Nasdaq, Inc.
NASDAQ, INC. (Form: 10-Q, Received: 11/08/2016 15:53:48)

Table Of Contents

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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



For the quarterly period ended September  3 0 , 201 6



OR



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



For the transition period from              to           

  

Commission file number: 000-32651

 

N asdaq , Inc.

(Exact name of registrant as specified in its charter)

 

 



 



 

Delaware

52-1165937

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)



 

One Liberty Plaza, New York, New York

10006

(Address of Principal Executive Offices)

(Zip Code)



+1 212 401 8700

(Registrant’s telephone number, including area code)



No changes

(Former name, former address and former fiscal year, if changed since last report)

 





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No    



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 



 

 

 



 

 

 

Large accelerated filer

Accelerated filer



 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No    



Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 



 



 

Class

 

Outstanding at  November   1 , 201 6

 

Common Stock, $.01 par value per share

165,202,937  shares





 

 

 

 


 

Table Of Contents

Nasdaq, Inc.

Form 10-Q

For the Quarterly Period Ended September 30, 2016  

INDEX

 



 

 



 

 

 PART I. FINANCIAL INFORMATION  

 



 

 

Item 1 .

Financial Statements (unaudited)

2



 

 

 

Condensed Consolidated Balance Sheets— September  3 0 , 201 6 and December 31, 201 5

2



 

 

 

Condensed Consolidated Statements of Income—Three and Nine Month s Ended September  3 0 , 201 6 and 201 5

3



 

 

 

Condensed Consolidated Statements of Comprehensive Income   —Three and Nine Months Ended September 3 0 , 201 6 and 201 5

4



 

 

 

Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2016 and 2015

5



 

 

 

Notes to Condensed Consolidated Financial Statements  

6



 

 

Item 2 .

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3 5



 

 

 Item 3 .

Quantitative and Qualitative Disclosures About Market Risk

5 5



 

 

Item 4 .

Controls and Procedures

57



 

 PART II. OTHER INFORMATION  

 



 

 

Item 1 .

Legal Proceedings

5 8



 

 

Item 1A. .

Risk Factors

5 8



 

 

Item 2 .

Unregistered Sales of Equity Securities and Use of Proceeds

5 8



 

 

Item 3 .

Defaults Upon Senior Securities

5 9



 

 

Item 4 .

Mine Safety Disclosures

5 9



 

 

Item 5 .

Other Information

5 9



 

 

Item 6 .

Exhibits

5 9



 

 SIGNATURES

60































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Table Of Contents

About This Form 10-Q

Throughout this Form 10-Q, unless otherwise specified:

“N asdaq ,” “we,” “us” and “our” refer to Nasdaq, Inc.

“The NASDAQ Stock Market” and “NASDAQ” refer to the registered national securities exchange operated by The NASDAQ Stock Market LLC.

“Nasdaq Nordic” refers to collectively, Nasdaq Clearing AB, Nasdaq Stockholm AB, Nasdaq Copenhagen A/S, Nasdaq Helsinki Ltd, and Nasdaq Iceland hf .  

“Nasdaq Baltic” refers to collectively, Nasdaq Tallinn AS, Nasdaq Riga, AS, and AB Nasdaq Vilnius .  

Nasdaq Clearing ” refers to the clearing operations conducted by N asdaq  C learing AB .  

* * * * * *

The following is a non-exclusive list of registered trademarks, registered service marks, or trademarks or service marks of Nasdaq or its subsidiaries, in the United States and/or other countries or jurisdictions:

@ TRADE®, ACES®, AT-TRADE®, AGGREGATION, TRANSPARENCY, CONTROL®, AUTO WORKUP®, AXE®, BOARDVANTAGE®, BWISE®, BWISE BUSINESS IN CONTROL®, BWISE RAPID DEPLOYMENT SOLUTION®, BX VENTURE MARKET®, CANADIAN DIVIDEND ACHIEVERS®, CCBN®, CCN®, CCNMATTHEWS®, CLICK XT®, CONDICO®, CYBER SECURITY®, D.A.L.I.®, DATAXPRESS®, DEFENSE OF INTERNATIONAL MARKETS AND EXCHANGES SYMPOSIUM®, DIMES®, DIRECTORS DESK®, DIRECTORSDESK®, DIVIDEND ACHIEVERS®, DORSEY WRIGHT®, DREAM IT. DO IT.®, DWA MATRIX®, DWA®, DX®, E-SPEED®, EQQQ®, ESPEED & KATAKANA®, ESPEED®, ESPEEDOMETER®, EXACTEQUITY®, EXIGO®, FINQLOUD REGULATORY RECORDS RETENTION®, FINQLOUD®, FIRST NORTH®, FONDSBØRSEN®, FTEN®, GENIUM®, GIDS®, GLOBE NEWSWIRE®, GO! POWERED BY MARKETWIRE®, HACK®, IGNITE YOUR AMBITION®, INET®, INVESTOR WORLD®, IPOWORLD®, ISE BIG DATA®, ISE MOBILE PAYMENTS®, ISSUERWORLD®, ITCH®, LIQUIDITYXPRESS®, LONGITUDE®, MARKET INTELLIGENCE DESK®, MARKET LINQUIDITY®, MARKET MECHANICS®, MARKETSITE®, MARKETWIRE BEYOND WORDS®, MARKETWIRE RESONATE®, MARKETWIRE®, MARKETWIRE GO! ®, MARKETWIRED RESONATE®, MARKETWIRED®, MICROMARKET®, MW®, MW MARKET WIRED®, MW MARKETWIRED THE POWER OF INFLUENCE®, MY CCBN®, MYMEDIAINFO®, N LOGO (BLACK AND WHITE)®, N LOGO (BLUE ON WHITE)(STYLIZED "N" IN RIBBON FORM)®, N NASDAQ LOGO (BLACK AND WHITE)®, N NASDAQ LOGO (BLUE AND SILVER)®, N NASDAQ LOGO (BLUE ON WHITE)®, NASDAQ®, NASDAQ (IN CHINESE)®, NASDAQ (IN KATAKANA)®, NASDAQ 100 INDEX®, NASDAQ BIOTECHNOLOGY INDEX®, NASDAQ CANADA COMPOSITE INDEX®, NASDAQ CANADA INDEX®, NASDAQ CANADA®, NASDAQ CAPITAL MARKET®, NASDAQ COMPOSITE INDEX®, NASDAQ COMPOSITE®, NASDAQ COMPUTER INDEX®, NASDAQ DIVIDEND ACHIEVERS®, NASDAQ DUBAI®, NASDAQ EUROPE COMPOSITE INDEX®, NASDAQ EUROPE®, NASDAQ FINANCIAL-100 INDEX®, NASDAQ FX®, NASDAQ GLOBAL MARKET®, NASDAQ GLOBAL SELECT MARKET®, NASDAQ INDUSTRIAL INDEX®, NASDAQ INTERACT®, NASDAQ INTERNET INDEX®, NASDAQ IQ FUND®, NASDAQ JAPAN (IN ENGLISH)®, NASDAQ JAPAN (IN KATAKANA)®, NASDAQ JAPAN®, NASDAQ MARKET ANALYTIX®, NASDAQ MARKET CENTER®, NASDAQ MARKET FORCES®, NASDAQ MARKET VELOCITY®, NASDAQ MARKETSITE®, NASDAQ MAX®, NASDAQ MAX MARKET ANALYTIX®, NASDAQ NATIONAL MARKET®, NASDAQ OMX®, NASDAQ OMX ALPHA INDEXES®, NASDAQ OMX GREEN ECONOMY INDEX®, NASDAQ OMX NORDIC®, NASDAQ PRIVATE MARKET®, NASDAQ Q-50 INDEX®, NASDAQ TELECOMMUNICATIONS INDEX®, NASDAQ TOTALVIEW®, NASDAQ TRADER®, NASDAQ TRANSPORTATION INDEX®, NASDAQ US ALL MARKET®, NASDAQ VOLATILITY GUARD®, NASDAQ WORKSTATION®, NASDAQ WORKSTATION II®, NASDAQ WORLD (IN KATAKANA)®, NASDAQ WORLD®, NASDAQ-100®, NASDAQ-100 (IN KATAKANA)®, NASDAQ-100 EUROPEAN FUND®, NASDAQ-100 EUROPEAN TRACKER®, NASDAQ-100 EUROPEAN TRACKER FUND®, NASDAQ-100 INDEX®, NASDAQ-100 INDEX (IN KATAKANA)®, NASDAQ-100 INDEX EUROPEAN TRACKER FUND®, NASDAQ-100 INDEX TRACKING STOCK®, NASDAQ-FINANCIAL®, NDX®, NEWS RELEASE EXPRESS®, NFX WORLD CURRENCY FUTURES®, NLX®, NOIS®, NORDIX®, OM®, OMX®, OMX COPENHAGEN 20®, OMX HELSINKI 25®, OMX STIBOR FUTURE®, OMX STOCKHOLM 30®, OMX TECHNOLOGY®, OMXH25®, OMXS30®, OMXS3FUT®, ON THE WIRE®, OTW®, OVERUNDER®, PHILADELPHIA STOCK EXCHANGE®, PHLX®, PHLX XL®, PIXL®, PRECISE TRADE®, PRF®, Q THE NEXT GREAT THING®, QQQ®, QTARGET®, QVIEW®, R3®, RE-THINK®, RISKWAY®, RISKWRAPPER®, RISKXPOSURE®, RX®, S.A.X.E.S®, SDW (SYSTEM DEVELOPMENT WORKBENCH)®, SECONDMARKET®, SECONDMARKET ECOYSYSTEM®, SIDECAR®, SIGNALXPRESS SX®, SMARTS®, SMARTSONLINE®, STINA®, STRUCTURED LIQUIDITY PROGRAM®, THE NASDAQ STOCK MARKET®, THE STOCK MARKET FOR THE NEXT 100 YEARS®, TOTAL EQUITY SOLUTION®, TRADEGUARD®, TX®, ULL®, ULTRA LOW LATENCY®, ULTRAFEED®, VX PROXY®, WIZER®, XDE®, XO DORSEY WRIGHT & ASSOCIATES®, ÖVERUNDER ®

ii

 


 

Table Of Contents

To the extent a name, logo or design does not appear on the above list, such lack of appearance does not constitute a waiver of any intellectual property rights that Nasdaq has established in its product or service names or logos, or in product configurations or designs, all of which rights are expressly reserved.

FINRA® and TRADE REPORTING FACILITY® are registered trademarks of the Financial Industry Regulatory Authority, or FINRA.

All other trademarks and service marks used herein are the property of their respective owners .  

* * * * * * 

This Quarterly Report on Form 10-Q includes market share and industry data that we obtained from industry publications and surveys, reports of governmental agencies and internal company surveys. Industry publications and surveys generally state that the information they contain has been obtained from sources believed to be reliable, but we cannot assure you that this information is accurate or complete. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on the most currently available   market data. For market comparison purposes, The NASDAQ Stock Market data in this Quarterly Report on Form 10-Q for initial   public offerings, or IPOs, is based on data generated internally by us, which includes best efforts underwritings; therefore, the data may not be comparable to other publicly-available IPO data. Data in this Quarterly Report on Form 10-Q for new listings of equity securities on The NASDAQ Stock Market is based on data generated internally by us, which includes best efforts underwritings, issuers that switched from other listing venues , closed-end funds and exchange traded products , or ET P s. Data in this Quarterly Report on Form 10-Q for IPOs and new listings of equit y securities on the N asdaq Nordic and N asdaq Baltic exchanges also is based on data generated internally by us. IPOs and new listings data is presented as of period end. While we are not aware of any misstatements regarding industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors. We refer you to the “Risk Factors” section in this Quarterly Report on Form 10-Q for the quarter ended September  3 0 , 201 6, the “Risk Factors” section in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 that was filed with the U.S. Securities and Exchange Commission, or S E C , on August 3, 2016 ,   the “Risk Factors” section in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 that was filed with the S E C on May 5, 2016 and the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 201 5 that was filed with th e S E C on February  26 , 201 6 .

* * * * * *

Nasdaq intends to use its website, ir.nasdaq.com, as a means for disclosing material non-public information and for complying with SEC Regulation FD and other disclosure obligations. These disclosures will be included on Nasdaq’s website under “Investor Relations.”























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Table Of Contents

          Forward-Looking Statements

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains these types of statements. Words such as “may,” “will,” “could,” “should,”   “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words or terms of similar substance used in connection with any discussion of future expectations as to industry and regulatory developments or business initiatives and strategies, future operating results or financial performance , and other future developments identify forward-looking statements. These include, among others, statements relating to:

·

our 201 6 outlook;

·

the scope, nature or impact of acquisitions, divestitures, investments or other transactional activities;

·

the integration of acquired businesses, including accounting decisions relating thereto;

·

the effective dates for, and expected benefits of, ongoing initiatives, including acquisitions and other strategic , restructuring, technology, de-leveraging and capital return initiatives;

·

our   products, order backlog   and services

·

the impact of pricing changes;

·

tax matters;

·

the cost and availability of liquidity; and

·

any litigation or regulatory or government investigation or action to which we are or could become a party.

Forward-looking statements involve risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following:

·

our operating results may be lower than expected;

·

loss of significant trading and clearing volume, market share , listed companies or other customers ;  

·

economic, political and market conditions and fluctuations, including interest rate and foreign currency risk, inherent in U.S. and international operations;

·

government and industry regulation;

·

our ability to keep up with rapid technological advances and adequately address cybersecurity risks ;

·

the performance and reliability of our technology and technology of third parties;

·

our ability to successfully integrate acquired businesses, including the fact that such integration may be more difficult, time consuming or costly than expected, and our ability to realize synergies from business combinations and acquisitions;

·

our ability to continue to generate cash and manage our indebtedness; and

·

adverse changes that may occur in the securities markets generally.  

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the uncertainty and any risk related to forward-looking statements that we make. These risk factors are discussed under the caption “Part II. Item 1A. Risk Factors,” in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 , our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 that was filed with the SEC on August 3, 2016 ,   our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 that was filed with the SEC on May 5, 2016 and more fully described in the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 201 5 that was filed with the SEC on February  26 , 201 6 . You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should carefully read this entire Quarterly Report on Form 10-Q, including “Part 1. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the condensed consolidated financial statements and the related notes. Except as required by the federal securities laws, we undertake no obligation to update any forward-looking statement, release publicly any revisions to any forward-looking statements or report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 .

1


 

Table Of Contents

PART 1—FINANCIAL INFORMATION

Item 1. Financial Statements.

Nasdaq, Inc.



Condensed Consolidated Balance Sheets

(in millions, except share and par value amounts)







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

September 30,
2016

 

December 31, 2015



 

 

 

 

 

 

 

 



 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

257 

 

 

$

301 

Restricted cash

 

 

 

19 

 

 

 

56 

Financial investments, at fair value

 

 

 

238 

 

 

 

201 

Receivables, net

 

 

 

349 

 

 

 

316 

Default funds and margin deposits

 

 

 

3,323 

 

 

 

2,228 

Other current assets

 

 

 

160 

 

 

 

158 

Total current assets

 

 

 

4,346 

 

 

 

3,260 

Property and equipment, net

 

 

 

342 

 

 

 

323 

Deferred tax assets

 

 

 

768 

 

 

 

643 

Goodwill

 

 

 

6,206 

 

 

 

5,395 

Intangible assets, net

 

 

 

2,740 

 

 

 

1,959 

Other non-current assets

 

 

 

406 

 

 

 

281 

Total assets

 

 

$

14,808 

 

 

$

11,861 



 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

$

159 

 

 

$

158 

Section 31 fees payable to SEC

 

 

 

27 

 

 

 

98 

Accrued personnel costs

 

 

 

175 

 

 

 

171 

Deferred revenue

 

 

 

216 

 

 

 

127 

Other current liabilities

 

 

 

134 

 

 

 

138 

Default funds and margin deposits

 

 

 

3,323 

 

 

 

2,228 

Current portion of debt obligations

 

 

 

20 

 

 

 

 -

Total current liabilities

 

 

 

4,054 

 

 

 

2,920 

Debt obligations

 

 

 

3,689 

 

 

 

2,364 

Deferred tax liabilities

 

 

 

980 

 

 

 

626 

Non-current deferred revenue

 

 

 

191 

 

 

 

200 

Other non-current liabilities

 

 

 

140 

 

 

 

142 

Total liabilities

 

 

 

9,054 

 

 

 

6,252 



 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Nasdaq stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 300,000,000 shares authorized, shares issued: 169,018,836 at September 30, 2016 and 167,241,734 at December 31, 2015; shares outstanding: 165,198,693 at September 30, 2016 and 164,324,270 at December 31, 2015

 

 

 

 

 

 

Additional paid-in capital

 

 

 

3,046 

 

 

 

3,011 

Common stock in treasury, at cost: 3,820,143 shares at September 30, 2016 and 2,917,464 shares at December 31, 2015

 

 

 

(169)

 

 

 

(111)

Accumulated other comprehensive loss

 

 

 

(882)

 

 

 

(864)

Retained earnings

 

 

 

3,757 

 

 

 

3,571 

Total Nasdaq stockholders' equity

 

 

 

5,754 

 

 

 

5,609 

Total liabilities and equity

 

 

$

14,808 

 

 

$

11,861 



 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

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Table Of Contents

Nasdaq, Inc.

Condensed Consolidated Statements of Income  

(Unaudited)

(in millions, except per share amounts)

 





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,



 

2016

 

2015

 

 

2016

 

2015

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Services

 

$

557 

 

$

542 

 

 

$

1,661 

 

$

1,561 

Listing Services

 

 

68 

 

 

66 

 

 

 

202 

 

 

196 

Information Services

 

 

137 

 

 

132 

 

 

 

405 

 

 

385 

Technology Solutions

 

 

167 

 

 

131 

 

 

 

464 

 

 

396 

     Total revenues

 

 

929 

 

 

871 

 

 

 

2,732 

 

 

2,538 

Transaction-based expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction rebates

 

 

(265)

 

 

(256)

 

 

 

(804)

 

 

(733)

Brokerage, clearance and exchange fees

 

 

(79)

 

 

(86)

 

 

 

(250)

 

 

(251)

Revenues less transaction-based expenses

 

 

585 

 

 

529 

 

 

 

1,678 

 

 

1,554 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

168 

 

 

150 

 

 

 

484 

 

 

441 

Marketing and advertising

 

 

 

 

 

 

 

22 

 

 

20 

Depreciation and amortization

 

 

46 

 

 

34 

 

 

 

125 

 

 

102 

Professional and contract services

 

 

40 

 

 

33 

 

 

 

111 

 

 

108 

Computer operations and data communications

 

 

28 

 

 

23 

 

 

 

80 

 

 

81 

Occupancy

 

 

23 

 

 

22 

 

 

 

62 

 

 

63 

Regulatory

 

 

 

 

 

 

 

21 

 

 

20 

Merger and strategic initiatives

 

 

12 

 

 

 

 

 

56 

 

 

General, administrative and other

 

 

19 

 

 

11 

 

 

 

50 

 

 

77 

Restructuring charges

 

 

 -

 

 

 

 

 

41 

 

 

160 

     Total operating expenses

 

 

352 

 

 

298 

 

 

 

1,052 

 

 

1,079 

Operating income

 

 

233 

 

 

231 

 

 

 

626 

 

 

475 

Interest income

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(37)

 

 

(28)

 

 

 

(98)

 

 

(83)

Other investment income

 

 

 -

 

 

 -

 

 

 

 

 

 -

Net income from unconsolidated investees

 

 

 

 

 

 

 

 

 

16 

Income before income taxes

 

 

199 

 

 

206 

 

 

 

541 

 

 

411 

Income tax provision

 

 

68 

 

 

68 

 

 

 

208 

 

 

132 

Net income

 

 

131 

 

 

138 

 

 

 

333 

 

 

279 

Net loss attributable to noncontrolling interests

 

 

 -

 

 

 -

 

 

 

 -

 

 

Net income attributable to Nasdaq

 

$

131 

 

$

138 

 

 

$

333 

 

$

280 

Per share information:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.79 

 

$

0.83 

 

 

$

2.02 

 

$

1.66 

Diluted earnings per share

 

$

0.77 

 

$

0.80 

 

 

$

1.97 

 

$

1.63 

Cash dividends declared per common share

 

$

0.32 

 

$

0.25 

 

 

$

0.89 

 

$

0.65 

See accompanying notes to condensed consolidated financial statements.

3


 

Table Of Contents

 

Nasdaq, Inc.

Condensed Consolidated Statements of Comprehensive Income  

(Unaudited)

(in millions)



 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,



 

2016

 

2015

 

 

2016

 

2015

Net income

 

$

131 

 

$

138 

 

 

$

333 

 

$

279 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net foreign currency translation losses

 

 

(45)

 

 

(68)

 

 

 

(34)

 

 

(256)

Income tax benefit

 

 

23 

 

 

26 

 

 

 

16 

 

 

91 

Total other comprehensive loss, net of tax

 

 

(22)

 

 

(42)

 

 

 

(18)

 

 

(165)

Comprehensive income

 

 

109 

 

 

96 

 

 

 

315 

 

 

114 

Comprehensive loss attributable to noncontrolling interests

 

 

 -

 

 

 -

 

 

 

 -

 

 

Comprehensive income attributable to Nasdaq

 

$

109 

 

$

96 

 

 

$

315 

 

$

115 



See accompanying notes to condensed consolidated financial statements.

 

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Table Of Contents

Nasdaq, Inc.



Condensed Consolidated Statements of Cash Flows  

(Unaudited)

(in millions)

 



 

 

 

 

 

 



 

Nine Months Ended
September 30,



 

2016

 

2015



 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

333 

 

$

279 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

125 

 

 

102 

Share-based compensation

 

 

55 

 

 

49 

Excess tax benefits related to share-based payments

 

 

(38)

 

 

(16)

Deferred income taxes

 

 

(10)

 

 

(61)

Non-cash restructuring charges

 

 

 

 

134 

Net income from unconsolidated investees

 

 

(6)

 

 

(16)

Other reconciling items included in net income

 

 

 

 

Net change in operating assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

 

Receivables, net

 

 

53 

 

 

96 

Other assets

 

 

35 

 

 

 -

Accounts payable and accrued expenses

 

 

(3)

 

 

(21)

Section 31 fees payable to SEC

 

 

(77)

 

 

(99)

Accrued personnel costs

 

 

(8)

 

 

(18)

Deferred revenue

 

 

46 

 

 

(3)

Other liabilities

 

 

(65)

 

 

37 

Net cash provided by operating activities

 

 

453 

 

 

472 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of trading securities

 

 

(376)

 

 

(265)

Proceeds from sales and redemptions of trading securities

 

 

328 

 

 

236 

Purchases of available-for-sale investment securities

 

 

(7)

 

 

(26)

Proceeds from maturities of available-for-sale investment securities

 

 

19 

 

 

29 

Capital contribution in equity method investment

 

 

 -

 

 

(30)

Acquisition of businesses, net of cash and cash equivalents acquired

 

 

(1,460)

 

 

(226)

Purchases of property and equipment

 

 

(85)

 

 

(91)

Other investment activities

 

 

(10)

 

 

(9)

Net cash used in investing activities

 

 

(1,591)

 

 

(382)

Cash flows from financing activities:

 

 

 

 

 

 

Payments of debt obligations

 

 

(1,118)

 

 

(176)

Proceeds from utilization of credit commitment

 

 

878 

 

 

366 

Proceeds from issuances of senior unsecured notes and term loan facility

 

 

1,558 

 

 

 -

Cash paid for repurchase of common stock

 

 

(100)

 

 

(310)

Cash dividends

 

 

(147)

 

 

(108)

Proceeds received from employee stock activity

 

 

42 

 

 

19 

Payments related to employee shares withheld for taxes

 

 

(58)

 

 

(28)

Excess tax benefits related to share-based payments

 

 

38 

 

 

16 

Other financing activities

 

 

 -

 

 

 -

Net cash provided by (used in) financing activities

 

 

1,093 

 

 

(221)

Effect of exchange rate changes on cash and cash equivalents

 

 

 

 

(6)

Net decrease in cash and cash equivalents

 

 

(44)

 

 

(137)

Cash and cash equivalents at beginning of period

 

 

301 

 

 

427 

Cash and cash equivalents at end of period

 

$

257 

 

$

290 

Supplemental Disclosure Cash Flow Information

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

Interest

 

$

96 

 

$

91 

Income taxes, net of refund

 

$

167 

 

$

146 



 

 

 

 

 

 

    See accompanying notes to condensed consolidated financial statements.

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Table Of Contents

Nasdaq, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Organization and Nature of Operations

Nasdaq, Inc. is a leading provider of trading, clearing, exchange technology, regulatory, securities listing, information and public company services across six continents. Our global offerings are diverse and include trading and clearing across multiple asset classes ,   trade management services , data products , financial indexes, capital formation solutions, corporate solutions and market technology products and services. Our technology powers markets across the globe, supporting equity derivative trading, clearing and settlement, cash equity trading, fixed income trading and many other functions.

We manage, operate and provide our products and services in four business segments: Market Services, Listing Services, Information Services and Technology Solutions.

Market Services

Our Market Services segment includes our equity derivative trading and clearing, cash equity trading, fixed income   and commodities trading and clearing, or FICC ,   and trade   management services businesses. Our FICC business was formerly referred to as fixed income, currency and commodities trading and clearing, and our trade management services business was formerly referred to as access and broker services. We operate multiple exchanges and other marketplace facilities across several asset classes, including derivatives, commodities, cash equity, debt, structured products and ETPs. In addition, in some countries where we operate exchanges, we also provide broker services, clearing, settlement and central depository services. Our transaction-based platforms provide market participants with the ability to access, process, display and integrate orders and quotes. The platforms allow the routing and execution of buy and sell orders as well as the reporting of transactions, providing fee-based revenues.

Through our acquisition of U.S. Exchange Holdings, Inc. and its subsidiaries, or ISE, an operator of three electronic options exchanges, we now operate six electronic options exchanges and three cash equity exchanges in the U.S. See “Acquisition of International Securities Exchange, ” of Note 4, “Acquisitions ,” for further discussion of the ISE acquisition. The NASDAQ Stock Market, the largest of our cash equities exchanges, is the largest single venue of liquidity for trading U.S.-listed cash equities. We also operate a leading electronic platform for trading of U.S. Treasuries and Nasdaq Futures, Inc., or NFX, a U.S. based energy derivatives market which offers cash settled energy derivatives based on key energy benchmarks including oil, natural gas and U.S. power.

Through our acquisition of Chi-X Canada ATS Limited, or Chi-X Canada, in February 2016, we also operate two Canadian markets for the trading of Canadian-listed securities. Effective June 1, 2016, we changed the name of Chi-X Canada to Nasdaq CXC Limited, or Nasdaq CXC. See “Acquisition of Nasdaq CXC,” of Note 4, “Acquisitions,” for further discussion of this acquisition.

In Europe, we operate exchanges in Stockholm (Sweden), Copenhagen (Denmark), Helsinki (Finland), and Reykjavik ( Iceland ) , as well as the clearing operations of Nasdaq Clearing. We also operate exchanges in Tallinn (Estonia), Riga (Latvia) and Vilnius (Lithuania) as Nasdaq Baltic. Collectively, Nasdaq Nordic and Nasdaq Baltic offer trading in cash equities and depository receipts, warrants, convertibles, rights, fund units and exchange traded funds as well as trading and clearing of derivatives and clearing of resale and repurchase agreements. Through Nasdaq First North, our Nordic and Baltic operations also offer alternative marketplaces for smaller companies.

In addition, Nasdaq Commodities operates a power derivatives exchange regulated in Norway and a European carbon exchange. In the U.K., we operate Nasdaq NLX, a London-based multilateral trading venue that offers a range of both short-term interest rate and long-term interest rate euro- and sterling-based listed derivative products.

Through our Trade Management Services business, we provide market participants with a wide variety of alternatives for connecting to and accessing our markets via a number of different protocols used for quoting, order entry, trade reporting, DROP functionality and connectivity to various dat a feeds. We also provide co-location services to market participants, whereby firms may lease cabinet space and power to house their own equipment and servers within our data center. Our broker services operations offer technology and customized securities administration solutions to financial participants in the Nordic market.

Listing Services

Our Listing Services segment includes our U.S. and European Listing Services businesses. We operate a variety of listing platforms around the world to provide multiple global capital raising solutions for private and public companies. Our main listing markets are The NASDAQ Stock Market and the Nasdaq Nordic and Nasdaq Baltic exchanges. Our Listing Services   s egment also includes The NASDAQ Private Market, LLC, or NPM, and SecondMarket Solutions, Inc., or SecondMarket, which provide services for private growth companies. 

As of September  3 0 , 2016, The NASDAQ Stock Market was home to 2,872 listed companies with a combined market capitalization of approximately $8.8 trillion, and in Europe, the Nasdaq Nordic and Nasdaq Baltic exchanges, together with Nasdaq First North, were home to 875 listed companies with a combined market capitalization of approximately $1.3 trillion .  

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Table Of Contents

Information Services

Our Information Services segment includes our Data Products and our Index Licensing and Services businesses. Our Data Products business sells and distributes historical and real-time quote and trade information to market participants and data distributors. Our data products enhance transparency of the market activity within the exchanges that we operate and provide critical information to professional and non-professional investors globally.

Our Index Licensing and Services business develops and licenses Nasdaq branded indexes, associated derivatives, and financial products and also provides custom calculation services for third-party clients. As of September  3 0 , 2016, we had 289 ETPs licensed to Nasdaq’s indexes which had over $118 billion of assets under management , or AUM.

Technology Solutions

Our Technology Solutions segment includes our Corporate Solutions and Market Technology businesses.

Our Corporate Solutions business serves corporate clients, including companies listed on our exchanges. We help organizations manage the two-way flow of information with their key constituents, including their board members and investors, and with clients and the public through our suite of advanced technology, analytics, and consultative services. Our Corporate Solutions business primarily offers products to serve the following key areas: investor relations, public relations, multimedia solutions, and governance. We currently have approximately 18,000 Corporate Solutions clients.

Our Market Technology business is a leading global technology solutions provider and partner to exchanges, clearing organizations, central securities depositories, regulators, banks, brokers and corporate businesses. Our Market Technology business is the sales channel for our complete global offering to other marketplaces.

Market Technology provides technology solutions for trading, clearing, settlement, surveillance and information dissemination to markets with wide-ranging requirements, from the leading markets in the U.S., Europe , and Asia to emerging markets in the Middle East, Latin America, and Africa. Our marketplace solutions can handle a wide array of assets including cash equities, equity derivatives, currencies, various interest-bearing securities, commodities, and energy products, and are currently powering more than 70 marketplaces in 50 countries. Market Technology also provides market surveillance services to broker-dealer firms worldwide, as well as enterprise governance, risk management , and compliance software solutions.

2. Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The condensed consolidated financial statements include the accounts of Nasdaq, its wholly-owned subsidiaries and other entities in which Nasdaq has a controlling financial interest. When we do not have a controlling interest in an entity but exercise significant influence over the entity’s operating and financial policies, such investment is accounted for under the equity method of accounting. We recognize our share of earnings or losses of an equity method investee based on our ownership percentage. As permitted under U.S. GAAP, for certain equity method investments for which financial information is not sufficiently timely for us to apply the equity method of accounting currently, we record our share of the earnings or losses of the investee from the most recently available financial statements on a lag. See “Equity Method Investments,” of Note 6, “Investments,” for further discussion of our equity method investments.

The accompanying condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation.

As permitted under U.S. GAAP, certain footnotes or other financial information can be condensed or omitted in the interim condensed consolidated financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in Nasdaq’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Certain prior period amounts have been reclassified to conform to the current period presentation.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

We have evaluated subsequent events through the issuance date of this Quarterly Report on Form 10-Q.  

Tax Matters

We use the asset and liability method to determine income taxes on all transactions recorded in the condensed consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will

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Table Of Contents

be in effect when these differences are realized. If necessary, a valuation allowance is established to reduce deferred tax assets to the amount that is more likely than not to be realized.

In order to recognize and measure our unrecognized tax benefits, management determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the recognition thresholds, the position is measured to determine the amount of benefit to be recognized in the condensed consolidated financial statements. Interest and/or penalties related to income tax matters are recognized in income tax expense.

Nasdaq’s income tax provision was $68 million in the third quarter of 2016 and $208 million in the first nine months of 2016 compared with $68 million in the third quarter of 2015 and $ 132 million in the first nine months of 2015. The overall effective tax rate was 34.2% in the third quarter of 2016 and 38.4% in the first nine months of 2016 compared with 33.0% in the third quarter of 2015 and 32.1% in the first nine months of 2015. The higher effective tax rate in the third quarter and first nine months of 2016 when compared with the same periods in 2015 is primarily due to an unfavorable ruling from the Finnish Supreme Administrative Court. See below for further discussion. The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for the years 2011 through 2015 are subject to examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for the years 2005 through 2014 and we are subject to examination for the year 2015. Non-U.S. tax returns are subject to examination by the respective tax authorities for the years 2008 through 2015. Although the results of such examinations may have an impact on our unrecognized tax benefits, we do not anticipate that such impact will be material to our consolidated financial position or results of operations. In addition, w e anticipate that the amount of unrecognized tax benefits at September 30, 2016 will significantly decrease in the next twelve months as we expect to settle certain tax audits. 

  In the fourth quarter of 2010, we received an appeal from the Finnish Tax Authority challenging certain interest expense deductions claimed by Nasdaq in Finland for the year 2008. The appeal also demanded certain penalties be paid with regard to the company’s tax return filing position. In October 2012, the Finnish Appeals Board disagreed with the company’s tax return filing position for years 2009 through 2011, even though the tax return position with respect to this deduction was previously reviewed and approved by the Finnish Tax Authority. In June 2014, the Finnish Administrative Court also disagreed with the company’s tax return filing position for these years. We appealed this ruling to the Finnish Supreme Administrative Court. Through March 31, 2016, we recorded tax benefits of $30 million associated with this filing position. We paid $41 million to the Finnish tax authorities, which includes $11 million in interest and penalties. In May 2016, we received an unfavorable ruling from the Finnish Supreme Administrative Court, in which the Court disagreed with our position. As such, in the second quarter of 2016 we recorded tax expense of $28 million, or $0.17 per diluted share. This expense reflects the reversal of previously recorded Finnish tax benefits, and related interest and penalties, of $38 million through the first quarter of 2016, net of a related U.S. tax benefit of $10 million. The tax expense recorded reflects the impact of foreign currency translation. We expect to record future quarterly net tax expense of approximately $1 million as a result of this ruling.

From 2009 through 2012, we recorded tax benefits associated with certain interest expense incurred in Sweden. Our position is supported by a 2011 ruling we received from the Swedish Supreme Administrative Court. However, under new legislation effective January 1, 2013, limitations are imposed on certain forms of interest expense. Because this legislation is unclear with regard to our ability to continue to claim such interest deductions, Nasdaq filed an application for an advance tax ruling with the Swedish Tax Council for Advance Tax Rulings. In June 2014, we received an unfavorable ruling from the Swedish Tax Council for Advance Tax Rulings. We appealed this ruling to the Swedish Supreme Administrative Court; however the Swedish Supreme Administrative Court denied our request for a ruling based on procedural requirements. In the third quarter of 2015, we received a notice from the Swedish Tax Agency that interest deductions for the year 2013 have been disallowed. In October 2016, we received a notice from the Swedish Tax Agency that interest deductions for the year 2014 have been disallowed. We will appeal to the Swedish Lower Administrative Court and continue to expect a favorable decision. Since January 1, 2013, we have recorded tax benefits of $48 million associated with this matter .   We continue to pay all assessments from the Swedish Tax Agency while this matter is pending. If the Swedish Courts agree with our position we will receive a refund of all paid assessments ; if the Swedish Courts disagree with our position, we will record tax expense of $39 million, or $0.23 per diluted share, which is gross of any related U.S. tax benefits and reflects the impact of foreign currency translation , and   we will pay any associated tax for which we have not been assessed by the Swedish Tax Agency. We expect to record recurring quarterly tax benefits of $1 million to $2 million with respect to this matter for the foreseeable future.

Other Tax Matter

In December 2012, the Swedish Tax Agency approved our 2010 amended value added tax, or VAT, tax return and we received a cash refund for the amount claimed. In 2013, we filed amended VAT tax returns for 2011 and 2012, utilizing the same approach which was approved for the 2010 filing. We also utilized this approach in our 2013 and 2014 filings. However, even though the VAT return position was previously reviewed and approved by the Swedish Tax Agency, the Swedish Tax Agency challenged our

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approach. The revised position of the Swedish Tax Agency was upheld by the Lower Administrative Court during the first quarter of 2015. As a result, in the first quarter of 2015, we reversed the previously recorded benefit of $12 million, based on the court decision. The decision of the Lower Administrative Court was upheld by the Court of Appeals in April 2016. We have appealed this ruling to the Supreme Administrative Court.

Recently Adopted Accounting Pronouncements

Accounting Standard

Description

Effective Date

Effect on the Financial Statements or Other Significant Matters

Income Taxes      In November 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2015-17, “Balance Sheet Classification of Deferred Taxes.”

This ASU eliminates the current requirement to present deferred tax liabilities and assets as current and non-current in a classified balance sheet. Instead, Nasdaq is required to classify all deferred tax liabilities and assets as non-current.

In the first quarter of 2016, we elected to early adopt this guidance retrospectively for all periods presented in the Condensed Consolidated Balance Sheets.

The adoption of this guidance resulted in the reclassification of current deferred tax assets of $24 million to non-current deferred tax assets and current deferred tax liabilities of $24 million to non-current deferred tax liabilities for the year ended December 31, 2015. This new standard is a change in balance sheet presentation only.

Business Combinations       In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.”

This ASU eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. This guidance requires the acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined. In addition, the amendments in this guidance require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.

We adopted this new standard on January 1, 2016.

None.  



Recently Announced Accounting Pronouncements

Accounting Standard

Description

Effective Date

Effect on the Financial Statements or Other Significant Matters

Statement of Cash Flows      

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.”

This ASU addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows with the objective of reducing existing diversity in practice with respect to these items. The se  i tems include debt prepayments or debt extinguishment costs, payments of contingent consideration after a business combination, and distributions from equity method investees, among others.

January 1, 2018, with early adoption permitted.

The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. We do not anticipate a material impact on our consolidated financial statements at the time of adoption of this new standard.

9


 



Financial Instruments – Credit Losses       In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.”

 

This ASU changes the impairment model for certain financial instruments. The new model is a forward looking expected loss model and will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This includes loans, held-to-maturity debt securities, loan commitments, financial guarantees and net investments in leases, as well as trade receivables. For available-for-sale debt securities with unrealized losses, credit losses will be measured in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

 

January 1, 2020, with early adoption as of January 1, 2019 permitted.

 

We are currently assessing the impact that this standard will have on our consolidated financial statements.

Compensation – Stock Compensation    

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.”

This ASU involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This new guidance will require all income tax effects of awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled, as opposed to additional paid-in-capital where it is currently recorded. This guidance will impact the calculation of our total diluted share count for the earnings per share calculation, as calculated under the treasury stock method. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting. All tax-related cash flows resulting from share-based payments are to be reported as operating activities on the statement of cash flows. In regards to forfeitures, Nasdaq can make a policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur.

January 1, 2017, with early adoption permitted.

We are currently assessing the impact that this standard will have on our consolidated financial statements.

Leases            

In February 2016, the FASB issued ASU 2016-02, “Leases.”

Under this ASU, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged.

January 1, 2019, with early adoption permitted.

We are currently assessing the impact that this standard will have on our consolidated financial statements.

Financial Instruments – Overall             

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

This ASU requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. Under this new guidance, Nasdaq will no longer be able to recognize unrealized holding gains and losses on equity securities classified today as available-for-sale in accumulated other comprehensive income within stockholders’ equity. This new standard does not change the guidance for classifying and measuring investments in debt securities and loans. This new guidance also impacts financial liabilities accounted for under the fair value option and affects the presentation and disclosure requirements for financial assets and liabilities.

January 1, 2018. Early adoption is not permitted.

We do not anticipate a material impact on our consolidated financial statements at the time of adoption of this new standard.

10


 



 

 

 

Revenue From Contracts With Customers       

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition guidance in Accounting Standards Codification, “Revenue Recognition.”

 

 

 

 

The new revenue recognition standard sets forth a five-step revenue recognition model to determine when and how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to receive in exchange for those goods or services. The standard also requires more detailed disclosures. The standard provides alternative methods of initial adoption. On July 9, 2015, the FASB approved the deferral of the effective date of the new revenue recognition standard by one year.  

 

 

 

 

January 1, 2018, with early adoption permitted.

 

 

 

 

We are currently assessing the impact that this standard will have on our consolidated financial statements, and have not yet selected a transition approach.



3. Restructuring Charges

2015 Restructuring Plan

During the first quarter of 2015, we performed a comprehensive review of our processes, businesses and systems in a company-wide effort to improve performance, cut costs, and reduce spending .   A s part of our 2015 restructuring plan ,   we recognized net restructuring charges totaling $8 million for the three months ended September 30, 2015, $41 million for the nine months ended September 30, 2016 and $160 million for the nine months ended September 30, 2015.  

In June 2016, we   completed our 2015 restructuring plan and recognize d   total net pre-tax charges of $214 million for the period March 2015 through June 2016. Total net pre-tax charges were attributed to the rebranding of our trade name for $119 million, severance charges of $47 million, asset impairments of $26 million, other charges of $21 million, and facilities related costs of $1 million. Through this initiative, we expect to generate annualized pre-tax savings of $36   million .   Restructuring charges are recorded on restructuring plans that have been committed to by management and are, in part, based upon management's best estimates of future events. Changes to the estimates may require future adjustments to the restructuring reserve.  

The following table presents a summary of the 2015 restructuring plan charges in the Condensed Consolidated Statements of Income :  



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,



 

 

2015

 

2016

 

2015



 

 

 

 

 

 

 

 

 

 



 

 

(in millions)

 

(in millions)

Rebranding of trade name

 

 

$

 -

 

$

 -

 

$

119 

Severance

 

 

 

 

 

22 

 

 

23 

Facilities-related

 

 

 

 

 

 

 

(3)

Asset impairments

 

 

 

 -

 

 

 

 

15 

Other

 

 

 

 

 

10 

 

 

Total restructuring charges

 

 

$

 

$

41 

 

$

160 

Rebranding of Trade Name

In connection with our global rebranding initiative, we decided to change our company name from The NASDAQ OMX Group, Inc. to Nasdaq, Inc., which became effective in the third quarter of 2015 . In connection with this action, we decided to discontinue the

11


 

use of the OMX trade name and recorded a pre-tax, non-cash impairment charge of   $119 million in March 2015 because we no longer attribute any material value to the trade name. The impairment charge did not impact the company's consolidated cash flows, liquidity, or capital resources.  

Severance

S everance, which includes other termination benefits and other a ssociated costs in the table above related to workforce reductions of 4 positions across our organization for the three months ended September 30, 2015, 201   positions   for the nine months ended September 30, 2016 , and 224 positions for the nine months ended September  3 0 , 2015 .   In addition to reduc ing our workforce ,   we have relocated certain functions to lower cost locations and   expect to continue hiring in these lower cost locations to support the business.

Facilities-related

The facilities-related charges   in the table above primarily pertained to the consolidation of leased facilities .   The credit of $3 million for the nine months ended September 30, 2015 primarily pertain ed to the release of a previously recorded sublease loss reserve for part of the space we lease in New York, New York. In June 2015, a s part of our real estate reorganization plans, management decided to occupy this space. Based on management’s decision, we released the sublease loss reserve recorded for this space which totaled $10 million.  

Asset Impairments

A sset impairment charges of $8 million for the nine months ended September 30, 2016 and $15 million for the nine months ended September 30, 2015 primarily related to fixed assets and capitalized software that were retired   during the respective period.

Other  

Other charges in the table above primarily related to consultant costs, marketing costs associated with rebranding of the Nasdaq trade name, computer operation costs associated with the replacement of outdated technology, and various other miscellaneous costs.

Restructuring Reserve

The following table presents the changes in the restructuring reserve during the nine months ended September 30, 2016 :





 

 

 

 

 

 

 

 

 

 

 

 

 



 

Balance at         December 31, 2015

 

 

Expense Incurred

 

 

Cash     Payments

 

Balance at         September 30, 2016

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

(in millions)

 

Severance

 

$

12 

 

$

22 

 

$

(15)

 

$

19 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2016, the majority of the restructuring reserve i s included in other current liabilities in the Condensed Consolidated Balance Sheets and will be paid during the next twelve months.  



4. Acquisitions

2016 Acquisitions

We completed the following acquisitions in the first nine months of 2016. Financial results of each transaction are included in our Condensed Consolidated Statements of Income from the date of each acquisition.







 

 

 

 

 

 

 

 

 

 

 

 



 

Purchase Consideration

 

Total Net Assets (Liabilities) Acquired

 

Acquired
Intangible Assets

 

Goodwill



 

 

 

 

 

 

 

 

 

 

 

 



 

(in millions)

ISE

 

$

1,070 

 

$

(102)

 

$

623 

 

$

549 

Boardvantage

 

 

242 

 

 

(17)

 

 

111 

 

 

148 

Marketwired

 

 

111 

 

 

(6)

 

 

31 

 

 

86 

Nasdaq CXC

 

 

116 

 

 

(14)

 

 

76 

 

 

54 

The amounts in the table above represent the preliminary allocation of the purchase price and are subject to revision during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date. Adjustments to the provisional values during the measurement period will be recorded in the reporting period in which the adjustment amounts are determined. Changes to amounts recorded as assets and liabilities may result in a corresponding adjustment to goodwill. In the second quarter of 2016, we recorded a measurement period adjustment of $5 million to the estimated fair value of deferred tax liabilities related to our acquisition of Marketwired. The adjustment was made to reflect a revised assessment of deferred tax liabilities following the receipt of

12


 

new information. The adjustment resulted in a decrease to both net liabilities acquired and goodwill and is reflected in the above table. The measurement period adjustment was recorded as a revision in our second quarter 2016 Condensed Consolidated Balance Sheets . The adjustment did not result in an impact to our C ondensed C onsolidated S tatements of I ncome .

Acquisition of International Securities Exchange

O n   June 30, 2016, we acquire d   ISE for $1,070 million .   The acquisition of ISE, an operator of three electronic options exchanges, is expected to allow   us to improve efficiencies for clients, bro aden our technology offering, and provide the capability within the equity options industry to further innovate. We acqu ired net assets, at fair value, totaling $83 million and recorded a deferred tax liability of $266 million and a deferred tax asset of $81 million related to differences in the U.S. GAAP and tax basis of our investment in ISE, resulting in total net liabilities acquired of $102 million. ISE is part of our Market Services, Information Services and Technology Solutions segment s .

In May 2016, we issued €600 million   aggregate principal amount of 1.75% senior unsecured notes and in June 2016, we issued $500 million aggregate principal amount of 3.85% senior unsecured notes to fund this acquisition. See “1.75% Senior Unsecured Notes,” and “3.85% Senior Unsecured Notes,” of Note 8, “ Debt   Obligations ,” for further discussion. 

Intangible Assets

The follow ing table presents the details of the ISE acquired intangible asset s .   All acquired intangible assets with finite lives are amortized using the straight-line method .





 

 

 

 



 

 

 

Estimated



 

 

 

Average Remaining



Value

 

Useful Life

Intangible assets:

 

(in millions)

 

(in years)

Exchange registrations

$

467 

 

Indefinite

Customer relationships

 

148 

 

13

Trade name

 

 

Indefinite

Total intangible assets

$

623 

 

 

Exchange Registrations  

The exchange registrations represent licenses that provide ISE with the ability to operate its option exchanges. Nasdaq views these intangible assets as a perpetual license to operate the exchanges so long as ISE meets its regulatory requirements. Nasdaq selected a variation of the income approach called the Greenfield Approach to value the exchange registrations. The Greenfield Approach refers to a discounted cash flow analysis that assumes the buyer is building the exchange from a start-up business to a normalized level of operations as of the acquisition date. This discounted cash flow model considers the required resources and eventual returns from the build-out of operational exchanges and the acquisition of customers, once the exchange registrations are obtained. The advantage of this approach is that it reflects the actual expectations that will arise from an investment in the registrations and it directly values the registrations. The Greenfield Approach relies on assumptions regarding projected revenues, margins, capital expenditures, depreciation, and working capital during the two year pre-trade phase, the 10 year ramp-up period , as well as the terminal period. 

A discount rate of 8.6% was utilized, which reflects the amount of risk associated with the hypothetical cash flows for the exchange registrations relative to the overall business. In developing a discount rate for the exchange registrations, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effect ed at the   applicable statutory rate.

Customer Relationships

Customer relationships represent the non-contractual and contractual relationships that ISE has with its customers. Customer relationships were valued using the income approach, specifically an excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued.

A discount rate of 9.1% was utilized, which reflects the amount of risk associated with the hypothetical cash flows for the customer relationships relative to the overall business. In developing a discount rate for the customer relationships, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the applicable statutory rate.

Based on the historical behavior of the customers and a parallel analysis of the customers using the excess earnings method, we estimated the remaining useful life for the acquired customer relationships to be 13 years.

Acquisition of Boardvantage, Inc.

13


 

In May 2016, we acquire d   Boardvantage for $242 million ( $197 million in cash paid plus $45 million in working capital adjustments , which primarily includes cash acquired ). With Boardvantage, we acquired a leading provider of collaboration and meeting productivity tools for board s of directors and executive leadership teams . This acquisition expanded our Corporate Solutions governance business within our Technology Solutions segment   where it will be integrated with the Directors Desk business. We acquired net assets, at fair value, totaling $28 million and recorded a deferred tax liability of $46 million and a deferred tax asset of $1 million related to differences in the U.S. GAAP and tax basis of our investment in Boardvantage , resulting in total net liabilities acquired of $17 million.

Nasdaq borrowed $197 million un der the revolving credit commitment of our 2014 Credit Facility , as defined in Note 8, “Debt Obligations,” to fund this acquisition.

Intangible Assets

The follow ing table presents the details of the Boardvantage acquired intangible asset s . Th ese asset s   are amortized using the straight-line method.





 

 

 

 



 

 

 

Estimated



 

 

 

Average Remaining



Value

 

Useful Life

Intangible assets:

 

(in millions)

 

(in years)

Customer relationships

$

103 

 

14 years

Technology

 

 

5 years

Trade name

 

 

1 year

Total intangible assets

$

111 

 

 

Customer Relationships

Customer relationships represent the non-contractual and contractual relationships that Boardvantage has with its customers and represented the primary intangible asset in this transaction. Customer relationships were valued using the income approach, specifically an excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued.

A discount rate of 15.5% was utilized, which reflects the amount of risk associated with the hypothetical cash flows for the customer relationships relative to the overall business. In developing a discount rate for the customer relationships, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the a pplicable statutory rate.

Based on the historical behavior of the customers and a parallel analysis of the customers using the excess earnings method, we estimated the remaining useful life for the acquired customer relationships to be 14 years.

Acquisition of Marketwired

In February 2016, we acquired Marketwired for $111 million ( $109 million in cash paid plus $2 million in working capital adjustments). Marketwired is a global newswire operator and press release   distributor. This acquisition expand ed Nasdaq’s position as a leading global corporate solutions provider   and Marketwired is being integrated with our public relations business . We acqu ired net liabilities, at fair value, totaling $1 million and recorded a deferred tax liability o f   $10  m illion related to differences in the U.S. GAAP and tax basis of our investment in Marketwired, resulting in total net liabilities acquired of $11 millio n. In the second quarter of 2016, we recorded a measurement period adjustment of $5 million to the estimated fair value of deferred tax l i abilities to reflect a revised assessment following the receipt of new information. The adjustment resulted in a decrease to both net liabilities acquired and goodwill. The measurement period adjustment was recorded as a revision in our second quarter 2016 Condensed Consolidated Balance Sheets . The adjustment did not result in an impact to our C ondensed C onsolidated S tatements of I ncome .   Marketwired is part of our Corporate Solutions business within our Technology Solutions segment.

Nasdaq borrowed $109 million under the revolving credit commitment of our 2014 Credit Facility ,   as defined in Note 8, “Debt Obligations,” to fund this acquisition. 

Intangible Assets

The follow ing table presents the details of the Marketwired acquired intangible assets. These assets are amortized using the straight-line method.





 

 

 

 



 

 

 

Estimated



 

 

 

Average Remaining



Value

 

Useful Life

Intangible assets:

 

(in millions)

 

(in years)

14


 

Customer relationships

$

29 

 

6 years

Trade name

 

 

2 years

Total intangible assets

$

31 

 

 





Customer Relationships

Customer relationships represent the non-contractual and contractual relationships that Marketwired has with its customers and represented the primary intangible asset in this transaction. The Marketwired customer relationships were valued using the income approach, specifically an excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued. 

A discount rate of 16.4% was utilized, which reflects the amount of risk associated with the hypothetical cash flows for the customer relationships relative to the overall business. In developing a discount rate for the customer relationships, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the a pplicable statutory rate, and a discounted tax amortization benefit was added to the fair value of the assets under the assumption that the customer relationships would be amortized for tax purposes over a period of 15 years.

Based on the historical behavior of the customers and a parallel analysis of the customers using the excess earnings method, we estimated the remaining useful life for the acquired customer relationships to be 6 years.

Acquisition of Nasdaq CX C  

In February 2016, we acquired Nasdaq CXC   for $116 million ( $115 million in cash paid plus $1 million in working capital adjustments). With this acquisition, Nasdaq offers two Canadian markets for the trading of Canadian-listed securities . This acquisition expanded Nasdaq’s cash equity trading business in North America .   We acqu ired net assets, at fair value, totaling $6 million and recorded a deferred tax liability of $20 million related to differences in the U.S. GAAP and tax basis of our investment in Nasdaq CXC , resulting in total net liabilities acquired of $14 million. Nasdaq CXC   is part of our Market Services segment and our Data Products business within our Information Services segment.

Nasdaq used cash on hand and borrowed $55 million under the revolving credit commitment of our 2014 Credit Facility, as defined in Note 8, “Debt Obligations,” to fund this acquisition.

Intangible Assets

The follow ing table presents the details of the Nasdaq CXC   acquired intangible asset. This asset is amortized using the straight-line method.





 

 

 

 



 

 

 

Estimated



 

 

 

Average Remaining



Value

 

Useful Life

Intangible asset:

 

(in millions)

 

(in years)

Customer relationships

$

76 

 

17 years

Customer Relationships

Customer relationships represent the non-contractual and contractual relationships that Nasdaq CXC   has with its customers and represented the primary intangible asset in this transaction. Customer relationships were valued individually for each of Nasdaq CXC ’s businesses using the income approach, specifically an excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued.

A discount rate of 10.3% was utilized, which reflects the amount of risk associated with the hypothetical cash flows for the customer relationships relative to the overall business. In developing a discount rate for the customer relationships, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the a pplicable statutory rate, and a discounted tax amortization benefit was added to the fair value of the assets under the assumption that the customer relationships would be amortized for tax purposes over a period of 15 years.

Based on the historical behavior of the customers and a parallel analysis of the customers using the excess earnings method, we estimated the remaining useful life for the acquired customer relationships to be 17 years.

2015 Acquisitions

15


 

We completed the following acquisitions in 2015. Financial results are included in our Condensed Consolidated Statements of Income from the date of each acquisition.





 

 

 

 

 

 

 

 

 

 

 

 



 

Purchase Consideration

 

Total Net Assets (Liabilities) Acquired

 

Acquired
Intangible Assets

 

Goodwill



 

 

 

 

 

 

 

 

 

 

 

 



 

(in millions)

Dorsey, Wright & Associates, LLC

 

$

226 

 

$

(26)

 

$

141 

 

$

111 



The amounts in the table above represent the preliminary allocation of the purchase price and were subject to revision during the measurement period, a period not to exceed 12 months from the acquisition date. We finalized the allocation of the purchase price for the above acquisition in January 2016. There were no adjustments to the provisional values during the 12 month measurement period.

Acquisition of Dorsey, Wright & Associates, LLC

On January 30, 2015, we completed the acquisition of Dorsey, Wright & Associates, LLC, or DWA, for $226 million  ( $225 million cash paid plus $1 million in working capital adjustments). DWA is a market leader in data analytics, passive indexing and smart beta strategies. We acquired net assets, at fair value, totaling $8 million and recorded a deferred tax liability of $34 million related to differences in the U.S. GAAP and tax basis of our investment in DWA, resulting in total net liabilities acquired of $26 million. DWA is part of our Data Products and Index Licensing and Services businesses within our Information Services segment.

Nasdaq used cash on hand and borrowed $100 million under the revolving credit commitment of our 2014 Credit Facility , as defined in Note 8, “Debt Obligations,” to fund this acquisition. 

Intangible Assets

The following table presents the details of the DWA acquired intangible assets. All acquired intangible assets with finite lives are amortized using the straight-line method.





 

 

 

 



 

 

 

Estimated



 

 

 

Average Remaining



Value

 

Useful Life

Intangible assets:

 

(in millions)

 

(in years)

  Trade name

$

108 

 

Indefinite

  Customer relationships

 

29 

 

15 years

  Technology

 

 

5 years

Total intangible assets

$

141 

 

 

Trade Name

The DWA trade name is recognized in the industry and carries a reputation for quality. As such, DWA’s reputation and positive recognition embodied in the trade name is a valuable asset to Nasdaq. The trade name was considered the primary asset acquired in this transaction. In valuing the acquired trade name, we used the income approach, specifically the excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued.

A discount rate of 17.0% was utilized, which reflects the amount of risk associated with the hypothetical cash flows generated by the DWA trade name in the future. In developing a discount rate for the trade name, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the  a pplicable statutory rate, and a discounted tax amortization benefit was added to the fair value of the asset under the assumption that the trade name would be amortized for tax purposes over a period of 15 years.

We estimated the useful life of the trade name to be indefinite. The useful life was based on several factors including the number of years the name has been in service, its popularity within the industry, and our intention to continue its use in the branding of products.

Customer Relationships

Customer relationships represent the non-contractual and contractual relationships that DWA has with its customers. The DWA customer relationships were valued individually for each of DWA’s businesses using the income approach, specifically the with-and-without method. The with-and-without method is commonly used when the cash flows of a business can be estimated with and without the asset in place. The premise associated with this valuation technique is that the value of an asset is represented by the differences in the subject business’ cash flows under scenarios where (a) the asset is present and is used in operations (with); and (b) the asset is absent and not used in operations (without). Cash flow differentials are then discounted to present value to arrive at an estimate of fair value for the asset.

16


 

We estimated that without current customer relationships, it would take approximately 3 - 6 years, depending on the business, for the customer base to grow to 100% of current projected revenues. We also made estimates related to compensation levels and other expenses such as sales and marketing that would be incurred as the business was ramped up through the year in which the customer base would be expected to reach the level that currently exists.

A discount rate of 17.5% was utilized, which reflects the amount of risk associated with the hypothetical cash flows generated by the customer relationships in the future. The resulting discounted cash flows were then tax-effected at the a pplicable statutory rate, and a discounted tax amortization benefit was added to the fair value of the asset under the assumption that the customer relationships would be amortized for tax purposes over a period of 15 years.

Based on the historical behavior of the customers and a parallel analysis of the customers using the excess earnings method, we estimated the remaining useful life for the acquired customer relationships to be 15 years.

Acquisition of Full Ownership of The NASDAQ Private Market, LLC and Acquisition of SecondMarket

In October 2015, we acquired full ownership of NPM following the acquisition of the minority stake that was previously held by a third party. In addition, through NPM, we acquired SecondMarket, a recognized innovator in facilitating liquidity for private company securities. The additional ownership interest in NPM and SecondMarket were purchased for an immaterial amount. NPM and SecondMarket are part of our Listing Services segment.

Pro Forma Results and Acquisition-related Costs

Pro forma financial results for the acquisitions completed in 2016 and 2015 have not been presented since the acquisitions, both individually and in the aggregate for each year, were not material to our financial results.



Acquisition-related costs for the transactions described above were expensed as incurred and are included in merger and strategic initiatives expense in the Condensed Consolidated Statements of Income.  



5. Goodwill and Acquired Intangible Assets



Goodwill

The following table presents the changes in goodwill by business segment during the nine months ended September 30 , 201 6 :  

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Market Services

 

Listing Services

 

Information Services

 

Technology Solutions

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(in millions)

Balance at December 31, 2015

 

$

2,941 

 

$

112 

 

$

1,823 

 

$

519 

 

$

5,395 

Goodwill acquired

 

 

549 

 

 

 -

 

 

54 

 

 

234 

(1)

 

837 

Foreign currency translation adjustment

 

 

(5)

 

 

(2)

 

 

(14)

 

 

(5)

 

 

(26)

Balance at September 30, 2016

 

$

3,485 

 

$

110 

 

$

1,863 

 

$

748 

 

$

6,206 

__________________

(1)

I ncludes a $5 million measurement period adjustment related   to our acquisition of Marketwired .   See “Acquisition of Marketwired ,” of Note 4, “Acquisitions,” for further discussion.  

The goodwill acquired for Market Services and Information Services shown above relates to our acquisition s of ISE and Nasdaq CXC , and the goodwill acquired for Technology Solutions shown above relates to our acquisitions of Boardvantage and Marketwired.   See “ 2016 Acquisition s ,” of Note 4, “Acquisitions,” for further discussion.

As of September 30, 2016 , the amount of goodwill that is expected to be deductible for tax purposes in future periods is $860 million, of which $533 million is related to our acquisition of certain assets and assumption of certain liabilities of the eSpeed business, or eSpeed,