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Basis of Presentation and Principles of Consolidation (Policies) | 3 Months Ended
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Mar. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Accounting | The condensed consolidated financial statements are prepared in accordance with U.S. GAAP and include the accounts of Nasdaq, its wholly-owned subsidiaries and other entities in which Nasdaq has a controlling financial interest. When we do not have a controlling interest in an entity but exercise significant influence over the entity’s operating and financial policies, such investment is accounted for under the equity method of accounting. We recognize our share of earnings or losses of an equity method investee based on our ownership percentage. See “Equity Method Investments,” of Note 6, “Investments,” for further discussion of our equity method investments. The accompanying condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. As permitted under U.S. GAAP, certain footnotes or other financial information can be condensed or omitted in the interim condensed consolidated financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in Nasdaq’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
Consolidation Policy | Certain prior year amounts have been reclassified to conform to the current year presentation. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Subsequent Events | We have evaluated subsequent events through the issuance date of this Quarterly Report on Form 10-Q.
Tax Matters | We use the asset and liability method to determine income taxes on all transactions recorded in the condensed consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will be in effect when these differences are realized. If necessary, a valuation allowance is established to reduce deferred tax assets to the amount that is more likely than not to be realized. In order to recognize and measure our unrecognized tax benefits, management determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the recognition thresholds, the position is measured to determine the amount of benefit to be recognized in the condensed consolidated financial statements. Interest and/or penalties related to income tax matters are recognized in income tax expense. The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets. Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for the years 2011 through 2015 are subject to examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for the years 2005 through 2014 and we are subject to examination for the year 2015. Non-U.S. tax returns are subject to examination by the respective tax authorities for the years 2008 through 2015. Although the results of such examinations may have an impact on our unrecognized tax benefits, we do not anticipate that such impact will be material to our consolidated financial position or results of operations. In addition, we anticipate that the amount of unrecognized tax benefits at March 31, 2017 will significantly decrease in the next twelve months as we expect to settle certain tax audits. From 2009 through 2012, we recorded tax benefits associated with certain interest expense incurred in Sweden. Our position is supported by a 2011 ruling we received from the Swedish Supreme Administrative Court. However, under new legislation effective January 1, 2013, limitations are imposed on certain forms of interest expense. Because this legislation is unclear with regard to our ability to continue to claim such interest deductions, Nasdaq filed an application for an advance tax ruling with the Swedish Tax Council for Advance Tax Rulings. In June 2014, we received an unfavorable ruling from the Swedish Tax Council for Advance Tax Rulings. We appealed this ruling to the Swedish Supreme Administrative Court; however the Swedish Supreme Administrative Court denied our request for a ruling based on procedural requirements. In the third quarter of 2015, we received a notice from the Swedish Tax Agency that interest deductions for the year 2013 have been disallowed. In October 2016, we received a notice from the Swedish Tax Agency that interest deductions for the year 2014 have been disallowed. We have appealed to the Swedish Lower Administrative Court and continue to expect a favorable decision. Since January 1, 2013, we have recorded tax benefits of $51 million associated with this matter. We continue to pay all assessments from the Swedish Tax Agency while this matter is pending. If the Swedish Courts agree with our position we will receive a refund of all paid assessments; if the Swedish Courts disagree with our position, we will record tax expense of $40 million, or $0.24 per diluted share, which is gross of any related U.S. tax benefits and reflects the impact of foreign currency translation. We expect to record recurring quarterly tax benefits of $1 million to $2 million with respect to this matter for the foreseeable future. Although no new U.S. tax legislation has been enacted, we are currently assessing the impact various tax reform proposals will have on our condensed consolidated financial statements.
Recently Adopted and Issued Accounting Pronouncements | Recently Adopted Accounting Pronouncements
Accounting Standard | Description | Effective Date | Effect on the Financial Statements or Other Significant Matters
Compensation - Stock Compensation In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” | This ASU involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance requires all income tax effects of awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled, as opposed to additional paid-in-capital where it was previously recorded. This guidance impacts the calculation of our total diluted share count for the earnings per share calculation, as calculated under the treasury stock method. It also allows an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. All tax-related cash flows resulting from share-based payments are reported as operating activities on the statement of cash flows. In regards to forfeitures, a policy election is required to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. | We adopted this new standard on January 1, 2017 on a prospective basis for the impacts on the accounting for income taxes and the effect on earnings per share. We have adopted the changes in cash flow statement classification retrospectively. | See discussion below.
Compensation - Stock Compensation Accounting for Income Taxes Under the previous guidance, excess tax benefits and certain tax deficiencies from share-based compensation arrangements were recorded to additional paid-in-capital within stockholders' equity when the awards were vested or settled. The new guidance requires that all excess tax benefits and all tax deficiencies be recognized as income tax expense or benefit in the consolidated statements of income with a prospective adoption. The adoption resulted in the recognition of excess tax benefit in our provision for income taxes rather than additional paid-in capital of $23 million during the first quarter of 2017. Effect on the Calculation of Earnings Per Share The new guidance also requires excess tax benefits to be prospectively excluded from assumed future proceeds when applying the treasury stock method to share-based payment awards to determine the dilutive effect on earnings per share. The change resulted in an increase in our diluted weighted-average number of common shares of 834,311 and added $0.13 to our first quarter 2017 diluted EPS. Classification of Excess Tax Benefits in the Statements of Cash Flows Under the new guidance, excess tax benefits from share-based compensation arrangements are classified as cash flows from operations, rather than as an inflow within financing activities and an outflow within operating activities. We have elected to apply this cash flow classification guidance retrospectively. The retrospective impact on the Consolidated Statements of Cash Flows for the three months ended March 31, 2016 was an increase to cash provided by operating activities of $2 million, and a decrease to cash provided by financing activities of $2 million. Accounting for Forfeitures Under the new guidance, we can elect to account for forfeitures of share-based payments by recognizing forfeitures of awards as they occur or by estimating the number of awards expected to be forfeited and adjusting the estimate when it is no longer probable that the employee will fulfill the service condition. We have elected to estimate the number of awards expected to be forfeited, which is consistent with our current accounting policy. For awards with performance conditions we will continue to assess the probability that a performance condition will be achieved at each reporting period to determine whether and when to recognize compensation cost as this is unchanged by the new guidance. Recently Issued Accounting Pronouncements
Accounting Standard | Description | Effective Date | Effect on the Financial Statements or Other Significant Matters
Business Combination In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business.” | This ASU clarifies the definition of a business with the objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is expected to reduce the number of transactions that need to be further evaluated as businesses. Early adoption is permitted for certain types of transactions. | January 1, 2018, with early adoption permitted. | This new standard is required to be applied prospectively and therefore, may impact how we account for future acquisitions.
Goodwill In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” | This ASU simplifies how an entity is required to test goodwill for impairment and removes the second step of the goodwill impairment test, which required a hypothetical purchase price allocation if the fair value of a reporting unit is less than its carrying amount. Goodwill impairment will now be measured using the difference between the carrying amount and the fair value of the reporting unit and the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments in this ASU should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. | January 1, 2020, with early adoption as of January 1, 2017 permitted. | We do not anticipate a material impact on our consolidated financial statements at the time of adoption of this new standard as the carrying amounts of our reporting units have been less than their corresponding fair values in recent years. Therefore, the second step of the goodwill impairment test was not required. However, changes in future projections, market conditions and other factors may cause a change in the excess of fair value of our reporting units over their corresponding carrying amounts.
Financial Instruments - Credit Losses In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” | This ASU changes the impairment model for certain financial instruments. The new model is a forward looking expected loss model and will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This includes loans, held-to-maturity debt securities, loan commitments, financial guarantees and net investments in leases, as well as trade receivables. For available-for-sale debt securities with unrealized losses, credit losses will be measured in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. | January 1, 2020, with early adoption as of January 1, 2019 permitted. | We are currently assessing the impact that this standard will have on our consolidated financial statements.
Leases In February 2016, the FASB issued ASU 2016-02, “Leases.” | Under this ASU, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged. | January 1, 2019, with early adoption permitted. | We are currently assessing the impact that this standard will have on our consolidated financial statements.
Accounting Standard | Description | Effective Date | Effect on the Financial Statements or Other Significant Matters
Financial Instruments - Overall In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” | This ASU requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. Under this new guidance, Nasdaq will no longer be able to recognize unrealized holding gains and losses on equity securities classified today as available-for-sale in accumulated other comprehensive income within stockholders’ equity. This new standard does not change the guidance for classifying and measuring investments in debt securities and loans. This new guidance also impacts financial liabilities accounted for under the fair value option and affects the presentation and disclosure requirements for financial assets and liabilities. | January 1, 2018. Early adoption is not permitted. | As we do not have a significant investment in financial instruments impacted by this standard, we do not anticipate a material impact on our consolidated financial statements at the time of adoption of this new standard.
Revenue From Contracts With Customers In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition guidance in Accounting Standards Codification, “Revenue Recognition.” | The new revenue recognition standard sets forth a five-step revenue recognition model to determine when and how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to receive in exchange for those goods or services. The standard also requires more detailed disclosures. The standard provides alternative methods of initial adoption. | January 1, 2018, with early adoption permitted. | See discussion below.
Revenue From Contracts With Customers We are currently assessing the materiality of the expected impact that the adoption of Topic 606 will have on our consolidated financial statements. We reviewed customer contracts for all of our businesses and have determined that revenue and expense recognition for our Market Technology business and revenue recognition for our Listing Services business will be impacted. We do not anticipate material changes to revenue and expense recognition for our other businesses. The following are key items to note regarding the accounting for our Market Technology and Listing Services businesses under the Topic 606:
• | revenue recognition for existing and new contracts will be recognized in earlier stages under the new standard;
• | expense recognition for Market Technology contracts will be recognized in earlier stages under the new standard;
• | a portion of revenues and expenses that were previously deferred will be recognized either in prior period revenues, through restatement, or as an adjustment to retained earnings upon adoption of the new standard; and
• | the overall value of our contracts and the timing of cash flows from customers will not change.
We have reviewed substantially all of the existing customer contracts in our Market Technology and Listings businesses and we are currently quantifying the impact of adopting the new standard under both the retrospective and modified approaches. As part of this analysis, we are calculating the cumulative adjustment to retained earnings under both approaches and expect to select a transition approach once we have completed this analysis. In addition, we are gathering the required information to be disclosed for all businesses. Market Technology. In our Market Technology business, we enter into contracts with customers to develop technology solutions, license the right to use software, and provide post-contract support and other services to our customers. Under current accounting policies, we do not recognize revenue or expense until we begin the final stage of the contract as we are not able to establish vendor specific objective evidence of fair value for individual elements of the contract. Under Topic 606, we will no longer defer recognition of revenue and expense until the final stage of the contract. For each of our contracts, we expect to identify multiple performance obligations, allocate the transaction price to these obligations and recognize revenue for each of these obligations as they are satisfied. Expenses will no longer be deferred, but will be recognized as incurred. Since revenue and expense will be recognized in earlier stages of the contract, the balance sheet accounts for deferred revenue and costs will decline upon adoption of Topic 606. Due to the complexity of certain contracts, the revenue recognition treatment under the new standard will be dependent on contract-specific terms and may vary in some instances. Listing Services. Amounts received for initial listing fees and additional listing fees are generally deferred and revenue is recognized over estimated service periods of six and four years, respectively. Under Topic 606, we will identify the performance obligation associated with these services and record revenue upon satisfaction of each performance obligation. We expect to recognize both initial listing fees and additional listing fees over shorter periods than the current estimated service periods. Since we expect to recognize revenues earlier under Topic 606, the balance sheet account for deferred revenue will decline upon adoption. During the remainder of 2017, we will quantify the impact of adoption and implement any required changes to our systems and processes to meet the new accounting, reporting and disclosure requirements and will update our internal controls accordingly. We will also review any new contracts entered into throughout the year. We do not believe there are any significant barriers to implementation of the new standard.

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