if we believe that it is more likely than not that some or all of our deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using current enacted tax rates in effect for the years in which those temporary differences and carryforwards are expected to reverse.
SEC Staff Accounting Bulletin No. 118, or SAB 118, provided guidance for companies that had not completed their accounting for the income tax effects of the TCJA in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of December 31, 2018, we had completed our accounting for the tax effects of the enactment of the TCJA. We reaffirmed our position that we were not subject to transition tax under the TCJA as of December 31, 2017. In addition, we concluded that the $764 million of deferred tax benefit recorded in the 2017 financial statements was a reasonable estimate of the TCJA’s impact on our deferred tax and no further adjustments are necessary.
The FASB Staff also provided additional guidance to address the accounting for the effects of the provisions related to the taxation of Global Intangible Low-Taxed Income noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse in future years or to include the tax expense in the year it is incurred. We have completed our analysis of the effects of these provisions and have made a policy election to recognize such taxes as current period expenses when incurred.
We do not recognize a tax benefit unless we conclude that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, we recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is greater than 50 percent likely to be realized. We recognize accrued interest and penalties related to uncertain income tax positions as income tax expense in the consolidated statements of income.
We operate within multiple domestic and foreign taxing jurisdictions and are subject to audit in these jurisdictions by domestic and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions taken and the allocation of income among various tax jurisdictions. We record accruals for the estimated outcomes of these audits, and the accruals may change in the future due to new developments in each matter. At any point in time, many tax years are subject to or in the process of being audited by various taxing authorities. To the extent our estimates of settlements change or the final tax outcome of these matters is different from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. Our income tax expense includes changes in our estimated liability for exposures associated with our various tax filing positions. Determining the income tax expense for these potential assessments requires management to make assumptions that are subject to factors such as proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations, and resolution of tax audits.
We believe the judgments and estimates discussed above are reasonable. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
Page
|
Intercontinental Exchange, Inc. and Subsidiaries:
|
|
Report of Management on Internal Control over Financial Reporting
|
|
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
|
|
Report of Independent Registered Public Accounting Firm on Financial Statements
|
|
Consolidated Balance Sheets as of December 31, 2019 and 2018
|
|
Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017
|
|
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017
|
|
Consolidated Statements of Changes in Equity and Redeemable Non-Controlling Interest for the Years Ended December 31, 2019, 2018 and 2017
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
|
|
Notes to Consolidated Financial Statements
|
|
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for the preparation and integrity of the consolidated financial statements appearing in our Annual Report on Form 10-K. The financial statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and, accordingly, include certain amounts based on our best judgments and estimates.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) and 15d-a5(f) under the Securities Exchange Act of 1934 (“Exchange Act”). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements. Our internal control over financial reporting is supported by a program of internal audits and appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel and a written Global Code of Business Conduct adopted by our Board of Directors, applicable to all of our directors and all officers and all of our employees.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013 framework). Based on our assessment, management believes that we maintained effective internal control over financial reporting as of December 31, 2019.
Our independent auditors, Ernst & Young LLP, a registered public accounting firm, are appointed by the Audit Committee, subject to ratification by our stockholders. Ernst & Young LLP has audited and reported on our consolidated financial statements and the effectiveness of our internal control over financial reporting. The reports of our independent registered public accounting firm are contained in this Annual Report.
|
|
|
|
/s/ Jeffrey C. Sprecher
|
|
/s/ Scott A. Hill
|
Jeffrey C. Sprecher
|
|
Scott A. Hill
|
Chairman of the Board and
|
|
Chief Financial Officer
|
Chief Executive Officer
|
|
|
|
|
|
February 6, 2020
|
|
February 6, 2020
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Stockholders and the Board of Directors of Intercontinental Exchange, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Intercontinental Exchange, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Intercontinental Exchange, Inc. and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in equity and redeemable non-controlling interest, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes, and our report dated February 6, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Report of Management on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 6, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS
To the Stockholders and the Board of Directors of Intercontinental Exchange, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Intercontinental Exchange, Inc. and Subsidiaries (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in equity and redeemable non-controlling interest, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), and our report dated February 6, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical accounting matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for Acquisition
|
|
Description of the Matter
|
As discussed in Note 3 to the consolidated financial statements, during 2019, the Company completed its acquisition of Simplifile, LC (“Simplifile”) for net consideration of $338 million. This transaction was accounted for as a business combination.
|
Auditing the Company's accounting for its acquisition of Simplifile was complex due to the significant estimation in the Company’s determination of fair value of the customer relationship identified intangible asset of $104 million. The significant estimation was primarily due to sensitivity of the fair value to underlying assumptions about future performance of the acquired business in the Company’s discounted cash flow model used to measure the customer relationship intangible asset. These significant assumptions included the revenue and expense growth rates that form the basis of the forecasted results and the discount rate.
|
|
How We Addressed the
|
We tested the Company's controls over its accounting for acquisitions. For example, we
|
|
|
Matter in Our Audit
|
tested controls over the estimation process supporting the recognition and measurement of the customer relationship intangible asset, which included testing controls over management’s review of assumptions used in its customer relationship valuation model.
|
To test the estimated fair value of the customer relationship intangible asset, we performed audit procedures that included, among others, evaluating the valuation methodology and the significant assumptions used by the Company's valuation specialist, and evaluating the completeness and accuracy of the underlying data supporting the estimated fair value. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimate, including testing the revenue and expense growth rates that form the basis of the forecasted results and the discount rate. For example, we compared the significant assumptions to current industry, market and economic trends, to assumptions used to value similar assets in other acquisitions, to the historical results of the acquired business, and to the Company’s budgets and forecasts, in addition to performing sensitivity analysis over these assumptions. We also evaluated the adequacy of the Company’s disclosures included in Note 3 in relation to these acquisition matters.
Accounting for Income Taxes
|
|
Description of the Matter
|
As discussed in Note 13 to the consolidated financial statements, the Company operates in the United States and multiple international tax jurisdictions and is subject to tax treaty arrangements and transfer pricing guidelines for intercompany transactions. Consolidated income tax expense, including the liability for unrecognized tax benefits, is an estimate based on management’s understanding and interpretation of current enacted tax laws and tax rates of each tax jurisdiction. For the year-ended December 31, 2019, the Company recognized consolidated income tax expense of $521 million, and as of December 31, 2019, the Company accrued liabilities of $103 million for unrecognized tax benefits.
|
Auditing the Company's accounting for consolidated income tax expense was complex because management’s calculation of consolidated income tax expense involves application and interpretation of complex tax laws, many of which were significantly modified as part of the Tax Cuts and Jobs Act. Further, the identification and measurement of unrecognized tax benefits requires significant management judgment and estimation. Each tax position may involve unique facts and circumstances to be evaluated, and there may be uncertainties around initial recognition and de-recognition of tax positions, including regulatory changes, litigation and examination activity.
|
|
How We Addressed the
|
We tested the Company’s controls that address the risks of material misstatement relating
|
|
|
Matter in Our Audit
|
to the Company’s consolidated income tax expense. For example, we tested controls over management’s calculation of the federal, state and foreign components of income tax expense including management’s controls over the identification and ongoing review of its unrecognized tax benefits.
|
To test consolidated income tax expense, we performed audit procedures that included, among others, recalculation of consolidated income tax expense and agreeing the data used in the calculations to the Company’s underlying books and records. We involved our tax professionals to evaluate the application of tax law to management’s calculation methodologies and tax positions. This included assessing the Company’s correspondence with the relevant tax authorities and evaluating third-party advice obtained by the Company. We also evaluated the assumptions the Company used to develop its tax positions and related unrecognized tax benefit amounts by jurisdiction. For example, we compared the estimated liabilities for unrecognized tax benefits to similar positions in prior periods and assessed management’s consideration of current tax controversy and litigation and trends in similar positions challenged by tax authorities. We also assessed the historical accuracy of management’s estimates of its unrecognized tax benefits by comparing the estimates with the resolution of those positions. We also evaluated the adequacy of the Company’s disclosures included in Note 13 in relation to these tax matters.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Atlanta, Georgia
February 6, 2020
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Assets:
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
841
|
|
|
$
|
724
|
|
Short-term restricted cash and cash equivalents
|
943
|
|
|
818
|
|
Customer accounts receivable, net of allowance for doubtful accounts of $8 and $7, respectively
|
988
|
|
|
953
|
|
Margin deposits, guaranty funds and delivery contracts receivable
|
64,987
|
|
|
63,955
|
|
Prepaid expenses and other current assets
|
220
|
|
|
242
|
|
Total current assets
|
67,979
|
|
|
66,692
|
|
Property and equipment, net
|
1,536
|
|
|
1,241
|
|
Other non-current assets:
|
|
|
|
Goodwill
|
13,342
|
|
|
13,085
|
|
Other intangible assets, net
|
10,258
|
|
|
10,462
|
|
Long-term restricted cash and cash equivalents
|
404
|
|
|
330
|
|
Other non-current assets
|
974
|
|
|
981
|
|
Total other non-current assets
|
24,978
|
|
|
24,858
|
|
Total assets
|
$
|
94,493
|
|
|
$
|
92,791
|
|
|
|
|
|
Liabilities and Equity:
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
505
|
|
|
$
|
521
|
|
Section 31 fees payable
|
138
|
|
|
105
|
|
Accrued salaries and benefits
|
291
|
|
|
280
|
|
Deferred revenue
|
129
|
|
|
135
|
|
Short-term debt
|
2,569
|
|
|
951
|
|
Margin deposits, guaranty funds and delivery contracts payable
|
64,987
|
|
|
63,955
|
|
Other current liabilities
|
197
|
|
|
161
|
|
Total current liabilities
|
68,816
|
|
|
66,108
|
|
Non-current liabilities:
|
|
|
|
Non-current deferred tax liability, net
|
2,314
|
|
|
2,337
|
|
Long-term debt
|
5,250
|
|
|
6,490
|
|
Accrued employee benefits
|
198
|
|
|
204
|
|
Non-current operating lease liability
|
281
|
|
|
—
|
|
Other non-current liabilities
|
270
|
|
|
350
|
|
Total non-current liabilities
|
8,313
|
|
|
9,381
|
|
Total liabilities
|
77,129
|
|
|
75,489
|
|
Commitments and contingencies:
|
|
|
|
|
|
Redeemable non-controlling interest in consolidated subsidiaries
|
78
|
|
|
71
|
|
Equity:
|
|
|
|
Intercontinental Exchange, Inc. stockholders’ equity:
|
|
|
|
Preferred stock, $0.01 par value; 100 authorized; none issued or outstanding
|
—
|
|
|
—
|
|
Common stock, $0.01 par value; 1,500 authorized; 607 and 554 shares issued and outstanding at December 31, 2019, respectively, and 604 and 569 shares issued and outstanding at December 31, 2018, respectively
|
6
|
|
|
6
|
|
Treasury stock, at cost; 53 and 35 shares, respectively
|
(3,879
|
)
|
|
(2,354
|
)
|
Additional paid-in capital
|
11,742
|
|
|
11,547
|
|
Retained earnings
|
9,629
|
|
|
8,317
|
|
Accumulated other comprehensive loss
|
(243
|
)
|
|
(315
|
)
|
Total Intercontinental Exchange, Inc. stockholders’ equity
|
17,255
|
|
|
17,201
|
|
Non-controlling interest in consolidated subsidiaries
|
31
|
|
|
30
|
|
Total equity
|
17,286
|
|
|
17,231
|
|
Total liabilities and equity
|
$
|
94,493
|
|
|
$
|
92,791
|
|
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Income
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Revenues:
|
|
|
|
|
|
Transaction and clearing, net
|
$
|
3,627
|
|
|
$
|
3,483
|
|
|
$
|
3,131
|
|
Data services
|
2,211
|
|
|
2,115
|
|
|
2,084
|
|
Listings
|
449
|
|
|
444
|
|
|
426
|
|
Other revenues
|
260
|
|
|
234
|
|
|
202
|
|
Total revenues
|
6,547
|
|
|
6,276
|
|
|
5,843
|
|
Transaction-based expenses:
|
|
|
|
|
|
Section 31 fees
|
379
|
|
|
357
|
|
|
372
|
|
Cash liquidity payments, routing and clearing
|
966
|
|
|
940
|
|
|
833
|
|
Total revenues, less transaction-based expenses
|
5,202
|
|
|
4,979
|
|
|
4,638
|
|
Operating expenses:
|
|
|
|
|
|
Compensation and benefits
|
1,042
|
|
|
994
|
|
|
946
|
|
Professional services
|
125
|
|
|
131
|
|
|
121
|
|
Acquisition-related transaction and integration costs
|
2
|
|
|
34
|
|
|
36
|
|
Technology and communication
|
469
|
|
|
432
|
|
|
397
|
|
Rent and occupancy
|
68
|
|
|
68
|
|
|
69
|
|
Selling, general and administrative
|
161
|
|
|
151
|
|
|
155
|
|
Depreciation and amortization
|
662
|
|
|
586
|
|
|
535
|
|
Total operating expenses
|
2,529
|
|
|
2,396
|
|
|
2,259
|
|
Operating income
|
2,673
|
|
|
2,583
|
|
|
2,379
|
|
Other income (expense):
|
|
|
|
|
|
Interest income
|
35
|
|
|
22
|
|
|
8
|
|
Interest expense
|
(285
|
)
|
|
(244
|
)
|
|
(187
|
)
|
Other income, net
|
58
|
|
|
159
|
|
|
326
|
|
Other income (expense), net
|
(192
|
)
|
|
(63
|
)
|
|
147
|
|
Income before income tax expense (benefit)
|
2,481
|
|
|
2,520
|
|
|
2,526
|
|
Income tax expense (benefit)
|
521
|
|
|
500
|
|
|
(28
|
)
|
Net income
|
$
|
1,960
|
|
|
$
|
2,020
|
|
|
$
|
2,554
|
|
Net income attributable to non-controlling interest
|
(27
|
)
|
|
(32
|
)
|
|
(28
|
)
|
Net income attributable to Intercontinental Exchange, Inc.
|
$
|
1,933
|
|
|
$
|
1,988
|
|
|
$
|
2,526
|
|
Earnings per share attributable to Intercontinental Exchange, Inc. common stockholders:
|
|
|
|
|
|
Basic
|
$
|
3.44
|
|
|
$
|
3.46
|
|
|
$
|
4.29
|
|
Diluted
|
$
|
3.42
|
|
|
$
|
3.43
|
|
|
$
|
4.25
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic
|
561
|
|
|
575
|
|
|
589
|
|
Diluted
|
565
|
|
|
579
|
|
|
594
|
|
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Net income
|
$
|
1,960
|
|
|
$
|
2,020
|
|
|
$
|
2,554
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax expense (benefit) of $1, ($1) and ($6) for 2019, 2018 and 2017, respectively, and net impact of $1 from adoption of ASU 2018-02 in 2018
|
50
|
|
|
(91
|
)
|
|
133
|
|
Change in fair value of available-for-sale securities
|
—
|
|
|
—
|
|
|
68
|
|
Reclassification of realized gain on available-for-sale investment to other income
|
—
|
|
|
—
|
|
|
(176
|
)
|
Change in equity method investment
|
(1
|
)
|
|
—
|
|
|
—
|
|
Reclassification of foreign currency translation loss on sale of Trayport to other expense
|
—
|
|
|
—
|
|
|
76
|
|
Employee benefit plan net gains (losses), net of tax expense of $9, $9 and $8 in 2019, 2018 and 2017, respectively, and net impact of $25 from adoption of ASU 2018-02 in 2018
|
23
|
|
|
(1
|
)
|
|
20
|
|
Other comprehensive income (loss)
|
72
|
|
|
(92
|
)
|
|
121
|
|
Comprehensive income
|
$
|
2,032
|
|
|
$
|
1,928
|
|
|
$
|
2,675
|
|
Comprehensive income attributable to non-controlling interest
|
(27
|
)
|
|
(32
|
)
|
|
(28
|
)
|
Comprehensive income attributable to Intercontinental Exchange, Inc.
|
$
|
2,005
|
|
|
$
|
1,896
|
|
|
$
|
2,647
|
|
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity and Redeemable Non-Controlling Interest
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercontinental Exchange, Inc. Stockholders' 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 January 1, 2017
|
596
|
|
|
6
|
|
|
(1
|
)
|
|
(40
|
)
|
|
11,306
|
|
|
4,810
|
|
|
(344
|
)
|
|
37
|
|
|
15,775
|
|
|
36
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
121
|
|
|
—
|
|
|
121
|
|
|
—
|
|
Exercise of common stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
Repurchases of common stock
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
(949
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(949
|
)
|
|
—
|
|
Payments relating to treasury shares
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(88
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(88
|
)
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
—
|
|
Issuance of restricted stock
|
4
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition of non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(82
|
)
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
(92
|
)
|
|
—
|
|
Distributions of profits
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26
|
)
|
|
(26
|
)
|
|
—
|
|
Dividends paid to stockholders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(476
|
)
|
|
—
|
|
|
—
|
|
|
(476
|
)
|
|
—
|
|
Redeemable non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(37
|
)
|
Net income attributable to non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
27
|
|
|
(1
|
)
|
|
1
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,554
|
|
|
—
|
|
|
—
|
|
|
2,554
|
|
|
—
|
|
Balance, as of December 31, 2017
|
600
|
|
|
6
|
|
|
(17
|
)
|
|
(1,076
|
)
|
|
11,392
|
|
|
6,858
|
|
|
(223
|
)
|
|
28
|
|
|
16,985
|
|
|
—
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(66
|
)
|
|
—
|
|
|
(66
|
)
|
|
—
|
|
Exercise of common stock options
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
—
|
|
Repurchases of common stock
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
(1,198
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,198
|
)
|
|
—
|
|
Payments relating to treasury shares
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(80
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
146
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
146
|
|
|
—
|
|
Issuance of restricted stock
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Changes in non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(25
|
)
|
|
—
|
|
Distributions of profits
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
(28
|
)
|
|
—
|
|
Dividends paid to stockholders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(555
|
)
|
|
—
|
|
|
—
|
|
|
(555
|
)
|
|
—
|
|
Redeemable non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71
|
|
Impact of adoption of ASU 2018-02 to reclassify items stranded in other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income attributable to non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
32
|
|
|
—
|
|
|
—
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,020
|
|
|
—
|
|
|
—
|
|
|
2,020
|
|
|
—
|
|
Balance, as of December 31, 2018
|
604
|
|
|
6
|
|
|
(35
|
)
|
|
(2,354
|
)
|
|
11,547
|
|
|
8,317
|
|
|
(315
|
)
|
|
30
|
|
|
17,231
|
|
|
71
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|
72
|
|
|
—
|
|
Exercise of common stock options
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
Repurchases of common stock
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
(1,460
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,460
|
)
|
|
—
|
|
Payments relating to treasury shares
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(65
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
143
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
143
|
|
|
11
|
|
Issuance under the employee stock purchase plan
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
Issuance of restricted stock
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Distributions of profits
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29
|
)
|
|
(29
|
)
|
|
—
|
|
Dividends paid to stockholders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(621
|
)
|
|
—
|
|
|
—
|
|
|
(621
|
)
|
|
—
|
|
Net income attributable to non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27
|
)
|
|
—
|
|
|
30
|
|
|
3
|
|
|
(4
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,960
|
|
|
—
|
|
|
—
|
|
|
1,960
|
|
|
—
|
|
Balance, as of December 31, 2019
|
607
|
|
|
$
|
6
|
|
|
(53
|
)
|
|
$
|
(3,879
|
)
|
|
$
|
11,742
|
|
|
$
|
9,629
|
|
|
$
|
(243
|
)
|
|
$
|
31
|
|
|
$
|
17,286
|
|
|
$
|
78
|
|
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Operating activities:
|
|
|
|
|
|
Net income
|
$
|
1,960
|
|
|
$
|
2,020
|
|
|
$
|
2,554
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
662
|
|
|
586
|
|
|
535
|
|
Stock-based compensation
|
139
|
|
|
130
|
|
|
135
|
|
Deferred taxes
|
(33
|
)
|
|
27
|
|
|
(654
|
)
|
Cetip realized investment gain, net
|
—
|
|
|
—
|
|
|
(114
|
)
|
Trayport gain, net
|
—
|
|
|
—
|
|
|
(110
|
)
|
Gain on acquisition of remaining MERS interest
|
—
|
|
|
(110
|
)
|
|
—
|
|
Other
|
(40
|
)
|
|
(24
|
)
|
|
(22
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
Customer accounts receivable
|
(30
|
)
|
|
(44
|
)
|
|
(135
|
)
|
Other current and non-current assets
|
(17
|
)
|
|
(45
|
)
|
|
(24
|
)
|
Section 31 fees payable
|
34
|
|
|
(33
|
)
|
|
(2
|
)
|
Deferred revenue
|
(18
|
)
|
|
1
|
|
|
8
|
|
Other current and non-current liabilities
|
2
|
|
|
25
|
|
|
(86
|
)
|
Total adjustments
|
699
|
|
|
513
|
|
|
(469
|
)
|
Net cash provided by operating activities
|
2,659
|
|
|
2,533
|
|
|
2,085
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
Capital expenditures
|
(153
|
)
|
|
(134
|
)
|
|
(220
|
)
|
Capitalized software development costs
|
(152
|
)
|
|
(146
|
)
|
|
(137
|
)
|
Proceeds from sale of Cetip, net
|
—
|
|
|
—
|
|
|
438
|
|
Cash paid for acquisitions, net of cash acquired
|
(352
|
)
|
|
(1,246
|
)
|
|
(423
|
)
|
Return of capital from equity method investment
|
60
|
|
|
—
|
|
|
—
|
|
Cash received from divestitures
|
—
|
|
|
—
|
|
|
761
|
|
Purchases of equity investments
|
—
|
|
|
(306
|
)
|
|
(327
|
)
|
Proceeds from investments, net
|
9
|
|
|
77
|
|
|
—
|
|
Other
|
(6
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) investing activities
|
(594
|
)
|
|
(1,755
|
)
|
|
92
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
Proceeds from debt facilities, net
|
10
|
|
|
2,213
|
|
|
984
|
|
Repayments of debt facilities
|
—
|
|
|
(600
|
)
|
|
(850
|
)
|
Proceeds from/(repayments of) commercial paper, net
|
360
|
|
|
(283
|
)
|
|
(409
|
)
|
Repurchases of common stock
|
(1,460
|
)
|
|
(1,198
|
)
|
|
(949
|
)
|
Dividends to stockholders
|
(621
|
)
|
|
(555
|
)
|
|
(476
|
)
|
Payments relating to treasury shares received for restricted stock tax payments and stock option exercises
|
(65
|
)
|
|
(80
|
)
|
|
(88
|
)
|
Acquisition of non-controlling interest and redeemable non-controlling interest
|
—
|
|
|
(35
|
)
|
|
(174
|
)
|
Proceeds from issuance of redeemable non-controlling interest
|
—
|
|
|
71
|
|
|
—
|
|
Other
|
23
|
|
|
4
|
|
|
(9
|
)
|
Net cash used in financing activities
|
(1,753
|
)
|
|
(463
|
)
|
|
(1,971
|
)
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents
|
4
|
|
|
(11
|
)
|
|
12
|
|
Net increase in cash, cash equivalents, and restricted cash and cash equivalents
|
316
|
|
|
304
|
|
|
218
|
|
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of year
|
1,872
|
|
|
1,568
|
|
|
1,350
|
|
Cash, cash equivalents, and restricted cash and cash equivalents at end of year
|
$
|
2,188
|
|
|
$
|
1,872
|
|
|
$
|
1,568
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
Cash paid for income taxes
|
$
|
557
|
|
|
$
|
533
|
|
|
$
|
594
|
|
Cash paid for interest
|
$
|
280
|
|
|
$
|
202
|
|
|
$
|
171
|
|
See accompanying notes.
Intercontinental Exchange, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
1.
|
Description of Business
|
Nature of Business and Organization
We are a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, financial, fixed income and equity markets. We operate regulated marketplaces for listing, trading and clearing a broad array of derivatives contracts and securities across major asset classes, including energy and agricultural commodities, metals, interest rates, equities, exchange-traded funds, or ETFs, credit derivatives, digital assets, bonds and currencies, and also offer mortgage and technology services. In addition, we offer comprehensive data services to support the trading, investment, risk management and connectivity needs of customers around the world and across asset classes.
Our exchanges include derivative exchanges in the United States, or U.S., United Kingdom, or U.K., European Union or EU, Canada and Singapore, and cash equities, equity options and bond trading venues in the U.S. We also operate over-the-counter, or OTC, markets for physical energy, fixed income and credit default swaps, or CDS, trade execution. To serve global derivatives markets, we operate central counterparty clearing houses, or CCPs, in the U.S., U.K., EU, Canada and Singapore (Note 14). We offer a range of data services for global financial and commodity markets, including pricing and reference data, exchange data, analytics, feeds, index services, desktops and connectivity solutions. Through our markets, clearing houses, listings and data services, we provide comprehensive solutions for our customers to manage risk and raise capital through liquid markets, benchmark products, access to capital markets and related services.
|
|
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
The accompanying consolidated financial statements have been prepared by us in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. These statements include the accounts of our wholly-owned and controlled subsidiaries. For 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. Where outside owners hold an option to require us to repurchase their interests, these amounts are shown as redeemable non-controlling interests and are subject to remeasurement when repurchase is probable (Note 3).
All intercompany balances and transactions between us and our wholly-owned and controlled subsidiaries have been eliminated in consolidation. The financial results of companies we acquire are included from the acquisition dates and the results of companies we sold are included up to the disposition dates. The accounting policies used to prepare these financial statements are the same as those used to prepare the consolidated financial statements in prior years except as described in these footnotes or for the adoption of new standards as outlined below.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying disclosures. Actual amounts could differ from those estimates.
Comprehensive Income
Other comprehensive income includes foreign currency translation adjustments, comprehensive income from equity method investments, and amortization of the difference in the projected benefit obligation and the accumulated benefit obligation associated with benefit plan liabilities, net of tax. Prior to the January 1, 2018 adoption of Accounting Standards Update, or ASU, No. 2016-01, see "-Recently Adopted Accounting Pronouncements" below, our other comprehensive income included changes in unrealized gains and losses on financial instruments classified as available-for-sale.
Segment and Geographic Information
We operate and present our results based on our two business segments: the Trading and Clearing segment that comprises our transaction-based execution and clearing businesses and the Data and Listings segment that comprises our subscription-based data services and securities listings businesses. This presentation is reflective of how our chief operating decision maker reviews and operates our business. The majority of our identifiable assets are located in the U.S and U.K. (Note 18).
Cash and Cash Equivalents
We consider all short-term, highly liquid investments with original maturities at the purchase date of three months or less to be cash equivalents.
Short-Term and Long-Term Restricted Cash and Cash Equivalents
We classify all cash and cash equivalents that are not available for immediate or general business use by us as restricted in the accompanying consolidated balance sheets (Note 6). This includes amounts set aside due to regulatory requirements, earmarked for specific purposes, or restricted by specific agreements. We also invest a portion of funds in excess of short-term operating needs in term deposits and investment-grade marketable debt securities, including government or government-sponsored agencies and corporate debt securities. These are classified as cash equivalents, are short-term in nature and carrying amount approximates fair value.
Investments
We have made various investments in the equity securities of other companies. We also invest in mutual funds and fixed income securities. We classify all other investments that are not cash equivalents with original maturity dates of less than one year as short-term investments and all investments that we intend to hold for more than one year as long-term investments. Short-term and long-term investments are included in other current and other non-current assets, respectively.
Investments in equity securities, or equity investments, are carried at fair value, with changes in fair value, whether realized or unrealized, recognized in net income. For those investments that do not have readily determinable fair market values, such as those which are not publicly-listed companies, we have made a fair value policy election under ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. The election requires us to only adjust the fair value of such investments if and when there is an observable price change in an orderly transaction of a similar or identical investment, with any change in fair value recognized in net income. Investments that we intend to hold for more than one year are classified as other non-current assets in the accompanying consolidated balance sheets. See “Recently Adopted Accounting Pronouncements” below for the new financial instruments accounting standard and its impact on the accounting for our investments.
When we do not have a controlling financial interest in an entity but exercise significant influence over the entity’s operating and financial policies, such investments are accounted for using the equity method and included in other non-current assets. We recognize dividends when declared as a reduction in the carrying value of our equity method investments.
Margin Deposits, Guaranty Funds and Delivery Contracts Receivable and Payable
Original margin, variation margin and guaranty funds held by our clearing houses may be in the form of cash, government obligations, certain agency debt, letters of credit or gold (Note 14). We hold the cash deposits at highly-rated financial institutions or through reverse repurchase agreements or direct investments. See "Credit Risk and Significant Customers", below. Cash and cash equivalent original margin, variation margin and guaranty fund deposits are reflected as current assets and current liabilities. The amount of margin deposits on hand will fluctuate over time as a result of, among other things, the extent of open positions held at any point in time by market participants in contracts and the margin rates then in effect for such contracts. Changes in our margin accounts are not reflected in our consolidated statements of cash flows. Non-cash and cash equivalent original margin and guaranty fund deposits are not reflected in the accompanying consolidated balance sheets as the risks and rewards of these assets remain with the clearing members unless the 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 members.
ICE NGX, which we acquired in December 2017, owns a clearing house which administers the physical delivery of energy trading contracts. It serves as an intermediary counterparty to both the buyer and seller. When physical delivery has occurred and/or settlement amounts have been determined, an asset is recorded as a delivery contract receivable and an offsetting payable is recorded for the amounts owed to or due from the contract participants. Amounts recorded at period-end represent receivables and payables for deliveries that have occurred but for which payment has not been received or made. There is no impact on our consolidated statements of income as an equal amount is recognized as both an asset and a liability. ICE NGX also records unsettled variation margin equal to the fair value of open energy trading contracts as of the balance sheet date.
Property and Equipment
Property and equipment is recorded at cost, reduced by accumulated depreciation (Note 7). Depreciation and amortization is computed using the straight-line method based on estimated useful lives of the assets, or in the case of leasehold improvements, the shorter of the initial lease term or the estimated useful life of the improvement. We review the remaining estimated useful lives at each balance sheet date and make adjustments whenever events or changes in circumstances indicate that the remaining useful lives have changed. Gains on disposals are included in other income and losses on disposals are included in depreciation expense. Maintenance and repair costs are expensed as incurred.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is maintained at a level that we believe to be sufficient to absorb probable losses in our accounts receivable portfolio. The allowance is based on several factors, including a continuous assessment of the collectability of each account. In circumstances where a specific customer’s inability to meet its financial obligations is known, we record a specific provision for bad debts against amounts due to reduce the receivable to the amount we reasonably believe will be collected. Accounts receivable are written-off against the allowance for doubtful accounts when collection efforts cease. A reconciliation of the beginning and ending amount of allowance for doubtful accounts is as follows for 2019, 2018 and 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Beginning balance of allowance for doubtful accounts
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
7
|
|
Bad debt expense
|
10
|
|
|
8
|
|
|
4
|
|
Charge-offs
|
(9
|
)
|
|
(7
|
)
|
|
(5
|
)
|
Ending balance of allowance for doubtful accounts
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
6
|
|
Bad debt expense in the table above is based on our historical collection experiences and our assessment of the collectability of specific accounts. Charge-offs in the table above represent the write-off of uncollectible receivables, net of recoveries. These amounts also include the impact of foreign currency translation adjustments.
Software Development Costs
We capitalize costs related to software we develop or obtain for internal use. The costs capitalized include both internal and external direct and incremental costs. General and administrative costs related to developing or obtaining such software are expensed as incurred. Development costs incurred during the preliminary or maintenance project stages are expensed as incurred. Costs incurred during the application development stage are capitalized and amortized using the straight-line method over the useful life of the software, generally not exceeding three years (except for certain ICE Data Services and NYSE platforms, which have seven-year useful lives). Amortization begins only when the software becomes ready for its intended use.
Accrued Employee Benefits
We have a defined benefit pension plan and other postretirement benefit plans, or collectively the “benefit plans,” covering certain of our U.S. operations. The benefit accrual for the pension plan is frozen. We recognize the funded status of the benefit plans in our consolidated balance sheets, measure the fair value of plan assets and benefit obligations as of the date of our fiscal year-end, and provide additional disclosures in the footnotes (Note 16).
Benefit plan costs and liabilities are dependent on assumptions used in calculating such amounts. These are provided by a third-party specialist and include discount rates, health care cost trend rates, benefits earned, interest cost, expected return on assets, mortality rates and other factors. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. However, certain of these unrecognized amounts are recognized when triggering events occur, such as when a settlement of pension obligations in excess of total interest and service costs occurs. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our pension and other post-retirement obligations and future expense recognized.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of the purchase price of our acquisitions over the fair value of identifiable net assets acquired, including other identified intangible assets (Note 8). We recognize specifically-identifiable intangibles when a specific right or contract is acquired with the assistance of third-party valuation specialists. Goodwill has been allocated to our reporting units for purposes of impairment testing based on the portion of synergy, cost savings and other expected future cash flows expected to benefit the reporting units at the time of the acquisition. The reporting units identified for our goodwill testing are the Futures, Data and Listings, Cash Equities, Fixed Income and Credit reporting units. Goodwill impairment testing is performed annually at the reporting unit level in the fiscal fourth quarter or more frequently if conditions exist that indicate that it may be impaired.
We also evaluate indefinite-lived intangible assets for impairment annually in our fiscal fourth quarter or more frequently if conditions exist that indicate that an asset may be impaired.
For both goodwill and indefinite-lived impairment testing, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit or indefinite lived intangible asset is less than its carrying amount. If we conclude that this is the case, we must perform additional testing of the asset or reporting unit. Otherwise, no further testing is necessary. If the fair value of the goodwill or indefinite-lived intangible asset is less than its carrying value, an impairment loss is recognized in earnings in an amount equal to the difference. For our goodwill impairment testing, we have elected to bypass the qualitative assessment and apply the quantitative approach. For our testing of indefinite-lived intangible assets, we apply qualitative and quantitative approaches.
Impairment of Long-Lived Assets and Finite-Lived Intangible Assets
We review our property and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. When these indicators exist, we project undiscounted net future cash flows over the remaining life of such assets. If the sum of the projected cash flows is less than the carrying amount, an impairment would exist, measured based upon the difference between the carrying amount and the fair value of the assets. Finite-lived intangible assets are generally amortized using the straight-line method or an accelerated method over the lesser of their contractual or estimated useful lives.
Derivatives and Hedging Activity
Periodically, we may use derivative financial instruments to manage exposure to changes in currency exchange rates. All derivatives are recorded at fair value. We generally do not designate these derivatives as hedges for accounting purposes. Accordingly, changes in fair value are recognized in income.
We entered into foreign currency hedging transactions during 2019, 2018 and 2017 as economic hedges to help mitigate a portion of our foreign exchange risk exposure. The gains and losses on these transactions were not material during these years.
Intellectual Property
All costs related to internally developed patents and trademarks are expensed as incurred. All costs related to purchased patents, trademarks and internet domain names are recorded as other intangible assets and are amortized using a straight-line method over their estimated useful lives. All costs related to licensed patents are capitalized and amortized using a straight-line method over the term of the license.
Income Taxes
We recognize income taxes under the liability method. We recognize a current tax liability or tax asset for the estimated taxes payable or refundable on tax returns for the current year. We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We establish valuation allowances if we believe that it is more likely than not that some or all of our deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using current enacted tax rates in effect. We do not recognize a tax benefit unless we conclude that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, we recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is greater than 50 percent likely to be realized. We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense.
We are subject to tax in numerous domestic and foreign jurisdictions primarily based on our operations in these jurisdictions. Significant judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could have a material impact on our financial position or results of operations.
During 2018, we completed our accounting for the tax effects of the enactment of the Tax Cuts and Jobs Act, or TCJA. We reaffirmed our position that we were not subject to transition tax as of December 31, 2017 under the TCJA. In addition, we concluded that the $764 million of deferred tax benefit recorded in the 2017 income tax provision was a reasonable estimate of the TCJA's effects on our deferred tax balances.
The Financial Accounting Standards Board, or FASB, provided guidance to address the accounting for the effects of the provisions related to the taxation of Global Intangible Low-Taxed Income noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as Global Intangible Low-Taxed Income in future years or to include the tax expense in the year it is incurred. We have completed our analysis of the effects of these provisions and have made a policy election to recognize such taxes as current period expenses when incurred.
We use a portfolio approach with respect to pension, postretirement benefits plan obligations and currency translation matters when we determine the timing and extent to which stranded income tax effects from items that were previously recorded in accumulated other comprehensive income are released.
Revenue Recognition
Our revenues primarily consist of transaction and clearing fee revenues for transactions executed and/or cleared through our global electronic derivatives trading and clearing platforms and cash equities trading as well as revenues related to our data services fees and listing fees. We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. We also evaluate all contracts in order to determine appropriate gross versus net revenue reporting.
Substantially all of our revenues are considered to be revenues from contracts with customers. The related accounts receivable balances are recorded in our balance sheets as customer accounts receivable. We do not have obligations for warranties, returns or refunds to customers, other than rebates, which are settled each period and therefore do not result in variable consideration. We do not have significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our deferred revenue. Certain judgments and estimates are used in the identification and timing of satisfaction of performance obligations and the related allocation of transaction price. We believe that these represent a faithful depiction of the transfer of services to our customers.
Deferred revenue represents our contract liabilities related to our annual, original and other listings revenues as well as certain data services, clearing services and other revenues. Deferred revenue is our only significant contract asset or liability. See Note 9 for our discussion of deferred revenue balances, activity, and expected timing of recognition.
We have elected not to provide disclosures about transaction price allocated to unsatisfied performance obligations if contract durations are less than one year, or if we are not required to estimate the transaction price. For all of our contracts with customers, except for listings and certain data and clearing services, our performance obligations are short term in nature and there is no significant variable consideration. In addition, we have elected the practical expedient of excluding sales taxes from transaction prices. We have assessed the costs incurred to obtain or fulfill a contract with a customer and determined them to be immaterial.
See “Recently Adopted Accounting Pronouncements” below for the new revenue recognition accounting standard and its impact on our revenues.
Activity Assessment Fees and Section 31 Fees
We pay the Securities and Exchange Commission, or SEC, fees pursuant to Section 31 of the Securities Exchange Act of 1934 for transactions executed on our U.S. equities and options exchanges. These Section 31 fees are designed to recover the costs to the government for supervising and regulating the securities markets and securities professionals. We (or the Options Clearing Corporation, or OCC, on our behalf), in turn, collect activity assessment fees, which are included in transaction and clearing fees in the accompanying consolidated statements of income, from member
organizations clearing or settling trades on the U.S. equities and options exchanges and recognize these amounts as revenue when invoiced. Fees received are included in cash at the time of receipt and, as required by law, the amount due to the SEC is remitted semi-annually and recorded as an accrued liability until paid. The activity assessment fees are designed so that they are equal to the Section 31 fees paid by us to the SEC. As a result, Section 31 fees do not have an impact on our net income.
Stock-Based Compensation
We currently sponsor stock option plans, restricted stock plans and our Employee Stock Purchase Plan, or ESPP, to provide additional and incentive-based compensation to our employees and directors (Note 11). Stock options and restricted stock are granted at the discretion of the Compensation Committee of the Board of Directors. We measure and recognize compensation expense for share-based payment awards, including employee stock options, restricted stock and shares purchased under the ESPP based on estimated fair values on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as stock-based compensation expense over the requisite service period.
We use the Black-Scholes pricing model to value stock option awards as well as shares purchased as part of our ESPP. The values estimated by the model are affected by the price of our stock as well as subjective variables that include assumed interest rates, our expected dividend yield, our expected share price volatility over the term of the awards and actual and projected employee stock option exercise behavior. Under our ESPP, employees may purchase shares of our common stock at a price equal to 85% of the lesser of the fair market value of the stock on the first or the last trading day of each offering period. We record compensation expenses related to the 15% discount given to our participating employees.
Treasury Stock
We record treasury stock activities under the cost method whereby the cost of the acquired stock is recorded as treasury stock (Note 12). In the event it occurs in the future, our accounting policy upon the formal retirement of treasury stock is to deduct the par value from common stock and to reflect any excess of cost over par value as a deduction from additional paid-in capital (to the extent created by previous issuances of the shares) and retained earnings.
Credit Risk and Significant Customers
Our clearing houses are exposed to credit risk as a result of maintaining clearing member cash deposits at various financial institutions (Note 14). Cash deposit accounts are established at large, highly-rated financial institutions and entered into so that they restrict the rights of offset or imposition of liens by the banks. We also limit our risk of loss by holding the majority of the cash deposits in cash accounts at the Federal Reserve Bank of Chicago, high quality short-term sovereign debt reverse repurchase agreements with several different counterparty banks or direct investments in short-term high quality sovereign and supranational debt issues primarily with original maturities of less than three months. While we seek to achieve a reasonable rate of return which may generate interest income for our clearing members, we are primarily concerned with preservation of capital and managing the risks associated with these deposits. As the clearing houses may pass on interest revenues, minus costs, to the members, this could include negative or reduced yield due to market conditions.
When engaging in reverse repurchase agreements, our clearing houses take delivery of the underlying securities in custody accounts under clearing house control. Additionally, the securities purchased have a market value greater than the reverse repurchase amount. The typical haircut received for high quality sovereign debt is 2% of the reverse repurchase amount. Thus, in the event that a reverse repurchase counterparty defaults on its obligation to repurchase the underlying reverse repurchase securities, our clearing house will have possession of securities with a value potentially greater than the reverse repurchase counterparty’s obligation to the clearing house.
ICE Clear Credit, a systemically important financial market utility as designated by the Financial Stability Oversight Council, maintains a U.S. dollar account at the Federal Reserve Bank of Chicago as of December 31, 2019. ICE Clear Europe maintains a euro-denominated account at the De Nederlandsche Bank, or DNB, the central bank of the Netherlands, as well as pounds sterling- and euro-denominated accounts at the Bank of England, or BOE, the central bank of the U.K. These accounts provide the flexibility for ICE Clear Europe to place euro- and pounds sterling-denominated cash margin securely at national banks, in particular during periods when liquidity in the euro and pounds sterling repo markets may temporarily become contracted. Such accounts are intended to decrease ICE Clear Credit and ICE Clear Europe’s custodial, liquidity and operational risk as compared to alternative custodial and investment arrangements.
Our futures businesses have minimal credit risk as the majority of their transaction revenues are currently cleared through our clearing houses. Our accounts receivable related to market data revenues, cash trading, listing revenues, technology revenues, CDS transaction revenues and bilateral OTC energy transaction revenues subjects us to credit (collection) risk, as we do not require these customers to post collateral. We limit our risk of loss by terminating access to trade, remain listed or receive data for entities with delinquent accounts. The concentration of risk on accounts receivable is also mitigated by the large number of entities comprising our customer base.
Our accounts receivable are stated at the billed amount. Excluding clearing members, there were no individual accounts receivable balances greater than 10% of total consolidated accounts receivable as of December 31, 2019 or December 31, 2018. No single customer accounted for more than 10% of total consolidated revenues during 2019, 2018 or 2017.
Leases
Operating lease right-of-use assets and liabilities are recorded at the lease commencement date based on the present value of the lease payments to be made over the lease term using an estimated incremental borrowing rate. We expense rent monthly on a straight-line basis, as a reduction to the right-of-use asset. Rent expense is included in rent and occupancy expenses and technology and communication expenses in the accompanying consolidated statements of income (Notes 2 and 15). See "Recently Adopted Accounting Pronouncements," below, for the new lease accounting standard and its impact on our financial statements.
Acquisition-Related Transaction and Integration Costs
We incur incremental costs relating to our completed and potential acquisitions and other strategic opportunities. This includes fees for investment banking advisors, lawyers, accountants, tax advisors and public relations firms, as well as costs associated with credit facilities and other external costs directly related to the proposed or closed transactions.
Acquisition-related transaction and integration costs were nominal in 2019. The acquisition-related transaction and integration costs incurred during 2018 primarily relate to employee termination and lease termination costs related to our Interactive Data acquisition, professional services costs resulting from our 2018 acquisitions and a $5 million banker success fee in connection with our acquisition of TMC Bonds. The acquisition-related transaction and integration costs incurred during 2017 primarily relate to costs incurred for our Interactive Data integration, legal and professional fees related to the review of Trayport by the U.K. Competition and Markets Authority, or the CMA, and various other costs incurred for our other acquisitions that closed during 2017. The integration of Interactive Data was completed by June 30, 2018.
Fair Value of Financial Instruments
Fair value is the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Our financial instruments consist primarily of certain short-term and long-term assets and liabilities, customer accounts receivable, margin deposits and guaranty funds, equity investments, and short-term and long-term debt (Note 17).
The fair value of our financial instruments is measured based on a three-level hierarchy:
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•
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Level 1 inputs — quoted prices for identical assets or liabilities in active markets.
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•
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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.
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•
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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.
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Foreign Currency Translation Adjustments and Foreign Currency Transaction Gains and Losses
Our functional and reporting currency is the U.S. dollar. We have exposure to foreign currency translation gains and losses arising from our net investment in certain U.K., continental European, Asian and Canadian subsidiaries. The revenues, expenses and financial results of these subsidiaries are recorded in the functional currency of the countries that these subsidiaries are located in, which are primarily pounds sterling and euros. The financial statements of these subsidiaries are translated into U.S. dollars using a current rate of exchange, with gains or losses, net of tax as applicable, included in the cumulative translation adjustment account, a component of equity. As of December 31, 2019 and 2018, the portion
of our equity attributable to accumulated other comprehensive loss from foreign currency translation adjustments was $177 million and $227 million, respectively.
We have foreign currency transaction gains and losses related to the settlement of foreign currency denominated assets, liabilities and payables that occur through our operations. These transaction gains and losses are due to the increase or decrease in the foreign currency exchange rates between periods. Forward contracts on foreign currencies are entered into to manage the foreign currency exchange rate risk. Gains and losses from foreign currency transactions are included in other income (expense) in the accompanying consolidated statements of income and resulted in net losses of $5 million, $2 million and $4 million in 2019, 2018 and 2017, respectively.
Earnings Per Common Share
Basic earnings per common share is calculated using the weighted average common shares outstanding during the year. Common equivalent shares from stock options and restricted stock awards, using the treasury stock method, are included in the diluted per share calculations unless the effect of inclusion would be antidilutive (Note 19).
Recently Adopted Accounting Pronouncements
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Standard/Description
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Effective Date and Adoption Considerations
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Effect on Financial Statements
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ASU No. 2016-02, Leases, requires entities to recognize both assets and liabilities arising from finance and operating leases, along with additional qualitative and quantitative disclosures.
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Adopted on January 1, 2019.
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Further disclosures and details on our adoption are discussed below.
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ASU 2018-07, Compensation–Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, or ASU 2018-07 aligns the accounting for share-based payment awards issued to employees and nonemployees. Under this new guidance, the existing employee guidance will now apply to nonemployee share-based transactions.
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Effective for fiscal years beginning after December 15, 2018. Adopted on January 1, 2019.
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This guidance will be applied to all new awards granted after the date of adoption, and adoption did not have a material impact on our consolidated financial statements or related disclosures.
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ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans — General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, or ASU 2018-14 was issued in August 2018 and removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures.
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Effective for fiscal years beginning after December 15, 2020 with early adoption permitted. We elected early adoption and adopted on December 31, 2019. The amendments in ASU 2018-14 are required to be applied retrospectively.
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Upon adoption we eliminated certain disclosure requirements related to our defined benefit plans that were previously disclosed in Note 16. Certain other disclosure requirements described in Subtopic 715-20 were not applicable to us.
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Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, collectively referred to as ASC 606.
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Adopted retrospectively on January 1, 2018 and restated each prior period presented.
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Further disclosures and details on our adoption are discussed below.
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Standard/Description
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Effective Date and Adoption Considerations
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Effect on Financial Statements
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ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component in the same line item as other related compensation costs, and the other components of net benefit cost in the income statement outside of operating income. The guidance only allows the service cost component of net benefit cost to be eligible for capitalization.
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Adopted on January 1, 2018 and applied retrospectively to each prior period presented
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We have a pension plan, a U.S. nonqualified supplemental executive retirement plan, and post-retirement defined benefit plans that are all impacted by the guidance. Each of these plans are frozen and do not have a service cost component, which means the expense or benefit recognized under each plan represents other components of net benefit cost as defined in the guidance. The combined net periodic (expense) benefit of these plans was ($8 million) and $9 million in 2018 and 2017, respectively, and was previously reported as an adjustment to compensation and benefits expenses in the accompanying consolidated statements of income. Following our adoption, these amounts were reclassified to be included in other income, net, and these adjustments had no impact on net income.
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ASU No. 2016-01, which provides updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities, including the requirement that equity investments (except (i) those accounted for under the equity method of accounting or (ii) those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. See "Investments" section above for additional detail.
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Adopted on January 1, 2018.
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Our adoption did not result in any fair value adjustments on the date of adoption.
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In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, or SAB 118, which provided guidance for companies that have not completed their accounting for the income tax effects of the TCJA.
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In the period of enactment of the TCJA, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of December 31, 2018, we completed our accounting for the tax effects of the enactment of the TCJA.
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As of December 31, 2018, we reaffirmed our position that we were not subject to transition tax under the TCJA. In addition, we concluded that the $764 million deferred tax benefit recorded as of December 31, 2017 was a reasonable estimate of the TCJA impact on our deferred tax.
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In January 2018, the FASB staff issued Question & Answer Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, stating that a company may either elect to treat taxes due on future inclusions of its non-U.S. income in its U.S. taxable income under the newly enacted Global Intangible Low-Taxed Income provisions as a current period expense when incurred, or factor them into the company’s measurement of its deferred taxes.
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In 2018, we completed our analysis of the two different accounting policies.
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As of December 31, 2018, we made a policy election to recognize such tax as a current period expense when incurred.
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Standard/Description
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Effective Date and Adoption Considerations
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Effect on Financial Statements
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ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulative Other Comprehensive Income, or ASU 2018-02, gave entities the option to reclassify to retained earnings certain tax effects related to items in accumulated other comprehensive income, or OCI, that have been stranded in OCI as a result of the enactment of the TCJA.
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Effective for fiscal years beginning after December 15, 2018 with early adoption permitted. We elected early adoption and adopted in the fourth quarter of 2018.
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The impact of our adoption was a balance sheet reclassification from OCI to retained earnings of $26 million, which was reflected in our consolidated balance sheet as of December 31, 2018. In connection with our adoption, we made a policy election to use a portfolio approach with respect to pension, postretirement benefit plan obligations and currency translation matters when we determine the timing and extent to which stranded income tax effects from items that were previously recorded in accumulated other comprehensive income are released.
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ASU 2016-18, Statement of Cash Flows: Restricted Cash, or ASU 2016-18, required us to show the changes in the total of cash, cash equivalents and restricted cash and cash equivalents in the statement of cash flows.
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Adopted in the fourth quarter of 2017.
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We no longer present transfers between cash, cash equivalents and restricted cash and cash equivalents in the statement of cash flows. We reclassified changes in restricted cash from cash flows provided by (used in) investing activities, to the total change in beginning and end-of-period balances. Our statements of cash flows for 2019, 2018 and 2017 reflect this change.
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Accounting Pronouncements Not Yet Adopted in These Financial Statements
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Standard/Description
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Effective Date and Adoption Considerations
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Effect on Financial Statements
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ASU No. 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments applies to all financial instruments carried at amortized cost including held-to-maturity debt securities and trade receivables. Requires financial assets carried at amortized cost to be presented at the net amount expected to be collected and requires entities to record credit losses through an allowance for credit losses on available-for-sale debt securities.
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We adopted on January 1, 2020. Our adoption was subject to the same internal controls over financial reporting that we apply to our consolidated financial statements.
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We have evaluated this guidance to determine the impact on our consolidated financial statements. Based on our assessment, we concluded the impact of adoption of this guidance not to be material.
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Adoption of ASC 606, Revenues from Contracts with Customers
The FASB has issued ASC Topic 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, collectively referred to as ASC 606. ASC 606 provides guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASC 606 superseded prior revenue recognition guidance and requires us to recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires enhanced disclosures, including (i) revenue recognition policies used to identify performance obligations to customers and (ii) the use of significant judgments in measurement and recognition.
On January 1, 2018, we adopted ASC 606 retrospectively and restated each prior period presented. Our adoption of ASC 606 accelerated the timing of recognition of a portion of original listing fees related to our New York Stock Exchange, or NYSE, businesses. In addition, and to a lesser extent, the adoption decelerated the timing of recognition of a portion of clearing fee revenues. The impact of our adoption of ASC 606 on our performance obligations in our clearing business was minimal. Revenue recognition related to all other trading, clearing and data businesses remained unchanged. Our adoption of ASC 606 was subject to the same internal controls over financial reporting that we apply to our consolidated financial statements.
Our adoption of ASC 606 had the following impact on our reported results for the prior periods presented, driven primarily by the accelerated recognition of listings fee revenues in our NYSE businesses (in millions, except earnings per share):
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As Reported
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New Revenue Standard Adjustment
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As Adjusted
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Year ended December 31, 2017
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Total revenues
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$
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5,834
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$
|
9
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|
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$
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5,843
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Total revenues, less transaction-based expenses
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4,629
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|
|
9
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|
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4,638
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Income tax benefit
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(25
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)
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|
(3
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)
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(28
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)
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Net income attributable to Intercontinental Exchange, Inc.
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2,514
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|
|
12
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|
|
2,526
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Diluted earnings per share
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$
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4.23
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|
|
$
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0.02
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|
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$
|
4.25
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|
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As Reported
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New Revenue Standard Adjustment
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As Adjusted
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As of December 31, 2017
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|
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Deferred revenue, current
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$
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121
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|
|
$
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4
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|
|
$
|
125
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Deferred revenue, non-current
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143
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|
|
(52
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)
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|
91
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|
Net deferred tax liabilities
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2,280
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|
|
15
|
|
|
2,295
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|
Retained earnings
|
6,825
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|
|
33
|
|
|
6,858
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|
Additional disclosures related to our adoption of ASC 606 are provided in Note 5.
Adoption of ASU 2016-02, Leases
On January 1, 2019, we adopted ASU 2016-02, Leases, or ASU 2016-02. This standard requires recognition of both assets and liabilities arising from finance and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 requires lessees to recognize a right-of-use asset representing a right to use the underlying asset over the lease term, and a corresponding lease liability on the balance sheet. Our operating leases primarily relate to our leased office space and data center facilities, and we do not have any leases classified as finance leases.
We adopted ASU 2016-02 using the modified retrospective transition method and did not restate prior periods. Using the modified retrospective approach, we applied the provisions of ASU 2016-02 beginning in the period of adoption, and elected the package of practical expedients available to us. There was no impact to the opening balance of retained earnings as a result of a cumulative-effect adjustment on the adoption date. We elected the practical expedient to not reassess lease classifications, but alternatively to carry forward our historical classifications. In addition, we elected the practical expedient of not separating lease and non-lease components as our lease arrangements are not highly dependent on other underlying assets. Our implementation of the amended lease guidance was subject to the same internal controls over financial reporting that we apply to our consolidated financial statements.
At lease inception, we review the service arrangement and components of a contract to identify if a lease or embedded lease arrangement exists. An indicator of a contract containing a lease is when we have the right to control and use an identified asset over a period of time in exchange for consideration. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, using our estimated incremental borrowing rate. Upon adoption of ASU 2016-02, we made the policy election to not record existing or future leases with a term of 12 months or less on the balance sheet, and to recognize lease expense on a straight-line basis over the lease term. For these leases, the impact on adoption was nominal. We have also made policy elections related to capitalization thresholds and discount rates. We have elected to use a portfolio approach in consideration of our incremental borrowing rate to our population of lease agreements. Upon adoption, our incremental borrowing rate was determined based on our recent debt issuances that we believe are reflective of current borrowing rates. Subsequent to adoption, current incremental borrowing rates were used. Certain lease agreements include options to extend, renew or terminate the lease agreement. As of December 31, 2019, the weighted-average remaining lease term was 6.7 years and the weighted average discount rate was 3.5%. Our lease agreements do not contain any residual value guarantees.
Upon adoption of ASU 2016-02, we recorded $368 million in operating lease liabilities, of which $53 million is included in other current liabilities and $315 million is included in non-current operating lease liabilities within our accompanying consolidated balance sheet. We also recorded $317 million in operating lease right-of-use assets that are included as a component of property and equipment, net, in our balance sheet and are recorded in an amount equal to our lease liability, adjusted for any remaining unamortized lease incentives such as our deferred rent balances. As part of our adoption, we eliminated $51 million in deferred rent liabilities, of which $2 million had previously been included in other current liabilities and $49 million had been included in other non-current liabilities on our balance sheet. On the date of adoption, deferred
rent liabilities were reclassified and presented as a reduction to the right-of-use asset, included in property and equipment, net, on our consolidated balance sheet. Our adoption did not have an impact on our consolidated income statement.
We recognize rent expense monthly on a straight-line basis for each respective operating lease, as a reduction to the right-of-use asset. We recognized $41 million, $38 million and $39 million of rent expense for office space as rent and occupancy expense in 2019, 2018, and 2017, respectively, and $21 million, $21 million and $19 million of rent expense for data center facilities as technology and communication expense in 2019, 2018, and 2017, respectively, within our consolidated income statement. We do not have any significant variable lease costs related to building and maintenance costs, real estate taxes, or other charges.
Details of our lease asset and liability balances are as follows (in millions):
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As of December 31, 2019
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|
As of January 1, 2019
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Right-of-use lease assets
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$287
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|
$317
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|
|
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Current operating lease liability
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|
53
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|
|
53
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Non-current operating lease liability
|
|
281
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|
|
315
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Total operating lease liability
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$334
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$368
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As of December 31, 2019, we estimate that our operating lease liability will be recognized in the following years (in millions):
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2020
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62
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2021
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65
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2022
|
63
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|
2023
|
45
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2024
|
41
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Thereafter
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100
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Lease liability amounts repayable
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376
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|
Interest costs
|
42
|
|
Total operating lease liability
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$
|
334
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Supplemental cash flow information and non-cash activity related to our operating leases are as follows:
|
|
|
|
|
|
Year Ended
December 31, 2019
|
Cash paid for amounts included in the measurement of operating lease liability
|
$
|
65
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
$
|
389
|
|
|
|
3.
|
Acquisitions and Divestitures
|
Acquisitions
|
|
|
|
|
Company
|
Acquisition Date
|
Primary Segment
|
Description
|
Simplifile, LC, or Simplifile
|
June 12, 2019
|
Trading and Clearing
|
Simplifile offers an array of mortgage services, primarily serving as an electronic liaison between lenders, settlement agents and county recording offices, streamlining the local recording of residential mortgage transactions. The transaction expands the ICE Mortgage Services portfolio, which includes MERS. See below for the Simplifile purchase price allocation.
|
|
|
|
|
|
Company
|
Acquisition Date
|
Primary Segment
|
Description
|
MERSCORP Holdings, Inc., or MERS
|
October 3, 2018
|
Trading and Clearing
|
MERS was previously a privately held, member-based organization that owned and managed the MERS System, made up of lenders, servicers, sub-servicers, investors and government institutions. MERS is now part of ICE Mortgage Services. Further disclosures and details on our acquisition of MERS is discussed below.
|
TMC Bonds, LLC, or TMC Bonds
|
July 23, 2018
|
Trading and Clearing
|
TMC Bonds is an electronic fixed income marketplace, supporting anonymous trading across multiple protocols in various asset classes, including municipals, corporates, treasuries, agencies and certificates of deposit. See below for the TMC Bonds purchase price allocation.
|
CHX Holdings, Inc., the parent company of the Chicago Stock Exchange, Inc., or CHX
|
July 18, 2018
|
Trading and Clearing
|
CHX, now named NYSE Chicago, is a full-service stock exchange including trading, data and corporate listings services. NYSE Chicago operates as a registered national securities exchange.
|
BondPoint
|
January 2, 2018
|
Trading and Clearing
|
BondPoint was acquired from Virtu Financial, Inc. and is a provider of electronic fixed income trading solutions for the buy-side and sell-side, offering access to centralized liquidity and automated trade execution services through its alternative trading system, or ATS. See below for the BondPoint purchase price allocation.
|
Bank of America Merrill Lynch, or BofAML’s, Global Research division’s index business, now named ICE BofA indices
|
October 20, 2017
|
Data and Listings
|
The ICE BofA indices are the second largest group of fixed income indices as measured by assets under management, or AUM, globally.
|
TMX Atrium
|
May 1, 2017
|
Data and Listings
|
TMX Atrium was acquired from TMX Group and is a global extranet and wireless services business, from TMX Group. TMX Atrium provides low-latency access to markets and market data across 12 countries, more than 30 major trading venues, and ultra-low latency wireless connectivity to access markets and market data in the Toronto, New Jersey and Chicago metro areas. The wireless assets consist of microwave and millimeter networks that transport market data and provide private bandwidth.
|
National Stock Exchange, Inc., now named NYSE National
|
January 31, 2017
|
Trading and Clearing
|
National Stock Exchange, Inc. gave the NYSE group of exchanges, or the NYSE Group, a new U.S. exchange license and is distinct from NYSE Group’s other listings exchanges because NYSE National is only a trading venue and not a listings market. NYSE Group’s other listings exchanges, NYSE, NYSE American, NYSE Arca and NYSE Chicago, have unique market models designed for corporate and ETF issuers. After closing the transaction, NYSE National ceased operations on February 1, 2017. NYSE National re-launched operations and commenced trading in May 2018.
|
During 2019, our consolidated subsidiary, Bakkt Holdings, LLC, or Bakkt, acquired two other companies which are not material to our operations.
Additional MERS Acquisition Considerations
In June 2016, we acquired a majority equity position in MERS and entered into a software development agreement to rebuild the MERS System, a national electronic registry that tracks the changes in servicing rights and beneficial ownership interests in U.S.-based mortgage loans. We treated the investment as an equity method investment since we did not have the ability to control the operations of MERS. On July 20, 2018, we exercised our option to purchase all of the remaining equity interests of MERS as a result of satisfying our deliverables under the software development agreement. On October 3, 2018, we completed the purchase of all remaining interests and, accordingly, own 100% of MERS. On that date, we gained control of MERS, began to include MERS's results as part of our consolidated operations, and recorded a $110 million gain on our initial investment value as other non-operating income.
Acquisition Purchase Prices and Allocation
The following summarizes our purchase price allocation for material acquisitions to the respective net tangible and identifiable intangible assets and liabilities based on their respective estimated fair values on the date of acquisition. For each acquisition, the excess of the purchase price over the net tangible and identifiable intangible assets has been recorded as goodwill. Cash consideration was gross of $12 million cash held by Simplifile and $15 million cash held by TMC Bonds on the date of each respective acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition Purchase Price Allocation
(dollars in millions)
|
|
Simplifile
(Preliminary)
|
|
Useful Life
(Years)
|
|
TMC Bonds
|
|
Useful Life
(Years)
|
|
BondPoint
|
|
Useful Life
(Years)
|
|
|
|
|
|
|
Customer relationship intangibles
|
$
|
104
|
|
|
20
|
|
$
|
253
|
|
|
15
|
|
$
|
123
|
|
|
15
|
Developed technology intangibles
|
7
|
|
|
7
|
|
7
|
|
|
3
|
|
7
|
|
|
3
|
Trade name intangibles
|
2
|
|
|
5
|
|
—
|
|
|
|
|
—
|
|
|
|
Total identifiable intangible assets
|
113
|
|
|
|
|
260
|
|
|
|
|
130
|
|
|
|
Goodwill
|
218
|
|
|
|
|
423
|
|
|
|
|
267
|
|
|
|
Other working capital adjustments
|
7
|
|
|
|
|
17
|
|
|
|
|
3
|
|
|
|
Total purchase price cash consideration
|
$
|
338
|
|
|
|
|
$
|
700
|
|
|
|
|
$
|
400
|
|
|
|
Non-Controlling Interest
During 2017 we purchased both Gasunie’s 21% minority ownership interest in ICE Endex and ABN AMRO Clearing Bank N.V.’s 25% minority ownership interest in ICE Clear Netherlands. Subsequent to these acquisitions, we own 100% of ICE Endex and ICE Clear Netherlands and no longer include non-controlling interest for either company in our consolidated financial statements.
During 2017, we purchased 12.6% of the net profit sharing interest in our CDS clearing subsidiaries and in September 2018, we purchased an additional 3.2% interest. The remaining non-ICE limited partners in our CDS clearing subsidiaries hold a 26.7% ownership interest as of December 31, 2019.
In December 2018, Bakkt Holdings, LLC, or Bakkt, was capitalized with $183 million in initial funding by us as majority owner, along with a group of other minority investors. We hold a call option over these interests subject to certain terms. Similarly, the non-ICE partners in Bakkt hold a put option to require us to repurchase their interests subject to certain terms. These minority interests are reflected as redeemable non-controlling interests in temporary equity within our consolidated balance sheet.
Bakkt is an integrated platform that enables consumers and institutions to transact in digital assets. Bakkt was approved by the New York State Department of Financial Services to take custody of digital assets through Bakkt Trust Company, LLC, a qualified custodian. Bakkt Trust Company, LLC takes custody of bitcoin for physically-delivered futures, creating the first fully regulated marketplace for trading, clearing and custodial solutions of physically-delivered digital asset futures, and is supported by ICE Futures U.S. and ICE Clear U.S.
Divestiture of Trayport and the Acquisitions of Natural Gas Exchange Inc. and Shorcan Energy Brokers Inc.
In December 2015, we acquired 100% of Trayport for $620 million, in a stock transaction comprised of 12.6 million shares of our common stock. The CMA subsequently undertook a review of our acquisition of Trayport under the merger control laws of the U.K. and we were ultimately obligated to sell Trayport by January 2018. We sold Trayport to TMX Group in December 2017 for £550 million ($733 million). The gross proceeds included a combination of cash and in value relating to our acquisitions of Natural Gas Exchange, Inc., or NGX, now named ICE NGX, and Shorcan Energy Brokers Inc., or Shorcan Energy, from TMX Group. Shorcan Energy is now named CalRock Brokers, Inc., or CalRock. We recognized a net gain of $110 million in other income on the transaction. The net gain was equal to the $733 million in gross proceeds received less the adjusted carrying value of Trayport’s net assets of $607 million ($531 million carrying value plus $76 million in accumulated other comprehensive loss from foreign currency translation) less $16 million in disposition costs.
Trayport was included in our Data and Listings segment and ICE NGX and CalRock are primarily included in our Trading and Clearing segment. ICE NGX, headquartered in Calgary, provides electronic execution, central counterparty clearing and data services to the physical North American natural gas, electricity and oil markets. CalRock offers brokerage services for the North American crude oil markets. The ICE NGX and CalRock purchase price was allocated to their net tangible and identifiable intangible assets and liabilities based on their estimated fair values on the acquisition date. Our allocation to
identifiable intangible assets was $198 million, including $140 million for exchange registrations and licenses, which were assigned an indefinite useful life, and $53 million for customer relationship intangible assets, which were assigned useful lives of 20 years. The excess of the purchase price over the allocated net tangible and identifiable intangible asset value was $123 million and was recorded as goodwill.
Other Divestitures
On June 1, 2017, we sold NYSE Governance Services, a provider of governance, compliance, and education tools for organizations and their boards of directors, to Marlin Heritage, L.P. We recognized a net loss of $6 million on the divestiture of NYSE Governance Services, which was recorded as an impairment loss within our Data and Listings segment in the accompanying consolidated statements of income in 2017.
On March 31, 2017, we sold Interactive Data Managed Solutions, or IDMS, a unit of Interactive Data, to FactSet. IDMS is a managed solutions and portal provider for the global wealth management industry. There was no gain or loss recognized on the sale of IDMS.
Our equity investments, including our investments in Euroclear plc, or Euroclear, and Coinbase Global, Inc., or Coinbase, among others, are subject to valuation under ASU 2016-01. See Note 17 for a discussion of our determination of fair value of our financial instruments.
Investment in Euroclear
During 2017, we purchased a 4.7% stake in Euroclear valued at €276 million ($327 million). Upon purchasing this stake, we agreed to participate on the Euroclear Board of Directors. During the same period, we negotiated an additional purchase which closed on February 21, 2018 following regulatory approval. This provided us with an additional 5.1% stake in Euroclear for a purchase price of €246 million in cash ($304 million). As of December 31, 2019, we own a 9.8% stake in Euroclear for a total investment of $631 million. Euroclear is classified as an equity investment and included in other non-current assets in our consolidated balance sheets.
Euroclear is a provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes. In 2019 and 2018, we recognized dividend income of $19 million and $15 million, respectively, from Euroclear, included in other income.
Investment in Cetip
Until March 29, 2017, we held a 12% ownership interest in Cetip, S.A., or Cetip, classified as a long-term investment. On that date, in connection with the merger of Cetip with BM&FBOVESPA S.A., which changed its name to B3 S.A. - Brasil, Bolsa, Balcão, or B3, we recognized a $176 million realized investment gain in other income (expense), net, and $9 million in foreign exchange losses and transaction expenses in other income (expense), net. We recognized dividend income received relating to our investment in Cetip in other income of $5 million in 2017.
Equity Method Investments
We recognized $62 million, $46 million and $36 million as other income during 2019, 2018 and 2017, respectively, related to our equity method investments in OCC and MERS, discussed below. We had previously accounted for our investment in MERS as an equity method investment before completing our acquisition of 100% of MERS on October 3, 2018 (Note 3).
Investment in OCC
We own a 40% interest in the Options Clearing Corporation, or OCC, through a direct investment by the New York Stock Exchange, or NYSE, that we treat as an equity method investment. As of December 31, 2019, OCC is our only equity method investment and is included in other non-current assets in the accompanying consolidated balance sheets. OCC serves as a clearing house for securities options, security futures, commodity futures and options on futures traded on various independent exchanges. OCC clears securities options traded on NYSE Arca and NYSE Amex Options, along with other non-affiliated exchanges, and is regulated by the SEC as a registered clearing agency and by the Commodity Futures Trading Commission, or CFTC, as a derivatives clearing organization. Under the equity method of accounting, each reporting period we adjust the carrying value of our OCC investment on our balance sheet by recognizing our pro-rata 40% share of the earnings or losses of OCC, with a corresponding adjustment in our statement of income to other income, after eliminating
any intra-entity income or expenses. In addition, if and when OCC issues cash dividends to us, we deduct the amount of these dividends from the carrying amount of our investment.
OCC adopted a new capital plan during the first quarter of 2015, which raised $150 million in equity capital from OCC's shareholders, including $60 million contributed by us. Pursuant to the terms of the capital plan, in exchange for the contributions of equity capital from its shareholders, OCC was required, subject to determination by its board of directors and compliance with legal requirements, to pay an annual dividend to its shareholders on a pro rata basis. The dividend was intended to be equal to the amount (i) of after-tax income of OCC, in excess of the amount required to maintain its target capital requirement and satisfy other capital requirements, and (ii) remaining after refunds to its clearing members equal to 50% of distributable earnings before tax. Related to that capital plan, from 2015-2017 we received a total of $31 million in dividends from OCC.
Subsequent to our $60 million investment, certain industry participants appealed the SEC's approval of the OCC capital plan in the U.S. Court of Appeals, and in August 2017, the Court of Appeals remanded the capital plan to the SEC. On February 13, 2019, the SEC disapproved the OCC capital plan established in 2015. Consistent with the SEC's disapproval of the OCC capital plan, the OCC returned our original $60 million contribution during 2019 as a result of the disapproval, including $16 million returned during the three months ended December 31, 2019.
Following the SEC disapproval, the OCC also announced that it would not be providing a refund to clearing members or declaring a dividend to shareholders for the year ended December 31, 2018, which resulted in higher reported OCC 2018 net income than we had estimated. Therefore, during 2019, we adjusted equity earnings in OCC by recording an additional $19 million earnings in other income to reflect our share of OCC's 2018 net income. In addition, we recognized $43 million in 2019 of equity earnings as our share of OCC's estimated 2019 profits, which is also included in other income.
Investments Related to MERS Prior to Acquisition
As a result of our acquisition of a majority equity position in MERS in June 2016, MERS was required to have cash or investments reserved in order to satisfy terms of the governing agreements of the acquisition. The reserve was satisfied with fixed income securities, including treasuries, corporates and municipals. The balance of the reserve was primarily used to cover settlement amounts from all litigation and claims arising from the operations of MERS prior to the acquisition of the majority equity position. As of December 31, 2019 and 2018, it amounted to $42 million and $81 million, respectively, including interest, and was included in prepaid expenses and other current assets and non-current assets, offset by an equal amount due to former MERS equity holders and was reflected in other current liabilities and other non-current liabilities. During 2019, we sold $41 million of these investments and distributed the proceeds to the original MERS shareholders (Note 17).
Our primary revenue contract classifications are described below. These categories best represent those with similar economic characteristics of the nature, amount, timing and uncertainty of our revenues and cash flows.
|
|
•
|
Transaction and clearing, net - Transaction and clearing revenues represent fees charged for the performance obligations of derivatives trading and clearing, cash, equity options and fixed income trading, as well as mortgage and technology services. In our derivatives markets, we earn transaction and clearing revenues from both counterparties to each contract that is traded and/or cleared, and in our equity and equity options markets, we receive trade execution fees. In our fixed income trading markets, we earn transaction fees on the trade execution of agency trades, commissions and net markups and markdowns on riskless principal trades. In our mortgage services market we earn fees for the registration and electronic recording of residential mortgage transactions.
|
The derivatives trading and clearing fees contain two performance obligations: (1) trade execution/clearing novation and (2) risk management of open interest. While we allocate the transaction price between these two performance obligations, since they generally are satisfied almost simultaneously, there is no significant deferral of revenue. Cash trading, equity options, mortgage services and fixed income fees contain one performance obligation related to each transaction which occurs instantaneously, and the revenue is recorded at the point in time of the transaction. Our transaction and clearing revenues are reported net of rebates, except for the NYSE transaction-based expenses. Rebates were $860 million, $844 million and $749 million in 2019, 2018 and 2017, respectively. Transaction and clearing fees can be variable based on trade volume discounts used in the determination of rebates, however virtually all volume discounts are calculated and recorded on a monthly basis. Transaction and clearing fees, as well as any volume discounts rebated to our customers, are calculated and billed monthly in accordance with our published fee schedules. In our NYSE businesses, we make liquidity payments to certain customers, as well as charge routing fees related to orders in our markets which are routed to other markets for execution and recognize those payments as a cost of revenue. In addition, we pay NYSE regulatory oversight fees to the SEC and collect equal amounts from our customers. These are also considered a cost of revenue, and both of these NYSE-related fees are included in
transaction-based expenses. Transaction and clearing revenues and the related transaction-based expenses are all recognized in our Trading and Clearing segment. In certain of our revenue share arrangements with third parties we control the delivered contract; in these arrangements we are acting as a principal and the revenue is recorded gross.
|
|
•
|
Data services - Data service revenues represent the following:
|
|
|
◦
|
Pricing and analytics services provide global securities evaluations, reference data, market indices, risk analytics, derivatives pricing and other information designed to meet our customers' portfolio management, trading, risk management, reporting and regulatory compliance needs.
|
|
|
◦
|
Exchange data and feeds services provide real-time, historical and derived pricing data, order book and transaction information related to our trading venues, as well as data from a broad array of third-party trading venues and news feeds.
|
|
|
◦
|
Desktops and connectivity services provide the connection to our exchanges, clearing houses and data centers and comprise hosting, colocation, infrastructure, technology-based information platforms, workstations and connectivity solutions through the ICE Global Network.
|
The nature and timing of each contract type for the data services above are similar in nature. Data services revenues are primarily subscription-based, billed monthly, quarterly or annually in advance and recognized ratably over time as our performance obligations of data delivery are met consistently throughout the period. Considering these contracts primarily consist of single performance obligations with fixed prices, there is no variable consideration and no need to allocate the transaction price. In certain of our data contracts, where third parties are involved, we arrange for the third party to transfer the services to our customers; in these arrangements we are acting as an agent and revenue is recorded net. All data services fees are included in our Data and Listings segment.
|
|
•
|
Listings - Listings revenues include original and annual listings fees, and other corporate action fees. Each distinct listing fee is allocated to multiple performance obligations including original and incremental listing and investor relations services, as well as a customer’s material right to renew the option to list on our exchanges. In performing this allocation, the standalone selling price of the listing services is based on the original and annual listing fees and the standalone selling price of the investor relations services is based on its market value. All listings fees are billed upfront and the identified performance obligations are satisfied over time. Revenue related to the investor relations performance obligation is recognized ratably over the period these services are provided, with the remaining revenue recognized ratably over time as customers continue to list on our exchanges. Listings fees related to other corporate actions are considered contract modifications of our listing contracts and are recognized ratably over time as customers continue to list on our exchanges. All listings fees are recognized in our Data and Listings segment.
|
|
|
•
|
Other revenues - Other revenues primarily include interest income on certain clearing margin deposits, regulatory penalties and fines, fees for use of our facilities, regulatory fees charged to member organizations of our U.S. securities exchanges, designated market maker service fees, technology development fees, exchange membership fees and agricultural grading and certification fees. Generally, fees for other revenues contain one performance obligation. Because these contracts primarily consist of single performance obligations with fixed prices, there is no variable consideration and no need to allocate the transaction price. Services for other revenues are primarily satisfied at a point in time. Therefore, there is no need to allocate the fee and no deferral results as we have no further obligation to the customer at that time. Other revenues are recognized in our Trading and Clearing segment.
|
The following table depicts the disaggregation of our revenue according to business line and segment (in millions). Amounts here have been aggregated as they follow consistent revenue recognition patterns, and are consistent with the segment information in Note 18:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading & Clearing Segment
|
|
Data & Listings Segment
|
|
Total Consolidated
|
Year ended December 31, 2019
|
|
|
|
|
|
Transaction and clearing, net
|
$
|
3,627
|
|
|
$
|
—
|
|
|
$
|
3,627
|
|
Data services
|
—
|
|
|
2,211
|
|
|
2,211
|
|
Listings
|
—
|
|
|
449
|
|
|
449
|
|
Other revenues
|
260
|
|
|
—
|
|
|
260
|
|
Total revenues
|
3,887
|
|
|
2,660
|
|
|
6,547
|
|
Transaction-based expenses
|
1,345
|
|
|
—
|
|
|
1,345
|
|
Total revenues, less transaction-based expenses
|
$
|
2,542
|
|
|
$
|
2,660
|
|
|
$
|
5,202
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
Services transferred at a point in time
|
$
|
2,194
|
|
|
$
|
—
|
|
|
$
|
2,194
|
|
Services transferred over time
|
348
|
|
|
2,660
|
|
|
3,008
|
|
Total revenues, less transaction-based expenses
|
$
|
2,542
|
|
|
$
|
2,660
|
|
|
$
|
5,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading & Clearing Segment
|
|
Data & Listings Segment
|
|
Total Consolidated
|
Year ended December 31, 2018
|
|
|
|
|
|
Transaction and clearing, net
|
$
|
3,483
|
|
|
$
|
—
|
|
|
$
|
3,483
|
|
Data services
|
—
|
|
|
2,115
|
|
|
2,115
|
|
Listings
|
—
|
|
|
444
|
|
|
444
|
|
Other revenues
|
234
|
|
|
—
|
|
|
234
|
|
Total revenues
|
3,717
|
|
|
2,559
|
|
|
6,276
|
|
Transaction-based expenses
|
1,297
|
|
|
—
|
|
|
1,297
|
|
Total revenues, less transaction-based expenses
|
$
|
2,420
|
|
|
$
|
2,559
|
|
|
$
|
4,979
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
Services transferred at a point in time
|
$
|
2,074
|
|
|
$
|
—
|
|
|
$
|
2,074
|
|
Services transferred over time
|
346
|
|
|
2,559
|
|
|
2,905
|
|
Total revenues, less transaction-based expenses
|
$
|
2,420
|
|
|
$
|
2,559
|
|
|
$
|
4,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading & Clearing Segment
|
|
Data & Listings Segment
|
|
Total Consolidated
|
Year ended December 31, 2017
|
|
|
|
|
|
Transaction and clearing, net
|
$
|
3,131
|
|
|
$
|
—
|
|
|
$
|
3,131
|
|
Data services
|
—
|
|
|
2,084
|
|
|
2,084
|
|
Listings
|
—
|
|
|
426
|
|
|
426
|
|
Other revenues
|
202
|
|
|
—
|
|
|
202
|
|
Total revenues
|
3,333
|
|
|
2,510
|
|
|
5,843
|
|
Transaction-based expenses
|
1,205
|
|
|
—
|
|
|
1,205
|
|
Total revenues, less transaction-based expenses
|
$
|
2,128
|
|
|
$
|
2,510
|
|
|
$
|
4,638
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
Services transferred at a point in time
|
$
|
1,813
|
|
|
$
|
—
|
|
|
$
|
1,813
|
|
Services transferred over time
|
315
|
|
|
2,510
|
|
|
2,825
|
|
Total revenues, less transaction-based expenses
|
$
|
2,128
|
|
|
$
|
2,510
|
|
|
$
|
4,638
|
|
The Trading and Clearing segment revenues above include $247 million, $248 million, and $226 million in 2019, 2018 and 2017, respectively, for services transferred over time related to risk management of open interest performance obligations. A majority of these performance obligations are performed over a short period of time of one month or less.
Beginning in the three months ended June 30, 2019, we have reflected amounts owed under certain third-party revenue share arrangements as technology and communication operating expenses rather than as had been previously recorded net within transaction and clearing revenues. These are included within our Trading and Clearing segment.
|
|
6.
|
Short-Term and Long-Term Restricted Cash and Cash Equivalents
|
ICE Futures Europe operates as a U.K. Recognized Investment Exchange, and is required by the U.K. Financial Conduct Authority to maintain financial resources sufficient to properly perform its relevant functions equivalent to a minimum of six months of operating costs, subject to certain deductions, which is held in cash or cash equivalents or investments, at all times. As of both December 31, 2019 and 2018, the amount held for this purpose was $90 million and is included in short-term restricted cash and cash equivalents.
ICE Clear Europe operates as a U.K. Recognized Clearing House. As such, ICE Clear Europe is required by the BOE and the European Market Infrastructure Regulation, or EMIR, to restrict as cash, cash equivalents or investments an amount to reflect an estimate of the capital required to wind down or restructure the activities of the clearing house, cover operational, legal and business risks and to reserve capital to meet credit, counterparty and market risks not covered by the members' margin and guaranty funds. As of December 31, 2019 and 2018, $465 million and $435 million, respectively, are included in short-term restricted cash and cash equivalents held for these purposes. The increase in the regulatory capital restricted cash at ICE Clear Europe as of December 31, 2019 was due to the growth of our clearing businesses, a related increase in costs and the consequential additional regulatory capital buffers required by the BOE. ICE Clear Europe, in addition to being regulated by the BOE, is also regulated by the CFTC as a U.S. Derivatives Clearing Organization, or DCO. The regulatory capital available to ICE Clear Europe, as described above, exceeds the CFTC requirements.
Our CFTC regulated U.S. Designated Contract Market, or DCM, ICE Futures U.S., our CFTC regulated U.S. DCOs, ICE Clear U.S. and ICE Clear Credit, our CFTC regulated U.S. Swap Data Repository, or SDR, ICE Trade Vault, and our U.S. Swap Execution Facility, or SEF, ICE Swap Trade, are required to maintain financial resources including cash, in an amount that would cover certain operating costs for a one-year period, subject to certain deductions, to satisfy at least six months of such operating costs at all times. As of December 31, 2019 and 2018, the financial resources reserved were $239 million and $213 million, respectively, included as short-term restricted cash and cash equivalents. For our U.S. DCOs, ICE Clear U.S. and ICE Clear Credit, these amounts include voluntarily-held additional reserves consistent with the EMIR requirements to cover operational, legal and business risks and to reserve capital to meet credit, counterparty and market risks not covered by the member margin and guaranty funds.
Our clearing houses, other than ICE NGX, require each clearing member to make deposits to a fund known as the guaranty fund. As of December 31, 2019 and 2018, our combined contributions from the clearing houses to the guaranty funds of our clearing houses are $404 million and $320 million, respectively. In January 2019, we increased our contribution to ICE Clear Europe’s guaranty fund by $27 million and in March 2019, we increased our ICE Clear U.S. guaranty fund contribution by $7 million. In September 2019, we increased our ICE Clear U.S. guaranty fund contribution by $35 million in connection with the launch of Bakkt, solely applicable to any losses associated with a default in Bitcoin contracts and other digital asset contracts that ICE Clear U.S. might clear in the future associated with Bakkt operations. In addition, we have a $15 million first-loss amount related to ICE NGX insurance and included in our contribution to its guaranty fund. All of these contributions are included in long-term restricted cash and cash equivalents. See Note 14 for additional information on the guaranty funds and our contributions of cash to our clearing houses guaranty funds.
As of December 31, 2019 and 2018, there is $104 million and $67 million, respectively, of additional combined cash included in short-term restricted cash and cash equivalents related to other regulated entities and exchanges, including ICE Benchmark Administration, ICE Clear Netherlands, ICE Trade Vault U.K., ICE Endex, ICE Clear Singapore, ICE NGX. As of December 31, 2019, short-term restricted cash includes the clearing member requirements of ICE Securities Executions & Clearing, LLC and restricted cash related to the launch of Bakkt Trust Company, LLC. The increase in the regulatory capital restricted cash as of December 31, 2019 was primarily due to additional costs incurred due to the growth of these businesses.
As of December 31, 2019 and 2018, we have $45 million and $23 million, respectively, of additional restricted cash, primarily related to escrow for recent acquisitions included in short-term restricted cash and cash equivalents.
|
|
7.
|
Property and Equipment
|
Property and equipment consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Depreciation
Period
(Years)
|
|
2019
|
|
2018
|
|
Software and internally developed software
|
$
|
1,056
|
|
|
$
|
919
|
|
|
3 to 7
|
Computer and network equipment
|
742
|
|
|
682
|
|
|
3 to 5
|
Land
|
146
|
|
|
145
|
|
|
N/A
|
Buildings and building improvements
|
309
|
|
|
294
|
|
|
15 to 40
|
Right-of-use lease assets
|
287
|
|
|
—
|
|
|
1 to 16
|
Leasehold improvements
|
269
|
|
|
242
|
|
|
4 to 12
|
Equipment, aircraft and office furniture
|
233
|
|
|
225
|
|
|
4 to 15
|
|
3,042
|
|
|
2,507
|
|
|
|
Less accumulated depreciation and amortization
|
(1,506
|
)
|
|
(1,266
|
)
|
|
|
Property and equipment, net
|
$
|
1,536
|
|
|
$
|
1,241
|
|
|
|
Beginning January 1, 2019, in connection with our adoption of ASU 2016-02 (Note 2), we recognize right-of-use assets representing our rights to use assets over an underlying lease term as rent expense.
In 2019, 2018 and 2017, amortization of software and internally developed software was $175 million, $160 million and $135 million, respectively, and depreciation of all other property and equipment was $145 million, $133 million and $122 million, respectively. As of December 31, 2019 and 2018, unamortized software and internally developed software was $301 million and $298 million, respectively.
|
|
8.
|
Goodwill and Other Intangible Assets
|
The following is a summary of the activity in our goodwill balance (in millions):
|
|
|
|
|
Goodwill balance at January 1, 2018
|
$
|
12,216
|
|
Acquisitions
|
889
|
|
Foreign currency translation
|
(38
|
)
|
Other activity, net
|
18
|
|
Goodwill balance at December 31, 2018
|
13,085
|
|
Acquisitions
|
235
|
|
Foreign currency translation
|
20
|
|
Other activity, net
|
2
|
|
Goodwill balance at December 31, 2019
|
$
|
13,342
|
|
The following is a summary of the activity in our other intangible assets balance (in millions):
|
|
|
|
|
Other intangible assets balance at January 1, 2018
|
$
|
10,269
|
|
Acquisitions
|
548
|
|
Foreign currency translation
|
(45
|
)
|
Amortization of other intangible assets
|
(289
|
)
|
Other activity, net
|
(21
|
)
|
Other intangible assets balance at December 31, 2018
|
10,462
|
|
Acquisitions
|
116
|
|
Foreign currency translation
|
24
|
|
ICE Futures Singapore exchange registration intangible assets impairment
|
(31
|
)
|
Amortization of other intangible assets
|
(311
|
)
|
Other activity, net
|
(2
|
)
|
Other intangible assets balance at December 31, 2019
|
$
|
10,258
|
|
We completed several acquisitions, including Simplifile, during 2019, and BondPoint, CHX Holdings, Inc., TMC Bonds and MERS during 2018 (Note 3).
Foreign currency translation adjustments result from a portion of our goodwill and other intangible assets being held at our U.K., EU and Canadian subsidiaries, whose functional currencies are not the U.S. dollar. The table above includes an impairment charge of $31 million recorded during 2019 on the remaining value of exchange registration intangible assets on ICE Futures Singapore as a result of a decrease in fair value determined during our annual impairment testing. ICE Futures Singapore is part of our Trading and Clearing segment. In addition, the table includes an impairment charge of $4 million recorded during 2018 on the remaining value of exchange registration intangible assets in connection with the July 2018 closure of ICE Futures Canada and ICE Clear Canada. ICE Futures Canada and ICE Clear Canada were part of our Trading and Clearing segment. Other than these impairments and the impairment related to the 2017 NYSE Governance Services divestiture (Note 3), we did not recognize any other impairment losses on goodwill or other intangible assets during 2019, 2018 or 2017. The changes in other activity, net, in the tables above primarily relate to adjustments to the fair value of the net tangible assets and intangible assets relating to acquisitions, with a corresponding adjustment to goodwill.
Other intangible assets and the related accumulated amortization consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Useful Life
(Years)
|
|
2019
|
|
2018
|
|
Customer relationships
|
$
|
4,510
|
|
|
$
|
4,406
|
|
|
3 to 25
|
Technology
|
544
|
|
|
524
|
|
|
2.5 to 11
|
Trading products with finite lives
|
237
|
|
|
237
|
|
|
20
|
Data/databases
|
150
|
|
|
150
|
|
|
4 to 10
|
Market data provider relationships
|
11
|
|
|
11
|
|
|
20
|
Non-compete agreements
|
42
|
|
|
39
|
|
|
1 to 5
|
Other
|
36
|
|
|
36
|
|
|
1 to 5
|
|
5,530
|
|
|
5,403
|
|
|
|
Less accumulated amortization
|
(1,811
|
)
|
|
(1,532
|
)
|
|
|
Total finite-lived intangible assets, net
|
3,719
|
|
|
3,871
|
|
|
|
Exchange registrations, licenses and contracts with indefinite lives
|
6,228
|
|
|
6,253
|
|
|
|
Trade names and trademarks with indefinite lives
|
280
|
|
|
280
|
|
|
|
In-process research and development
|
23
|
|
|
49
|
|
|
|
Other
|
8
|
|
|
9
|
|
|
|
Total indefinite-lived intangible assets
|
6,539
|
|
|
6,591
|
|
|
|
Total other intangible assets, net
|
$
|
10,258
|
|
|
$
|
10,462
|
|
|
|
In 2019, 2018 and 2017, amortization of other intangible assets was $311 million, $289 million and $272 million, respectively. Collectively, the remaining weighted average useful lives of the finite-lived intangible assets is 17.1 years as of December 31, 2019. We expect future amortization expense from the finite-lived intangible assets as of December 31, 2019 to be as follows (in millions):
|
|
|
|
|
2020
|
$
|
278
|
|
2021
|
261
|
|
2022
|
254
|
|
2023
|
247
|
|
2024
|
290
|
|
Thereafter
|
2,389
|
|
|
$
|
3,719
|
|
Our contract liabilities, or deferred revenue, represent consideration received that is yet to be recognized as revenue. Total deferred revenue was $201 million as of December 31, 2019, including $129 million in current deferred revenue and $72 million in other non-current liabilities. Total deferred revenue was $217 million as of December 31, 2018, including $135 million in current deferred revenue and $82 million in other non-current liabilities. See Note 5 for a description of our annual
listing, original listing, other listings and data services revenues and the revenue recognition policy for each of these revenue streams. The changes in our deferred revenue during 2019 and 2018 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Listing Revenue
|
|
Original Listing Revenues
|
|
Other Listing Revenues
|
|
Data Services and Other Revenues
|
|
Total
|
Deferred revenue balance at January 1, 2018
|
$
|
—
|
|
|
$
|
25
|
|
|
$
|
98
|
|
|
$
|
93
|
|
|
$
|
216
|
|
Additions
|
384
|
|
|
24
|
|
|
38
|
|
|
366
|
|
|
812
|
|
Amortization
|
(384
|
)
|
|
(24
|
)
|
|
(36
|
)
|
|
(367
|
)
|
|
(811
|
)
|
Deferred revenue balance at December 31, 2018
|
—
|
|
|
25
|
|
|
100
|
|
|
92
|
|
|
217
|
|
Additions
|
384
|
|
|
17
|
|
|
36
|
|
|
394
|
|
|
831
|
|
Amortization
|
(384
|
)
|
|
(23
|
)
|
|
(42
|
)
|
|
(398
|
)
|
|
(847
|
)
|
Deferred revenue balance at December 31, 2019
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
94
|
|
|
$
|
88
|
|
|
$
|
201
|
|
Included in the amortization recognized in 2019, $122 million related to the deferred revenue balance as of January 1, 2019. Included in the amortization in 2018, $114 million related to the deferred revenue balance as of January 1, 2018. As of December 31, 2019, we estimate that our deferred revenue will be recognized in the following years (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Listing Revenues
|
|
Other Listing Revenues
|
|
Data Services and Other Revenues
|
|
Total
|
2020
|
$
|
15
|
|
|
$
|
31
|
|
|
$
|
83
|
|
|
$
|
129
|
|
2021
|
4
|
|
|
24
|
|
|
4
|
|
|
32
|
|
2022
|
—
|
|
|
21
|
|
|
1
|
|
|
22
|
|
2023
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
2024
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Thereafter
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Total
|
$
|
19
|
|
|
$
|
94
|
|
|
$
|
88
|
|
|
$
|
201
|
|
Our total debt, including short-term and long-term debt, consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Debt:
|
|
|
|
Short-term debt:
|
|
|
|
Commercial Paper
|
$
|
1,311
|
|
|
$
|
951
|
|
2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020)
|
1,248
|
|
|
—
|
|
Other short-term debt
|
10
|
|
|
—
|
|
Total short-term debt
|
2,569
|
|
|
951
|
|
Long-term debt:
|
|
|
|
2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020)
|
—
|
|
|
1,246
|
|
2022 Senior Notes (2.35% senior unsecured notes due September 15, 2022)
|
497
|
|
|
496
|
|
2023 Senior Notes (3.45% senior unsecured notes due September 21, 2023)
|
398
|
|
|
397
|
|
2023 Senior Notes (4.00% senior unsecured notes due October 15, 2023)
|
794
|
|
|
793
|
|
2025 Senior Notes (3.75% senior unsecured notes due December 1, 2025)
|
1,244
|
|
|
1,243
|
|
2027 Senior Notes (3.10% senior unsecured notes due September 15, 2027)
|
496
|
|
|
496
|
|
2028 Senior Notes (3.75% senior unsecured notes due September 21, 2028)
|
592
|
|
|
591
|
|
2048 Senior Notes (4.25% senior unsecured notes due September 21, 2048)
|
1,229
|
|
|
1,228
|
|
Total long-term debt
|
5,250
|
|
|
6,490
|
|
Total debt
|
$
|
7,819
|
|
|
$
|
7,441
|
|
Credit Facilities
We have a $3.4 billion senior unsecured revolving credit facility, or the Credit Facility, pursuant to a credit agreement with Wells Fargo Bank, N.A., as primary administrative agent, issuing lender and swing-line lender, Bank of America, N.A., as syndication agent, backup administrative agent and swing-line lender, and the lenders party thereto. On August 9, 2018, we extended the final maturity date of the Credit Facility from August 18, 2022 to August 9, 2023, and made certain other changes. We incurred debt issuance costs of $2 million relating to the Credit Facility and these costs are included in the accompanying consolidated balance sheet as other non-current assets to be amortized over the life of the Credit Facility.
The Credit Facility includes an option for us to propose an increase in the aggregate amount available for borrowing by up to $975 million, subject to the consent of the lenders funding the increase and certain other conditions. No amounts were outstanding under the Credit Facility as of December 31, 2019. As of December 31, 2019, of the $3.4 billion that is currently available for borrowing under the Credit Facility, $1.3 billion is required to back-stop the amount outstanding under our U.S. dollar commercial paper program, or the Commercial Paper Program, and $160 million is required to support certain broker dealer subsidiary commitments. The amount required to backstop the amounts outstanding under the Commercial Paper Program will fluctuate as we increase or decrease our commercial paper borrowings. The remaining $1.9 billion is available for working capital and general corporate purposes including, but not limited to, acting as a back-stop to future increases in the amounts outstanding under the Commercial Paper Program.
We also pay an annual commitment fee for unutilized amounts payable in arrears at a rate that ranges from 0.08% to 0.20% determined based on our long-term debt rating. As of December 31, 2019, the applicable rate was 0.125%. Amounts borrowed under the facility may be prepaid at any time without premium or penalty.
The Credit Facility also contains customary representations and warranties, covenants and events of default, including a leverage ratio, limitations on liens on our assets, indebtedness of non-obligor subsidiaries, the sale of all or substantially all of our assets, and other matters.
During 2019, a subsidiary of ours entered into a new $20 million line of credit for their general corporate purposes. As of December 31, 2019, the subsidiary had borrowed $10 million, which is reflected as “other short-term debt” in the table above.
Commercial Paper Program
Our Commercial Paper Program is currently backed by the borrowing capacity available under the Credit Facility, as described above. The effective interest rate of commercial paper issuances does not materially differ from short-term interest rates (such as USD LIBOR) which fluctuate due to market conditions and as a result may impact our interest expense.
We had net issuances of $360 million under the Commercial Paper Program during 2019, the proceeds of which were used to fund the acquisition of Simplifile and for general corporate purposes. We repaid $283 million of net notes outstanding under the Commercial Paper Program during 2018 primarily using cash flows from operations and cash proceeds received from our 2018 bond issuance. This was partially offset by notes we issued under the program during 2018, the proceeds of which were used to fund acquisitions and investments and repurchase our common stock. We repaid $409 million of net notes outstanding under the Commercial Paper Program during 2017 primarily using net cash proceeds received from the sales of Cetip and Trayport. We repaid a portion of the amounts outstanding under the program during 2019, 2018 and 2017 with cash flows from operations.
Commercial paper notes of $1.3 billion with original maturities ranging from two to 87 days were outstanding as of December 31, 2019 with a weighted average interest rate of 1.84% per annum, and a weighted average remaining maturity of 22 days. Commercial paper notes of $951 million with original maturities ranging from two to 77 days were outstanding as of December 31, 2018, with a weighted average interest rate of 2.48% per annum, and a weighted average remaining maturity of 12 days.
Senior Notes:
|
|
•
|
2023, 2028 and 2048 Senior Notes: In August 2018, we issued $2.25 billion in new aggregate unsecured fixed-rate senior notes, including $400 million, 3.45% notes due in 2023, or the 2023 Senior Notes, $600 million, 3.75% notes due in 2028, or the 2028 Senior Notes, and $1.25 billion, 4.25% notes due in 2048, or the 2048 Senior Notes. We used the proceeds from the offering for general corporate purposes, including to fund the redemption of the $600 million, 2.50% Senior Notes due October 2018 and to refinance all of our issuances under our Commercial Paper Program that resulted from acquisitions and investments in 2018. We incurred debt issuance costs of $21 million relating to these Senior Notes that we recorded as a deduction from the carrying amount of the debt and which is being amortized over the respective note lives.
|
|
|
•
|
2022 and 2027 Senior Notes: In August 2017, we issued $1.0 billion in aggregate senior unsecured fixed-rate notes, including $500 million, 2.35% notes due September 2022, or the 2022 Senior Notes, and $500 million, 3.10% notes due September 2027, or the 2027 Senior Notes. We used the majority of the proceeds of the offering to fund the redemption in September 2017 of $850 million, 2.00% senior unsecured fixed-rate NYSE Notes prior to the October 2017 maturity date. We incurred debt issuance costs of $8 million relating to these Senior Notes that we recorded as a deduction from the carrying amount of the debt and which is being amortized over the respective note lives.
|
|
|
•
|
2020 and 2025 Senior Notes: In November 2015, we issued $2.5 billion in aggregate senior unsecured fixed-rate notes, including $1.25 billion, 2.75% notes due December 2020, or the 2020 Senior Notes, and $1.25 billion, 3.75% notes due December 2025, or the 2025 Senior Notes. We used the proceeds from the offering, together with $1.6 billion of borrowings under our Commercial Paper Program, to finance the cash portion of the purchase price of Interactive Data.
|
|
|
•
|
October 2023 Senior Notes: In October 2013, we issued $800 million, 4.00% senior unsecured fixed-rate notes due October 2023, or the October 2023 Senior Notes. We used the net proceeds from the October 2023 Senior Notes to finance a portion of the purchase price of the acquisition of NYSE.
|
All of our Senior Notes contain affirmative and negative covenants, including, but not limited to, certain redemption rights, limitations on liens and indebtedness and limitations on certain mergers, sales, dispositions and lease-back transactions.
Debt Repayment Schedule
As of December 31, 2019, the outstanding debt repayment schedule is as follows (in millions):
|
|
|
|
|
2020
|
$
|
2,574
|
|
2021
|
—
|
|
2022
|
500
|
|
2023
|
1,200
|
|
2024
|
—
|
|
Thereafter
|
3,600
|
|
Principal amounts repayable
|
7,874
|
|
Debt issuance costs
|
(35
|
)
|
Unamortized balance discounts on bonds, net
|
(20
|
)
|
Total debt outstanding
|
$
|
7,819
|
|
|
|
11.
|
Share-Based Compensation
|
The non-cash compensation expenses for stock options and restricted stock were $139 million, $130 million and $135 million in 2019, 2018 and 2017, respectively, net of $14 million, $15 million and $18 million, respectively, that was capitalized as software development costs. As of December 31, 2019, we had 34.2 million shares in total under various equity plans available for future issuance as stock option and restricted stock awards.
Stock Option Plans
Stock options are granted with an exercise price equal to the fair value of our common stock on the grant date. We may grant, under provisions of the plans, both incentive stock options and nonqualified stock options. The options generally vest over three years and may generally be exercised up to ten years after the date of grant, but generally expire either 14 or 60 days after termination of employment. The shares of common stock issued under our stock option plans are made available from authorized and unissued common stock or treasury shares.
The fair value is based on our closing stock price on the date of grant as well as certain other assumptions. Compensation expense arising from option grants is recognized ratably over the vesting period based on the grant date fair value, net of estimated forfeitures.
The following is a summary of our stock option activity:
|
|
|
|
|
|
|
|
|
Number of Options
(in thousands)
|
|
Weighted Average
Exercise Price per
Option
|
Outstanding at January 1, 2017
|
3,879
|
|
|
$
|
36.05
|
|
Granted
|
731
|
|
|
57.34
|
|
Exercised
|
(597
|
)
|
|
27.97
|
|
Outstanding at December 31, 2017
|
4,013
|
|
|
41.13
|
|
Granted
|
535
|
|
|
67.23
|
|
Exercised
|
(908
|
)
|
|
34.84
|
|
Forfeited
|
(30
|
)
|
|
58.01
|
|
Outstanding at December 31, 2018
|
3,610
|
|
|
46.44
|
|
Granted
|
493
|
|
|
76.16
|
|
Exercised
|
(598
|
)
|
|
38.96
|
|
Forfeited
|
(4
|
)
|
|
77.58
|
|
Outstanding at December 31, 2019
|
3,501
|
|
|
51.87
|
|
Details of stock options outstanding as of December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
(in thousands)
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
Aggregate
Intrinsic
Value
(In millions)
|
Vested or expected to vest
|
3,501
|
|
|
$
|
51.87
|
|
|
5.9
|
|
$
|
142
|
|
Exercisable
|
2,445
|
|
|
$
|
44.35
|
|
|
4.9
|
|
$
|
118
|
|
Details of stock options exercised during 2019, 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Options exercised:
|
|
2019
|
|
2018
|
|
2017
|
Total intrinsic value of options exercised (in millions)
|
|
$
|
26
|
|
|
$
|
36
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
Options outstanding:
|
|
2019
|
|
2018
|
|
2017
|
Number of options exercisable (in millions)
|
|
2.4
|
|
|
2.6
|
|
|
3.0
|
|
Weighted-average exercise price
|
|
$
|
44.35
|
|
|
$
|
40.22
|
|
|
$
|
36.36
|
|
As of December 31, 2019, there were $8 million in total unrecognized compensation costs related to stock options, which are expected to be recognized over a weighted average period of 1.4 years as the stock options vest.
We use the Black-Scholes option pricing model to value our stock option awards. During 2019, 2018 and 2017, we used the assumptions in the table below to compute the value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Assumptions:
|
|
2019
|
|
2018
|
|
2017
|
Risk-free interest rate
|
|
2.49
|
%
|
|
2.67
|
%
|
|
1.84
|
%
|
Expected life in years
|
|
5.9
|
|
|
6.0
|
|
|
5.0
|
|
Expected volatility
|
|
20
|
%
|
|
20
|
%
|
|
21
|
%
|
Expected dividend yield
|
|
1.44
|
%
|
|
1.43
|
%
|
|
1.40
|
%
|
Estimated weighted-average fair value of options granted per share
|
|
$
|
15.45
|
|
|
$
|
14.08
|
|
|
$
|
10.50
|
|
The risk-free interest rate is based on the zero-coupon U.S. Treasury yield curve in effect at the date of grant. The expected life is derived from historical and anticipated future exercise patterns. Expected volatility is based on historical volatility data of our stock.
Restricted Stock Plans
Restricted shares are used as an incentive to attract and retain qualified employees and to increase stockholder returns with actual performance linked to both short and long-term stockholder return as well as retention objectives. The grant date fair value of each award is based on the closing stock price of our stock at the date of grant.
Granted but unvested shares are generally forfeited upon termination of employment, whereby compensation costs previously recognized for unvested shares are reversed. Until the shares vest and are issued, participants have no voting or dividend rights and the shares may not be sold, assigned, transferred, pledged or otherwise encumbered. Unvested restricted stock earns dividend equivalents which are paid in cash on the vesting date.
The grant date fair value of time-based restricted stock units is recognized as expense ratably over the vesting period, which is typically three years, net of forfeitures. Our equity plans include a change in control provision that may accelerate vesting on both the time-based and performance-based restricted shares if the awards are not assumed by an acquirer in the case of a change in control.
For awards with performance conditions, we recognize compensation costs, net of forfeitures, using an accelerated attribution method over the vesting period. Compensation costs are recognized only if it is probable that the performance condition will be satisfied. If we initially determine that it is not probable of being satisfied and later determine that it is, or vice versa, a cumulative catch-up adjustment is retroactively recorded in the period of change based on the new estimate. We recognize the remaining compensation costs over the remaining vesting period.
In February 2019, we reserved a maximum of 1.1 million restricted shares for potential issuance as performance-based restricted shares to certain of our employees. The number of shares ultimately granted under this award is based on our actual financial performance as compared to financial performance targets set by our Board of Directors and its Compensation Committee for the year ending December 31, 2019, and is also subject to a market condition reduction based on how our 2019 total stockholder return, or TSR, compared to that of the S&P 500 Index. In 2019, no TSR share reduction was required. Based on our actual 2019 financial performance as compared to the 2019 financial performance level thresholds, 0.5 million restricted shares were awarded, which resulted in $39 million in compensation expenses that will be expensed over the three-year accelerated vesting period, including $20 million expensed during 2019.
The fair value of awards with a market condition is estimated based on a simulation of various outcomes and includes inputs such as our stock price on the grant date, the valuation of historical awards with market conditions, the relatively low likelihood that the market condition will affect the number of shares granted (as the market condition only affects shares granted in excess of certain financial performance targets), and our expectation of achieving the financial performance targets.
The following is a summary of nonvested restricted shares under all plans discussed above:
|
|
|
|
|
|
|
|
Number of
Restricted
Stock Shares
(in thousands)
|
|
Weighted Average
Grant-Date Fair
Value per Share
|
Nonvested at January 1, 2017
|
6,436
|
|
$
|
45.86
|
|
Granted
|
3,274
|
|
57.61
|
|
Vested
|
(3,509)
|
|
44.64
|
|
Forfeited
|
(453)
|
|
52.38
|
|
Nonvested at December 31, 2017
|
5,748
|
|
52.78
|
|
Granted
|
1,994
|
|
67.88
|
|
|
|
|
|
|
|
|
|
Number of
Restricted
Stock Shares
(in thousands)
|
|
Weighted Average
Grant-Date Fair
Value per Share
|
Vested
|
(2,819)
|
|
50.21
|
|
Forfeited
|
(453)
|
|
58.42
|
|
Nonvested at December 31, 2018
|
4,470
|
|
60.56
|
|
Granted
|
1,697
|
|
76.85
|
|
Vested
|
(2,269)
|
|
57.92
|
|
Forfeited
|
(231)
|
|
67.66
|
|
Nonvested at December 31, 2019
|
3,667
|
|
69.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Time-based restricted stock units granted
(in thousands) (1)
|
|
997
|
|
|
1,153
|
|
|
2,364
|
|
Total fair value of restricted stock vested under all restricted stock plans
(in millions)
|
|
$
|
173
|
|
|
$
|
206
|
|
|
$
|
206
|
|
(1) The remaining shares granted are performance-based.
Performance-based restricted shares have been presented to reflect the actual shares to be issued based on the achievement of past performance targets, also considering the impact of any market conditions. Non-vested performance-based restricted shares granted are presented in the table above at the target number of restricted shares that would vest if the performance targets are met. As of December 31, 2019, there were $106 million in total unrecognized compensation costs related to time-based and performance-based restricted stock. These costs are expected to be recognized over a weighted-average period of 1.1 years as the restricted stock vests.
Employee Stock Purchase Plan
In May 2018, our stockholders approved our ESPP, under which we have reserved and may sell up to 25 million shares of our common stock to employees. The ESPP grants participating employees the right to acquire our stock in increments of 1% of eligible pay, with a maximum contribution of 25% of eligible pay, subject to applicable annual Internal Revenue Service, or IRS, limitations. Under our ESPP, participating employees are limited to $25,000 of common stock annually, and a maximum of 1,250 shares of common stock each offering period. There are two offering periods each year, from January 1st (or the first trading day thereafter) through June 30th (or the last trading day prior to such date) and from July 1st (or the first trading day thereafter) through December 31st (or the last trading day prior to such date). The purchase price per share of common stock is 85% of the lesser of the fair market value of the stock on the first or the last trading day of each offering period. We recorded compensation expenses of $7 million and $4 million during 2019 and 2018, respectively, related to the 15% discount given to our participating employees.
Bakkt Incentive Units
In February 2019, our Board approved the adoption of the Bakkt Equity Incentive Plan to issue various Bakkt equity unit awards. Under this plan, as of December 31, 2019, Bakkt has 82 million, 4 million and 9 million of its preferred, common and phantom incentive units, respectively, outstanding. These awards were made to certain employees and Board members. The units are unvested at the issuance date, are subject to the vesting terms in the award agreements and upon vesting are converted into Bakkt equity or cash.
Treasury Stock
During 2019, 2018 and 2017, we received 1.0 million shares, 1.5 million shares and 1.5 million shares, respectively, of common stock from employees to satisfy tax withholdings we made on their behalf for restricted stock and stock option exercises. We recorded the receipt of the shares as treasury stock.
Stock Repurchase Program
We periodically review whether to repurchase our stock. In making a determination regarding the timing and extent of any stock repurchases, we consider multiple factors that may include: overall stock market conditions, our common stock price
performance, the remaining amount authorized for repurchases by our Board, the potential impact of a stock repurchase program on our 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.
In September 2017, our Board approved an aggregate of $1.2 billion for future repurchases with no fixed expiration date. In September 2018, our Board approved an aggregate of $2.0 billion for future repurchases with no fixed expiration date. In December 2019, our Board approved an aggregate of $2.4 billion for future repurchases of our common stock with no fixed expiration date that became effective on January 1, 2020. The $2.4 billion replaced the previous amount approved by the Board of Directors.
During 2019, 2018 and 2017, we repurchased 17.4 million shares, 16.3 million shares and 15.0 million shares, respectively, of our outstanding common stock at a cost of $1.5 billion, $1.2 billion and $949 million, respectively, excluding shares withheld upon vesting of equity awards. The shares repurchased are held in treasury stock.
We expect to fund repurchases from our operating cash flow, borrowings under our debt facilities or our Commercial Paper Program. Repurchases may be made from time to time on the open market, through established trading plans, in privately-negotiated transactions or otherwise, in accordance with all applicable securities laws, rules and regulations. We have entered into a Rule 10b5-1 trading plan, as authorized by our Board, to govern some of the repurchases of our shares of common stock. We may discontinue the stock repurchases at any time and may amend or terminate the Rule 10b5-1 trading plan at any time. The approval of our Board for the share repurchases does not obligate us to acquire any particular amount of our common stock. In addition, our Board may increase or decrease the amount available for repurchases from time to time.
The table below sets forth the information with respect to purchases made by or on behalf of ICE or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the periods presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Repurchased
(in thousands)
|
|
Average Repurchase Price Per Share
|
|
Amount of Repurchases
(in millions)
|
|
Total cumulative year-to-date shares purchased as part of publicly announced plans or programs
(in thousands)
|
|
Approximate dollar
value of shares that
may yet be
purchased under the
plans or programs as of the end of the quarter
(in millions)
|
2019
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
3,661
|
|
|
$
|
92.86
|
|
|
$
|
340
|
|
|
17,432
|
|
|
$
|
540
|
|
Third quarter
|
3,730
|
|
|
$
|
91.16
|
|
|
340
|
|
|
13,771
|
|
|
$
|
880
|
|
Second quarter
|
4,170
|
|
|
$
|
81.53
|
|
|
340
|
|
|
10,041
|
|
|
$
|
1,220
|
|
First quarter
|
5,871
|
|
|
$
|
74.95
|
|
|
440
|
|
|
5,871
|
|
|
$
|
1,560
|
|
Total common stock repurchases(1)
|
17,432
|
|
|
$
|
83.75
|
|
|
$
|
1,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
1,863
|
|
|
$
|
74.99
|
|
|
$
|
139
|
|
|
16,257
|
|
|
$
|
2
|
|
Third quarter
|
3,991
|
|
|
$
|
75.17
|
|
|
300
|
|
|
14,394
|
|
|
$
|
141
|
|
Second quarter
|
6,298
|
|
|
$
|
72.81
|
|
|
459
|
|
|
10,403
|
|
|
$
|
441
|
|
First quarter
|
4,105
|
|
|
$
|
73.08
|
|
|
300
|
|
|
4,105
|
|
|
$
|
900
|
|
Total common stock repurchases(2)
|
16,257
|
|
|
$
|
73.71
|
|
|
$
|
1,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
3,498
|
|
|
$
|
68.62
|
|
|
$
|
240
|
|
|
14,967
|
|
|
$
|
51
|
|
Third quarter
|
3,642
|
|
|
$
|
65.90
|
|
|
240
|
|
|
11,469
|
|
|
$
|
291
|
|
Second quarter
|
3,916
|
|
|
$
|
61.28
|
|
|
240
|
|
|
7,828
|
|
|
$
|
531
|
|
First quarter
|
3,911
|
|
|
$
|
58.49
|
|
|
229
|
|
|
3,911
|
|
|
$
|
771
|
|
Total open market common stock repurchases
|
14,967
|
|
|
$
|
63.39
|
|
|
$
|
949
|
|
|
|
|
|
(1)Includes 1.3 million shares purchased on the open market at a cost of $100 million and 16.1 million shares purchased under our Rule 10b5-1 trading plan at a cost of $1.4 billion.
(2) Includes 2.2 million shares purchased on the open market at a cost of $159 million and 14.1 million shares purchased under our Rule 10b5-1 trading plan at a cost of $1.0 billion.
Dividends
The declaration of dividends is subject to the discretion of our Board, and may be affected by various factors, including our future earnings, financial condition, capital requirements, levels of indebtedness, credit ratings, our current and future planned
strategic growth initiatives and other considerations which our Board of Directors deem relevant. Our Board has adopted a quarterly dividend declaration policy providing that the declaration of any dividends will be determined quarterly by the Board or its Audit Committee, taking into account such factors as our evolving business model, prevailing business conditions and our financial results and capital requirements, without a predetermined annual net income payout ratio. We declared and paid cash dividends per share during the periods presented as follows:
|
|
|
|
|
|
|
|
|
|
Dividends Per Share
|
|
Amount
(in millions)
|
2019
|
|
|
|
Fourth quarter
|
$
|
0.275
|
|
|
$
|
154
|
|
Third quarter
|
0.275
|
|
|
155
|
|
Second quarter
|
0.275
|
|
|
155
|
|
First quarter
|
0.275
|
|
|
157
|
|
Total cash dividends declared and paid
|
$
|
1.10
|
|
|
$
|
621
|
|
|
|
|
|
2018
|
|
|
|
Fourth quarter
|
$
|
0.24
|
|
|
$
|
138
|
|
Third quarter
|
0.24
|
|
|
138
|
|
Second quarter
|
0.24
|
|
|
139
|
|
First quarter
|
0.24
|
|
|
140
|
|
Total cash dividends declared and paid
|
$
|
0.96
|
|
|
$
|
555
|
|
|
|
|
|
2017
|
|
|
|
Fourth quarter
|
$
|
0.20
|
|
|
$
|
118
|
|
Third quarter
|
0.20
|
|
|
119
|
|
Second quarter
|
0.20
|
|
|
119
|
|
First quarter
|
0.20
|
|
|
120
|
|
Total cash dividends declared and paid
|
$
|
0.80
|
|
|
$
|
476
|
|
Accumulated Other Comprehensive Income (Loss)
The following tables present changes in the accumulated balances for each component of other comprehensive income (loss) (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component
|
|
|
Foreign currency translation adjustments
|
|
Comprehensive income from equity method investment
|
|
Employee benefit plans adjustments
|
|
Fair value of available-for-sale securities
|
|
Total
|
|
Balance, as of January 1, 2017
|
|
$
|
(345
|
)
|
|
$
|
2
|
|
|
$
|
(109
|
)
|
|
$
|
108
|
|
|
$
|
(344
|
)
|
Other comprehensive income (loss)
|
|
203
|
|
|
—
|
|
|
28
|
|
|
(108
|
)
|
|
123
|
|
Income tax benefit (expense)
|
|
6
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(2
|
)
|
Net current period other comprehensive income (loss)
|
|
209
|
|
|
—
|
|
|
20
|
|
|
(108
|
)
|
|
121
|
|
Balance, as of December 31, 2017
|
|
(136
|
)
|
|
2
|
|
—
|
|
(89
|
)
|
—
|
|
—
|
|
|
(223
|
)
|
Other comprehensive income (loss)
|
|
(91
|
)
|
|
—
|
|
|
33
|
|
|
—
|
|
|
(58
|
)
|
Net impact of adoption of ASU 2018-02
|
|
(1
|
)
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
(26
|
)
|
Income tax benefit (expense)
|
|
1
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(8
|
)
|
Net current period other comprehensive income (loss)
|
|
(91
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(92
|
)
|
Balance, as of December 31, 2018
|
|
(227
|
)
|
|
2
|
|
—
|
|
(90
|
)
|
—
|
|
—
|
|
|
(315
|
)
|
Other comprehensive income (loss)
|
|
51
|
|
|
(1
|
)
|
|
32
|
|
|
—
|
|
|
82
|
|
Income tax benefit (expense)
|
|
(1
|
)
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(10
|
)
|
Net current period other comprehensive income (loss)
|
|
50
|
|
|
(1
|
)
|
|
23
|
|
|
—
|
|
|
72
|
|
Balance, as of December 31, 2019
|
|
(177
|
)
|
|
1
|
|
|
(67
|
)
|
|
—
|
|
|
(243
|
)
|
Income before income taxes and the income tax provision consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Income before income taxes
|
|
|
|
|
|
Domestic
|
$
|
1,333
|
|
|
$
|
1,371
|
|
|
$
|
1,308
|
|
Foreign
|
1,148
|
|
|
1,149
|
|
|
1,218
|
|
Total
|
$
|
2,481
|
|
|
$
|
2,520
|
|
|
$
|
2,526
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
|
|
|
Current tax expense:
|
|
|
|
|
|
Federal
|
$
|
189
|
|
|
$
|
140
|
|
|
$
|
266
|
|
State
|
124
|
|
|
107
|
|
|
92
|
|
Foreign
|
241
|
|
|
226
|
|
|
268
|
|
Total
|
$
|
554
|
|
|
$
|
473
|
|
|
$
|
626
|
|
|
|
|
|
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
Federal
|
$
|
(21
|
)
|
|
$
|
29
|
|
|
$
|
(677
|
)
|
State
|
(4
|
)
|
|
9
|
|
|
33
|
|
Foreign
|
(8
|
)
|
|
(11
|
)
|
|
(10
|
)
|
|
$
|
(33
|
)
|
|
$
|
27
|
|
|
$
|
(654
|
)
|
Total income tax expense (benefit)
|
$
|
521
|
|
|
$
|
500
|
|
|
$
|
(28
|
)
|
A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Statutory federal income tax rate
|
21
|
%
|
|
21
|
%
|
|
35
|
%
|
State and local income taxes, net of federal benefit
|
4
|
|
|
3
|
|
|
3
|
|
Foreign tax rate differential
|
(1
|
)
|
|
(1
|
)
|
|
(7
|
)
|
Current year tax benefit from foreign derived intangible income
|
(1
|
)
|
|
—
|
|
|
—
|
|
Deferred tax benefit due to tax law changes
|
—
|
|
|
—
|
|
|
(30
|
)
|
Other
|
(2
|
)
|
|
(3
|
)
|
|
(2
|
)
|
Total provision for income taxes
|
21
|
%
|
|
20
|
%
|
|
(1
|
)%
|
On December 22, 2017, the TCJA was signed into law (Note 2). The TCJA reduced the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the foreign tax rate differentials in 2019 and 2018 are significantly lower than they had been in previous years. Favorable foreign income tax rate differentials result primarily from lower income tax rates in the U.K. and various other lower tax jurisdictions as compared to the historical income tax rates in the U.S.
We were required to revalue our U.S. deferred tax assets and liabilities at the new federal corporate income tax rate as of the date of enactment of the TCJA and to include the rate change effect in the tax provision for the period ended December 31, 2017. As a result, we recognized a $764 million deferred tax benefit based on a reasonable estimate of the deferred tax assets and liabilities as of December 22, 2017. This significantly reduced the effective tax rate for the period ended December 31, 2017 in comparison to the effective tax rates in the other years presented. The 2017 effective tax rate would have been 29% without this deferred tax benefit.
Our effective tax rates were 21% and 20% in 2019 and 2018, respectively. The difference is primarily driven by the 2018 discrete tax benefits from the acquisition of MERS and the divestiture of Trayport exceeding the net increased tax benefits recorded in 2019 from certain international tax provisions under the TCJA, including the tax benefit from Foreign-Derived Intangible Income, or FDII. The impact of the 2019 FDII benefit is outlined in the above effective tax rate reconciliation.
The 2018 effective tax rate was lower than the 2017 effective tax rate excluding the deferred tax benefit from the U.S. tax law changes. This is primarily due to the lower U.S. corporate income tax rate that became effective January 1, 2018. In addition, the 2018 effective tax rate was further reduced due to tax benefits from the acquisition of MERS and the divestiture
of Trayport, and deferred tax benefits from changes in estimates. The tax benefit from the acquisition of MERS is included in "Other" in the above effective tax rate reconciliation.
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table summarizes the significant components of our deferred tax liabilities and assets as of December 31, 2019 and 2018 (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Deferred and stock-based compensation
|
$
|
82
|
|
|
$
|
89
|
|
Pension
|
4
|
|
|
12
|
|
Liability reserve
|
38
|
|
|
35
|
|
Tax credits
|
2
|
|
|
3
|
|
Loss carryforward
|
129
|
|
|
138
|
|
Deferred revenue
|
22
|
|
|
24
|
|
Other
|
42
|
|
|
55
|
|
Total
|
319
|
|
|
356
|
|
Valuation allowance
|
(119
|
)
|
|
(119
|
)
|
Total deferred tax assets, net of valuation allowance
|
$
|
200
|
|
|
$
|
237
|
|
Deferred tax liabilities:
|
|
|
|
Property and equipment
|
$
|
(132
|
)
|
|
$
|
(133
|
)
|
Acquired intangibles
|
(2,382
|
)
|
|
(2,439
|
)
|
Total deferred tax liabilities
|
$
|
(2,514
|
)
|
|
$
|
(2,572
|
)
|
Net deferred tax liabilities
|
$
|
(2,314
|
)
|
|
$
|
(2,335
|
)
|
Reported as:
|
|
|
|
Net non-current deferred tax assets
|
$
|
—
|
|
|
$
|
2
|
|
Net non-current deferred tax liabilities
|
(2,314
|
)
|
|
(2,337
|
)
|
Net deferred tax liabilities
|
$
|
(2,314
|
)
|
|
$
|
(2,335
|
)
|
A reconciliation of the beginning and ending amount of deferred income tax valuation allowance is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Beginning balance of deferred income tax valuation allowance
|
$
|
119
|
|
|
$
|
126
|
|
|
$
|
122
|
|
Charges against goodwill
|
1
|
|
|
—
|
|
|
15
|
|
Decreases
|
(1
|
)
|
|
(7
|
)
|
|
(11
|
)
|
Ending balance of deferred income tax valuation allowance
|
$
|
119
|
|
|
$
|
119
|
|
|
$
|
126
|
|
We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we believe that it is more likely than not that some or all of the deferred tax assets will not be realized. We recorded a valuation allowance for deferred tax assets of $119 million as of both December 31, 2019 and 2018. Decreases in 2018 primarily relate to utilization of certain deferred tax assets on capital losses that we did not expect to be realizable. Decreases in 2017 relate to the U.S. corporate income tax rate reduction from 35% to 21% and the net impact from the divestitures of Trayport and IDMS. Increases charged against goodwill primarily relate to deferred tax assets arising on the 2017 acquisition of National Stock Exchange.
As part of U.S. tax reform, the TCJA imposed a transition tax on certain accumulated foreign earnings aggregated across all non-U.S. subsidiaries, net of foreign deficits, as computed under U.S. tax principles. As we were in an aggregate net foreign deficit position for U.S. tax purposes as of December 31, 2017, we were not liable for the transition tax.
Effective January 1, 2018, the majority of our 2019 and 2018 current undistributed earnings of our non-U.S. subsidiaries became subject to the Global Intangible Low-Taxed Income provisions under the TCJA and, as such, are subject to immediate U.S. income taxation and can be distributed to the U.S. with no material additional income tax consequences in the
future. Consequently, these earnings are not considered to be indefinitely reinvested and the related tax impact is included in our income tax provision for the periods ended December 31, 2019 and 2018, respectively.
However, our non-U.S. subsidiaries’ cumulative undistributed earnings as of December 31, 2017 and the 2019 and 2018 current undistributed earnings that are not subject to the Global Intangible Low-Taxed Income provisions 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. An estimate of these indefinitely reinvested undistributed earnings as of December 31, 2019, based on post-income tax earnings under U.S. GAAP, is $5.2 billion.
SAB 118 provided guidance for companies that had not completed their accounting for the income tax effects of the TCJA in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. During 2018, we completed our accounting for the tax effects of the enactment of the TCJA. We reaffirmed our position that we were not subject to transition tax under the TCJA as of December 31, 2017, and therefore, we did not record any transition tax during the measurement period. We also concluded that the $764 million deferred tax benefit recorded in the 2017 tax provision was a reasonable estimate of the impact of the TCJA on our deferred tax balances, and that no further adjustments were necessary during the measurement period.
In 2018 we adopted an accounting policy regarding the treatment of taxes due on future inclusion of non-U.S. income in U.S. taxable income under the Global Intangible Low-Taxed Income provisions as a current period expense when incurred. Therefore, no deferred tax related to these provisions has been recorded as of December 31, 2019 or 2018.
As of December 31, 2019 and 2018, we have gross U.S. federal net operating loss carryforwards of $119 million and $133 million, respectively, and gross state and local net operating loss carryforwards of $110 million and $201 million, respectively. The decreases of federal and state and local net operating loss carryforwards are primarily due to utilization of certain net operating losses in the current year, partially offset by additions related to acquisitions. The net operating loss carryforwards are available to offset future taxable income until they expire, with material amounts beginning in 2026. In addition, as of December 31, 2019 and 2018, we have gross foreign net operating loss carryforwards of $282 million and $285 million, respectively. The majority of gross foreign net operating losses are not expected to be realizable in future periods and have related valuation allowances.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Beginning balance of unrecognized tax benefits
|
98
|
|
|
$
|
115
|
|
|
112
|
|
Additions based on tax positions taken in current year
|
17
|
|
|
13
|
|
|
10
|
|
Additions based on tax positions taken in prior years
|
9
|
|
|
7
|
|
|
9
|
|
Reductions based on tax positions taken in prior years
|
(1
|
)
|
|
—
|
|
|
—
|
|
Reductions resulting from statute of limitation lapses
|
(13
|
)
|
|
(19
|
)
|
|
(8
|
)
|
Reductions related to settlements with taxing authorities
|
(7
|
)
|
|
(18
|
)
|
|
(8
|
)
|
Ending balance of unrecognized tax benefits
|
$
|
103
|
|
|
$
|
98
|
|
|
$
|
115
|
|
As of December 31, 2019 and 2018, the balance of unrecognized tax benefits which would, if recognized, affect our effective tax rate was $85 million and $81 million, respectively. It is reasonably possible, as a result of settlements of ongoing audits or statute of limitations expirations, unrecognized tax benefits could increase as much as $17 million and decrease as much as $13 million within the next 12 months. Of the $103 million in unrecognized tax benefits as of December 31, 2019, $90 million is recorded as other non-current liabilities and $13 million is recorded as other current liabilities.
We recognize interest and penalties accrued on income tax uncertainties as a component of income tax expense. In 2019, 2018 and 2017, we recognized $5 million, ($6 million) and ($1 million), respectively, of income tax expense/(benefit) for interest and penalties. As of December 31, 2019 and 2018, accrued interest and penalties were $33 million and $28 million, respectively. Of the $33 million in accrued interest and penalties as of December 31, 2019, $23 million is recorded as other non-current liabilities and $10 million is recorded as other current liabilities in the accompanying consolidated balance sheet.
We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The following table summarizes open tax years by major jurisdiction:
|
|
|
Jurisdiction
|
Open Tax Years
|
U.S. Federal
|
2016 - 2019
|
U.S. States
|
2008 - 2019
|
|
|
|
U.K.
|
2018 - 2019
|
Netherlands
|
2013 - 2019
|
Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, including interest and penalties, have been provided for any adjustments expected to result from open tax years.
We operate six clearing houses, each of which acts as a central counterparty that becomes the buyer to every seller and the seller to every buyer for its clearing members. Through this central counterparty function, the clearing houses provide financial security for each transaction for the duration of the position by limiting counterparty credit risk.
Our clearing houses are responsible for providing clearing services to each of our futures exchanges, and in some cases outside of our execution venues, and are as follows, referred to herein collectively as "the ICE Clearing Houses":
|
|
|
|
|
|
|
|
Clearing House
|
|
Products Cleared
|
|
Exchange where Executed
|
|
Location
|
ICE Clear Europe
|
|
Energy, agricultural, interest rates and equity index futures and options contracts and OTC European CDS instruments
|
|
ICE Futures Europe, ICE Futures U.S., ICE Endex and third-party venues
|
|
U.K.
|
ICE Clear U.S.
|
|
Agricultural, metals, FX and equity index futures and options contracts and digital assets futures contracts
|
|
ICE Futures U.S.
|
|
U.S.
|
ICE Clear Credit
|
|
North American, European, Asian-Pacific and Emerging Market CDS instruments
|
|
Creditex, OTC and third-party venues
|
|
U.S.
|
ICE Clear Netherlands
|
|
Derivatives on equities and equity indices traded on regulated markets
|
|
ICE Endex
|
|
The Netherlands
|
ICE Clear Singapore
|
|
Energy, metals and financial futures products
|
|
ICE Futures Singapore
|
|
Singapore
|
ICE NGX
|
|
Physical North American natural gas, electricity and oil futures
|
|
ICE NGX
|
|
Canada
|
Original & Variation Margin
Each of the ICE Clearing Houses generally requires all clearing members or participants to deposit collateral in cash or certain pledged assets. The collateral deposits are known as “original margin.” In addition, the ICE Clearing Houses may make intraday original margin calls in circumstances where market conditions require additional protection. The daily profits and losses to and from the ICE Clearing Houses due to the marking-to-market of open contracts is known as “variation margin.” With the exception of ICE NGX’s physical natural gas and physical power products discussed separately below, the ICE Clearing Houses mark all outstanding contracts to market, and therefore pay and collect variation margin, at least once daily.
The amounts that the clearing members and participants are required to maintain are determined by proprietary risk models established by each ICE Clearing House and reviewed by the relevant regulators, independent model validators, risk committees and the boards of directors of the respective ICE Clearing House. The amounts required may fluctuate over time. Each of the ICE Clearing Houses is a separate legal entity and is not subject to the liabilities of the others, or the obligations of the members of the other ICE Clearing Houses.
Should a particular clearing member or participant fail to deposit its original margin or fail to make a variation margin payment, when and as required, the relevant ICE Clearing House may liquidate or hedge its open positions and use their original margin and guaranty fund deposits to pay any amount owed. In the event that the defaulting clearing member's deposits are not sufficient to pay the amount owed in full, the ICE Clearing Houses will first use their respective contributions to the guaranty fund, often referred to as Skin In The Game, or SITG, to pay any remaining amount owed. In the event that the SITG is not sufficient, the ICE Clearing Houses may utilize the respective guaranty fund deposits, or collect additional funds from their respective non-defaulting clearing members on a pro-rata basis, to pay any remaining amount owed.
As of December 31, 2019 and 2018, the ICE Clearing Houses have received or have been pledged $126.0 billion and $121.4 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.
Guaranty Funds & ICE Contribution
As described above, mechanisms have been created, called guaranty funds, to provide partial protection in the event of a clearing member default. With the exception of ICE NGX, each of the ICE Clearing Houses requires that each clearing member make deposits into a guaranty fund.
In addition, we have contributed our own capital which could be used if a defaulting clearing member’s original margin and guaranty fund deposits are insufficient. Such amounts are recorded as long-term restricted cash and cash equivalents in our balance sheets and are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ICE Portion of Guaranty Fund Contribution
|
|
Default insurance
|
|
|
As of December 31,
|
|
As of December 31,
|
Clearing House
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
ICE Clear Europe
|
|
$233
|
|
$206
|
|
$75
|
|
N/A
|
ICE Clear U.S.
|
|
103
|
|
|
61
|
|
|
25
|
|
|
N/A
|
ICE Clear Credit
|
|
50
|
|
|
50
|
|
|
50
|
|
|
N/A
|
ICE Clear Netherlands
|
|
2
|
|
|
2
|
|
|
N/A
|
|
|
N/A
|
ICE Clear Singapore
|
|
1
|
|
|
1
|
|
|
N/A
|
|
|
N/A
|
ICE NGX
|
|
15
|
|
|
N/A
|
|
|
100
|
|
|
$100
|
Total
|
|
$404
|
|
$320
|
|
$250
|
|
$100
|
In September 2019, we added a layer of insurance to our clearing member default protection. The default insurance has a three-year term that commenced September 17, 2019, for the following clearing houses in the following amounts: ICE Clear Credit - $50 million; ICE Clear Europe - $75 million; and, ICE Clear US - $25 million. The default insurance layer resides after and in addition to the ICE Clear Credit, ICE Clear Europe, and ICE Clear U.S. SITG contributions and before the guaranty fund contributions of the non-defaulting clearing members.
Similar to SITG, the default insurance layer is not intended to replace or reduce the position risk-based amount of the guaranty fund. As a result, the default insurance layer is not a factor that is included in the calculation of the clearing members’ guaranty fund contribution requirement. Instead, it serves as a new, additional, distinct, and separate default resource that should serve to further protect the non-defaulting clearing members’ guaranty fund contributions from being mutualized in the event of a default.
As of December 31, 2019, ICE NGX maintains a guaranty fund utilizing a $100 million letter of credit and a default insurance policy, discussed below.
Cash and Cash Equivalent Deposits
We have recorded cash and cash equivalent margin deposits and amounts due in our balance sheets as current assets with corresponding current liabilities to the clearing members. As of December 31, 2019, our cash and cash equivalent margin deposits are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ICE Clear Europe (1)
|
|
ICE Clear
Credit
|
|
ICE Clear U.S.
|
|
ICE NGX
|
|
Other ICE Clearing Houses
|
|
Total
|
Original margin
|
$
|
28,318
|
|
|
$
|
22,145
|
|
|
$
|
6,802
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
57,267
|
|
Unsettled variation margin, net
|
—
|
|
|
—
|
|
|
—
|
|
|
255
|
|
|
—
|
|
|
255
|
|
Guaranty fund
|
4,144
|
|
|
2,268
|
|
—
|
|
463
|
|
|
—
|
|
|
5
|
|
|
6,880
|
|
Delivery contracts receivable/payable, net
|
—
|
|
|
—
|
|
|
—
|
|
|
585
|
|
|
—
|
|
|
585
|
|
Total
|
$
|
32,462
|
|
|
$
|
24,413
|
|
|
$
|
7,265
|
|
|
$
|
840
|
|
|
$
|
7
|
|
|
$
|
64,987
|
|
As of December 31, 2018, our cash and cash equivalent deposits, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ICE Clear Europe (2)
|
|
ICE Clear
Credit
|
|
ICE Clear U.S.
|
|
ICE NGX
|
|
Other ICE Clearing Houses
|
|
Total
|
Original margin
|
$
|
27,597
|
|
|
$
|
22,770
|
|
|
$
|
6,260
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
56,630
|
|
Unsettled variation margin, net
|
—
|
|
|
—
|
|
|
—
|
|
|
417
|
|
|
—
|
|
|
417
|
|
Guaranty fund
|
3,267
|
|
|
2,456
|
|
|
460
|
|
|
—
|
|
|
5
|
|
|
6,188
|
|
Delivery contracts receivable/payable, net
|
—
|
|
|
—
|
|
|
—
|
|
|
720
|
|
|
—
|
|
|
720
|
|
Total
|
$
|
30,864
|
|
|
$
|
25,226
|
|
|
$
|
6,720
|
|
|
$
|
1,137
|
|
|
$
|
8
|
|
|
$
|
63,955
|
|
(1) $27.4 billion and $5.1 billion is related to futures/options and CDS, respectively.
(2) $25.8 billion and $5.1 billion is related to futures/options and CDS, respectively.
Our cash and cash equivalent margin and guaranty fund deposits are maintained in accounts with national banks and reputable financial institutions or secured through direct investments, primarily in U.S. Treasury securities with original maturities of less than three months, or reverse repurchase agreements with primarily overnight maturities.
To provide a tool to address the liquidity needs of our clearing houses and manage the liquidation of margin and guaranty fund deposits held in the form of cash and high quality sovereign debt, ICE Clear Europe, ICE Clear Credit and ICE Clear U.S. have entered into Committed Repurchase Agreement Facilities, or Committed Repo. Additionally, ICE Clear Credit and ICE Clear Netherlands have entered into Committed FX Facilities to support these liquidity needs. As of December 31, 2019 the following facilities were in place:
|
|
•
|
ICE Clear Europe: $1.0 billion in Committed Repo to finance U.S. dollar, euro and pound sterling deposits.
|
|
|
•
|
ICE Clear Credit: $300 million in Committed Repo to finance U.S. dollar and euro deposits, €250 million in Committed Repo to finance euro deposits, and €1.9 billion in Committed FX Facilities to finance euro payment obligations.
|
|
|
•
|
ICE Clear U.S.: $400 million in Committed Repo to finance U.S. dollar deposits.
|
|
|
•
|
ICE Clear Netherlands: €10 million in Committed FX Facilities to finance euro payment obligations.
|
Details of our cash and cash equivalent deposits are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Clearing House
|
|
Investment Type
|
|
|
As of
December 31, 2019
|
|
As of
December 31, 2018
|
ICE Clear Europe
|
|
National Bank Account (1)
|
|
|
$
|
9,667
|
|
|
$
|
8,647
|
|
ICE Clear Europe
|
|
Reverse repo
|
|
|
19,187
|
|
|
18,097
|
|
ICE Clear Europe
|
|
Sovereign Debt
|
|
|
3,591
|
|
|
4,035
|
|
ICE Clear Europe
|
|
Demand deposits
|
|
|
17
|
|
|
85
|
|
ICE Clear Credit
|
|
National Bank Account (2)
|
|
|
19,480
|
|
|
19,484
|
|
ICE Clear Credit
|
|
Reverse repo
|
|
|
2,411
|
|
|
1,935
|
|
ICE Clear Credit
|
|
Demand deposits
|
|
|
2,522
|
|
|
3,807
|
|
ICE Clear U.S.
|
|
Reverse repo
|
|
|
4,320
|
|
|
4,380
|
|
ICE Clear U.S.
|
|
Sovereign Debt
|
|
|
2,945
|
|
|
2,340
|
|
Other ICE Clearing Houses
|
|
Demand deposits
|
|
|
7
|
|
|
8
|
|
ICE NGX
|
|
Unsettled Variation Margin and Delivery Contracts Receivable/Payable
|
|
|
840
|
|
|
1,137
|
|
Total
|
|
|
|
|
64,987
|
|
|
63,955
|
|
(1) As of December 31, 2019, ICE Clear Europe held €8.0 billion ($9.0 billion based on the euro/U.S. dollar exchange rate of 1.1212 as of December 31, 2019) at De Nederlandsche Bank, or DNB, £500 million ($663 million based on the pound sterling/U.S. dollar exchange rate of 1.3260 as of December 31, 2019) at the Bank of England, or BOE and €10 million ($11 million based on the above exchange rate) at the BOE. As of December 31, 2018, ICE Clear Europe held €7.0 billion ($8.0 billion based on the euro/U.S. dollar exchange rate of 1.1466 as of December 31, 2018) at DNB, and £500 million ($638 million based on the pound sterling/U.S. dollar exchange rate of 1.2756 as of December 31, 2018) at the BOE.
(2) ICE Clear Credit is a systemically important financial market utility, or SIFMU, as designated by the Financial Stability Oversight Council, and holds its U.S. dollar cash margin in cash accounts at the Federal Reserve Bank of Chicago.
Other Deposits
In addition to the cash deposits above, the ICE Clearing Houses have also received other assets from clearing members, which include government obligations, and may include other non-cash collateral such as letters of credit or gold to mitigate credit risk. For certain deposits, we may impose discount or “haircut” rates to ensure adequate collateral if market values fluctuate. The value-related risks and rewards of these assets remain with the clearing members. Any gain or loss accrues to the clearing member. The ICE Clearing Houses do not, in the ordinary course, rehypothecate or re-pledge these assets. These pledged assets are not reflected in our balance sheets, and are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
ICE Clear
Europe
|
|
ICE Clear
Credit
|
|
ICE Clear U.S.
|
|
ICE NGX
|
|
|
Total
|
Original margin:
|
|
|
|
|
|
|
|
|
|
|
Government securities at face value
|
$
|
30,635
|
|
|
$
|
13,710
|
|
|
$
|
12,633
|
|
|
$
|
—
|
|
|
|
$
|
56,978
|
|
Letters of credit
|
—
|
|
|
—
|
|
|
—
|
|
|
2,469
|
|
|
|
2,469
|
|
ICE NGX cash deposits
|
—
|
|
|
—
|
|
|
—
|
|
|
362
|
|
|
|
362
|
|
Total
|
$
|
30,635
|
|
|
$
|
13,710
|
|
|
$
|
12,633
|
|
|
$
|
2,831
|
|
|
|
$
|
59,809
|
|
Guaranty fund:
|
|
|
|
|
|
|
|
|
|
|
Government securities at face value
|
$
|
475
|
|
|
$
|
523
|
|
|
$
|
243
|
|
|
$
|
—
|
|
|
|
$
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
ICE Clear
Europe
|
|
ICE Clear
Credit
|
|
ICE Clear U.S.
|
|
ICE NGX
|
|
|
Total
|
Original margin:
|
|
|
|
|
|
|
|
|
|
|
Government securities at face value
|
$
|
29,887
|
|
|
$
|
12,990
|
|
|
$
|
10,208
|
|
|
$
|
—
|
|
|
|
$
|
53,085
|
|
Letters of credit
|
—
|
|
|
—
|
|
|
—
|
|
|
2,556
|
|
|
|
2,556
|
|
ICE NGX cash deposits
|
—
|
|
|
—
|
|
|
—
|
|
|
605
|
|
|
|
605
|
|
Total
|
$
|
29,887
|
|
|
$
|
12,990
|
|
|
$
|
10,208
|
|
|
$
|
3,161
|
|
|
|
$
|
56,246
|
|
Guaranty fund:
|
|
|
|
|
|
|
|
|
|
|
Government securities at face value
|
$
|
654
|
|
|
$
|
256
|
|
|
$
|
264
|
|
|
$
|
—
|
|
|
|
$
|
1,174
|
|
ICE NGX
ICE NGX is the central counterparty to participants on opposite sides of its physically-settled contracts, and the balance related to delivered but unpaid contracts is recorded as a delivery contract net receivable, with an offsetting delivery contract net payable in our balance sheets. Unsettled variation margin equal to the fair value of open contracts is recorded as of each balance sheet date. ICE NGX marks all outstanding contracts to market daily, but only collects variation margin when a clearing member's or participant’s open position falls outside a specified percentage of its pledged collateral.
ICE NGX requires participants to maintain cash or letters of credit to serve as collateral in the event of default. The cash is maintained in a segregated bank account, held in trust and remains the property of the participant, therefore, it is not included in our balance sheets. ICE NGX maintains the following accounts with a third-party Canadian chartered bank which are available in the event of physical settlement shortfalls, subject to certain conditions:
|
|
|
|
|
|
|
|
Account Type:
|
|
As of December 31, 2019
(In C$ millions)
|
|
As of December 31, 2019
(In $USD millions)
|
Daylight liquidity facility
|
|
C$300
|
|
$231
|
Overdraft facility
|
|
20
|
|
|
15
|
|
Total
|
|
C$320
|
|
$246
|
As of December 31, 2019, ICE NGX maintains a guaranty fund of $100 million funded by a letter of credit issued by a major Canadian bank, and backed by default insurance underwritten by Export Development Canada, or EDC, a Crown corporation operated at arm’s length from the Canadian government. In the event of a participant default where the participant’s collateral is depleted, the shortfall would be covered by a draw down on the letter of credit following which ICE NGX would file a claim under the default insurance to recover additional losses up to $100 million beyond the $15 million first-loss amount that ICE NGX is responsible for under the default insurance policy.
Clearing House Exposure
The net notional value of unsettled contracts was $2.8 trillion as of December 31, 2019. Each ICE Clearing House bears financial counterparty credit risk and provides a central counterparty guarantee, or performance guarantee, to its clearing members or participants. To reduce their exposure, the ICE Clearing Houses have a risk management program with both initial and ongoing membership standards. Excluding the effects of original and variation margin, guaranty fund and collateral requirements, the ICE Clearing Houses’ maximum estimated exposure for this guarantee is $108.8 billion as of December 31, 2019, 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 value was 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 this amount.
We also performed calculations to determine the fair value of our counterparty performance guarantee taking into consideration factors such as daily settlement of contracts, margining and collateral requirements, other elements of our 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 guarantee liability was determined to be nominal and no liability was recorded as of December 31, 2019 and 2018. The ICE Clearing Houses have never experienced an incident of a clearing member default which has required the use of the guaranty funds of non-defaulting clearing members or the assets of the ICE Clearing Houses.
|
|
15.
|
Commitments and Contingencies
|
Leases
We have lease agreements for office space, equipment facilities and certain computer equipment for varying periods that expire at various dates through 2029. All of our leases are classified as operating leases. For details of our lease assets, lease liabilities and rent expense see Note 2.
Legal Proceedings
We are subject to legal proceedings, claims and investigations that arise in the ordinary course of our business. We record estimated expenses and reserves for those matters in circumstances when a loss contingency is considered probable and the related amount is reasonably estimable. Any such accruals may be adjusted as circumstances change. Assessments of losses are inherently subjective and involve unpredictable factors. We do not believe that the resolution of these legal matters, including the matters described below, will have a material adverse effect on our 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, claims and investigations. A range of possible losses related to the cases below cannot be reasonably estimated at this time, except as otherwise disclosed below.
City of Providence Litigation
In 2014, New York Stock Exchange LLC and NYSE Arca, Inc., two of our subsidiaries, were among more than 40 financial institutions and exchanges named as defendants in four purported class action lawsuits filed in the U.S. District Court for the Southern District of New York, or the Southern District, by the City of Providence, Rhode Island, and other plaintiffs. In subsequent consolidated amended complaints, the plaintiffs asserted claims against the exchange defendants and Barclays PLC, which operates an ATS known as Barclays LX, on behalf of a class of “all public investors” who bought or sold stock from April 18, 2009 to the present on the U.S.-based equity exchanges operated by the exchange defendants or on Barclays LX.
In 2015, the district court granted the defendants’ motions to dismiss and dismissed the second amended complaint with prejudice. The court held that the plaintiffs had failed to sufficiently state a claim against the defendants under Sections 10(b) and 6(b) of the Exchange Act, and additionally that some of the claims against the exchanges were barred by the doctrine of self-regulatory organization immunity. In 2015, the plaintiffs filed an appeal of the dismissal of the lawsuit to the U.S. Court of Appeals for the Second Circuit, or the Second Circuit.
In 2017, the Second Circuit issued a decision vacating the dismissal and remanding the case to the district court for further proceedings. The Second Circuit held that the claims against the exchanges were not barred by the doctrine of self-regulatory organization immunity because the exchanges were not carrying out regulatory functions while operating their markets and engaging in the challenged conduct at issue, and that the plaintiffs had adequately pleaded claims against the defendants under Section 10(b) of the Exchange Act. The Second Circuit directed that, on remand, the district court should address and
rule upon various other defenses raised by the exchanges in their motion to dismiss (which the district court did not address in its prior opinion and order).
In 2018, the defendant exchanges then filed a new motion to dismiss seeking dismissal on grounds other than those considered by the Second Circuit in its remand decision. On May 28, 2019, the district court denied the motion. The exchanges filed a motion in the district court on June 17, 2019 asking the court to certify the matter for an immediate appeal to the U.S. Court of Appeals for the Second Circuit and on July 16, 2019, the court denied the exchanges' motion. On July 25, 2019, the exchanges filed answers to the second amended complaint, denying the principal allegations of the plaintiffs, denying liability in the matter, and asserting various affirmative defenses. The discovery period in the matter commenced and is scheduled to continue through 2020.
LIBOR Litigation
On January 15, 2019 and January 31, 2019, two virtually identical purported class action complaints were filed by, respectively, Putnam Bank, a savings bank based in Putnam, Connecticut, and two municipal pension funds affiliated with the City of Livonia, Michigan in the U.S. District Court for the Southern District of New York against ICE and several of its subsidiaries, including ICE Benchmark Administration Limited (“IBA”) (the “ICE Defendants”), as well as 18 multinational banks and various of their respective subsidiaries and affiliates (the “Panel Bank Defendants”). On March 4, 2019, a virtually identical complaint was filed on behalf of four retirement and benefit funds affiliated with the Hawaii Sheet Metal Workers Union. IBA is the administrator for various regulated benchmarks, including the ICE LIBOR benchmark that is calculated daily based upon the submissions from a reference panel (which includes the Panel Bank Defendants). On July 1, 2019, the various plaintiffs referenced above filed a consolidated amended complaint against the ICE and Panel Bank Defendants.
The plaintiffs seek to litigate on behalf of a purported class of all U.S.-based persons or entities who transacted with a Panel Bank Defendant by receiving a payment on an interest rate indexed to a one-month or three-month USD LIBOR-benchmarked rate during the period from February 1, 2014 to the present. The plaintiffs allege that the ICE and Panel Bank Defendants engaged in a conspiracy to set the LIBOR benchmark at artificially low levels, with an alleged purpose and effect of depressing payments by the Panel Bank Defendants to members of the purported class.
As with the individual complaints, the consolidated amended complaint asserts a claim for violations of the Sherman and Clayton Antitrust Acts and seeks unspecified treble damages and other relief. The ICE and Panel Bank Defendants filed motions to dismiss the consolidated amended complaint on August 30, 2019. The district court heard oral arguments on the motions on January 30, 2020, and the parties are awaiting the court's decision. ICE intends to vigorously defend the matter.
Tax Audits
We are 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 us or one of our subsidiaries, some of which may not be resolved for several years. Based on currently available information, we believe we have adequately provided for any assessments that could result from those proceedings where it is more likely than not that we will be assessed. We continuously review our positions as these matters progress.
|
|
16.
|
Pension and Other Benefit Programs
|
Defined Benefit Pension Plan
We have a pension plan covering employees in certain of our U.S. operations whose benefit accrual has been frozen. Retirement benefits are derived from a formula, which is based on length of service and compensation.
We did not make any contributions to our pension plan during 2019 or 2018. During 2017, in connection with our de-risking strategy, we contributed $136 million to our plan. At the same time, we changed the plan’s target allocation from 65% equity securities and 35% fixed income securities, to 5% equity securities and 95% fixed income securities. The fixed income allocation includes corporate bonds of companies from diversified industries and U.S. government bonds. As a result of this contribution and change in investment policy, we anticipate that there will be less need for contributions in future years, and the pension plan will not be required to pay the Pension Benefit Guaranty Corporation variable rate premiums. Income is expected to be lower than it was in prior periods because the expected return on plan assets is lower.
We do not expect to make contributions to the pension plan in 2020. We will continue to monitor the plan’s funded status, and we will consider modifying the plan’s investment policy based on the actuarial and funding characteristics of the retirement plan, the demographic profile of plan participants, and our business objectives. Our long-term objective is to keep the plan at or near full funding, while minimizing the risk inherent in pension plans.
The fair values of our plan assets as of December 31, 2019, by asset category, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
Asset Category
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Cash
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
|
—
|
|
|
25
|
|
|
—
|
|
|
25
|
|
U.S. small-cap
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
International
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
Fixed income securities
|
|
137
|
|
|
751
|
|
|
6
|
|
|
894
|
|
Total
|
|
$
|
144
|
|
|
$
|
796
|
|
|
$
|
6
|
|
|
$
|
946
|
|
The above table excludes trades pending settlement with a net obligation of $52 million as of December 31, 2019. These trades settled in January 2020.
The fair values of our plan assets as of December 31, 2018, by asset category, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
Asset Category
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Cash
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
|
—
|
|
|
21
|
|
|
—
|
|
|
21
|
|
U.S. small-cap
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
International
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Fixed income securities
|
|
127
|
|
|
640
|
|
|
7
|
|
|
774
|
|
Total
|
|
$
|
135
|
|
|
$
|
677
|
|
|
$
|
7
|
|
|
$
|
819
|
|
The above table excludes trades pending settlement with a net obligation of $25 million as of December 31, 2018. These trades settled in January 2019.
The measurement dates for the pension plan are December 31, 2019 and 2018. The following table provides a summary of the changes in the pension plan’s benefit obligations and the fair value of assets measured using the valuation techniques described in Note 17, as of December 31, 2019 and 2018 and a statement of funded status of the pension plan as of December 31, 2019 and 2018 (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Change in benefit obligation:
|
|
|
|
Benefit obligation at beginning of year
|
$
|
791
|
|
|
$
|
875
|
|
Interest cost
|
28
|
|
|
26
|
|
Actuarial (gain) loss
|
90
|
|
|
(61
|
)
|
Benefits paid
|
(48
|
)
|
|
(49
|
)
|
Benefit obligation at year end
|
$
|
861
|
|
|
$
|
791
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
794
|
|
|
$
|
869
|
|
Actual return on plan assets
|
148
|
|
|
(26
|
)
|
Contributions
|
—
|
|
|
—
|
|
Benefits paid
|
(48
|
)
|
|
(49
|
)
|
Fair value of plan assets at end of year
|
$
|
894
|
|
|
$
|
794
|
|
Funded status
|
$
|
33
|
|
|
$
|
3
|
|
Accumulated benefit obligation
|
$
|
861
|
|
|
$
|
791
|
|
Amounts recognized in the accompanying consolidated balance sheets:
|
|
|
|
Accrued pension plan asset
|
$
|
33
|
|
|
$
|
3
|
|
The following shows the components of the pension plan expense (benefit) for 2019, 2018 and 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Interest cost
|
$
|
28
|
|
|
$
|
26
|
|
|
$
|
27
|
|
Estimated return on plan assets
|
(31
|
)
|
|
(29
|
)
|
|
(44
|
)
|
Amortization of loss
|
3
|
|
|
4
|
|
|
2
|
|
Aggregate pension expense (benefit)
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(15
|
)
|
We use a market-related value of plan assets when determining the estimated return on plan assets. Gains/losses on plan assets are amortized over a four-year period and accumulate in other comprehensive income. We recognize deferred gains and losses in future net income based on a “corridor” approach, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year.
The following shows the projected payments for the pension plan based on actuarial assumptions (in millions):
|
|
|
|
|
2020
|
$
|
49
|
|
2021
|
50
|
|
2022
|
49
|
|
2023
|
49
|
|
2024
|
49
|
|
Next 5 years
|
243
|
|
Supplemental Executive Retirement Plan
We have a U.S. nonqualified supplemental executive retirement plan, or SERP, which provides supplemental retirement benefits for certain employees. The future benefit accrual of the SERP plan is frozen. To provide for the future payments of these benefits, we have purchased insurance on the lives of certain of the participants through company-owned policies. As of December 31, 2019 and 2018, the cash surrender value of such policies was $58 million and $57 million, respectively, and is included in other non-current assets in the accompanying consolidated balance sheets. We also acquired a SERP through both the ICE NGX and CHX acquisitions. The following table provides a summary of the changes in the SERP benefit obligations (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Change in benefit obligation:
|
|
|
|
Benefit obligation at beginning of year
|
$
|
41
|
|
|
$
|
49
|
|
Interest cost
|
1
|
|
|
1
|
|
Actuarial (gain) loss
|
4
|
|
|
(2
|
)
|
Benefits paid
|
(5
|
)
|
|
(7
|
)
|
Benefit obligation at year end
|
$
|
41
|
|
|
$
|
41
|
|
Funded status
|
$
|
(41
|
)
|
|
$
|
(41
|
)
|
Amounts recognized in the accompanying consolidated balance sheets:
|
|
|
|
Other current liabilities
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
Accrued employee benefits
|
(36
|
)
|
|
(36
|
)
|
SERP plan expense in the accompanying consolidated statements of income was $1 million each year in 2019, 2018 and 2017 and primarily consisted of interest cost. The following table shows the projected payments for the SERP plan based on the actuarial assumptions (in millions):
|
|
|
|
|
Projected SERP Plan Payments
|
|
2020
|
$
|
5
|
|
2021
|
5
|
|
2022
|
4
|
|
2023
|
4
|
|
2024
|
3
|
|
Next 5 years
|
13
|
|
Pension and SERP Plans Assumptions
The weighted-average assumptions used to develop the actuarial present value of the projected benefit obligation and net periodic pension/SERP costs in 2019, 2018 and 2017 are set forth below:
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Weighted-average discount rate for determining benefit obligations (pension/SERP plans)
|
3.0% / 2.7%
|
|
4.0% / 3.8%
|
|
3.4% / 3.1%
|
Weighted-average discount rate for determining interest costs (pension/SERP plans)
|
3.7% / 3.5%
|
|
3.0% / 2.7%
|
|
3.2% / 2.6%
|
Expected long-term rate of return on plan assets (pension/SERP plans)
|
3.9% / N/A
|
|
3.5% / N/A
|
|
6.5% / N/A
|
Rate of compensation increase
|
N/A
|
|
N/A
|
|
N/A
|
The assumed discount rate reflects the market rates for high-quality corporate bonds currently available. The discount rate was determined by considering the average of pension yield curves constructed on a large population of high quality corporate bonds. The resulting discount rates reflect the matching of plan liability cash flows to yield curves. To develop the expected long-term rate of return on assets assumption, we considered the historical returns and the future expectations for returns for each asset class as well as the target asset allocation of the pension portfolio.
The determination of the interest cost component utilizes a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to each year’s discounted cash flow.
Post-retirement Benefit Plans
Our defined benefit plans provide certain health care and life insurance benefits for certain eligible retired NYSE U.S. employees. These post-retirement benefit plans, which may be modified in accordance with their terms, are fully frozen. The net periodic post-retirement benefit costs were $2 million, $5 million and $5 million in 2019, 2018 and 2017, respectively. The defined benefit plans are unfunded and we currently do not expect to fund the post-retirement benefit plans. The weighted-average discount rate for determining the benefit obligation as of December 31, 2019 and 2018 is 3.0% and 4.0%, respectively. The weighted-average discount rate for determining the interest cost as of December 31, 2019 and 2018 is 3.7% and 3.0%, respectively. The following table shows the actuarial determined benefit obligation, interest costs, employee contributions, actuarial (gain) loss, benefits paid during the periods and the accrued employee benefits (in millions):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Benefit obligation at the end of year
|
$
|
142
|
|
|
$
|
154
|
|
Interest cost
|
5
|
|
|
5
|
|
Actuarial gain
|
(8
|
)
|
|
(19
|
)
|
Employee contributions
|
3
|
|
|
3
|
|
Benefits paid
|
(12
|
)
|
|
(13
|
)
|
Amounts recognized in the accompanying consolidated balance sheets:
|
|
|
|
Other current liabilities
|
$
|
(8
|
)
|
|
$
|
(10
|
)
|
Accrued employee benefits
|
(134
|
)
|
|
(144
|
)
|
The following table shows the payments projected for our post-retirement benefit plans (net of expected Medicare subsidy receipts of $11 million in aggregate over the next ten fiscal years) based on actuarial assumptions (in millions):
|
|
|
|
|
|
Projected Post-Retirement Benefit by Year:
|
|
Projected Payment
|
|
2020
|
|
$
|
8
|
|
2021
|
|
8
|
|
2022
|
|
8
|
|
2023
|
|
8
|
|
2024
|
|
8
|
|
Next 5 years
|
|
39
|
|
For measurement purposes, we assumed a 6.7% annual rate of increase in the per capita cost of covered health care benefits in 2019 which will decrease on a graduated basis to 4.5% in the year 2038 and thereafter.
Accumulated Other Comprehensive Loss
The accumulated other comprehensive loss, after tax, as of December 31, 2019, consisted of the following amounts that have not yet been recognized in net periodic benefit cost (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
SERP Plans
|
|
Post-retirement
Benefit Plans
|
|
Total
|
Unrecognized net actuarial losses (gains), after tax
|
$
|
87
|
|
|
$
|
6
|
|
|
$
|
(26
|
)
|
|
$
|
67
|
|
Other Benefit Plans and Defined Contribution Plans
Our U.S. employees are eligible to participate in 401(k) and profit sharing plans and our non-U.S. employees are eligible to participate in defined contribution pension plans. Total contributions under the 401(k), profit sharing and defined contribution pension plans were $42 million, $39 million and $38 million in 2019, 2018 and 2017, respectively. No discretionary or profit sharing contributions were made during 2019, 2018 or 2017.
|
|
17.
|
Fair Value Measurements
|
Financial assets and liabilities recorded or disclosed at fair value in the accompanying consolidated balance sheets as of December 31, 2019 and 2018 are classified in their entirety based on the lowest level of input that is significant to the asset or liability’s fair value measurement.
Our mutual funds are equity and fixed income mutual funds held for the purpose of providing future payments for the supplemental executive savings plan and SERP. These mutual funds are classified as equity investments and measured at fair value using Level 1 inputs with adjustments recorded in net income (Note 16).
MERS is part of our ICE Mortgage Services business and held fixed income investments in 2019 as part of a reserve fund in order to satisfy the original terms of the governing documents of our June 2016 acquisition of a majority equity position in MERS (Note 4). The majority of these investments are held in U.S. Treasuries and measured at fair value using Level 1 inputs with adjustments recorded to other current liabilities. The remaining amount of the reserve fund is held in other fixed income investments and measured using Level 2 inputs.
Excluding our equity investments without a readily determinable fair value, all other financial instruments are determined to approximate carrying value due to the short period of time to their maturities.
We 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 December 31, 2019 or 2018.
We measure certain assets, such as intangible assets, at fair value on a non-recurring basis. These assets are recognized at fair value if they are deemed to be impaired. As of December 31, 2019 and 2018, except for the fair value adjustments related to our ICE Futures Canada, ICE Clear Canada and ICE Futures Singapore exchange registration intangible assets (Note 8), none of our intangible assets were required to be recorded at fair value since no other impairments were recorded.
We measure certain equity investments at fair value on a non-recurring basis using our policy election under ASU No. 2016-01 (Note 2). During 2019, we evaluated transactions involving these investments and concluded that no fair value adjustments were required under this election.
See Note 14 for the fair value considerations related to our margin deposits, guaranty funds and delivery contracts receivable.
The table below displays the fair value of our debt as of December 31, 2019 and December 31, 2018. The fair values of our fixed rate notes were estimated using quoted market prices for these instruments. The fair value of our commercial paper includes a discount and other short-term debt approximates par value since the interest rates on this short-term debt approximate market rates as of December 31, 2019 and December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
|
(in millions)
|
|
(in millions)
|
Debt:
|
Carrying Amount
|
|
Fair value
|
|
Carrying Amount
|
|
Fair value
|
Commercial Paper
|
$
|
1,311
|
|
|
$
|
1,314
|
|
|
$
|
951
|
|
|
$
|
953
|
|
Other short-term debt
|
10
|
|
|
10
|
|
|
—
|
|
|
—
|
|
2020 Senior Notes
|
1,248
|
|
|
1,259
|
|
|
1,246
|
|
|
1,244
|
|
2022 Senior Notes
|
497
|
|
|
505
|
|
|
496
|
|
|
484
|
|
2023 Senior Notes
|
398
|
|
|
420
|
|
|
397
|
|
|
402
|
|
October 2023 Senior Notes
|
794
|
|
|
855
|
|
|
793
|
|
|
821
|
|
2025 Senior Notes
|
1,244
|
|
|
1,355
|
|
|
1,243
|
|
|
1,258
|
|
2027 Senior Notes
|
496
|
|
|
526
|
|
|
496
|
|
|
477
|
|
2028 Senior Notes
|
592
|
|
|
657
|
|
|
591
|
|
|
599
|
|
2048 Senior Notes
|
1,229
|
|
|
1,490
|
|
|
1,228
|
|
|
1,236
|
|
Total debt
|
$
|
7,819
|
|
|
$
|
8,391
|
|
|
$
|
7,441
|
|
|
$
|
7,474
|
|
Our reportable business segments: our Trading and Clearing segment and our Data and Listings segment. This presentation is reflective of how our chief operating decision maker reviews and operates our business. Our Trading and Clearing segment comprises our transaction-based execution and clearing businesses. Our Data and Listings segment comprises our data services and our securities listings businesses, which are both largely subscription-based. Our chief operating decision maker does not review total assets or statements of income below operating income by segments; therefore, such information is not presented below. Our two segments do not engage in intersegment transactions.
Financial data for our business segments is as follows in 2019, 2018 and 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2019
|
|
Year Ended
December 31, 2018
|
|
Year Ended
December 31, 2017
|
|
Trading and Clearing Segment
|
|
Data and Listings Segment
|
|
Consolidated
|
|
Trading and Clearing Segment
|
|
Data and Listings Segment
|
|
Consolidated
|
|
Trading and Clearing Segment
|
|
Data and Listings Segment
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy futures and options contracts
|
$
|
992
|
|
|
$
|
—
|
|
|
$
|
992
|
|
|
$
|
965
|
|
|
$
|
—
|
|
|
$
|
965
|
|
|
$
|
909
|
|
|
$
|
—
|
|
|
$
|
909
|
|
Agricultural and metals futures and options contracts
|
251
|
|
|
—
|
|
|
251
|
|
|
251
|
|
|
—
|
|
|
251
|
|
|
216
|
|
|
—
|
|
|
216
|
|
Financial futures and options contracts
|
332
|
|
|
—
|
|
|
332
|
|
|
354
|
|
|
—
|
|
|
354
|
|
|
326
|
|
|
—
|
|
|
326
|
|
Cash equities and equity options
|
1,643
|
|
|
—
|
|
|
1,643
|
|
|
1,624
|
|
|
—
|
|
|
1,624
|
|
|
1,491
|
|
|
—
|
|
|
1,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2019
|
|
Year Ended
December 31, 2018
|
|
Year Ended
December 31, 2017
|
|
Trading and Clearing Segment
|
|
Data and Listings Segment
|
|
Consolidated
|
|
Trading and Clearing Segment
|
|
Data and Listings Segment
|
|
Consolidated
|
|
Trading and Clearing Segment
|
|
Data and Listings Segment
|
|
Consolidated
|
Fixed income and credit
|
364
|
|
|
—
|
|
|
364
|
|
|
240
|
|
|
—
|
|
|
240
|
|
|
139
|
|
|
—
|
|
|
139
|
|
OTC and other transactions
|
45
|
|
|
—
|
|
|
45
|
|
|
49
|
|
|
—
|
|
|
49
|
|
|
50
|
|
|
—
|
|
|
50
|
|
Pricing and analytics
|
—
|
|
|
1,083
|
|
|
1,083
|
|
|
—
|
|
|
1,043
|
|
|
1,043
|
|
|
—
|
|
|
970
|
|
|
970
|
|
Exchange data and feeds
|
—
|
|
|
704
|
|
|
704
|
|
|
—
|
|
|
670
|
|
|
670
|
|
|
—
|
|
|
632
|
|
|
632
|
|
Desktops and connectivity
|
—
|
|
|
424
|
|
|
424
|
|
|
—
|
|
|
402
|
|
|
402
|
|
|
—
|
|
|
482
|
|
|
482
|
|
Listings
|
—
|
|
|
449
|
|
|
449
|
|
|
—
|
|
|
444
|
|
|
444
|
|
|
—
|
|
|
426
|
|
|
426
|
|
Other revenues
|
260
|
|
|
—
|
|
|
260
|
|
|
234
|
|
|
—
|
|
|
234
|
|
|
202
|
|
|
—
|
|
|
202
|
|
Revenues
|
3,887
|
|
|
2,660
|
|
|
6,547
|
|
|
3,717
|
|
|
2,559
|
|
|
6,276
|
|
|
3,333
|
|
|
2,510
|
|
|
5,843
|
|
Transaction-based expenses
|
1,345
|
|
|
—
|
|
|
1,345
|
|
|
1,297
|
|
|
—
|
|
|
1,297
|
|
|
1,205
|
|
|
—
|
|
|
1,205
|
|
Revenues, less transaction-based expenses
|
2,542
|
|
|
2,660
|
|
|
5,202
|
|
|
2,420
|
|
|
2,559
|
|
|
4,979
|
|
|
2,128
|
|
|
2,510
|
|
|
4,638
|
|
Operating expenses
|
1,033
|
|
|
1,496
|
|
|
2,529
|
|
|
911
|
|
|
1,485
|
|
|
2,396
|
|
|
781
|
|
|
1,478
|
|
|
2,259
|
|
Operating income
|
$
|
1,509
|
|
|
$
|
1,164
|
|
|
$
|
2,673
|
|
|
$
|
1,509
|
|
|
$
|
1,074
|
|
|
$
|
2,583
|
|
|
$
|
1,347
|
|
|
$
|
1,032
|
|
|
$
|
2,379
|
|
Revenue from one clearing member of the Trading and Clearing segment comprised $368 million, or 14% of our Trading and Clearing revenues, less transaction-based expenses in 2019. Revenue from one clearing member of the Trading and Clearing segment comprised $406 million, or 17% of our Trading and Clearing revenues less transaction-based expenses in 2018. Revenue from two clearing members of the Trading and Clearing segment comprised $477 million, or 22% of our Trading and Clearing revenues in 2017. Clearing members are primarily intermediaries and represent a broad range of principal trading firms. If a clearing member ceased its operations, we believe that the trading firms would continue to conduct transactions and would clear those transactions through another clearing member firm. No additional customers or clearing members accounted for more than 10% of our segment revenues or consolidated revenues in 2019, 2018 and 2017.
Geographical Information
The following represents our revenues, less transaction-based expenses, net assets and net property and equipment based on the geographic location (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Foreign Countries
|
|
Total
|
Revenues, less transaction-based expenses:
|
|
|
|
|
|
Year ended December 31, 2019
|
$
|
3,290
|
|
|
$
|
1,912
|
|
|
$
|
5,202
|
|
Year ended December 31, 2018
|
$
|
3,087
|
|
|
$
|
1,892
|
|
|
$
|
4,979
|
|
Year ended December 31, 2017
|
$
|
2,807
|
|
|
$
|
1,831
|
|
|
$
|
4,638
|
|
Net assets:
|
|
|
|
|
|
As of December 31, 2019
|
$
|
9,038
|
|
|
$
|
8,248
|
|
|
$
|
17,286
|
|
As of December 31, 2018
|
$
|
9,226
|
|
|
$
|
8,005
|
|
|
$
|
17,231
|
|
Property and equipment, net:
|
|
|
|
|
|
As of December 31, 2019
|
$
|
1,353
|
|
|
$
|
183
|
|
|
$
|
1,536
|
|
As of December 31, 2018
|
$
|
1,125
|
|
|
$
|
116
|
|
|
$
|
1,241
|
|
The foreign countries category above primarily relates to the U.K. and to a lesser extent, EU, Israel, Canada and Singapore.
|
|
19.
|
Earnings Per Common Share
|
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations in 2019, 2018 and 2017 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2019
|
|
2018
|
|
2017
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
2019
|
|
2018
|
|
2017
|
Net income attributable to Intercontinental Exchange, Inc.
|
$
|
1,933
|
|
|
$
|
1,988
|
|
|
$
|
2,526
|
|
Weighted average common shares outstanding
|
561
|
|
|
575
|
|
|
589
|
|
Basic earnings per common share
|
$
|
3.44
|
|
|
$
|
3.46
|
|
|
$
|
4.29
|
|
Diluted:
|
|
|
|
|
|
Weighted average common shares outstanding
|
561
|
|
|
575
|
|
|
589
|
|
Effect of dilutive securities - stock options and restricted stock
|
4
|
|
|
4
|
|
|
5
|
|
Diluted weighted average common shares outstanding
|
565
|
|
|
579
|
|
|
594
|
|
Diluted earnings per common share
|
$
|
3.42
|
|
|
$
|
3.43
|
|
|
$
|
4.25
|
|
Basic earnings per common share is calculated using the weighted average common shares outstanding during the periods. The weighted average common shares outstanding decreased in 2019 from 2018, and in 2018 from 2017, primarily due to stock repurchases (Note 12).
Common equivalent shares from stock options and restricted stock awards, using the treasury stock method, are included in the diluted per share calculations unless the effect of their inclusion would be antidilutive. During 2019, 2018 and 2017 454,000, 471,000 and 694,000 outstanding stock options, respectively, were not included in the computation of diluted earnings per common share because to do so would have had an antidilutive effect. As of both December 31, 2019 and 2018, there were 89,000 restricted stock units that were vested but have not been issued that are included in the computation of diluted earnings per share. Certain figures in the table above may not recalculate due to rounding.
20.Quarterly Financial Data (Unaudited)
The following table has been prepared from our financial records and reflects all adjustments that are necessary for a fair presentation of the results of operations for the interim periods presented (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Qtr
|
|
2nd Qtr
|
|
3rd Qtr
|
|
4th Qtr
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
Revenues, less transaction-based expenses
|
$
|
1,270
|
|
|
$
|
1,298
|
|
|
$
|
1,336
|
|
|
$
|
1,298
|
|
Operating income
|
665
|
|
|
680
|
|
|
706
|
|
|
622
|
|
Net income attributable to Intercontinental Exchange, Inc.
|
484
|
|
|
472
|
|
|
529
|
|
|
448
|
|
Earnings per common share: (a)
|
|
|
|
|
|
|
|
Basic
|
$
|
0.85
|
|
|
$
|
0.84
|
|
|
$
|
0.95
|
|
|
$
|
0.81
|
|
Diluted
|
$
|
0.85
|
|
|
$
|
0.84
|
|
|
$
|
0.94
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
Revenues, less transaction-based expenses
|
$
|
1,225
|
|
|
$
|
1,246
|
|
|
$
|
1,200
|
|
|
$
|
1,308
|
|
Operating income
|
650
|
|
|
655
|
|
|
602
|
|
|
676
|
|
Net income attributable to Intercontinental Exchange, Inc.(b)
|
464
|
|
|
455
|
|
|
458
|
|
|
611
|
|
Earnings per common share: (a)
|
|
|
|
|
|
|
|
Basic
|
$
|
0.80
|
|
|
$
|
0.79
|
|
|
$
|
0.80
|
|
|
$
|
1.07
|
|
Diluted
|
$
|
0.79
|
|
|
$
|
0.78
|
|
|
$
|
0.79
|
|
|
$
|
1.07
|
|
|
|
(a)
|
The annual earnings per common share may not equal the sum of the individual quarter’s earnings per common share due to rounding.
|
(b) We recognized a $110 million gain on our acquisition of MERS in other income for the three months ended December 31, 2018 (Note 3).
On February 5, 2020, we agreed to acquire Bridge2 Solutions, a leading provider of loyalty solutions for merchants and consumers, contingent on completion of Hart-Scott-Rodino review. Following the completion of the transaction, Bakkt intends to acquire Bridge2 Solutions from us. Bridge2 Solutions enables some of the world’s leading brands to engage customers and drive loyalty. It powers incentive and employee perk programs for companies across a wide spectrum of industries.
We have evaluated subsequent events and determined that no other events or transactions met the definition of a subsequent event for purposes of recognition or disclosure.