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EX-32.2 - EXHIBIT 32.2 - Intercontinental Exchange, Inc.ice2018630ex322.htm
EX-32.1 - EXHIBIT 32.1 - Intercontinental Exchange, Inc.ice2018630ex321.htm
EX-31.2 - EXHIBIT 31.2 - Intercontinental Exchange, Inc.ice2018630ex312.htm
EX-31.1 - EXHIBIT 31.1 - Intercontinental Exchange, Inc.ice2018630ex311.htm
 
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
 
Form 10-Q
 
 
 
(Mark One)
 
þ
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended June 30, 2018
Or
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from                 to
Commission File Number 001-36198
 
 
 
 
 
INTERCONTINENTAL EXCHANGE, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
46-2286804
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification Number)
5660 New Northside Drive,
Atlanta, Georgia
30328
(Zip Code)
(Address of principal executive offices)
 
(770) 857-4700
Registrant’s telephone number, including area code 
 
 
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
 
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company  ¨   
Emerging growth company  ¨   
 
 
 
 
 
(Do not check if a smaller company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.       ¨   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨   No   þ
As of July 30, 2018, the number of shares of the registrant’s Common Stock outstanding was 573,436,542 shares.
 
 
 
 
 





 
 
INTERCONTINENTAL EXCHANGE, INC.
Form 10-Q
Quarterly Period Ended June 30, 2018
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
PART I.
Financial Statements
 
Item 1
 
 
Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017
 
Consolidated Statements of Income for the six and three months ended June 30, 2018 and 2017
 
Consolidated Statements of Comprehensive Income for the six and three months ended June 30, 2018 and 2017
 
Consolidated Statements of Changes in Equity, Accumulated Other Comprehensive Loss and Redeemable Non-Controlling Interest for the six months ended June 30, 2018 and for the year ended December 31, 2017
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017
 
Item 2
Item 3
Item 4
 
 
 
PART II.
Other Information
 
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6




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

Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
 
As of
 
As of
 
June 30, 2018
 
December 31, 2017
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
532

 
$
535

Short-term restricted cash and cash equivalents
817

 
769

Customer accounts receivable, net of allowance for doubtful accounts of $7 and $6 at June 30, 2018 and December 31, 2017, respectively
1,049

 
903

Margin deposits, guaranty funds and delivery contracts receivable
54,991

 
51,222

Prepaid expenses and other current assets
171

 
133

Total current assets
57,560

 
53,562

Property and equipment, net
1,220

 
1,246

Other non-current assets:
 
 
 
Goodwill
12,484

 
12,216

Other intangible assets, net
10,223

 
10,269

Long-term restricted cash and cash equivalents
331

 
264

Other non-current assets
1,029

 
707

Total other non-current assets
24,067

 
23,456

Total assets
$
82,847

 
$
78,264

 
 
 
 
Liabilities and Equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
405

 
$
462

Section 31 fees payable
209

 
128

Accrued salaries and benefits
150

 
227

Deferred revenue
372

 
125

Short-term debt
2,645

 
1,833

Margin deposits, guaranty funds and delivery contracts payable
54,991

 
51,222

Other current liabilities
122

 
178

Total current liabilities
58,894

 
54,175

Non-current liabilities:
 
 
 
Non-current deferred tax liability, net
2,284

 
2,298

Long-term debt
4,271

 
4,267

Accrued employee benefits
235

 
243

Other non-current liabilities
323

 
296

Total non-current liabilities
7,113

 
7,104

Total liabilities
66,007

 
61,279

Commitments and contingencies


 


Equity:
 
 
 
Intercontinental Exchange, Inc. stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 100 shares authorized; no shares issued or outstanding at June 30, 2018 and December 31, 2017

 

Common stock, $0.01 par value; 1,500 shares authorized; 603 and 600 shares issued at June 30, 2018 and December 31, 2017, respectively, and 574 and 583 shares outstanding at June 30, 2018 and December 31, 2017, respectively
6

 
6

Treasury stock, at cost; 29 and 17 shares at June 30, 2018 and December 31, 2017, respectively
(1,911
)
 
(1,076
)

2


Additional paid-in capital
11,477

 
11,392

Retained earnings
7,498

 
6,858

Accumulated other comprehensive loss
(265
)
 
(223
)
Total Intercontinental Exchange, Inc. stockholders’ equity
16,805

 
16,957

Non-controlling interest in consolidated subsidiaries
35

 
28

Total equity
16,840

 
16,985

Total liabilities and equity
$
82,847

 
$
78,264


See accompanying notes.

3


Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
 
Six Months Ended 
 June 30,
 
Three Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Transaction and clearing, net
$
1,762

 
$
1,615

 
$
864

 
$
817

Data services
1,046

 
1,041

 
526

 
521

Listings
220

 
217

 
111

 
109

Other revenues
108

 
94

 
55

 
49

Total revenues
3,136

 
2,967

 
1,556

 
1,496

Transaction-based expenses:
 
 
 
 
 
 
 
Section 31 fees
211

 
183

 
90

 
92

Cash liquidity payments, routing and clearing
454

 
438

 
220

 
224

Total revenues, less transaction-based expenses
2,471

 
2,346

 
1,246

 
1,180

Operating expenses:
 
 
 
 
 
 
 
Compensation and benefits
481

 
483

 
241

 
236

Professional services
59

 
64

 
29

 
32

Acquisition-related transaction and integration costs
27

 
23

 
15

 
9

Technology and communication
213

 
195

 
108

 
97

Rent and occupancy
33

 
35

 
16

 
17

Selling, general and administrative
72

 
79

 
39

 
38

Depreciation and amortization
281

 
276

 
143

 
142

Total operating expenses
1,166

 
1,155

 
591

 
571

Operating income
1,305

 
1,191

 
655

 
609

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(107
)
 
(90
)
 
(55
)
 
(45
)
Other income, net
30

 
191

 
11

 
3

Other income (expense), net
(77
)
 
101

 
(44
)
 
(42
)
Income before income tax expense
1,228

 
1,292

 
611

 
567

Income tax expense
292

 
354

 
149

 
140

Net income
$
936

 
$
938

 
$
462

 
$
427

Net income attributable to non-controlling interest
(17
)
 
(16
)
 
(7
)
 
(8
)
Net income attributable to Intercontinental Exchange, Inc.
$
919

 
$
922

 
$
455

 
$
419

Earnings per share attributable to Intercontinental Exchange, Inc. common stockholders:
 
 
 
 
 
 
 
Basic
$
1.59

 
$
1.56

 
$
0.79

 
$
0.71

Diluted
$
1.58

 
$
1.55

 
$
0.78

 
$
0.71

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
580

 
593

 
578

 
591

Diluted
583

 
597

 
581

 
595

Dividend per share
$
0.48

 
$
0.40

 
$
0.24

 
$
0.20


See accompanying notes.

4


Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
 
Six Months Ended 
 June 30,
 
Three Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
936

 
$
938

 
$
462

 
$
427

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax (expense) benefit of $1 and ($7) for the six months ended June 30, 2018 and 2017, respectively, and $1 and ($7) for the three months ended June 30, 2018 and 2017, respectively
(42
)
 
85

 
(75
)
 
60

Change in fair value of available-for-sale securities

 
68

 

 

Reclassification of realized gain on available-for-sale investment to other income

 
(176
)
 

 

Other comprehensive income (loss)
(42
)
 
(23
)
 
(75
)
 
60

Comprehensive income
$
894

 
$
915

 
$
387

 
$
487

Comprehensive income attributable to non-controlling interest
(17
)
 
(16
)
 
(7
)
 
(8
)
Comprehensive income attributable to Intercontinental Exchange, Inc.
$
877

 
$
899

 
$
380

 
$
479


See accompanying notes.

5


Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity, Accumulated Other Comprehensive Loss
and Redeemable Non-Controlling Interest
(In millions)
(Unaudited)
 
Intercontinental Exchange, Inc. 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
Loss
 
 
Shares
 
Value
 
Shares
 
Value
 
Balance, as of December 31, 2016
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
)
 

Acquisition of 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

 

 

 

 

 

 
(42
)
 

 
(42
)
 

Exercise of common stock options

 

 

 

 
12

 

 

 

 
12

 

Repurchases of common stock

 

 
(10
)
 
(759
)
 

 

 

 

 
(759
)
 

Payments relating to treasury shares

 

 
(2
)
 
(76
)
 

 

 

 

 
(76
)
 

Stock-based compensation

 

 

 

 
73

 

 

 

 
73

 

Issuance of restricted stock
3

 

 

 

 

 

 

 

 

 

Distributions of profits

 

 

 

 

 

 

 
(10
)
 
(10
)
 

Dividends paid to stockholders

 

 

 

 

 
(279
)
 

 

 
(279
)
 

Net income attributable to non-controlling interest

 

 

 

 

 
(17
)
 

 
17

 

 

Net income

 

 

 

 

 
936

 

 

 
936

 

Balance, as of June 30, 2018
603

 
$
6

 
(29
)
 
$
(1,911
)
 
$
11,477

 
$
7,498

 
$
(265
)
 
$
35

 
$
16,840

 
$


 
As of
 
As of
 
June 30, 2018
 
December 31, 2017
Accumulated other comprehensive loss was as follows:
 
 
 
Foreign currency translation adjustments
$
(178
)
 
$
(136
)
Comprehensive income from equity method investment
2

 
2

Employee benefit plans adjustments
(89
)
 
(89
)
Accumulated other comprehensive loss
$
(265
)
 
$
(223
)

See accompanying notes.

6



Intercontinental Exchange, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Six Months Ended 
 June 30,
 
2018
 
2017
Operating activities:
 
 
 
Net income
$
936

 
$
938

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
281

 
276

Stock-based compensation
61

 
68

Deferred taxes
(7
)
 
(11
)
Cetip realized investment gain, net

 
(114
)
Other
(4
)
 
(7
)
Changes in assets and liabilities:
 
 
 
Customer accounts receivable
(148
)
 
(170
)
Other current and non-current assets
(39
)
 
(37
)
Section 31 fees payable
80

 
51

Deferred revenue
249

 
240

Other current and non-current liabilities
(173
)
 
(135
)
Total adjustments
300

 
161

Net cash provided by operating activities
1,236

 
1,099

 
 
 
 
Investing activities:
 
 
 
Capital expenditures
(33
)
 
(81
)
Capitalized software development costs
(75
)
 
(69
)
Proceeds from sale of Cetip, net

 
438

Cash paid for acquisitions, net of cash received for divestiture
(405
)
 
10

Purchases of investments
(305
)
 

Net cash provided by (used in) investing activities
(818
)
 
298

 
 
 
 
Financing activities:
 
 
 
Proceeds from (repayments of) commercial paper, net
812

 
(469
)
Repurchases of common stock
(759
)
 
(469
)
Dividends to stockholders
(279
)
 
(239
)
Payments relating to treasury shares received for restricted stock tax payments and stock option exercises
(76
)
 
(81
)
Acquisition of non-controlling interest and redeemable non-controlling interest

 
(55
)
Other
1

 
(8
)
Net cash used in financing activities
(301
)
 
(1,321
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents
(5
)
 
5

Net increase in cash, cash equivalents, and restricted cash and cash equivalents
112

 
81

Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period
1,568

 
1,350

Cash, cash equivalents, and restricted cash and cash equivalents, end of period
$
1,680

 
$
1,431

 
 
 
 
Supplemental cash flow disclosure:
 
 
 
Cash paid for income taxes
$
346

 
$
429

Cash paid for interest
$
104

 
$
87


See accompanying notes.

7


Intercontinental Exchange, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

1.
Description of Business
We are a leading global operator of regulated exchanges, clearing houses and listings venues, and a provider of data services for commodity, fixed income and equity markets. We operate regulated marketplaces for listing, trading and clearing a broad array of derivatives and securities contracts across major asset classes, including energy and agricultural commodities, interest rates, equities, equity derivatives, exchange-traded funds, or ETFs, credit derivatives, bonds and currencies. We also offer end-to-end data services and solutions to support the trading, investment, risk management and connectivity needs of customers around the world across all major 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 exchanges 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 in the U.S., U.K., EU, Canada and Singapore (Note 10). 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 market data services, we provide end-to-end solutions for our customers through liquid markets, benchmark products, access to capital markets, and related services to support their ability to manage risk and raise capital. Our business is currently 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., U.K. and Canada (Note 13).

2.     Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by us in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2017. The accompanying unaudited consolidated financial statements reflect all adjustments that are, in our opinion, necessary for a fair presentation of results for the interim periods presented. We believe that these adjustments are of a normal recurring nature.
Preparing financial statements requires us to make certain estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Actual results may be different from these estimates. The results of operations for the six months and three months ended June 30, 2018 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.
The accompanying unaudited consolidated financial statements include our accounts and those of our wholly-owned and controlled subsidiaries. All intercompany balances and transactions between us and our wholly-owned and controlled subsidiaries have been eliminated in the consolidation. For those consolidated subsidiaries in which our ownership is less than 100% and for which we have control over the assets and liabilities and the management of the entity, the outside stockholders’ interests are shown as non-controlling interests.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s financial statement presentation. See "Recently Adopted Accounting Pronouncements" below for a discussion of our adoption of new accounting standards.
Recently Adopted Accounting Pronouncements
On January 1, 2018, we adopted 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. ASC 606 provides guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most revenue recognition guidance. This guidance 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 revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. We adopted ASC 606 retrospectively and restated each prior period presented to reflect our adoption thereof. The impacts of our adoption of ASC 606 on our results for the years ended December 31, 2017, 2016 and 2015, respectively, were disclosed in our 2017 Form 10-K.

8


The 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. Revenue recognition related to all other trading, clearing and data businesses remains unchanged.
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 revenue in our NYSE businesses (in millions, except earnings per share):
 
As Reported
 
New Revenue Standard Adjustment
 
As Adjusted
Six months ended June 30, 2017
 
 
 
 
 
Total revenues
$
2,963

 
$
4

 
$
2,967

Total revenues, less transaction-based expenses
2,342

 
4

 
2,346

Income tax expense
352

 
2

 
354

Net income attributable to Intercontinental Exchange, Inc.
920

 
2

 
922

Basic earnings per share
$
1.55

 
$
0.01

 
$
1.56

Diluted earnings per share
$
1.54

 
$
0.01

 
$
1.55

 
As Reported
 
New Revenue Standard Adjustment
 
As Adjusted
Three months ended June 30, 2017
 
 
 
 
 
Total revenues
$
1,494

 
$
2

 
$
1,496

Total revenues, less transaction-based expenses
1,178

 
2

 
1,180

Income tax expense
139

 
1

 
140

Net income attributable to Intercontinental Exchange, Inc.
418

 
1

 
419

Basic earnings per share
$
0.71

 
$

 
$
0.71

Diluted earnings per share
$
0.70

 
$
0.01

 
$
0.71

 
As Reported
 
New Revenue Standard Adjustment
 
As Adjusted
As of December 31, 2017
 
 
 
 
 
Deferred revenue, current
$
121

 
$
4

 
$
125

Deferred revenue, non-current
143

 
(52
)
 
91

Net deferred tax liabilities
2,280

 
15

 
2,295

Retained earnings
6,825

 
33

 
6,858


Additional disclosures related to our adoption of ASC 606 are provided in Note 4.
The Financial Accounting Standards Board, or FASB, has issued Accounting Standards Update, or ASU, No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU 2017-07. The amendments in this update require 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. We adopted ASU 2017-07 on January 1, 2018 retrospectively to each prior period presented. 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 the 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 ($4 million) and $4 million for the six months ended June 30, 2018 and 2017, respectively, and ($2 million) and $2 million for the three months ended June 30, 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 of ASU 2017-07, these amounts were reclassified to be included in other income, net, in the accompanying consolidated statements of income, and these adjustments had no impact on net income. 

9


The FASB has issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. ASU 2016-01 provides updated guidance for the recognition, measurement, presentation, and disclosure of certain financial assets and liabilities, including the requirement that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. We adopted ASU 2016-01 on January 1, 2018. Our equity investments, including our investments in Euroclear plc, or Euroclear (Note 3) and Coinbase Global, Inc., or Coinbase, among others, are now subject to valuation under ASU 2016-01. These investments do not currently have readily determinable fair market values as they are not publicly-listed companies. ASU 2016-01 permits a policy election 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 occurring after adoption, with any change in fair value recognized in net income. We have made this policy election for all of our equity investments without readily determinable fair values, and our adoption of ASU 2016-01 did not result in any fair value adjustments as of June 30, 2018.
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 income tax effects of the Tax Cuts and Jobs Act, or 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. We are applying the guidance in SAB 118 when accounting for the enactment-date effects of the TCJA. As of June 30, 2018, our estimates recorded as of December 31, 2017 for the tax effects of the TCJA, are not final. Our estimates recorded at December 31, 2017 and as of June 30, 2018 may be affected due to changes in interpretations of the legislation, changes in accounting standards or related interpretations in response to the TCJA. We have also made reasonable estimates of the TCJA’s impact on state income tax. Our estimates are based on the best available information as of June 30, 2018 and our interpretation of the TCJA and related state tax implications as currently enacted. Our estimates do not include any potential federal or state administrative and/or legislative adjustments to certain provisions of the TCJA and related state provisions. We will continue to analyze the TCJA in order to finalize related federal and state impacts within the measurement period.
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 on 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. As of June 30, 2018, we have not completed our analysis of the two different accounting policies and have not made an election. We will continue our analysis and will make an election within the measurement period as provided for under SAB 118.
In the fourth quarter of 2017, we adopted ASU 2016-18, Statement of Cash Flows: Restricted Cash, or ASU 2016-18, which requires us to show the changes in the total of cash, cash equivalents, restricted cash and cash equivalents in the statement of cash flows. As a result, we no longer present transfers between cash and cash equivalents and restricted cash and cash equivalents in the statement of cash flows. We have reclassified changes in restricted cash from cash flows provided by (used in) investing activities, to the total change in beginning and end-of-period total changes. Our statements of cash flows for the six months ended June 30, 2018 and 2017 reflect this change.
Accounting Pronouncements Not Yet Adopted
The FASB has issued ASU No. 2016-02, Leases, or ASU 2016-02. ASU 2016-02 requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. A lessee should recognize a liability in its balance sheet to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is required to be adopted at the beginning of our first quarter of fiscal year 2019, with early adoption permitted. We will not adopt ASU 2016-02 early and we are currently evaluating this guidance to determine the potential impact on our consolidated financial statements.
The FASB has issued ASU No. 2016-13, Financial Instruments - Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 applies to all financial instruments carried at amortized cost including held-to-maturity debt securities as well as trade receivables. ASU 2016-13 requires financial assets carried at amortized cost to be presented at the net amount expected to be collected and available-for-sale debt securities to record credit losses through an allowance for credit losses. ASU 2016-13 is required to be adopted at the beginning of our first quarter of fiscal year 2020, with early adoption permitted. We will not adopt ASU 2016-13 early and we are currently evaluating this guidance to determine the potential impact on our consolidated financial statements.
The FASB has issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulative Other Comprehensive Income, or ASU 2018-02. ASU 2018-02 gives entities the option to reclassify certain tax effects related to items in accumulated

10


other comprehensive income, or OCI, that have been stranded in OCI as a result of the enactment of the TCJA to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. We will not adopt ASU 2018-02 early and we are currently evaluating this guidance to determine the potential impact on our consolidated financial statements.

3.
Acquisitions and Investments
Acquisitions
On January 2, 2018, we acquired 100% of BondPoint from Virtu Financial, Inc. for $400 million in cash. BondPoint is a leading 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, and provides trading services to more than 500 financial services firms. BondPoint is primarily included in our Trading and Clearing segment.
The BondPoint purchase price was allocated to the preliminary net tangible and identifiable intangible assets and liabilities based on their estimated fair values as of January 2, 2018. The identifiable intangible assets acquired were $130 million and included (i) customer relationships of $123 million, which have been assigned a useful life of 15 years, and (ii) developed technology of $7 million, which has been assigned a life of three years. The excess of the purchase price over the preliminary net tangible and identifiable intangible assets was $267 million and was recorded as goodwill.
On July 18, 2018, we acquired CHX Holdings, Inc., the parent company of the Chicago Stock Exchange, or CHX, a full-service stock exchange, including trading, data and corporate listings services. CHX operates as a registered national securities exchange, and will primarily be included in our Trading and Clearing segment.
On July 23, 2018, we acquired TMC Bonds, LLC for $701 million in cash. The cash consideration is gross of the $14 million cash held by TMC Bonds, LLC on the date of acquisition. TMC Bonds, LLC 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. TMC Bonds, LLC is primarily included in our Trading and Clearing segment.
Investment in Euroclear
During the year ended December 31, 2017, we purchased a 4.7% stake in Euroclear valued at €276 million ($327 million), which included our representation on the Euroclear Board of Directors. During the same period, we negotiated an additional purchase which closed on February 21, 2018 following regulatory approval, and which did not include additional representation on the Euroclear Board of Directors. This provided us with an additional 5.1% stake in Euroclear for a purchase price of €246 million in cash ($304 million based on a euro/U.S. dollar exchange rate of 1.2368 as of February 21, 2018). As of June 30, 2018, we owned a 9.8% stake in Euroclear for a total investment of $631 million. Euroclear is a leading provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes.
We classify our investment in Euroclear as an equity investment included in other non-current assets in the accompanying consolidated balance sheets. As discussed in Note 2, we adopted ASU 2016-01 on January 1, 2018. Under ASU 2016-01, for investments without a readily determinable fair value, we may elect to measure them at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions in similar or identical investments. We have elected to use this approach to estimate the value of the Euroclear investment. During the six months and three months ended June 30, 2018, there were no downward or upward adjustments made to the carrying amount of Euroclear.

4.
Revenue Recognition
We adopted ASC 606 on January 1, 2018 on a full retrospective basis and have restated the prior reporting periods presented as if ASC 606 had always been applied (Note 2). Our adoption of ASC 606 did not have a material impact on the measurement or recognition of revenue in any prior or current reporting periods. Our adoption of ASC 606 was subject to the same internal controls over financial reporting that we apply to our consolidated financial statements.
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 the rebates discussed below, 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. Deferred revenue represents our contract liabilities related to our annual, original and other listings revenues as well as certain data services,

11


clearing services and other revenues. Deferred revenue is the only significant contract asset or liability impacted by our adoption of ASC 606. See Note 6 for our discussion of deferred revenue balances, activity, and expected timing of recognition. As permitted by ASC 606, 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. See the bullets below for further descriptions of our revenue contracts. 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.
Certain judgments and estimates were 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.
Our primary revenue contract classifications are described below. Although we discuss additional revenue details in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the categories below best represent those that depict 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, and from our cash trading and equity options exchanges. The derivatives trading and clearing fees contain two performance obligations: (1) trade execution/clearing novation and (2) risk management of open interest. We allocate the transaction price between these two performance obligations; however, both of these generally occur almost simultaneously and no significant deferral results. The impact of our adoption of ASC 606 on our performance obligations in our clearing business was minimal. Cash trading and equity options fees contain one performance obligation related to trade execution which occurs instantaneously. Our transaction and clearing revenues are reported net of rebates, except for the NYSE transaction-based expenses. 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. We make liquidity payments to certain customers in our NYSE businesses 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.

Data services - Data service revenues represent the following:
Pricing and analytics services consist of an extensive set of independent continuous and end-of-day evaluated pricing services focused primarily on fixed income and international equity securities, valuation services, reference data, index services and multi-asset class portfolio and risk management analytics.
Desktops and connectivity services comprise hosting, colocation, infrastructure, technology-based information platforms, feeds and connectivity solutions through the ICE Global Network.
Exchange data services represent subscription fees for the provision of our market data that is created from activity in our Trading and Clearing segment.

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. 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. 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 listing fees, and other corporate action fees. Under ASC 606, 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 relation services is based on its market value. All listings fees are billed upfront and the identified performance obligations are satisfied over time. Upon our adoption of the ASC 606 framework, the amount of revenue related to the investor relations performance obligation is recognized ratably over a two-year period, with the remaining revenue recognized ratably over time as customers continue to list on our exchanges, which is generally estimated to be over a period of up to nine years for NYSE and up to five years for NYSE Arca and NYSE American. 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, which is generally estimated to be a period of six years for NYSE and three years for NYSE Arca and NYSE American. All listings fees are recognized in our Data and Listings segment.

12



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, 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). Segment totals are consistent with the segment totals in Note 13:
 
Trading and Clearing Segment
 
Data and Listings Segment
 
Total Consolidated
Six months ended June 30, 2018
 
 
 
 
 
  Transaction and clearing, net
$
1,762

 
$

 
$
1,762

  Data services

 
1,046

 
1,046

  Listings

 
220

 
220

  Other revenues
108

 

 
108

Total revenues
1,870

 
1,266

 
3,136

Transaction-based expenses
665

 

 
665

Total revenues, less transaction-based expenses
$
1,205

 
$
1,266

 
$
2,471

 
 
 
 
 
 
Timing of Revenue Recognition
 
 
 
 
 
Services transferred at a point in time
$
1,030

 
$

 
$
1,030

Services transferred over time
175

 
1,266

 
1,441

Total revenues, less transaction-based expenses
$
1,205

 
$
1,266

 
$
2,471


 
Trading and Clearing Segment
 
Data and Listings Segment
 
Total Consolidated
Six months ended June 30, 2017
 
 
 
 
 
  Transaction and clearing, net
$
1,615

 
$

 
$
1,615

  Data services

 
1,041

 
1,041

  Listings

 
217

 
217

  Other revenues
94

 

 
94

Total revenues
1,709

 
1,258

 
2,967

Transaction-based expenses
621

 

 
621

Total revenues, less transaction-based expenses
$
1,088

 
$
1,258

 
$
2,346

 
 
 
 
 
 
Timing of Revenue Recognition
 
 
 
 
 
Services transferred at a point in time
$
928

 
$

 
$
928

Services transferred over time
160

 
1,258

 
1,418

Total revenues, less transaction-based expenses
$
1,088

 
$
1,258

 
$
2,346


13


 
Trading and Clearing Segment
 
Data and Listings Segment
 
Total Consolidated
Three months ended June 30, 2018
 
 
 
 
 
  Transaction and clearing, net
$
864

 
$

 
$
864

  Data services

 
526

 
526

  Listings

 
111

 
111

  Other revenues
55

 

 
55

Total revenues
919

 
637

 
1,556

Transaction-based expenses
310

 

 
310

Total revenues, less transaction-based expenses
$
609

 
$
637

 
$
1,246

 
 
 
 
 
 
Timing of Revenue Recognition
 
 
 
 
 
Services transferred at a point in time
$
521

 
$

 
$
521

Services transferred over time
88

 
637

 
725

Total revenues, less transaction-based expenses
$
609

 
$
637

 
$
1,246

  
 
Trading and Clearing Segment
 
Data and Listings Segment
 
Total Consolidated
Three months ended June 30, 2017
 
 
 
 
 
  Transaction and clearing, net
$
817

 
$

 
$
817

  Data services

 
521

 
521

  Listings

 
109

 
109

  Other revenues
49

 

 
49

Total revenues
866

 
630

 
1,496

Transaction-based expenses
316

 

 
316

Total revenues, less transaction-based expenses
$
550

 
$
630

 
$
1,180

 
 
 
 
 
 
Timing of Revenue Recognition
 
 
 
 
 
Services transferred at a point in time
$
470

 
$

 
$
470

Services transferred over time
80

 
630

 
710

Total revenues, less transaction-based expenses
$
550

 
$
630

 
$
1,180


The Trading and Clearing segment revenues above include $128 million and $116 million for the six months ended June 30, 2018 and 2017, respectively, and $65 million and $59 million for the three months ended June 30, 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.

5.
Goodwill and Other Intangible Assets

The following is a summary of the activity in the goodwill balance for the six months ended June 30, 2018 (in millions):
Goodwill balance at December 31, 2017
$
12,216

Acquisitions
267

Foreign currency translation
(17
)
Other activity, net
18

Goodwill balance at June 30, 2018
$
12,484


14


The following is a summary of the activity in the other intangible assets balance for the six months ended June 30, 2018 (in millions):
Other intangible assets balance at December 31, 2017
$
10,269

Acquisitions
136

Foreign currency translation
(22
)
Amortization of other intangible assets
(142
)
Other activity, net
(18
)
Other intangible assets balance at June 30, 2018
$
10,223


We completed our acquisition of BondPoint during the six months ended June 30, 2018 (Note 3). The foreign currency translation adjustments in the tables above result from a portion of our goodwill and other intangible assets being held at our U.K., EU and Canadian subsidiaries, whose functional currencies are not the U.S. dollar. The changes in other activity, net in the tables above primarily relate to adjustments to the fair value of the net tangible assets and intangible assets relating to the acquisitions, with a corresponding adjustment to goodwill. Amortization of other intangible assets in the table above includes an impairment charge of $4 million recorded during the three months ended June 30, 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 (Note 10). We did not recognize any other impairment losses on goodwill or other intangible assets during the six months and three months ended June 30, 2018 and 2017.

6.
Deferred Revenue

Our contract liabilities, or deferred revenue, represent consideration received that is yet to be recognized as revenue. Total deferred revenue was $464 million as of June 30, 2018, including $372 million in current deferred revenue and $92 million in non-current deferred revenue. The changes in our deferred revenue during the six months ended June 30, 2018 are as follows (in millions), adjusted to reflect the adoption of ASC 606 as discussed in Note 2:
 
Annual Listings Revenues
 
Original Listings Revenues
 
Other Listings Revenues
 
Data Services and Other Revenues
 
Total
Deferred revenue balance at December 31, 2017
$

 
$
25

 
$
98

 
$
93

 
$
216

Additions
383

 
13

 
26

 
230

 
652

Amortization
(191
)
 
(12
)
 
(17
)
 
(184
)
 
(404
)
Deferred revenue balance at June 30, 2018
$
192

 
$
26

 
$
107

 
$
139

 
$
464


The changes in our deferred revenue during the six months ended June 30, 2017 are as follows (in millions), adjusted to reflect the adoption of ASC 606 as discussed in Note 2:
 
Annual Listings Revenues
 
Original Listings Revenues
 
Other Listings Revenues
 
Data Services and Other Revenues
 
Total
Deferred revenue balance at December 31, 2016
$

 
$
23

 
$
83

 
$
88

 
$
194

Additions
366

 
11

 
39

 
232

 
648

Amortization
(184
)
 
(11
)
 
(21
)
 
(186
)
 
(402
)
Divestitures

 

 

 
(10
)
 
(10
)
Deferred revenue balance at June 30, 2017
$
182

 
$
23

 
$
101

 
$
124

 
$
430


Adjustments for divestitures in the table above resulted from our June 2017 divestiture of NYSE Governance Services and our March 2017 divestiture of Interactive Data Managed Solutions, or IDMS, as well as our classification of Trayport deferred revenue as held for sale during the six months ended June 30, 2017. Included in the amortization recognized for the six months ended June 30, 2018, $77 million relates to the deferred revenue balance as of January 1, 2018. Included in the amortization recognized for the six months ended June 30, 2017, $79 million relates to the deferred revenue balance as of January 1, 2017. As of

15


June 30, 2018, we estimate that our deferred revenue will be recognized in the following years (in millions):
 
Annual Listings Revenues
 
Original Listing Revenues
 
Other Listing Revenues
 
Data Services and Other Revenues
 
Total
Remainder of 2018
$
192

 
$
13

 
$
10

 
$
115

 
$
330

2019

 
12

 
34

 
20

 
66

2020

 
1

 
27

 
2

 
30

2021

 

 
19

 
2

 
21

2022

 

 
13

 

 
13

Thereafter

 

 
4

 

 
4

Total
$
192

 
$
26

 
$
107

 
$
139

 
$
464

    
7.
Debt

Our total debt, including short-term and long-term debt, consisted of the following as of June 30, 2018 and December 31, 2017 (in millions):
 
As of 
June 30, 2018
 
As of 
December 31, 2017
Debt:
 
 
 
Short-term debt:
 
 
 
Commercial Paper
$
2,045

 
$
1,233

2018 Senior Notes (2.50% senior unsecured notes due October 15, 2018)
600

 
600

Total short-term debt
2,645

 
1,833

Long-term debt:
 
 
 
2020 Senior Notes (2.75% senior unsecured notes due December 1, 2020)
1,245

 
1,244

2022 Senior Notes (2.35% senior unsecured notes due September 15, 2022)
496

 
495

2023 Senior Notes (4.00% senior unsecured notes due October 15, 2023)
792

 
791

2025 Senior Notes (3.75% senior unsecured notes due December 1, 2025)
1,243

 
1,242

2027 Senior Notes (3.10% senior unsecured notes due September 15, 2027)
495

 
495

Total long-term debt
4,271

 
4,267

Total debt
$
6,916

 
$
6,100

Credit Facility
We have a $3.4 billion senior unsecured revolving credit facility, or the Credit Facility, with a maturity date of August 18, 2022, 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. 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 June 30, 2018. As of June 30, 2018, of the $3.4 billion that is currently available for borrowing under the Credit Facility, $2.0 billion is required to back-stop the amount outstanding under our Commercial Paper Program and $105 million is required to support certain broker-dealer subsidiary commitments.
The amount required to back-stop the amounts outstanding under the Commercial Paper Program will fluctuate as we increase or decrease our commercial paper borrowings. The remaining $1.3 billion available under the Credit Facility as of June 30, 2018 is available to us to use 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.
Commercial Paper Program
We have entered into a U.S. dollar commercial paper program, or the Commercial Paper Program. Our Commercial Paper Program is currently backed by the borrowing capacity available under the Credit Facility, equal to the amount of the commercial paper that is issued and outstanding at any given point in time. The effective interest rate of commercial paper issuances does not materially differ from short-term interest rates (such as USD LIBOR). The fluctuation of these rates due to market conditions may impact our interest expense. During the six months ended June 30, 2018, we used net proceeds of $812 million from notes issued

16


under our Commercial Paper Program primarily to finance the acquisition of BondPoint, to purchase an additional 5.1% stake in Euroclear, and for general corporate purposes.
Commercial paper notes of $2.0 billion with original maturities ranging from two to 72 days were outstanding as of June 30, 2018 under our Commercial Paper Program. As of June 30, 2018, the weighted average interest rate on the $2.0 billion outstanding under our Commercial Paper Program was 2.06% per annum, with a weighted average maturity of eighteen days.
2018 Senior Notes
We have $600 million of senior notes due in October 2018 and we currently plan to fund the redemption of these notes with the issuance of new senior term notes. However, if we are unable to issue new senior term notes or to do so on favorable terms, then we would fund the redemption of the notes under the Commercial Paper Program or with the unused amount available under the Credit Facility or with cash flows from operations, or a combination of these sources.

8.
Equity
We currently sponsor employee and director stock option and restricted stock plans. Stock options and restricted stock are granted at the discretion of the Compensation Committee of the Board of Directors. All stock options and restricted stock awards are granted at an exercise price equal to the fair value of the common stock on the date of grant. The grant date fair value is based on the closing stock price on the date of grant. The fair value of the stock options and restricted stock on the date of grant is recognized as expense over the vesting period, net of forfeitures. The non-cash compensation expenses recognized in our consolidated statements of income for stock options and restricted stock were $61 million and $68 million for the six months ended June 30, 2018 and 2017, respectively, and $32 million and $34 million for the three months ended June 30, 2018 and 2017, respectively.
Stock Option Plans
The following is a summary of stock option activity for the six months ended June 30, 2018:
 
Number of Options
 
Weighted Average
Exercise Price per
Option
Outstanding at December 31, 2017
4,013,388

 
$
41.13

Granted
522,881

 
67.00

Exercised
(432,087
)
 
28.69

Outstanding at June 30, 2018
4,104,182

 
45.73

 
Details of stock options outstanding as of June 30, 2018 are as follows:
 
Number of Options
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining
Contractual Life
(Years)
 
Aggregate
Intrinsic
Value
(In millions)
Vested or expected to vest
4,104,182

 
$
45.73

 
6.8
 
$
114

Exercisable
2,953,324

 
$
39.86

 
6.0
 
$
100


The total intrinsic value of stock options exercised was $19 million and $7 million for the six months ended June 30, 2018 and 2017, respectively, and $10 million and $4 million for the three months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, there were $12 million in total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 1.9 years as the stock options vest.
We use the Black-Scholes option pricing model for purposes of valuing stock option awards. During the six months ended June 30, 2018 and 2017, we used the weighted-average assumptions in the table below to compute the value of all options for shares of common stock granted to employees:

17


 
Six Months Ended June 30,
Assumptions:
2018
 
2017
Risk-free interest rate
2.66
%
 
1.84
%
Expected life in years
6.0

 
5.0

Expected volatility
20
%
 
21
%
Expected dividend yield
1.43
%
 
1.40
%
Estimated weighted-average fair value of options granted per share
$
13.98

 
$
10.50

The risk-free interest rate is based on the zero-coupon U.S. Treasury yield curve in effect at the time of grant. The expected life computation is derived from historical exercise patterns and anticipated future patterns. Expected volatilities are based on historical volatility of our stock.
Restricted Stock Plans
In February 2018, we reserved a maximum of 1,303,151 restricted shares for potential issuance as performance-based restricted shares to certain of our employees. The number of shares that will ultimately be granted under this award will be based on our actual financial performance as compared to financial performance targets set by our Board of Directors and the Compensation Committee of the Board of Directors for the year ending December 31, 2018, as well as our 2018 total stockholder return, or TSR, as compared to that of the S&P 500 Index. The maximum compensation expense to be recognized under these performance-based restricted shares is $84 million if the maximum financial performance target is met and all 1,303,151 shares vest. The compensation expense to be recognized under these performance-based restricted shares will be $42 million if the target financial performance is met, which would result in 651,576 shares vesting. We recognize expense on an accelerated basis over the three-year vesting period based on our quarterly assessment of the probable 2018 actual financial performance as compared to the 2018 financial performance targets. As of June 30, 2018, we determined that it is probable that the financial performance level will be at target for 2018. Based on this assessment, we recorded non-cash compensation expense of $11 million and $7 million for the six months and three months ended June 30, 2018, respectively, related to these shares and the remaining $31 million in non-cash compensation expense will be recorded on an accelerated basis over the remaining vesting period, including $12 million of which will be recorded over the remainder of 2018.
The following is a summary of the non-vested restricted share activity for the six months ended June 30, 2018:  
 
Number of
Restricted
Stock Shares
 
Weighted Average
Grant-Date Fair
Value per Share
Non-vested at December 31, 2017
5,748,408
 
$
52.78

Granted
1,829,220
 
67.47

Vested
(2,673,199)
 
49.86

Forfeited
(246,640)
 
57.59

Non-vested at June 30, 2018
4,657,789
 
59.97

Restricted stock shares granted in the table above include both time-based and performance-based grants. Performance-based shares have been presented to reflect the actual shares to be issued based on the achievement of past performance targets. Non-vested performance-based restricted shares granted are presented in the table above at the target number of restricted shares that would vest if the performance targets are met. As of June 30, 2018, there were $181 million in total unrecognized compensation costs related to the time-based restricted stock and the performance-based restricted stock. These costs are expected to be recognized over a weighted-average period of 1.6 years as the restricted stock vests. These unrecognized compensation costs assume that a target performance level will be met on the performance-based restricted shares granted in February 2018. During the six months ended June 30, 2018 and 2017, the total fair value of restricted stock vested under all restricted stock plans was $195 million and $203 million, respectively.
Employee Stock Purchase Plan
In May 2018, our stockholders approved our Employee Stock Purchase Plan, or ESPP, under which we have reserved and may sell up to 25,000,000 shares of our common stock to employees. The ESPP grants 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 limitations. Under our ESPP, employees are limited to $25,000 of common stock annually, or 1,250 shares of common stock each offering period. There will be two offering periods each year, which will run from January 1st (or the first trading day thereafter) through June 30th (or the first trading day prior to such date) and from July 1st (or the first trading day thereafter) through December 31st (or the first trading day prior to such date). The first offering period began on July 2, 2018 and will run through December 31, 2018. The purchase price per share of common stock will be 85% of the lesser of the fair market value of the stock on the first or the

18


last trading day of each offering period. Beginning in the third quarter of 2018, we will record compensation expense over the offering period related to the 15% discount that is given to our employees.
Stock Repurchase Program
In September 2017, our Board of Directors approved an aggregate of $1.2 billion for future repurchases of our common stock with no fixed expiration date that became effective on January 1, 2018. During the six months ended June 30, 2018, we repurchased 10,403,246 shares of our outstanding common stock at a cost of $759 million, excluding shares withheld upon vesting of equity awards. The shares repurchased are held in treasury stock and were completed on the open market and under our Rule 10b5-1 trading plan. The timing and extent of future repurchases, if any, will depend upon many conditions. Our management periodically reviews whether to be active in repurchasing our stock. In making a determination regarding any stock repurchases, we consider multiple factors. The factors may include: overall stock market conditions, our common stock price movements, the remaining amount authorized for repurchases by our Board of Directors, the potential impact of a stock repurchase program on our corporate debt ratings, our expected free cash flow and working capital needs, our current and future planned strategic growth initiatives, and other potential uses of our cash and capital resources.
As of June 30, 2018, up to $441 million remains from the board authorization for repurchases of our common stock. We expect funding for any stock repurchases to come from our operating cash flow or 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 of Directors, to govern some or all 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 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 available for repurchases from time to time.
Dividends
During the six months ended June 30, 2018 and 2017, we paid cash dividends per share of $0.48 and $0.40, respectively, for an aggregate payout of $279 million and $239 million, respectively. The declaration of dividends is subject to the discretion of our Board of Directors, and may be affected by various factors, including our future earnings, financial condition, capital requirements, levels of indebtedness, credit ratings and other considerations which our Board of Directors deem relevant. Our Board of Directors has adopted a quarterly dividend declaration policy providing that the declaration of any dividends will be determined quarterly by the Board of Directors or the Audit Committee of the Board of Directors 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.

9.
Income Taxes
Our effective tax rate was 24% and 27% for the six months ended June 30, 2018 and 2017, respectively, and 24% and 25% for the three months ended June 30, 2018 and 2017, respectively. The effective tax rates for the six months and three months ended June 30, 2018 are lower than the effective tax rates for the comparable periods in 2017 primarily due to the enactment of the TCJA on December 22, 2017, which reduced the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018 (Note 2). That benefit is partially offset by additional U.S. federal and state income taxes on a portion of our non-U.S. income due to certain international tax provisions enacted as part of the TCJA, as well as tax benefits associated with a divestiture in the comparable periods in 2017.
We recorded our income tax provision based on the TCJA as enacted as of June 30, 2018. We have also made reasonable estimates of the TCJA’s impact on state income tax. Our estimates are based on the best available information as of June 30, 2018 and our interpretation of the TCJA and related state tax implications, as currently enacted. Our estimates do not include any potential federal or state administrative and/or legislative adjustments to certain provisions of the TCJA and related state provisions.
SAB 118 provides guidance for companies that have not completed their accounting for 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 June 30, 2018, we have not completed our accounting for the tax effects of the enactment of the TJCA. We will continue to analyze the TCJA in order to finalize its enactment-date effects within the measurement period (Note 2).
As of June 30, 2018, we have not 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. Therefore, no deferred tax related to these provisions has been recorded as of June 30, 2018. We will continue our analysis and will make an election within the measurement period as provided for under SAB 118.


19


10.
Clearing Organizations
We operate regulated central counterparty clearing houses for the settlement and clearance of derivative contracts. The clearing houses include ICE Clear Europe, ICE Clear Credit, ICE Clear U.S., ICE Clear Canada (which ceased operations in July 2018 as discussed below), ICE Clear Netherlands, ICE Clear Singapore and ICE NGX (referred to herein collectively as the “ICE Clearing Houses”).
ICE Clear Europe performs the clearing and settlement for all futures and options contracts traded through ICE Futures Europe and ICE Endex, for energy futures and options contracts trading through ICE Futures U.S., and for CDS contracts submitted for clearing in Europe.
ICE Clear Credit performs the clearing and settlement for CDS contracts submitted for clearing in North America.
ICE Clear U.S. performs the clearing and settlement of agricultural, metals, currencies and financial futures and options contracts traded through ICE Futures U.S.
ICE Clear Canada performed the clearing and settlement for all futures and options contracts traded through ICE Futures Canada until July 30, 2018, when we transitioned the trading and clearing of our canola contracts from ICE Futures Canada and ICE Clear Canada to ICE Futures U.S. and ICE Clear U.S., respectively. After the transition, ICE Futures Canada and ICE Clear Canada ceased operations.
ICE Clear Netherlands has received regulatory approval to offer clearing of Dutch equity options traded through ICE Endex.
ICE Clear Singapore performs the clearing and settlement for all futures and options contracts traded through ICE Futures Singapore.
ICE NGX performs clearing and settlement for physical North American natural gas, electricity and oil markets.
Each of the ICE Clearing Houses requires all clearing members or participants to maintain cash on deposit or pledge certain assets, which may include government obligations, non-government obligations, letters of credit or gold to guaranty performance of the clearing members’ or participants’ open positions. Such amounts in total are known as “original margin.” The ICE Clearing Houses may make intraday original margin calls in circumstances where market conditions require additional protection. The daily profits and losses from and to the ICE Clearing Houses due to the marking-to-market of open contracts are known as “variation margin.” With the exception of ICE NGX’s physical natural gas and physical power products, the ICE Clearing Houses mark all outstanding contracts to market, and therefore pay and collect variation margin, at least once daily, and in some cases multiple times throughout the day. For ICE NGX’s physical natural gas and power products, ICE NGX marks all outstanding contracts to market daily, but only collects variation margin when a participant’s open position falls outside a specified percentage of its pledged collateral. Marking-to-market allows the ICE Clearing Houses to identify any clearing members or participants that may be unable to satisfy the financial obligations resulting from changes in the prices of their open contracts before those financial obligations become exceptionally large and jeopardize the ability of the ICE Clearing Houses to ensure financial performance of clearing members’ or participants’ open positions.
With the exception of ICE NGX, each of the ICE Clearing Houses requires that each clearing member make deposits into a fund known as a “guaranty fund,” which is maintained by the relevant ICE Clearing House. These amounts serve to secure the obligations of a clearing member to the ICE Clearing House to which it has made the guaranty fund deposit and may be used to cover losses sustained by the respective ICE Clearing House in the event of a default of a clearing member. Because it is not our policy to guaranty credit facilities of our clearing houses which maintain contingent liquidity facilities secured by high quality liquid assets, we eliminated a $100 million guaranty that we had previously provided ICE NGX in February 2018. As of June 30, 2018, ICE NGX maintains a guaranty fund utilizing a $100 million letter of credit that has been entered into with a major Canadian chartered bank and backed by a default insurance policy underwritten by Export Development Corporation, or EDC, a Canadian government agency. In the event of a participant default, where a participant’s collateral becomes depleted, the remaining shortfall would be covered by a draw down on the letter of credit following which ICE NGX would pay the first $15 million in losses per its deductible and recover additional losses under the insurance policy of up to $100 million.
We have contributed cash of $150 million, $50 million and $50 million to the guaranty funds of ICE Clear Europe, ICE Clear Credit and ICE Clear U.S., respectively, as of June 30, 2018, and such amounts are at risk and could be used in the event of a clearing member default where the amount of the defaulting clearing member’s original margin and guaranty fund deposits are insufficient. We have also contributed $4 million in cash in total to the guaranty funds of ICE Clear Canada, ICE Clear Netherlands and ICE Clear Singapore. The $254 million combined contributions to the guaranty funds as of June 30, 2018 and December 31, 2017 are included in long-term restricted cash and cash equivalents in the accompanying consolidated balance sheets.
In addition, beginning in March 2018, certain of our exchanges are now required to make similar contributions to those made by the clearing houses to be utilized pro rata along with the clearing contributions in the event of clearing member default. The contribution is calculated per exchange based on average guaranty fund contributions, subject to a minimum contribution of $10

20


million for each exchange. As of June 30, 2018, ICE Futures Europe, ICE Futures U.S. and our ICE Endex exchanges have contributed a combined $67 million in cash to the guaranty funds of ICE Clear Europe and ICE Clear U.S. These contributions are also included in long-term restricted cash and cash equivalents in the accompanying consolidated balance sheet.
The ICE Clearing Houses seek to reduce their exposure through a risk management program that includes initial and ongoing financial standards for clearing member and participant admission and continued membership, original and variation margin and collateral requirements, and mandatory deposits to the guaranty fund. The amounts that the clearing members and participants are required to maintain in the original margin, guaranty fund and collateral accounts are determined by standardized parameters established by the risk management department of the respective ICE Clearing House and reviewed by the risk committees and the boards of directors of each of the ICE Clearing Houses and may fluctuate over time. As of June 30, 2018 and December 31, 2017, the ICE Clearing Houses have received or have been pledged $102.2 billion and $92.6 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. With the exception of ICE NGX, the ICE Clearing Houses also have the ability to collect additional funds from their clearing members to cover a defaulting member’s remaining obligations up to the limits established under the respective rules of each ICE Clearing House.
Should a particular clearing member or participant fail to deposit original margin, provide collateral, or fail to make a variation margin payment, when and as required, the relevant ICE Clearing House may liquidate or hedge the clearing member’s or participant’s open positions and use their original margin and guaranty fund deposits to make up any amount owed. In the event that those deposits are not sufficient to pay the amount owed in full, the ICE Clearing Houses may utilize the respective guaranty fund deposits of their respective clearing members on a pro-rata basis for that purpose.
ICE NGX administers the physical delivery of energy trading contracts. It has an equal and offsetting claim to and from the respective participants on opposite sides of the physically settled contract. The balance related to delivered but unpaid contracts is reflected as a delivery contract net receivable with an offsetting delivery contract net payable in the accompanying consolidated balance sheets. ICE NGX also records unsettled variation margin equal to the fair value of open energy trading contracts as of the balance sheet date. Fair value is determined based on the difference between the trade price when the contract was entered into and the settlement price and is considered a Level 2 fair value measurement. There is no impact to the consolidated statements of income for either delivery contracts receivable/payable and unsettled variation margin, as an equivalent amount is recognized in both the assets and liabilities.
As of June 30, 2018, our cash and cash equivalents margin deposits, unsettled variation margin, guaranty fund and delivery contracts receivable/payable, net, are as follows for the ICE Clearing Houses (in millions):
 
ICE Clear 
Europe
 
ICE Clear
Credit
 
ICE Clear U.S.
 
ICE NGX
 
Other ICE Clearing Houses
 
Total
Original margin
$
22,193

 
$
19,655

 
$
6,148

 
$

 
$
93

 
$
48,089

Unsettled variation margin, net

 

 

 
90

 

 
90

Guaranty fund
3,565

 
2,300

 
473

 

 
21

 
6,359

Delivery contracts receivable/payable, net

 

 

 
453

 

 
453

Total
$
25,758

 
$
21,955

 
$
6,621

 
$
543

 
$
114

 
$
54,991

As of December 31, 2017, our cash margin deposits, unsettled variation margin, guaranty fund and delivery contracts receivable/payable, net, were as follows for the ICE Clearing Houses (in millions):
 
ICE Clear 
Europe
 
ICE Clear
Credit
 
ICE Clear U.S.
 
ICE NGX
 
Other ICE Clearing Houses
 
Total
Original margin
$
19,792

 
$
20,703

 
$
3,898

 
$

 
$
126

 
$
44,519

Unsettled variation margin, net

 

 

 
227

 
1

 
228

Guaranty fund
3,037

 
2,607

 
299

 

 
23

 
5,966

Delivery contracts receivable/payable, net

 

 

 
509

 

 
509

Total
$
22,829

 
$
23,310

 
$
4,197

 
$
736

 
$
150

 
$
51,222


We have recorded these cash and cash equivalent deposits and amounts due in the accompanying consolidated balance sheets as current assets with corresponding current liabilities to the clearing members of the relevant ICE Clearing House. All cash, securities and amounts due are available only to meet the financial obligations of that clearing member to the relevant ICE Clearing House. ICE Clear Europe, ICE Clear Credit, ICE Clear U.S., ICE Clear Canada, ICE Clear Netherlands, ICE NGX and ICE Clear Singapore are separate legal entities and are not subject to the liabilities of the other ICE Clearing Houses or the

21


obligations of the members of the other ICE Clearing Houses. The amount of these cash deposits may fluctuate due to the types of margin collateral choices available to clearing members and the change in the amount of deposits required. As a result, these assets and corresponding liabilities may vary significantly over time.
Of the cash held by the ICE Clearing Houses, as of June 30, 2018, $33.0 billion is secured in reverse repurchase agreements with primarily overnight maturities or direct investment in government securities. ICE Clear Credit, as a systemically important financial market utility, or SIFMU, as designated by the Financial Stability Oversight Council, or FSOC, held $17.1 billion of its U.S. dollar cash in the guaranty fund and in original margin in cash accounts at the Federal Reserve Bank of Chicago as of June 30, 2018. ICE Clear Europe maintains a Euro-denominated account at the De Nederlandsche Bank, or DNB, the central bank of the Netherlands, as well as a pounds sterling-denominated account 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. As of June 30, 2018, ICE Clear Europe held €686 million ($802 million based on the euro/U.S. dollar exchange rate of 1.1684 as of June 30, 2018) at DNB, and £500 million ($660 million based on the pound sterling/U.S. dollar exchange rate of 1.3208 as of June 30, 2018) at the BOE. The remaining cash deposits at the ICE Clearing Houses are held in demand deposit accounts at large, highly rated financial institutions and direct investments primarily in U.S. Treasury securities with original maturities of less than three months, plus certain U.S. Treasury securities that extend beyond twelve months which we consider to be Level 1 securities. The carrying value of these securities with original maturities of less than three months approximates their fair value due to the short-term nature of the instruments and repurchase agreements.
In addition to the cash deposits for original margin and the guaranty fund, the ICE Clearing Houses have also received other assets from clearing members, which include government obligations, and may include other non-cash collateral such as certain agency and corporate debt, letters of credit or gold to mitigate credit risk. These assets are not reflected in the accompanying consolidated balance sheets as the risks and rewards of these assets remain with the clearing members unless the ICE Clearing Houses have sold or re-pledged the assets or in the event of a clearing member default, where the clearing member is no longer entitled to redeem the assets. Any income, gain or loss accrues to the clearing member. For certain non-cash deposits, the ICE Clearing Houses may impose discount or “haircut” rates to ensure adequate collateral levels to account for fluctuations in the market value of these deposits.
ICE NGX requires participants to maintain cash or letters of credit to serve as collateral in the event of a participant default. The cash is maintained in a segregated bank account that is subject to a collateral agreement between the bank and ICE NGX. Per the agreement, ICE NGX serves in the capacity of a trustee. The cash is held by ICE NGX in trust for and on behalf of the participant; however, the cash remains the property of the participant and may only be accessed by ICE NGX if there is evidence of default. The rules governing when the cash can be accessed by ICE NGX are listed in the Contracting Party Agreement, a standardized agreement signed by each participant that also allows for netting of positive and negative exposure. Since the cash is held in trust and remains the property of the participant, it is not included in the accompanying consolidated balance sheets.
As of June 30, 2018 and December 31, 2017, the assets pledged by the clearing members as original margin, which includes cash deposits held in trust at ICE NGX, and non-cash collateral guaranty fund deposits for each of the ICE Clearing Houses not included in the accompanying consolidated balance sheets are detailed below (in millions):
 
As of June 30, 2018
 
ICE Clear 
Europe
 
ICE Clear
Credit
 
ICE Clear U.S.
 
ICE NGX
 
Other ICE Clearing Houses
Original margin:
 
 
 
 
 
 
 
 
 
Government securities at face value
$
24,235

 
$
11,568

 
$
8,607

 
$

 
$
25

Letters of credit

 

 

 
1,610

 

ICE NGX cash deposits

 

 

 
281

 

Total
$
24,235

 
$
11,568

 
$
8,607

 
$
1,891

 
$
25

Guaranty fund: