Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 5, 2013)
  • 10-Q (Aug 6, 2013)
  • 10-Q (May 8, 2013)
  • 10-Q (Nov 8, 2012)
  • 10-Q (Aug 7, 2012)
  • 10-Q (May 4, 2012)

 
8-K

 
Other

NYSE Euronext 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Ex-10.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.1
NYX-2013.9.30-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013
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 001-33392
NYSE Euronext
(Exact name of registrant as specified in its charter)
DELAWARE        
(State or other jurisdiction of        
incorporation or organization)        
 
    20-5110848
    (I.R.S. Employer
    Identification Number)
11 Wall Street
New York, New York 10005
(Address of principal executive offices) (Zip Code)
(212) 656-3000
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 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 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 (§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 þ  No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨    
(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 þ
As of November 1, 2013, the registrant had approximately 243 million shares of common stock, $0.01 par value per share, outstanding.

 




CERTAIN TERMS
In this Quarterly Report on Form 10-Q, “NYSE Euronext,” “we,” “us,” and “our” refer to NYSE Euronext, a Delaware corporation, and its subsidiaries, except where the context requires otherwise.
“Archipelago®,” “Archipelago Exchange®,” “Euronext® ,” “NYSE ® ,” "NYSE BlueTM," “NYSE Liffe ® ,” “Pacific Exchange ®” and “SFTI® ,” among others, are trademarks or service marks of NYSE Euronext or its licensees or licensors with all rights reserved.
“FINRA®” is a trademark of the Financial Industry Regulatory Authority (“FINRA”) with all rights reserved, and is used under license from FINRA.
All other trademarks and service marks used herein are the property of their respective owners.
Unless otherwise specified or the context otherwise requires:
 
“NYSE” refers to (1) prior to the completion of the merger between the New York Stock Exchange, Inc. and Archipelago Holdings, Inc. (“Archipelago”), which occurred on March 7, 2006, New York Stock Exchange, Inc., a New York Type A not-for-profit corporation (the "Merger"), and (2) after completion of the Merger, New York Stock Exchange LLC, a New York limited liability company, and, where the context requires, its subsidiaries, NYSE Market, Inc., a Delaware corporation, and NYSE Regulation, Inc., a New York not-for-profit corporation. New York Stock Exchange LLC is registered with the U.S. Securities and Exchange Commission (the “SEC”) under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) as a national securities exchange.
“NYSE Arca” refers collectively to NYSE Arca, L.L.C., a Delaware limited liability company (formerly known as Archipelago Exchange, L.L.C.), NYSE Arca, Inc., a Delaware corporation (formerly known as the Pacific Exchange, Inc.), and NYSE Arca Equities, Inc., a Delaware corporation (formerly known as PCX Equities, Inc.). NYSE Arca, Inc. is registered with the SEC under the Exchange Act as a national securities exchange.
“NYSE MKT” refers to NYSE MKT LLC, a Delaware limited liability company (formerly known as the American Stock Exchange LLC or NYSE Amex LLC). NYSE MKT LLC is registered with the SEC under the Exchange Act as a national securities exchange.

2



FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business and industry. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the risks and uncertainties described under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, and any additional risks and uncertainties described in our subsequent Quarterly Reports on Form 10-Q.
These risks and uncertainties are not exhaustive. Other sections of this report describe additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact that these factors will have on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this report to conform our prior statements to actual results or revised expectations and we do not intend to do so.
Forward-looking statements include, but are not limited to, statements about:
possible or assumed future results of operations and operating cash flows;
strategies and investment policies;
financing plans and the availability of capital;
our competitive position and environment;
potential growth opportunities available to us;
the risks associated with potential acquisitions, alliances or combinations, including IntercontinentalExchange, Inc.'s announced acquisition of us;
the recruitment and retention of officers and employees;
expected levels of compensation;
potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts;
the likelihood of success and impact of litigation;
protection or enforcement of intellectual property rights;
expectations with respect to financial markets, industry trends and general economic conditions;
our ability to keep up with rapid technological change;
the timing and results of our technology initiatives;
the effects of competition; and
the impact of future legislation and regulatory changes.
We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We expressly qualify in their entirety all forward-looking statements attributable to us or any person acting on our behalf by the cautionary statements referred to above.

3




Item 1. Financial Statements

NYSE EURONEXT
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In millions, except per share data)
(Unaudited)
 
September 30,
2013
 
December 31,
2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
404

 
$
337

Financial investments
33

 
43

Accounts receivable, net
399

 
405

Deferred income taxes
65

 
67

Other current assets
111

 
156

Total current assets
1,012

 
1,008

Property and equipment, net
893

 
948

Goodwill
4,191

 
4,163

Other intangible assets, net
5,803

 
5,783

Deferred income taxes
67

 
74

Other assets
432

 
580

Total assets
$
12,398

 
$
12,556

Liabilities and equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
618

 
$
725

Section 31 fees payable
21

 
99

Deferred revenue
225

 
138

Short term debt
213

 
454

Total current liabilities
1,077

 
1,416

Long term debt
2,088

 
2,055

Deferred income taxes
1,362

 
1,435

Accrued employee benefits
560

 
602

Deferred revenue
384

 
378

Other liabilities
22

 
27

Total liabilities
5,493

 
5,913

Commitments and contingencies

 

Redeemable noncontrolling interest
273

 
274

Equity
 
 
 
NYSE Euronext stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 800 shares authorized; 279 and 278 shares issued; 243 and 242 shares outstanding
3

 
3

Common stock held in treasury, at cost; 36 shares
(966
)
 
(968
)
Additional paid-in capital
7,934

 
7,939

Retained earnings
827

 
569

Accumulated other comprehensive loss
(1,187
)
 
(1,198
)
Total NYSE Euronext stockholders’ equity
6,611

 
6,345

Noncontrolling interest
21

 
24

Total equity
6,632

 
6,369

Total liabilities and equity
$
12,398

 
$
12,556

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



NYSE EURONEXT
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Revenues
 
 
 
 
 
 
 
Transaction and clearing fees
$
554

 
$
570

 
1,845

 
$
1,828

Market data
91

 
85

 
265

 
263

Listing
113

 
112

 
334

 
334

Technology services
74

 
81

 
231

 
254

Other revenues
58

 
54

 
173

 
161

Total revenues
890

 
902

 
2,848

 
2,840

Transaction-based expenses:
 
 
 
 
 
 
 
Section 31 fees
61

 
74

 
214

 
226

Liquidity payments, routing and clearing
255

 
269

 
849

 
852

Total revenues, less transaction-based expenses
574

 
559

 
1,785

 
1,762

Other operating expenses:
 
 
 
 
 
 
 
Compensation
150

 
145

 
465

 
457

Depreciation and amortization
64

 
64

 
188

 
196

Systems and communications
40

 
44

 
125

 
133

Professional services
63

 
76

 
199

 
218

Selling, general and administrative
55

 
59

 
167

 
185

Merger expenses and exit costs
24

 
18

 
54

 
61

Total other operating expenses
396

 
406

 
1,198

 
1,250

Operating income
178

 
153

 
587

 
512

Interest expense
(23
)
 
(29
)
 
(78
)
 
(88
)
Investment income

 
1

 
3

 
4

Loss from associates
(2
)
 
(2
)
 
(7
)
 
(5
)
Net gain (loss) on disposal activities
5

 

 
15

 
(2
)
Other income (loss)

 
1

 
5

 
4

Income before income taxes
158

 
124

 
525

 
425

Income tax benefit (provision)
24

 
(12
)
 
(34
)
 
(91
)
Net income
182

 
112

 
491

 
334

Net (income) loss attributable to noncontrolling interest
(4
)
 
(4
)
 
(14
)
 
(14
)
Net income attributable to NYSE Euronext
$
178

 
$
108

 
$
477

 
$
320

Basic earnings per share attributable to NYSE Euronext
$
0.73

 
$
0.44

 
$
1.96

 
$
1.27

Diluted earnings per share attributable to NYSE Euronext
$
0.73

 
$
0.44

 
$
1.95

 
$
1.26

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



NYSE EURONEXT
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
182

 
$
112

 
$
491

 
$
334

Foreign currency translation, after impact of net investment hedge gain (loss) of $(41), $(17), $(26) and $14 and taxes of $16, $10, $10 and $(3), respectively
370

 
159

 
44

 
127

Reclassification adjustment for realized (gains) losses (1)
(1
)
 

 

 

Change in market value adjustments of available-for-sale securities, net of taxes of $3, $(4), $13 and $(7), respectively
(12
)
 
9

 
(37
)
 
14

Employee benefit plan adjustments:
 
 
 
 
 
 
 
Net gains (losses), net of taxes of $(2), $(2), $(3) and $(6), respectively
8

 
2

 
19

 
6

Reclassification adjustments related to amortization (2)
(5
)
 

 
(14
)
 

Total comprehensive (loss) income
542

 
282

 
503

 
481

Less: comprehensive (income) loss attributable to noncontrolling interest
(4
)
 
(5
)
 
(14
)
 
(14
)
Comprehensive income (loss) attributable to NYSE Euronext
$
538

 
$
277

 
$
489

 
$
467

 
 
 
 
 
 
 
 
(1) Reclassified into Other income (loss)
 
 
 
 
 
 
 
(2) Reclassified into Compensation
 
 
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6



NYSE EURONEXT
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Nine months ended September 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
491

 
$
334

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
195

 
196

Deferred income taxes
(74
)
 
38

Deferred revenue amortization
(75
)
 
(71
)
Stock-based compensation
47

 
37

Other non-cash items
(17
)
 
11

Change in operating assets and liabilities:
 
 
 
Accounts receivable, net
5

 
15

Other assets
(20
)
 
47

Accounts payable, accrued expenses, and Section 31 fees payable
(96
)
 
(349
)
Deferred revenue
165

 
158

Accrued employee benefits
(56
)
 
(59
)
Net cash provided by operating activities
565

 
357

Cash flows from investing activities:
 
 
 
Sales of short term financial investments
522

 
583

Purchases of short term financial investments
(511
)
 
(578
)
Purchases of equity investments and businesses, net of cash acquired
(82
)
 
(120
)
Sales of equity investments and businesses
156

 

Purchases of property and equipment
(96
)
 
(125
)
Other investing activities
(1
)
 
25

Net cash used in investing activities
(12
)
 
(215
)
Cash flows from financing activities:
 
 
 
Commercial paper borrowings (repayments), net
184

 
423

Debt maturity
(414
)
 

Dividends to shareholders
(219
)
 
(226
)
Sale (purchase) of treasury stock
2

 
(424
)
Employee stock transactions and other
(29
)
 
(20
)
Net cash used in financing activities
(476
)
 
(247
)
Effects of exchange rate changes on cash and cash equivalents
(10
)
 
19

Net increase (decrease)in cash and cash equivalents for the period
67

 
(86
)
Cash and cash equivalents at beginning of period
337

 
396

Cash and cash equivalents at end of period
$
404

 
$
310

 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

7



NYSE EURONEXT
Notes to Condensed Consolidated Financial Statements
Note 1—Organization and Basis of Presentation
Organization
NYSE Euronext is a holding company that, through its subsidiaries, operates the following securities exchanges: the New York Stock Exchange (“NYSE”), NYSE Arca, Inc. (“NYSE Arca”) and NYSE MKT LLC (“NYSE MKT”) in the United States and the European-based exchanges that comprise Euronext N.V. (“Euronext”)—the London, Paris, Amsterdam, Brussels and Lisbon stock exchanges, as well as the derivatives markets in London, Paris, Amsterdam, Brussels and Lisbon (collectively, “NYSE Liffe”) and the United States futures market, NYSE Liffe US, LLC (“NYSE Liffe US”). NYSE Euronext is a global markets operator and provider of securities listing, trading, market data products, and software and technology services. We also provide critical technology infrastructure around the world to our clients and exchange partners including co-location services, connectivity, trading platforms and market data content and services. NYSE Euronext was formed in connection with the April 4, 2007 combination of NYSE Group (which was formed in connection with the March 7, 2006 merger of the NYSE and Archipelago) and Euronext. NYSE Euronext common stock is dually listed on the NYSE and Euronext Paris under the symbol “NYX.”
Basis of Presentation
The accompanying condensed unaudited consolidated financial statements include the accounts of NYSE Euronext and its subsidiaries.
The accompanying condensed unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair statement of the results for the period. All material intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally required in financial statements under U.S. GAAP have been condensed or omitted; however, management believes that the disclosures are adequate to make the information presented not misleading.
The preparation of these condensed unaudited consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could be materially different from these estimates. Certain prior period amounts have been reclassified to conform to the current period’s presentation.
The condensed consolidated financial statements are unaudited and should be read in conjunction with the audited financial statements of NYSE Euronext as of and for the year ended December 31, 2012. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
Note 2—Strategic Investments and Divestitures
Business Combination

On December 20, 2012, NYSE Euronext announced a definitive agreement for IntercontinentalExchange Group ("ICE") to acquire NYSE Euronext in a stock-and-cash transaction. The agreement, which was amended and restated on March 19, 2013, provides for the combination of two leading exchange groups to create a premier global exchange operator diversified across markets including agricultural and energy commodities, credit derivatives, equities and equity derivatives, foreign exchange and interest rates.
Under the terms of the agreement, which was unanimously approved by the Boards and shareholders (on June 3, 2013) of both companies, the transaction is currently valued at approximately $10.9 billion, based on the closing price of ICE's stock on November 1, 2013. Under the terms of the merger agreement, NYSE Euronext shareholders had the option to elect to receive consideration per NYSE Euronext share of (i) $33.12 in cash, (ii) 0.2581 ICE common shares or (iii) a mix of $11.27 in cash plus 0.1703 ICE common shares, with each of the cash and stock elections subject to proration to ensure maximum cash consideration of approximately $2.7 billion and a maximum aggregate number of ICE common shares of approximately 42.4 million. The election period ended 5:00 p.m. New York time on October 31, 2013. Based on the closing price of ICE's stock on November 1, 2013, the overall mix of the $10.9 billion of merger consideration being paid by ICE is approximately 75% shares and 25% cash. NYSE Euronext has announced that subject to regulatory approvals, the transaction is expected to close in November 2013.
Qatar
In 2009, NYSE Euronext agreed to contribute $200 million in cash to acquire a 20% ownership interest in the Qatar Exchange, $40 million of which was paid upon closing on June 19, 2009, with two additional $40 million payments made in June 2010 and June 2011. The agreement required the remaining $80 million to be paid in two equal installments annually in June 2012 and June 2013. In September 2012, NYSE Euronext and Qatar Investment Authority reached an agreement to reduce our ownership from 20% to 12% in the Qatar Exchange in consideration of the termination of the remaining two $40 million installment payments. In addition, in September 2013, NYSE Euronext sold its remaining 12% stake in the Qatar Exchange to Qatar Holding in exchange for $120 million, resulting in a $5 million gain, primarily due to movement in foreign currency, included in "Net gain on disposal activities" in the condensed consolidated statements of operation.
Corpedia
On June 22, 2012, NYSE Euronext completed the acquisition of Corpedia, a U.S.-based provider of ethics and compliance e-learning and consultative services.

Fixnetix

8


On March 7, 2012, NYSE Euronext acquired approximately 25% of the outstanding shares of Fixnetix Limited, a U.K.-based service provider of ultra-low latency data provision, co-location, trading services and risk controls for more than 50 markets worldwide.

Other Transactions

NYSE Blue 

On February 18, 2011, we formed NYSE Blue through the combination of APX, Inc. and our 60% stake in BlueNext SA (“BlueNext”), with NYSE Euronext as the majority owner of NYSE Blue. In 2011, NYSE Euronext incurred a $42 million charge in connection with BlueNext's settlement of a tax matter with the French tax authorities of which 40%, or $17 million, was contributed by Caisse des Dépôts ("CDC"). On April 5, 2012, NYSE Blue was unwound, resulting in NYSE Euronext taking back ownership of its 60% stake in BlueNext and relinquishing its interest in APX, Inc.

Prior to the completion of this unwind, NYSE Euronext consolidated the results of operations and financial condition of NYSE Blue (which included the results of BlueNext and APX, Inc.). Following this unwind, NYSE Euronext only consolidated the results of operations and financial condition of BlueNext.

In October 2012, NYSE Euronext and CDC Climat, a subsidiary of CDC, who own 60% and 40% of BlueNext, respectively, voted in favor of the closure of this entity. Operations of BlueNext ceased as of December 5, 2012. The impact of these transactions was not material to the condensed consolidated financial statements.
NYSE Amex Options
On June 29, 2011, NYSE Euronext completed the sale of a significant equity interest in NYSE Amex Options, one of our two U.S. options exchanges, to seven external investors, Bank of America Merrill Lynch, Barclays Capital, Citadel Securities, Citi, Goldman Sachs, TD AMERITRADE and UBS. NYSE Euronext remains the largest shareholder in the entity and manages the day-to-day operations of NYSE Amex Options, which operates under the supervision of a separate board of directors and a dedicated chief executive officer. NYSE Euronext consolidates this entity for financial reporting purposes.
As part of the agreement, the external investors have received an equity instrument which is tied to their individual contribution to the options exchange’s success. Under the terms of the agreement, the external investors have the option to require NYSE Euronext to repurchase a portion of the instrument on an annual basis over the course of five years starting in 2011. The amount NYSE Euronext is required to purchase under this arrangement is capped each year at between 5% and 15% of the total outstanding shares of NYSE Amex Options. During the first nine months of 2013, the external investors put approximately 10% of the total outstanding shares of NYSE Amex Options back to NYSE Euronext. NYSE Euronext recognized the full redemption value, i.e. fair value, of this instrument as mezzanine equity and classified the related balance as “Redeemable noncontrolling interest” in the condensed consolidated statements of financial condition. As of September 30, 2013, NYSE Euronext holds 57.76% equity interest of NYSE Amex Options.

LCH.Clearnet / ICE Clear Europe Limited

ICE Clear Europe Limited (“ICE Clear”), a company incorporated under the laws of England and Wales and an affiliate of ICE, entered into a Clearing and Financial Intermediary Services Agreement, dated December 20, 2012, with LIFFE Administration and Management (“LIFFE”), an affiliate of NYSE Euronext (the “Agreement”), pursuant to which ICE Clear provides LIFFE central counterparty clearing services and LIFFE provides certain financial intermediary services for LIFFE derivatives products. On July 1, 2013, responsibility for the clearing of the London market of NYSE Liffe transitioned from NYSE Liffe Clearing (LCH.Clearnet Ltd) to ICE Clear. Under the terms and subject to the conditions of the Agreement, ICE Clear is the exclusive provider of central counterparty clearing services for all LIFFE derivatives products existing at July 1, 2013.

On January 28, 2013, LCH.Clearnet SA, the Paris-based clearing house of LCH.Clearnet Group, and affiliates of NYSE Euronext executed a six year clearing contract with respect to NYSE Euronext's continential European cash equity markets. The agreement will run through 2018. The new contract replaces the existing contract that was due to end on December 31, 2013 for cash equity transactions. The contract, among other things, enables LCH.Clearnet SA to further reduce clearing fees for clearing members. Fees went from €0.05 under the prior contract to €0.04 under the new contract for blue chip stocks.

On October 14, 2013, NYSE Euronext and LCH.Clearnet SA signed a new five-year agreement to clear NYSE Euronext's continental listed derivatives business, which included governance changes that will take effect immediately and new commercial terms beginning in April 2014. Starting April 1, 2014, NYSE Euronext will begin recognizing revenues as a result of this new agreement and will compensate LCH.Clearnet SA for certain clearing and risk management services.

9


Note 3—Restructuring
As a result of streamlining certain business processes, NYSE Euronext has launched various severance plans in the U.S. and Europe. The following is a summary of the severance charges recognized in connection with these plans, utilization of the accrual through September 30, 2013 and the remaining accrual as of September 30, 2013 (in millions):
 
Derivatives
 
Cash Trading
and Listings
 
Information Services
and  Technology
Solutions
 
Corporate/
Eliminations
 
Total  
Balance as of December 31, 2012
$
1

 
$
9

 
$
3

 
$
1

 
$
14

Employee severance and related benefits
8

 
2

 
4

 

 
14

Severance and benefit payments
(7
)
 
(5
)
 
(4
)
 

 
(16
)
Currency translation
(1
)
 

 

 

 
(1
)
Balance as of September 30, 2013
$
1

 
$
6

 
$
3

 
$
1

 
$
11

The severance charges are included in merger expenses and exit costs in the condensed consolidated statements of operations. Based on current severance dates and the accrued severance at September 30, 2013, NYSE Euronext expects to pay these amounts throughout 2013 and into 2014.
Note 4—Segment Reporting
NYSE Euronext operates under three reportable segments: Derivatives, Cash Trading and Listings, and Information Services and Technology Solutions. We evaluate the performance of our operating segments based on revenue and operating income. We have aggregated all of our corporate costs, including the costs of operating as a public company, within “Corporate/ Eliminations.”
The following is a description of our reportable segments:
Derivatives consist of the following in NYSE Euronext’s global businesses:
 
providing access to trade execution in derivatives products, options and futures;
providing certain clearing services for derivative products; and
selling and distributing market data and related information.
Cash Trading and Listings consist of the following in NYSE Euronext’s global businesses:
 
providing access to trade execution in cash trading;
providing settlement of transactions in certain European markets;
obtaining new listings and servicing existing listings;
selling and distributing market data and related information; and
providing regulatory services.
Information Services and Technology Solutions consist of the following in NYSE Euronext’s global businesses:
 
operating sellside and buyside connectivity networks for our markets and for other major market centers and market participants in the United States, Europe and Asia;
providing trading and information technology software and solutions;
selling and distributing market data and related information to data subscribers for proprietary data products; and
providing multi-asset managed services and expert consultancy to exchanges and liquidity centers.
Summarized financial data of our reportable segments is as follows (in millions):
Three months ended September 30,
Derivatives  
 
Cash Trading and Listings    
 
Information Services and
Technology Solutions
 
Corporate/
 Eliminations 
 
Total      
2013
 
 
 
 
 
 
 
 
 
Revenues
$
236

 
$
541

 
$
113

 
$

 
$
890

Operating income (loss)
84

 
115

 
23

 
(44
)
 
178

2012
 
 
 
 
 
 
 
 
 
Revenues
$
220

 
$
569

 
$
113

 
$

 
$
902

Operating income (loss)
55

 
102

 
21

 
(25
)
 
153

 
 
 
 
 
 
 
 
 
 


10


Nine months ended September 30,
Derivatives  
 
Cash Trading and Listings    
 
Information Services and
Technology Solutions
 
Corporate/
 Eliminations 
 
Total      
2013
 
 
 
 
 
 
 
 
 
Revenues
$
814

 
$
1,695

 
$
339

 
$

 
$
2,848

Operating income (loss)
286

 
350

 
69

 
(118
)
 
587

2012
 
 
 
 
 
 
 
 
 
Revenues
$
689

 
$
1,797

 
$
353

 
$
1

 
$
2,840

Operating income (loss)
211

 
335

 
66

 
(100
)
 
512

 
 
 
 
 
 
 
 
 
 

Note 5—Earnings and Dividend Per Share
The following is a reconciliation of the basic and diluted earnings per share computations (in millions, except per share data):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
182

 
$
112

 
$
491

 
$
334

Net (income) loss attributable to noncontrolling interest
(4
)
 
(4
)
 
(14
)
 
(14
)
Net income attributable to NYSE Euronext
$
178

 
$
108

 
$
477

 
$
320

 
 
 
 
 
 
 
 
Shares of common stock and common stock equivalents: Weighted average shares used in basic computation
243

 
246

 
243

 
252

Dilutive effect of: Employee stock options and restricted stock units
2

 
1

 
2

 
1

Weighted average shares used in diluted computation
245

 
247

 
245

 
253

 
 
 
 
 
 
 
 
Basic earnings per share attributable to NYSE Euronext
$
0.73

 
$
0.44

 
$
1.96

 
$
1.27

Diluted earnings per share attributable to NYSE Euronext
$
0.73

 
$
0.44

 
$
1.95

 
$
1.26

Dividends per common share
$
0.30

 
$
0.30

 
$
0.90

 
$
0.90

As of September 30, 2013 and 2012, 4.2 million and 4.7 million restricted stock units, respectively, and options to purchase zero and 0.2 million shares of common stock, respectively, were outstanding. For the three and nine months ended September 30, 2013, there were zero and 0.2 million awards, respectively, excluded from the diluted earnings per share computation because their effect would have been anti-dilutive. For the three and nine months ended September 30, 2012, there were 0.3 million and 1.0 million awards, respectively, excluded from the diluted earnings per share computation because their effect would have been anti-dilutive.

Note 6—Pension and Other Benefit Programs
The components of net periodic benefit expense are set forth below (in millions):
 
Pension Plans
 
SERP Plans
 
Postretirement
Benefit Plans
Three months ended September 30,
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Service cost
$
1

 
$
1

 
$

 
$

 
$

 
$

Interest cost
10

 
10

 
1

 

 
2

 
2

Expected return on assets
(14
)
 
(14
)
 

 

 

 

Actuarial loss
3

 
4

 

 
1

 

 

Net periodic cost
$

 
$
1

 
$
1

 
$
1

 
$
2

 
$
2

 
 
Pension Plans
 
SERP Plans
 
Postretirement
Benefit Plans
Nine months ended September 30,
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Service cost
$
3

 
$
2

 
$

 
$

 
$

 
$

Interest cost
30

 
32

 
3

 
2

 
6

 
6

Expected return on assets
(44
)
 
(41
)
 

 

 

 

Actuarial loss
11

 
10

 
1

 
1

 
2

 
2

Net periodic cost
$

 
$
3

 
$
4

 
$
3

 
$
8

 
$
8



11


During the three and nine months ended September 30, 2013, NYSE Euronext contributed $1 million and $32 million, respectively, to its pension plans. During the three and nine months ended September 30, 2012, NYSE Euronext contributed $1 million and $38 million, respectively, to its pension plans. Based on current actuarial assumptions, NYSE Euronext does not anticipate any additional funding to its pension plans for the remainder of 2013.
Note 7—Goodwill and Other Intangible Assets
The change in the net carrying amount of goodwill by reportable segments was as follows (in millions):
 
Derivatives
 
Cash Trading
and Listings
 
Information Services and
Technology Solutions
 
Total    
Balance as of January 1, 2013
$
2,313

 
$
1,476

 
$
374

 
$
4,163

Currency translation and other
4

 
21

 
3

 
28

Balance as of September 30, 2013
$
2,317

 
$
1,497

 
$
377

 
$
4,191

The following table presents the details of the intangible assets as of September 30, 2013 and December 31, 2012 (in millions):
Balance as of September 30, 2013
Assigned
value
 
Accumulated
amortization
 
Useful Life (in years)
National securities exchange registrations
$
5,102

 
$

 
Indefinite
Customer relationships
882

 
310

 
7 to 20 
Trade names and other
194

 
65

 
7 to 20 
Other intangible assets
$
6,178

 
$
375

 
 
 
Balance as of December 31, 2012
Assigned
value
 
Accumulated
amortization
 
Useful Life (in years)
National securities exchange registrations
$
5,042

 
$

 
Indefinite
Customer relationships
876

 
269

 
7 to 20 
Trade names and other
191

 
57

 
7 to 20 
Other intangible assets
$
6,109

 
$
326

 
 
For the three and nine months ended September 30, 2013, amortization expense for the intangible assets was approximately $15 million and $45 million, respectively. For the three and nine months ended September 30, 2012, amortization expense for the intangible assets was approximately $14 million and $46 million, respectively.
The estimated future amortization expense of acquired purchased intangible assets as of September 30, 2013 was as follows (in millions):
Year ending December 31,
 
Remainder of 2013 (from October 1st through December 31st)
$
13

2014
58

2015
58

2016
58

2017
58

Thereafter
456

Total
$
701


Note 8—Fair Value of Financial Instruments
NYSE Euronext accounts for certain financial instruments at fair value in accordance with the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification. The Fair Value Measurements and Disclosures Topic defines fair value, establishes a fair value hierarchy on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial instruments is determined using various techniques that involve some level of estimation and judgment, the degree of which is dependent on the price transparency and the complexity of the instruments.
In accordance with the Fair Value Measurements and Disclosures Topic, NYSE Euronext has categorized its financial instruments measured at fair value into the following three-level fair value hierarchy based upon the level of judgment associated with the inputs used to measure the fair value:
 
Level 1: Inputs are unadjusted quoted prices for identical assets or liabilities in an active market that NYSE Euronext has the ability to access. Generally, equity and other securities listed in active markets and investments in publicly traded mutual funds with quoted market prices are reported in this category.

12


Level 2: Inputs are either directly or indirectly observable for substantially the full term of the assets or liabilities. Generally, municipal bonds, certificates of deposits, corporate bonds, mortgage securities, asset backed securities and certain derivatives are reported in this category. The valuation of these instruments is based on quoted prices or broker quotes for similar instruments in active markets.
Level 3: Some inputs are both unobservable and significant to the overall fair value measurement and reflect management’s best estimate of what market participants would use in pricing the asset or liability. Generally, assets and liabilities carried at fair value and included in this category are certain structured investments, derivatives, commitments and guarantees that are neither eligible for Level 1 nor Level 2 due to the valuation techniques used to measure their fair value. The inputs used to value these instruments are both observable and unobservable and may include NYSE Euronext’s own projections.
If the inputs used to measure the financial instruments fall within different levels of the fair value hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs may result in a reclassification for certain financial assets or liabilities.
The following table presents NYSE Euronext’s fair value hierarchy of those assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 (in millions):
 
As of September 30, 2013
 
Level 1    
 
Level 2    
 
Level 3    
 
Total    
Financial Investments
 
 
 
 
 
 
 
Mutual Funds (SERP/SESP)(1)
$
29

 
$

 
$

 
$
29

Foreign exchange derivative contracts

 
4

 

 
4

Total Financial investments
$
29

 
$
4

 
$

 
$
33

Other assets
 
 
 
 
 
 
 
Equity investments(2)
$
15

 
$

 
$

 
$
15

Liabilities
 
 
 
 
 
 
 
Foreign exchange derivative contracts
$

 
$
4

 
$

 
$
4

 
As of December 31, 2012
 
Level 1    
 
Level 2    
 
Level 3    
 
Total    
Financial Investments
 
 
 
 
 
 
 
Mutual Funds (SERP/SESP)(1)
$
41

 
$

 
$

 
$
41

Foreign exchange derivative contracts

 
2

 

 
2

Total Financial investments
$
41

 
$
2

 
$

 
$
43

Other assets
 
 
 
 
 
 
 
Equity investments(2)
$
66

 
$

 
$

 
$
66

Liabilities
 
 
 
 
 
 
 
Foreign exchange derivative contracts
$

 
$
3

 
$

 
$
3

(1) 
Equity and fixed income mutual funds held for the purpose of providing future payments of Supplemental Executive Retirement Plan (SERP) and Supplemental Executive Savings Plan (SESP).
(2) 
Equity investments represent our investment in Multi Commodity Exchange (“MCX”) of India, which has been recorded at fair value using its quoted market price.

The fair value of our long-term debt instruments, categorized as Level 2, was approximately $2.2 billion as of September 30, 2013. The carrying value of all other financial assets and liabilities approximates fair value. There were no investment transfers amongst levels.
Note 9—Derivatives and Hedges
NYSE Euronext may use derivative instruments to hedge financial risks related to its financial position or risks that are otherwise incurred in the normal course of its operations. NYSE Euronext does not use derivative instruments for speculative purposes and enters into derivative instruments only with counterparties that meet high creditworthiness and rating standards. NYSE Euronext records derivatives and hedges in accordance with Subtopic 65 in the Derivatives and Hedging Topic of the FASB Accounting Standards Codification.
NYSE Euronext records all derivative instruments at fair value on the condensed consolidated statement of financial condition. Certain derivative instruments are designated as hedging instruments under fair value hedging relationships, cash flow hedging relationships or net investment hedging relationships. Other derivative instruments remain undesignated. The details of each designated hedging relationship are formally documented at the inception of the relationship, including the risk management objective, hedging strategy, hedged item, specific risks being hedged, derivative instrument, how effectiveness is being assessed and how ineffectiveness, if any, will be measured. The hedging instrument must be highly effective in offsetting the changes in cash flows or fair value of the hedged item and the effectiveness is evaluated quarterly on a retrospective and prospective basis.

13


The following presents the aggregated notional amount and the fair value of NYSE Euronext’s derivative instruments reported on the condensed consolidated statement of financial condition as of September 30, 2013 (in millions):
 
Notional
  Amount  
 
     Fair Value of Derivative     
Instruments
September 30, 2013
Asset(1)
 
Liability(2)
Derivatives not designated as hedging instruments
 
 
 
 
 
Foreign exchange contracts
$
580

 
$
4

 
$

Derivatives designated as hedging instruments
 
 
 
 
 
Foreign exchange contracts
104

 

 
4

Total derivatives
$
684

 
$
4

 
$
4

(1) 
Included in “Financial investments” in the condensed consolidated statements of financial condition.
(2) 
Included in “Short term debt” in the condensed consolidated statements of financial condition.
The following presents the aggregated notional amount and the fair value of NYSE Euronext’s derivative instruments reported on the condensed consolidated statement of financial condition as of December 31, 2012 (in millions):
 
Notional
  Amount  
 
     Fair Value of Derivative     
Instruments
December 31, 2012
Asset(1)
 
Liability(2)
Derivatives not designated as hedging instruments
 
 
 
 
 
Foreign exchange contracts
$
838

 
$
2

 
$
1

Derivatives designated as hedging instruments
 
 
 
 
 
Foreign exchange contracts
153

 

 
2

Total derivatives
$
991

 
$
2

 
$
3

(1) 
Included in “Financial investments” in the condensed consolidated statements of financial condition.
(2) 
Included in “Short term debt” in the condensed consolidated statements of financial condition.
Pre-tax gains and losses on derivative instruments designated as hedging items under net investment hedging relationship recognized in other comprehensive income for the three and nine months ended September 30, 2013 and 2012 were as follows (in millions):
 
Gain/ (loss) recognized in other comprehensive income
 
Three months ended
 
Nine months ended
 
September 30, 2013
Derivatives designated as hedging instrument
 
Foreign exchange contracts
$
(4
)
 
$
(3
)
 
Gain/ (loss) recognized in other comprehensive income
 
Three months ended
 
Nine months ended
 
September 30, 2012
Derivatives designated as hedging instrument
 
Foreign exchange contracts
$

 
$
(3
)
The ineffective portion of the pre-tax gains and losses on derivative instruments designated as hedged items under net investment hedging relationship for the three and nine months ended September 30, 2013 and 2012 were insignificant.
Pre-tax gains and losses recognized in income on derivative instruments not designated in hedging relationship for the three and nine months ended September 30, 2013 and 2012 were as follows (in millions):
 
Gain/(loss) recognized in income
 
Three months ended
 
Nine months ended
Derivatives not designated as hedging instrument
September 30, 2013
Foreign exchange contracts
$
19

 
$
15



14


 
Gain/(loss) recognized in income
 
Three months ended
 
Nine months ended
Derivatives not designated as hedging instrument
September 30, 2012
Foreign exchange contracts
$
(4
)
 
$
(9
)
For the nine months ended September 30, 2013, NYSE Euronext had foreign exchange contracts in place with tenors of less than 4 months in order to hedge various financial positions. Certain contracts were designated as hedging instruments under the Derivatives and Hedging Topic. As of September 30, 2013, NYSE Euronext had €262 million ($348 million) euro/U.S. dollar contracts outstanding, £162 million (€192 million) sterling/euro and £15 million ($24 million) sterling/U.S. dollar foreign exchange contracts outstanding which together has a combined negative fair value of $0 million. These instruments matured in October 2013.
Pre-tax net losses or gains on non-derivative net investment hedging relationships recognized in “Other comprehensive income” for the three and nine months ended September 30, 2013 were a loss of $41 million loss and a $26 million, respectively. Pre-tax net losses and gains on non-derivative net investment hedging relationships recognized in “Other comprehensive income” for the three and nine months ended September 30, 2012 were $17 million loss and $14 million gain, respectively.
For the nine months ended September 30, 2013, NYSE Euronext had no derivative instruments in either fair value hedging relationships or cash flow hedging relationships.
Note 10—Commitments and Contingencies
For the nine months ended September 30, 2013, NYSE Euronext incorporates herein by reference the discussion set forth in Note 16 (“Commitments and Contingencies - Legal Matters”) to Item 8 of the Form 10-K filed by NYSE Euronext for the year ended December 31, 2012, and Note 10 (“Commitments and Contingencies”) of the Forms 10-Q filed by NYSE Euronext for the periods ending March 31, 2013 and June 30, 2013, respectively, and no other matters were reportable during the period.
Shareholder Lawsuits
On October 11, 2013, the New York Supreme Court so-ordered the parties’ stipulation of voluntarily discontinuance, and dismissed the New York Consolidated Action without prejudice.  On October 14, 2013, the Delaware Court of Chancery granted the Delaware plaintiffs’ notice and proposed order of dismissal, and dismissed the Delaware Action without prejudice.  All of the shareholder lawsuits brought to challenge the merger have now been dismissed.
In addition to the matters described above, NYSE Euronext is from time to time involved in various legal proceedings and responds to inquiries from its regulators that arise in the ordinary course of its business. NYSE Euronext records accrued liabilities for litigation and regulatory matters when those matters represent loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, NYSE Euronext does not establish an accrued liability. As a litigation or regulatory matter develops, NYSE Euronext evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. NYSE Euronext does not believe, based on currently available information, that the results of any of these various proceedings will have a material adverse effect on its financial statements as a whole.
Note 11—Income taxes
For the three months ended September 30, 2013, we had a tax benefit of 15.1% while for the three months ended September 30, 2012, our effective tax rate was 9.7%. For the nine months ended September 30, 2013 and 2012, our effective tax rate was 6.4% and 21.5%, respectively.
NYSE Euronext’s effective tax rate was lower than the statutory rate primarily due to higher earnings generated from foreign operations, where the applicable foreign jurisdiction tax rate is lower than the statutory rate. For the three and nine months ended September 30, 2013, our effective tax rate reflected a discrete deferred tax benefit of $58 million related to an enacted reduction in corporate tax rate from 23% to 20% in the United Kingdom. For the nine months ended September 30, 2013, our effective tax rate also reflected the release of reserves following a favorable settlement reached with certain European tax authorities.
Note 12—Related Party Transactions
LCH.Clearnet
See Note 2 - Strategic Investments and Divestitures - for a discussion of our relationship with LCH.Clearnet.
During the nine months ended September 30, 2013, NYSE Euronext sold a portion of its stake in LCH.Clearnet Group Limited resulting in a $10 million gain, included in "Net gain on disposal activities" in the condensed consolidated statements of operations. As of September 30, 2013, NYSE Euronext had a 2.3% stake in LCH.Clearnet Group Limited’s outstanding share capital and the right to appoint one director to its board of directors. In additional, as a result of the transfer of the clearing services from LCH.Clearnet to ICE Clear Europe Limited on July 1, 2013, NYSE Euronext ceased its quarterly payments to LCH.Clearnet.
Qatar
See Note 2 - Strategic Investments and Divestitures - for a discussion of our relationship with Qatar.
New York Portfolio Clearing (“NYPC”)

15


NYPC, NYSE Euronext’s joint venture with The Depository Trust & Clearing Corporation (“DTCC”), became operational in the first quarter of 2011. NYPC clears fixed income derivatives traded on NYSE Liffe US and will have the ability to provide clearing services for other exchanges and Derivatives Clearing Organizations in the future. NYPC uses NYSE Euronext’s clearing technology, TRS/CPS, to process and manage cleared positions and post-trade position transfers. DTCC’s Fixed Income Clearing Corporation provides capabilities in risk management, settlement, banking and reference data systems. As of September 30, 2013, NYSE Euronext had a minority ownership interest in, and board representation on, DTCC.

The following presents revenues derived and expenses incurred from these related parties (in millions):
 
Three months ended September 30,
 
Nine months ended September 30,
Income (expenses)
2013
 
2012
 
2013
 
2012
LCH.Clearnet
$—
 
$(11)
 
$(23)
 
$(33)
Qatar
 
1
 
1
 
2
NYPC
1
 
(1)
 
2
 
1


16



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with the condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements. Actual results may differ from such forward-looking statements. See “Forward-Looking Statements” and the information under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012 and under Part II, Item IA of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013, "Risk Factors". Certain prior period amounts presented in the discussion and analysis have been reclassified to conform to the current presentation.
Overview
NYSE Euronext is a global markets operator and provider of trading technology to the financial services industry. Headquartered in New York, we run markets in the United States, France, the U.K., the Netherlands, Belgium and Portugal covering a wide range of financial products from stocks to derivatives. We also provide critical technology infrastructure around the world to our clients and exchange partners including co-location services, connectivity, trading platforms and market data content and services. NYSE Euronext was formed from the combination of the businesses of NYSE Group and Euronext, which was consummated on April 4, 2007. Prior to that date, NYSE Euronext had no significant assets and did not conduct any material activities other than those incidental to its formation. Following consummation of the combination, NYSE Euronext became the parent company of NYSE Group and Euronext and each of their respective subsidiaries. Under the purchase method of accounting, NYSE Group was treated as the accounting and legal acquiror in the combination with Euronext. NYSE Euronext has numerous operating subsidiaries in the United States and Europe, including the American Stock Exchange, which is now known as NYSE MKT.
We operate under three reportable segments: Derivatives, Cash Trading and Listings, and Information Services and Technology Solutions. We evaluate the performance of our operating segments based on revenue and operating income. We have aggregated all of our corporate costs, including the costs to operate as a public company, within “Corporate/ Eliminations.”
The following is a description of our reportable segments:
Derivatives consist of the following in NYSE Euronext’s global businesses:
 
providing access to trade execution in derivatives products, options and futures;
providing certain clearing services for derivative products; and
selling and distributing market data and related information.
Cash Trading and Listings consist of the following in NYSE Euronext’s global businesses:
 
providing access to trade execution in cash trading;
providing settlement of transactions in certain European markets;
obtaining new listings and servicing existing listings;
selling and distributing market data and related information; and
providing regulatory services.
Information Services and Technology Solutions consist of the following in NYSE Euronext’s global businesses:
 
operating sellside and buyside connectivity networks for our markets and for other major market centers and market participants in the United States, Europe and Asia;
providing trading and information technology software and solutions;
selling and distributing market data and related information to data subscribers for proprietary data products; and
providing multi-asset managed services and expert consultancy to exchanges and liquidity centers.
For a discussion of these segments, see Note 4 to the condensed consolidated financial statements.


17



Factors Affecting Our Results
The business environment in which NYSE Euronext operates directly affects its results of operations. Our results have been and will continue to be affected by many factors, including the level of trading activity in our markets, which during any period is significantly influenced by general market conditions, competition, market share and the pace of industry consolidation; broad trends in the brokerage and finance industry; price levels and price volatility; the number and financial health of companies listed on NYSE Euronext's cash markets; changing technology in the financial services industry; and legislative and regulatory changes, among other factors. In particular, in recent years, the business environment has been characterized by increasing competition among global markets for trading volumes and listings; the globalization of exchanges, customers and competitors; market participants' demand for speed, capacity and reliability, which requires continuing investment in technology; and increasing competition for market data revenues. The maintenance and growth of our revenues could also be impacted if we face increased pressure on pricing.

Uncertainty in the global credit markets that commenced with the upheaval in 2008 continues to impact the economy. Equity market indices have continued to experience volatility. Economic uncertainty in the European Union, as well as uncertainty with the United States budget process and debt ceiling, may also continue to negatively affect global financial markets. In addition, regulatory uncertainty is affecting our clients' activities, business models and technology spending. Although markets have shown signs of improvement, these factors have adversely affected our revenues and operating income and may negatively impact future growth.

As a result of recent events, there has been, and it is likely that there will continue to be, significant change in the regulatory environment in which we operate. In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in July 2010. Although many of its provisions require the adoption of rules to implement, many such regulations have not yet been adopted and there remain significant uncertainties and ambiguities around those regulations that have been adopted, as well as the way in which market participants will respond to the regulations. As a result, it is difficult to predict all of the effects that the legislation and its implementing regulations will have on us. We do, however, expect it to affect our business in various and potentially significant ways and possibly result in increased costs and the expenditure of significant resources. In addition, there are significant structural changes underway within the European regulatory framework.

While we have not experienced reductions in our borrowing capacity, lenders in general have taken actions that indicate their concerns regarding liquidity in the marketplace. These actions have included reduced advance rates for certain security types, more stringent requirements for collateral eligibility and higher interest rates. Should lenders continue to take additional similar actions, the cost of conducting our business may increase and our ability to implement our business initiatives could be limited.

We expect that all of these factors will continue to impact our businesses. Any potential growth in the global cash markets will likely be tempered by investor uncertainty resulting from volatility in the cost of energy and commodities, unemployment concerns and contagion concerns in relation to the sovereign debt issues faced by some members of the Eurozone, uncertainty as to near term tax, regulatory, and other government policies, as well as the general state of the world economy. We continue to focus on our strategy to broaden and diversify our revenue streams, as well as on our company-wide expense reduction initiatives in order to mitigate these uncertainties.



18



Sources of Revenues
Transaction and Clearing Fees
Our transaction and clearing fees consist of fees collected from our cash trading, derivatives trading and clearing fees.
 
Cash trading. Revenues for cash trading consist of transaction charges for executing trades on our cash markets, as well as transaction charges related to orders on our U.S. cash markets which are routed to other market centers for execution. Additionally, our U.S. cash markets pay fees to the SEC pursuant to Section 31 of the Exchange Act. These fees are designed to recover the costs to the government of supervision and regulation of securities markets and securities professionals. Activity assessment fees are collected from member organizations executing trades on our U.S. cash markets, and are recognized when these amounts are invoiced. Fees received are included in cash at the time of receipt and, as required by law, the amount due to the SEC is remitted semiannually and recorded as an accrued liability until paid. The activity assessment fees are designed so that they are equal to the Section 31 fees. As a result, activity assessment fees and Section 31 fees do not have an impact on NYSE Euronext's net income.
Derivatives trading and clearing. Revenues from derivatives trading and clearing consist of per-contract fees for executing trades of derivatives contracts and clearing charges on the London market of NYSE Liffe and NYSE Liffe US and executing options contracts traded on NYSE Arca and NYSE Amex Options. In some cases, these fees are subject to caps.
Revenues for per-contract fees are driven by the number of trades executed and fees charged per contract. The principal types of derivative contracts traded and cleared are equity and index products and short-term interest rate products. Trading in equity products is primarily driven by price volatility in equity markets and indices and trading in short-term interest rate products is primarily driven by volatility resulting from uncertainty over the direction of short-term interest rates. The level of trading and clearing activity for all products is also influenced by market conditions and other factors. See “— Factors Affecting Our Results” above.
Market Data
We generate revenues from the dissemination of our market data in the United States and Europe to a variety of users. In the United States, we collect market data fees principally for consortium-based data products and, to a lesser extent, for NYSE proprietary data products. Consortium-based data fees are dictated as part of the securities industry plans and charged to vendors based on their redistribution of data. Consortium-based data revenues from the dissemination of market data (net of administrative costs) are distributed to participating markets on the basis of a formula set by the SEC under Regulation NMS. Last sale prices and quotes in NYSE-listed, NYSE MKT-listed, and NYSE Arca-listed securities are disseminated through “Tape A” and “Tape B,” which constitute the majority of NYSE Euronext’s U.S. revenues from consortium-based market data revenues. We also receive a share of the revenues from “Tape C,” which represents data related to trading of certain securities that are listed on Nasdaq. These revenues are influenced by demand for the data by professional and nonprofessional subscribers. In addition, we receive fees for the display of data on television and for vendor access. Our proprietary products make market data available to subscribers covering activity that takes place solely on our U.S. markets, independent of activity on other markets. Our proprietary data products also include depth of book information, historical price information and corporate action information.
NYSE Euronext offers NYSE Realtime Reference Prices, which allows internet and media organizations to buy real-time, last-sale market data from NYSE and provide it broadly and free of charge to the public. CNBC, Google Finance and nyse.com display NYSE Realtime stock prices on their respective websites.
In Europe, we charge a variety of users, primarily the end-users, for the use of Euronext’s real-time market data services. We also collect annual license fees from vendors for the right to distribute Euronext market data to third parties and a service fee from vendors for direct connection to market data. A substantial majority of European market data revenues is derived from monthly end-user fees. We also derive revenues from selling historical and reference data about securities, and by publishing the daily official lists for the Euronext markets. The principal drivers of market data revenues are the number of end-users and the prices for data packages.
Listings
There are two types of fees applicable to companies listed on our U.S. and European securities exchanges — listing fees and annual fees. Listing fees consist of two components: original listing fees and fees related to other corporate-related actions. Original listing fees, subject to a minimum and maximum amount, are based on the number of shares that a company initially lists. Original listing fees, however, are generally not applicable to companies that transfer to one of our U.S. securities exchanges from another market, except for companies transferring to NYSE MKT from the over-the-counter market. Other corporate action related fees are paid by listed companies in connection with corporate actions involving the issuance of new shares to be listed, such as stock splits, rights issues and sales of additional securities, as well as mergers and acquisitions, which are subject to a minimum and maximum fee.
In the United States, annual fees are charged based on the number of outstanding shares of listed U.S. companies at the end of the prior year. Non-U.S. companies pay fees based on the number of listed securities issued or held in the United States. Annual fees are recognized as revenue on a pro rata basis over the calendar year.
Original fees are recognized as revenue on a straight-line basis over estimated service periods of ten years for the NYSE and the Euronext cash equities markets and five years for NYSE Arca and NYSE MKT. Unamortized balances are recorded as deferred revenue on the condensed consolidated statements of financial condition.
Listing fees for our European markets comprise admission fees paid by issuers to list securities on the cash market, annual fees paid by companies whose financial instruments are listed on the cash market, and corporate activity and other fees, consisting primarily of fees charged by Euronext Paris and Euronext Lisbon for centralizing securities in IPOs and tender offers. Original listing fees, subject to a minimum and maximum amount, are

19



based on a company's (estimated) market capitalization at the time of its IPO. Revenues from annual listing fees essentially relate to the number of shares outstanding and the market capitalization of the listed company.

In general, Euronext Paris, Euronext Amsterdam, Euronext Brussels and Euronext Lisbon and LIFFE Administration and Management (Euronext London) have adopted a common set of listing fees. Under the harmonized fee book, domestic issuers (i.e., those from France, the Netherlands, Belgium and Portugal) pay admission fees to list their securities based on the market capitalization of the respective issuer. Subsequent listings of securities receive a discount on admission fees. Domestic issuers also pay annual fees based on the number of equity securities and their respective market capitalizations at the end of the prior year. Non-domestic companies listing in connection with raising capital are charged admission and annual fees on a similar basis, although they are generally charged lower maximum admission fees and annual fees. Non-domestic companies that are included in the Euronext 100 index are treated as domestic for purposes of their listing fees and their annual fees. Non-domestic companies eligible to the Euronext 100 index based on their market capitalization are also treated as domestic issuers for purpose of their sole listing fees. Euronext Paris and Euronext Lisbon also charge centralization fees for collecting and allocating retail investor orders in IPOs and tender offers.
The revenue NYSE Euronext derives from listing fees is primarily dependent on the number and size of new company listings, as well as on the level of other corporate-related activity of existing listed issuers. The number and size of new company listings and other corporate-related activity in any period depend primarily on factors outside of NYSE Euronext’s control, including general economic conditions in Europe and the United States (in particular, stock market conditions) and the success of competing stock exchanges in attracting and retaining listed companies.

Technology Services
Revenues are generated primarily from connectivity services related to the SFTI and FIX networks, software licenses and maintenance fees, as well as from consulting services. Co-location revenue is recognized monthly over the life of the contract. We also generate revenues from software license contracts and maintenance agreements. We provide software that allows customers to receive comprehensive market-agnostic connectivity, transaction and data management solutions. Software license revenues are recognized at the time of client acceptance and maintenance agreement revenues are recognized monthly over the life of the maintenance term subsequent to acceptance. Consulting services are offered for customization or installation of the software and for general advisory services. Consulting revenue is generally billed in arrears on a time and materials basis, although customers sometimes prepay for blocks of consulting services in bulk. NYSE Euronext records revenues from subscription agreements on a pro rata basis over the life of the subscription agreements. The unrealized portions of invoiced subscription fees, maintenance fees and prepaid consulting fees are recorded as deferred revenue on the condensed consolidated statements of financial condition.
Other Revenues
Other revenues include trading license fees, fees for facilities, fees for servicing existing listed companies (including fees from the recent acquisition of Corpedia) and other services provided to designated market markers (“DMMs”), brokers and clerks physically located on the floors of our U.S. markets that enable them to engage in the purchase and sale of securities on the trading floor, the revenues of our former NYSE Blue joint venture (our results for the current quarter include only BlueNext) and fees for clearance and settlement activities in our European markets, as well as regulatory revenues. Regulatory fees are charged to member organizations of our U.S. securities exchanges.
Components of Expenses
Section 31 Fees
See “—Sources of Revenues— Transaction and Clearing Fees” above.
Liquidity Payments, Routing and Clearing
We offer our customers a variety of liquidity payment structures, tailored to specific market and product characteristics in order to attract order flow, enhance liquidity and promote use of our markets. We charge a “per share” or “per contract” execution fee to the market participant who takes the liquidity on certain of our trading platforms and, in turn, we pay, on certain of our markets, a portion of this “per share” or “per contract” execution fee to the market participant who provides the liquidity.
We also incur routing charges in the United States when we do not have the best bid or offer in the market for a security that a customer is trying to buy or sell on one of our U.S. securities exchanges. In that case, we route the customer’s order to the external market center that displays the best bid or offer. The external market center charges us a fee per share (denominated in tenths of a cent per share) for routing to its system. We include costs incurred due to erroneous trade execution within routing and clearing. Furthermore, NYSE Arca incurs clearance, brokerage and related transaction expenses, which primarily include costs incurred in self-clearing activities, and per trade service fees paid to exchanges for trade execution.
Other Operating Expenses
Other operating expenses include compensation, depreciation and amortization, systems and communications, professional services, selling, general and administrative, and merger expenses and exit costs.
Compensation
Compensation expense includes employee salaries, incentive compensation (including stock-based compensation) and related benefits expense, including pension, medical, post-retirement medical and supplemental executive retirement plan (“SERP”) charges. Part-time help, primarily related to security personnel at the NYSE, is also recorded as part of compensation.
Depreciation and Amortization

20



Depreciation and amortization expenses consist of costs from depreciating fixed assets (including computer hardware and capitalized software) and amortizing intangible assets over their estimated useful lives.
Systems and Communications
Systems and communications expense includes costs for development and maintenance of trading, regulatory and administrative systems; investments in system capacity, reliability and security; and cost of network connectivity between our customers and data centers, as well as connectivity to various other market centers. Systems and communications expense also includes fees paid to third-party providers of networks and information technology resources, including fees for consulting, research and development services, software rental costs and licenses, hardware rental and related fees paid to third-party maintenance providers.
Professional Services
Professional services expense includes consulting charges related to various technological and operational initiatives, including fees paid to LCH.Clearnet and ICE Clear Europe (commenced on July 1, 2013) in connection with certain clearing guarantee arrangements and FINRA in connection with the performance of certain member firm regulatory functions, as well as legal and audit fees.
Selling, General and Administrative
Selling, general and administrative expenses include (i) occupancy costs, (ii) marketing costs consisting of advertising, printing and promotion expenses, (iii) insurance premiums, travel and entertainment expenses, co-branding, investor education and advertising expenses with NYSE listed companies, (iv) general and administrative expenses and (v) regulatory fine income levied by NYSE Regulation. Regulatory fine income must be used for regulatory purposes. Subsequent to the July 30, 2007 asset purchase agreement with FINRA, the amount of regulatory fine income has been relatively immaterial.

Merger Expenses and Exit Costs
Merger expenses and exit costs consist of severance costs and related curtailment losses, contract termination costs, depreciation charges triggered by the acceleration of certain fixed asset useful lives, legal and other professional fees and expenses directly attributable to business combinations and cost reduction initiatives, as well as retention bonuses awarded specifically in connection with a business combination.

21



Results of Operations
Three Months Ended September 30, 2013 Versus Three Months Ended September 30, 2012
The following table sets forth NYSE Euronext’s condensed consolidated statements of operations for the three months ended September 30, 2013 and 2012, as well as the percentage increase or decrease for each condensed consolidated statement of operations item for the three months ended September 30, 2013, as compared to such item for the three months ended September 30, 2012.
 
 
Three months ended September 30,
 
Percent
Increase
(Dollars in Millions)
2013
 
2012
 
(Decrease)
Revenues
 
 
 
 
 
Transaction and clearing fees
$
554

 
$
570

 
(3
)%
Market data
91

 
85

 
7
 %
Listing
113

 
112

 
1
 %
Technology services
74

 
81

 
(9
)%
Other revenues
58

 
54

 
7
 %
Total revenues
890

 
902

 
(1
)%
Transaction-based expenses:
 
 
 
 
 
Section 31 fees
61

 
74

 
(18
)%
Liquidity payments, routing and clearing
255

 
269

 
(5
)%
Total revenues, less transaction-based expenses
574

 
559

 
3
 %
Other operating expenses:
 
 
 
 
 
Compensation
150

 
145

 
3
 %
Depreciation and amortization
64

 
64

 
 %
Systems and communications
40

 
44

 
(9
)%
Professional services
63

 
76

 
(17
)%
Selling, general and administrative
55

 
59

 
(7
)%
Merger expenses and exit costs
24

 
18

 
33
 %
Total other operating expenses
396

 
406

 
(2
)%
Operating income
178

 
153

 
16
 %
Interest expense
(23
)
 
(29
)
 
(21
)%
Interest and investment income

 
1

 
(100
)%
Loss from associates
(2
)
 
(2
)
 
 %
Net gain (loss) on disposal activities
5

 

 
100
 %
Other income

 
1

 
(100
)%
Income before income taxes
158

 
124

 
27
 %
Income tax provision
24

 
(12
)
 
(300
)%
Net income
182

 
112

 
63
 %
Net (income) loss attributable to noncontrolling interest
(4
)
 
(4
)
 
 %
Net income attributable to NYSE Euronext
$
178

 
$
108

 
65
 %


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Highlights
For the three months ended September 30, 2013, NYSE Euronext reported total revenues, less transaction-based expenses, operating income and net income attributable to NYSE Euronext of $574 million, $178 million and $178 million, respectively. This compares to total revenues, less transaction-based expenses, operating income and net income attributable to NYSE Euronext of $559 million, $153 million and $108 million, respectively, for the three months ended September 30, 2012.
The $15 million increase in total revenues, less transaction-based expenses, $25 million increase in operating income and $70 million increase in net income attributable to NYSE Euronext for the period reflects the following principal factors:
Increased total revenues, less transaction-based expenses — The period-over-period increase in total revenues, less transaction-based expenses, of $15 million was primarily due to better average revenue capture per contract on our US derivatives platform, higher market data revenues, other revenues and the positive impact of foreign currency, partially offset by lower volumes across our trading venues and a decrease in our technology services revenues.
Increased operating income — The period-over-period increase in operating income of $25 million was primarily due to higher total revenues, less transaction-based expenses and a decrease in operating expenses as a result of cost containment initiatives. Excluding the net impact of merger and exit activities, foreign currency ($1 million) and new business initiatives ($2 million), our other operating expenses decreased $19 million or 5% as compared to the three months ended September 30, 2012.
Increased net income attributable to NYSE Euronext — The period-over-period increase in net income attributable to NYSE Euronext of $70 million was mainly due to increased operating income and a tax benefit as a result of certain discrete tax income which was not tax effected.
Segment Results
We operate under three reportable segments: Derivatives, Cash Trading and Listings, and Information Services and Technology Solutions. We evaluate the performance of our operating segments based on revenue and operating income. For discussion of these segments, see Note 4 to the condensed consolidated financial statements and “—Overview” above.
 
 
Three months ended September 30,
 
 
 
 
 
% of Total Revenues
Segment Revenues (in millions)
2013
 
2012
 
2013
 
2012
Derivatives
$
236

  
$
220

 
26
%
 
24
%
Cash Trading and Listings
541

  
569

 
61
%
 
63
%
Information Services and Technology Solutions
113

  
113

 
13
%
 
13
%
Total segment revenues
$
890

 
$
902

 
100
%
 
100
%
Derivatives
 
 
Three months ended September 30,
 
 
 
 
 
Increase
 
% of Revenues
(in millions)
2013
 
2012
 
(decrease)    
 
2013
 
2012
Transaction and clearing fees
$
217

  
$
198

 
10
 %
 
92
%
 
90
%
Market data
10

  
11

 
(9
)%
 
4
%
 
5
%
Other revenues
9

  
11

 
(18
)%
 
4
%
 
5
%
Total revenues
236

 
220

 
7
 %
 
100
%
 
100
%
Transaction-based expenses:
 
 
 
 
 
 
 
 
 
Liquidity payments, routing and clearing
70

  
56

 
25
 %
 
30
%
 
25
%
Total revenues, less transaction-based expenses
166

 
164

 
1
 %
 
70
%
 
75
%
Merger expenses and exit costs
1

  
13

 
(92
)%
 
%
 
6
%
Total other operating expenses
81

  
96

 
(16
)%
 
34
%
 
44
%
Operating income
$
84

 
$
55

 
53
 %
 
36
%
 
25
%
For the three months ended September 30, 2013, Derivatives operating income increased $29 million to $84 million, and operating income as a percentage of revenues in 2013 increased 11 percentage points to 36%. Compared to the three months ended September 30, 2012, the $29 million increase in operating income was mainly driven by a $2 million increase in our total revenues, less transaction-based expenses as a result of higher average net revenue capture per contract on our US derivatives platform and lower operating expenses, partially offset by a decrease of 8% and 1% in our European and U.S. average daily volumes, respectively, reduced average net revenue capture per contract on our European derivatives platform, and the negative impact of foreign currency (primarily sterling). Other operating expenses for the three months ended September 30, 2013 decreased $15 million period-over-period as a result of our cost containment initiatives, including the clearing transition for the London-based derivatives market at NYSE Liffe to ICE Clear Europe.

23




Cash Trading and Listings
 
  
Three months ended September 30,
 
 
 
 
 
Increase
 
% of Revenues
(in millions)
2013
 
2012
 
(decrease)    
 
2013
 
2012
Transaction and clearing fees
$
337

 
$
372

 
(9
)%
 
62
%
 
65
%
Market data
42

 
42

 
 %
 
8
%
 
7
%
Listing
113

 
112

 
1
 %
 
21
%
 
20
%
Other revenues
49

 
43

 
14
 %
 
9
%
 
8
%
Total revenues
541

 
569

 
(5
)%
 
100
%
 
100
%
Transaction-based expenses:
 
 
 
 
 
 
 
 
 
Section 31 fees
61

 
74

 
(18
)%
 
11
%
 
13
%
Liquidity payments, routing and clearing
185

 
213

 
(13
)%
 
34
%
 
37
%
Total revenues, less transaction-based expenses
295

 
282

 
5
 %
 
55
%
 
50
%
Merger expenses and exit costs
3

 
2

 
50
 %
 
1
%
 
%
Total other operating expenses
177

 
178

 
(1
)%
 
33
%
 
32
%
Operating income
$
115

 
$
102

 
13
 %
 
21
%
 
18
%
For the three months ended September 30, 2013, Cash Trading and Listings operating income as a percentage of revenues increased 3 percentage points to 21%, and operating income increased $13 million period-over-period to $115 million. The increase in operating income was primarily due to an increase in our total revenues, less transaction-based expenses of $13 million as a result of improved average net revenue capture per transaction and increased other revenues (including regulatory fees) and a decrease in other operating expenses, partially offset by reduced average daily trading volumes in our US cash trading venues.
Information Services and Technology Solutions
 
  
Three months ended September 30,
 
 
 
 
 
Increase
 
% of Revenues
(in millions)
2013
 
2012
 
(decrease)    
 
2013
 
2012
Market data
$
39

 
$
32

 
22
 %
 
35
%
 
28
%
Technology services
74

 
81

 
(9
)%
 
65
%
 
72
%
Total revenues
113

 
113

 
 %
 
100
%
 
100
%
Merger expenses and exit costs
2

 
2

 
 %
 
2
%