Attached files
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8-K - FORM 8-K - INTERCONTINENTALEXCHANGE INC | d594232d8k.htm |
EX-99.2 - EX-99.2 - INTERCONTINENTALEXCHANGE INC | d594232dex992.htm |
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements combine the historical consolidated financial statements of IntercontinentalExchange, Inc. (ICE) and NYSE Euronext, giving effect to the merger transactions pursuant to which ICE will acquire NYSE Euronext under a newly formed holding company, IntercontinentalExchange Group, Inc. (ICE Group), which is referred to as the mergers. The unaudited pro forma condensed combined statements of income for the six months ended June 30, 2013 and for the year ended December 31, 2012 combine the historical consolidated statements of income of ICE and the historical consolidated statements of operations of NYSE Euronext, giving effect to the mergers as if they had been consummated on January 1, 2012, the beginning of the earliest period presented. The unaudited pro forma condensed combined balance sheet combines the historical condensed consolidated balance sheet of ICE and the historical condensed consolidated balance sheet of NYSE Euronext as of June 30, 2013, giving effect to the mergers as if they had been consummated on June 30, 2013. The historical consolidated financial statements of NYSE Euronext have been adjusted to reflect certain reclassifications in order to conform to ICEs financial statement presentation.
The unaudited pro forma condensed combined financial statements have been prepared using the acquisition method of accounting in accordance with U.S. generally accepted accounting principles (US GAAP) with ICE considered the acquirer of NYSE Euronext for accounting purposes. Under the acquisition method of accounting, the purchase price is allocated to the underlying NYSE Euronext tangible and intangible assets acquired and liabilities assumed based on their respective fair market values with any excess purchase price allocated to goodwill.
ICE has not completed the detailed valuation studies necessary to arrive at the required estimates of the fair value of the NYSE Euronext assets to be acquired and the liabilities to be assumed and the related allocations of purchase price, nor has it identified all adjustments necessary to conform NYSE Euronexts accounting policies to ICEs accounting policies. A final determination of the fair value of NYSE Euronexts assets and liabilities, including intangible assets with both indefinite or finite lives, will be based on the actual net tangible and intangible assets and liabilities of NYSE Euronext that exist as of the closing date of the mergers and, therefore, cannot be made prior to the completion of the transaction. In addition, the value of the consideration to be paid by ICE upon the consummation of the mergers will be determined based on the closing price of ICEs common stock on the closing date of the mergers. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analyses are performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma condensed combined financial statements presented below. ICE has estimated the fair value of NYSE Euronexts assets and liabilities based on discussions with NYSE Euronexts management, preliminary valuation studies, due diligence and information presented in NYSE Euronexts public filings. Until the mergers are completed, both companies are limited in their ability to share certain information. After completion of the mergers, the valuations will be finalized as soon as practicable within the required measurement period, but in no event later than one year following completion of the mergers. Any increases or decreases in the fair value of relevant balance sheet amounts upon completion of the final valuations will result in adjustments to the pro forma balance sheet and/or statements of income. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation presented herein, and this difference may be material.
The aggregate purchase price for financial statement purposes will be based on the actual closing price per share of ICE common stock on the closing date, which could differ materially from the assumed value disclosed in the notes to the unaudited pro forma condensed combined financial statements. If the actual closing price per share of ICE common stock on the closing date is higher than the assumed amount, it is expected that the actual amount recorded for goodwill will be higher; conversely, if the actual closing price is lower, the actual amount recorded for goodwill will be lower. A hypothetical 10% change in ICEs closing stock price on the closing date of the mergers would have an approximate $764 million impact on the purchase price and subsequent goodwill balance.
Assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements (the pro forma adjustments) are described in the accompanying notes. The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are: (1) directly attributable to the mergers; (2) factually supportable; and (3) with respect to the pro forma statements of income, expected to have a continuing impact on the combined results of ICE and NYSE Euronext following the mergers. The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and are not necessarily indicative of the operating results and financial
P-1
position that would have been achieved had the mergers occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial statements do not purport to project the future operating results or financial position of the combined company following the mergers.
The unaudited pro forma condensed combined financial statements, although helpful in illustrating the financial characteristics of the combined company under one set of assumptions, do not reflect the benefits of expected cost savings (or associated costs to achieve such savings), opportunities to earn additional revenue, or other factors that may result as a consequence of the mergers and, accordingly, do not attempt to predict or suggest future results. Specifically, the unaudited pro forma condensed combined statements of income exclude projected operating efficiencies and synergies expected to be achieved as a result of the mergers. The projected operating synergies include approximately $450 million in combined annual cost synergies expected to be realized within three years of closing the mergers (inclusive of $150 million related to NYSE Euronexts current cost savings program, known as Project 14). Of these expense synergies, 80% are expected to be realized within two years of closing. The unaudited pro forma condensed combined financial statements also exclude the effects of costs associated with any restructuring or integration activities or asset dispositions resulting from the mergers, as they are currently not known, and to the extent they occur, are expected to be non-recurring and will not have been incurred at the closing date of the mergers. However, such costs could affect the combined company following the mergers in the period the costs are incurred or recorded. Further, the unaudited pro forma condensed combined financial statements do not reflect the effect of any regulatory actions that may impact the results of the combined company following the mergers.
The unaudited pro forma condensed combined financial statements have been developed from and should be read in conjunction with:
| the accompanying notes to the unaudited pro forma condensed combined financial statements; |
| the historical audited consolidated financial statements of ICE as of and for the year ended December 31, 2012, included in ICEs Annual Report on Form 10-K for the year ended December 31, 2012; |
| the historical unaudited consolidated financial statements of ICE as of and for the six months ended June 30, 2013, included in ICEs Quarterly Report on Form 10-Q for the six months ended June 30, 2013; |
| the historical audited consolidated financial statements of NYSE Euronext as of and for the year ended December 31, 2012, included in Exhibit 99.2 of ICEs Current Report on Form 8-K filed September 9, 2013; and |
| the historical unaudited condensed consolidated financial statements of NYSE Euronext as of and for the six months ended June 30, 2013, included in Exhibit 99.2 of ICEs Current Report on Form 8-K filed September 9, 2013. |
P-2
INTERCONTINENTALEXCHANGE, INC. AND NYSE EURONEXT
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(In thousands, except per share amounts)
Historical Statement of Income Information |
Pro Forma | |||||||||||||||||||
ICE | NYSE Euronext |
Adjustments | Notes | ICE Group Combined |
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Revenues: |
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Transaction and clearing fees, net |
$ | 618,583 | $ | 1,291,000 | $ | 1,909,583 | ||||||||||||||
Market data fees |
81,033 | 174,000 | 255,033 | |||||||||||||||||
Listing fees |
| 221,000 | $ | (106 | ) | (a | ) | |||||||||||||
(46,000 | ) | (b | ) | 174,894 | ||||||||||||||||
Technology service fees |
| 157,000 | (1,677 | ) | (a | ) | 155,323 | |||||||||||||
Other |
23,890 | 115,000 | 138,890 | |||||||||||||||||
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Total revenues |
723,506 | 1,958,000 | (47,783 | ) | 2,633,723 | |||||||||||||||
Transaction-based expenses: |
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Section 31 fees |
| 153,000 | 153,000 | |||||||||||||||||
Liquidity payments, routing and clearing |
| 594,000 | 594,000 | |||||||||||||||||
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Total revenues less transaction-based expenses |
723,506 | 1,211,000 | (47,783 | ) | 1,886,723 | |||||||||||||||
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Operating Expenses: |
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Compensation and benefits |
132,846 | 315,000 | 447,846 | |||||||||||||||||
Technology and communications |
23,197 | 85,000 | 108,197 | |||||||||||||||||
Professional services |
15,587 | 136,000 | 151,587 | |||||||||||||||||
Rent and occupancy |
17,567 | 60,000 | 77,567 | |||||||||||||||||
Acquisition-related transaction expenses and exit costs |
26,314 | 30,000 | (39,741 | ) | (c | ) | 16,573 | |||||||||||||
Selling, general and administrative |
17,991 | 52,000 | (1,783 | ) | (a | ) | 68,208 | |||||||||||||
Depreciation and amortization |
65,234 | 124,000 | 500 | (d | ) | 189,734 | ||||||||||||||
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Total operating expenses |
298,736 | 802,000 | (41,024 | ) | 1,059,712 | |||||||||||||||
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Operating income |
424,770 | 409,000 | (6,759 | ) | 827,011 | |||||||||||||||
Other expense, net |
16,780 | 42,000 | 9,566 | (e | ) | 68,346 | ||||||||||||||
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Income before income taxes |
407,990 | 367,000 | (16,325 | ) | 758,665 | |||||||||||||||
Income tax expense |
112,948 | 58,000 | (6,741 | ) | (f | ) | 164,207 | |||||||||||||
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Net income |
$ | 295,042 | $ | 309,000 | $ | (9,584 | ) | $ | 594,458 | |||||||||||
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Net income attributable to noncontrolling interest |
(6,277 | ) | (10,000 | ) | (16,277 | ) | ||||||||||||||
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Net income attributable to Combined Company |
$ | 288,765 | $ | 299,000 | $ | (9,584 | ) | $ | 578,181 | |||||||||||
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Earnings per share attributable to Combined Company common shareholders: |
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Basic |
$ | 3.97 | $ | 1.23 | $ | 5.03 | ||||||||||||||
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Diluted |
$ | 3.94 | $ | 1.22 | $ | 5.00 | ||||||||||||||
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Weighted average common shares outstanding: |
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Basic |
72,746 | 243,000 | (200,842 | ) | (g | ) | 114,904 | |||||||||||||
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Diluted |
73,291 | 244,000 | (201,746 | ) | (g | ) | 115,545 | |||||||||||||
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P-3
INTERCONTINENTALEXCHANGE, INC. AND NYSE EURONEXT
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2012
(In thousands, except per share amounts)
Historical Statement of Income Information |
Pro Forma | |||||||||||||||||||
ICE | NYSE Euronext |
Adjustments | Notes | ICE Group Combined |
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Revenues: |
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Transaction and clearing fees, net |
$ | 1,185,195 | $ | 2,393,000 | $ | 3,578,195 | ||||||||||||||
Market data fees |
146,789 | 348,000 | 494,789 | |||||||||||||||||
Listing fees |
| 448,000 | $ | (128 | ) | (a | ) | |||||||||||||
(88,000 | ) | (b | ) | 359,872 | ||||||||||||||||
Technology service fees |
| 341,000 | (1,025 | ) | (a | ) | 339,975 | |||||||||||||
Other |
30,981 | 219,000 | 249,981 | |||||||||||||||||
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Total revenues |
1,362,965 | 3,749,000 | (89,153 | ) | 5,022,812 | |||||||||||||||
Transaction-based expenses: |
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Section 31 fees |
| 301,000 | 301,000 | |||||||||||||||||
Liquidity payments, routing and clearing |
| 1,124,000 | 1,124,000 | |||||||||||||||||
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Total revenues less transaction-based expenses |
1,362,965 | 2,324,000 | (89,153 | ) | 3,597,812 | |||||||||||||||
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Operating Expenses: |
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Compensation and benefits |
251,152 | 601,000 | 852,152 | |||||||||||||||||
Technology and communications |
45,764 | 176,000 | 221,764 | |||||||||||||||||
Professional services |
33,145 | 299,000 | 332,145 | |||||||||||||||||
Rent and occupancy |
19,329 | 119,000 | 138,329 | |||||||||||||||||
Acquisition-related transaction expenses and exit costs |
19,359 | 134,000 | (17,174 | ) | (c | ) | 136,185 | |||||||||||||
Selling, general and administrative |
36,699 | 126,000 | (1,153 | ) | (a | ) | 161,546 | |||||||||||||
Depreciation and amortization |
130,502 | 260,000 | (100 | ) | (d | ) | 390,402 | |||||||||||||
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Total operating expenses |
535,950 | 1,715,000 | (18,427 | ) | 2,232,523 | |||||||||||||||
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Operating income |
827,015 | 609,000 | (70,726 | ) | 1,365,289 | |||||||||||||||
Other expense, net |
37,323 | 139,000 | 19,062 | (e | ) | 195,385 | ||||||||||||||
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Income before income taxes |
789,692 | 470,000 | (89,788 | ) | 1,169,904 | |||||||||||||||
Income tax expense |
227,955 | 105,000 | (35,859 | ) | (f | ) | 297,096 | |||||||||||||
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Net income |
$ | 561,737 | $ | 365,000 | $ | (53,929 | ) | $ | 872,808 | |||||||||||
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Net income attributable to noncontrolling interest |
(10,161 | ) | (17,000 | ) | (27,161 | ) | ||||||||||||||
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Net income attributable to Combined Company |
$ | 551,576 | $ | 348,000 | $ | (53,929 | ) | $ | 845,647 | |||||||||||
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Earnings per share attributable to Combined Company common shareholders: |
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Basic |
$ | 7.59 | $ | 1.39 | $ | 7.36 | ||||||||||||||
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Diluted |
$ | 7.52 | $ | 1.39 | $ | 7.32 | ||||||||||||||
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Weighted average common shares outstanding: |
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Basic |
72,712 | 250,000 | (207,842 | ) | (g | ) | 114,870 | |||||||||||||
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Diluted |
73,366 | 250,000 | (207,793 | ) | (g | ) | 115,573 | |||||||||||||
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P-4
INTERCONTINENTALEXCHANGE, INC. AND NYSE EURONEXT
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2013
(In thousands)
Historical Balance Sheet Information |
Pro Forma | |||||||||||||||||||
ICE | NYSE Euronext |
Adjustments | Notes | ICE Group Combined |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 1,457,048 | $ | 295,000 | $ | (950,609 | ) | (h | ) | |||||||||||
(152,000 | ) | (i | ) | |||||||||||||||||
(110,894 | ) | (j | ) | $ | 538,545 | |||||||||||||||
Short-term investments |
36,529 | 27,000 | 63,529 | |||||||||||||||||
Short-term restricted cash and investments |
138,297 | | 152,000 | (i | ) | 290,297 | ||||||||||||||
Customer accounts receivable, net |
185,784 | 442,000 | 627,784 | |||||||||||||||||
Margin deposits and guaranty funds |
35,328,089 | | 35,328,089 | |||||||||||||||||
Prepaid expenses and other current assets |
39,459 | 184,000 | 223,459 | |||||||||||||||||
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Total current assets |
37,185,206 | 948,000 | (1,061,503 | ) | 37,071,703 | |||||||||||||||
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Property, plant & equipment, net |
164,901 | 887,000 | (139,000 | ) | (k | ) | 912,901 | |||||||||||||
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Other noncurrent assets: |
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Goodwill |
1,932,929 | 4,027,000 | 2,222,786 | (l | ) | 8,182,715 | ||||||||||||||
Other intangible assets, net |
804,188 | 5,573,000 | 139,000 | (k | ) | |||||||||||||||
2,649,000 | (m | ) | 9,165,188 | |||||||||||||||||
Long-term restricted cash |
160,751 | | 160,751 | |||||||||||||||||
Long-term investments |
329,547 | 456,000 | 785,547 | |||||||||||||||||
Other noncurrent assets |
36,205 | 155,000 | 191,205 | |||||||||||||||||
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Total other noncurrent assets |
3,263,620 | 10,211,000 | 5,010,786 | 18,485,406 | ||||||||||||||||
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Total assets |
$ | 40,613,727 | $ | 12,046,000 | $ | 3,810,283 | $ | 56,470,010 | ||||||||||||
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
$ | 108,948 | $ | 577,000 | $ | (16,447 | ) | (n | ) | $ | 669,501 | |||||||||
Accrued salaries and benefits |
36,266 | 150,000 | 186,266 | |||||||||||||||||
Current portion of long-term debt |
48,824 | 179,000 | 227,824 | |||||||||||||||||
Deferred revenue |
35,912 | 314,000 | $ | (278,000 | ) | (o | ) | 71,912 | ||||||||||||
Margin deposits and guaranty funds |
35,328,089 | | 35,328,089 | |||||||||||||||||
Other current liabilities |
86,759 | | 86,759 | |||||||||||||||||
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Total current liabilities |
35,644,798 | 1,220,000 | (294,447 | ) | 36,570,351 | |||||||||||||||
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Noncurrent liabilities: |
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Noncurrent deferred tax liability, net |
205,406 | 1,401,000 | 932,514 | (p | ) | |||||||||||||||
267,730 | (o | ) | ||||||||||||||||||
(46,346 | ) | (q | ) | 2,760,304 | ||||||||||||||||
Long-term debt |
753,971 | 2,039,000 | 1,901,048 | (q | ) | 4,694,019 | ||||||||||||||
Deferred revenue |
| 375,000 | (375,000 | ) | (o | ) | | |||||||||||||
Other noncurrent liabilities |
115,508 | 584,000 | 699,508 | |||||||||||||||||
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Total noncurrent liabilities |
1,074,885 | 4,399,000 | 2,679,946 | 8,153,831 | ||||||||||||||||
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Total liabilities |
36,719,683 | 5,619,000 | 2,385,499 | 44,724,182 | ||||||||||||||||
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Redeemable noncontrolling interest |
15,169 | 286,000 | 301,169 | |||||||||||||||||
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EQUITY |
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Shareholders equity |
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Common stock |
804 | 3,000 | (3,000 | ) | (r | ) | ||||||||||||||
424 | (s | ) | 1,228 | |||||||||||||||||
Treasury stock |
(737,846 | ) | (968,000 | ) | 968,000 | (r | ) | (737,846 | ) | |||||||||||
Additional paid-in capital |
1,945,281 | 7,908,000 | (7,908,000 | ) | (r | ) | ||||||||||||||
7,637,807 | (s | ) | 9,583,088 | |||||||||||||||||
Retained earnings |
2,797,437 | 722,000 | (816,447 | ) | (r | ) | 2,702,990 | |||||||||||||
Accumulated other comprehensive loss |
(158,448 | ) | (1,546,000 | ) | 1,546,000 | (r | ) | (158,448 | ) | |||||||||||
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Total shareholders equity |
3,847,228 | 6,119,000 | 1,424,784 | 11,391,012 | ||||||||||||||||
Noncontrolling interest in consolidated subsidiaries |
31,647 | 22,000 | 53,647 | |||||||||||||||||
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Total equity |
3,878,875 | 6,141,000 | 1,424,784 | 11,444,659 | ||||||||||||||||
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Total liabilities and equity |
$ | 40,613,727 | $ | 12,046,000 | $ | 3,810,283 | $ | 56,470,010 | ||||||||||||
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P-5
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Pro Forma Presentation
Overview
Pursuant to the merger agreement, dated December 20, 2012, as amended and restated on March 13, 2013, ICE agreed to acquire NYSE Euronext under a newly formed holding company, ICE Group. Following successive merger transactions, ICE and NYSE Euronext will become wholly-owned subsidiaries of ICE Group. For purposes of the unaudited pro forma condensed combined financial statements (the pro forma financial statements), ICE has assumed a total preliminary purchase price for the mergers of $10.4 billion, which consists of cash, shares of ICE Group common stock, and replacement share-based payment awards. Under the terms of the merger agreement, the transaction is currently valued at $42.09 per NYSE Euronext share, based on the closing price of ICEs stock on September 5, 2013. Each issued and outstanding share of NYSE Euronext common stock (except for excluded shares and dissenting shares) will be converted into the right to receive 0.1703 of a share of ICE Group common stock and $11.27 in cash (this is referred to as the standard election amount). NYSE Euronext stockholders will also have the right to make either a cash election to receive $33.12 in cash, or a stock election to receive 0.2581 of a share of ICE Group common stock, for their NYSE Euronext shares. Both the cash election and the stock election are subject to the proration and adjustment procedures to ensure that the total amount of cash paid, and the total number of shares of ICE Group common stock issued, in the mergers to the NYSE Euronext stockholders, as a whole, will be equal to the total amount of cash and number of shares that would have been paid and issued if all of the NYSE Euronext stockholders received the standard election amount, representing maximum cash consideration of $2.7 billion and a maximum aggregate number of ICE Group common shares of 42.4 million shares. NYSE Euronext stockholders who make no election will receive the standard election amount. The overall mix of the $10.4 billion of estimated aggregate merger consideration being paid by ICE and ICE Group is approximately 74% shares and 26% cash.
The pro forma financial statements have been prepared assuming the mergers are accounted for using the acquisition method of accounting under US GAAP with ICE treated as the acquiring entity for accounting purposes. Accordingly, under acquisition accounting, the total estimated purchase price is allocated to the acquired net tangible and identifiable intangible assets of NYSE Euronext based on their respective fair values, as further described below.
To the extent identified, certain reclassifications have been reflected in the pro forma adjustments to conform NYSE Euronexts financial statement presentation to that of ICE, as described in Note 2. However, the pro forma financial statements may not reflect all adjustments necessary to conform the accounting policies of NYSE Euronext to those of ICE due to limitations on the availability of information as of the date of these pro forma financial statements.
The pro forma adjustments represent managements estimates based on information available as of the date of these pro forma financial statements and are subject to change as additional information becomes available and additional analyses are performed. The pro forma financial statements do not reflect the impact of possible revenue or earnings enhancements, cost savings from operating efficiencies or synergies, or asset dispositions. Also, the pro forma financial statements do not reflect possible adjustments related to restructuring or integration activities that have yet to be determined or transaction or other costs following the mergers that are not expected to have a continuing impact. Further, one-time transaction-related expenses anticipated to be incurred prior to, or concurrent with, the closing of the mergers are not included in the pro forma statements of income. However, the impact of such transaction expenses are reflected in the pro forma balance sheet as decreases to retained earnings and cash.
The pro forma statements of income for the six months ended June 30, 2013 and for the year ended December 31, 2012 combine the historical consolidated statements of income of ICE and the historical consolidated statements of operations of NYSE Euronext, giving effect to the mergers as if they had been consummated on January 1, 2012, the beginning of the earliest period presented. The pro forma balance sheet combines the historical consolidated balance sheet of ICE and the historical consolidated balance sheet of NYSE Euronext as of June 30, 2013, giving effect to the mergers as if they had been consummated on June 30, 2013.
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Completion of the mergers is subject to regulatory approvals from the Euronext College of Regulators and other national financial regulators, as well as customary closing conditions. The mergers are expected to be completed during the fall of 2013.
Preliminary Estimated Purchase Price
The total preliminary estimated purchase price of $10.4 billion was determined based on NYSE Euronexts shares of common stock and awards outstanding under NYSE Euronexts stock plan (which we refer to as equity awards), as of September 5, 2013. For purposes of these pro forma financial statements, such common stock and equity awards are assumed to remain outstanding as of the closing date of the mergers. Further, no effect has been given to any other new shares of common stock or other equity awards that may be issued or granted subsequent to the date of these pro forma financial statements and before the closing date of the mergers. In all cases in which ICEs closing stock price is a determining factor in arriving at the final merger consideration, the stock price assumed for the total preliminary purchase price is the closing price of ICEs common stock on September 5, 2013 ($181.00 per share), the most recent date practicable in the preparation of these pro forma financial statements. The standard election amount is assumed for purposes of preparing the table below.
(In thousands, except per share data) |
Shares | Per Share | Purchase Consideration |
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Cash consideration for outstanding NYSE Euronext common stock |
243,239 | $ | 11.27 | $ | 2,741,309 | |||||||
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Total Cash Consideration |
2,741,309 | |||||||||||
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Shares of ICE Group common stock exchanged for NYSE Euronext common stock outstanding(1) |
41,424 | $ | 181.00 | 7,497,687 | ||||||||
ICE Group stock options exchanged for NYSE Euronext stock options outstanding(2) |
6 | $ | 109.30 | 724 | ||||||||
Shares of ICE Group common stock exchanged for NYSE Euronext time-based restricted stock units outstanding that do not require post-combination service (3) |
734 | $ | 181.00 | 132,877 | ||||||||
ICE Group time-based restricted stock units exchanged for NYSE Euronext time-based restricted stock units outstanding that require post-combination service (3) |
181 | $ | 181.00 | 4,545 | ||||||||
ICE Group time-based restricted stock units exchanged for NYSE Euronext performance-based restricted stock units outstanding(4) |
47 | $ | 181.00 | 2,398 | ||||||||
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Total Stock Consideration |
42,392 | 7,638,231 | ||||||||||
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Total Preliminary Estimated Purchase Price |
$ | 10,379,540 | ||||||||||
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(1) | Number of shares of ICE Group common stock issued was determined based on the conversion factor of 0.1703 of a share of ICE Group common stock for each issued and outstanding share of NYSE Euronext common stock. |
(2) | Number of ICE Group stock options issued was determined based on the 28,547 outstanding NYSE Euronext stock options multiplied by an exchange factor of 0.2321 per award. As defined in the merger agreement, the exchange factor is equal to the equity exchange factor of 0.1703 plus i) $11.27 divided by ii) the 10-day volume weighted average ICE stock price ending prior to the second to last trading day prior to September 5, 2013. The fair value of $109.30 per award was calculated using the Black-Scholes option pricing model. The entire fair |
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value of the ICE awards has been attributed to stock consideration as those awards require no post-combination service. The impact of the exchange of NYSE Euronext stock appreciation rights was excluded from the calculation presented above as their associated stock consideration value would not be material. |
(3) | Of the 3,940,391 total outstanding time-based restricted stock units of NYSE Euronext common stock, 3,162,438 will vest upon the closing of the mergers and the fair value of the shares of ICE Group issued in the satisfaction of these awards is included in the stock consideration presented above as no post-combination service is required. Restricted shares of ICE Group stock will be issued in replacement of the remaining 777,953 outstanding NYSE Euronext shares. As these awards will require post-combination service, the fair value of the replacement ICE Group time-based restricted share awards has been allocated between the pre- and post-combination service period, with 14% of the amount allocated to the pre-combination period included as purchase price in the table above. The amount allocated to the post-combination service period will be expensed prospectively by ICE Group. The number of ICE Group shares and time-based restricted stock units issued for these awards is based on an exchange factor of 0.2321, as calculated in footnote (2) above. |
(4) | Each of the 201,684 outstanding performance-based restricted stock units of NYSE Euronext common stock will be deemed to have their performance condition satisfied as of the date of the mergers. ICE Group will issue replacement time-based restricted share units and the number of units issued will be based on an exchange factor of 0.2321, as calculated in footnote (2) above. Only 28% of the fair value of the replacement awards is included in the stock consideration presented above, as this amount represents the fair value attributable to the service period completed prior to the merger date. The remaining service period will be completed post-merger and future vesting and expense will be recognized accordingly. |
The purchase price will be computed using the closing price of ICE common stock on the closing date; therefore, the actual purchase price will fluctuate with the market price of ICE common stock until the mergers are consummated. As a result, the final purchase price could differ significantly from the current estimate, which could materially impact the pro forma financial statements.
The following table presents the changes to the value of stock consideration and the total preliminary purchase price based on a 10% increase and decrease in the per share price of ICE common stock (in thousands, except per share data):
Price of ICE Common Stock |
ICE Group Shares To Be Issued |
Calculated Value of Stock Consideration |
Cash Consideration Transferred |
Total Preliminary Purchase Price |
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As of September 5, 2013 |
$ | 181.00 | 42,400 | $ | 7,638,231 | $ | 2,741,309 | $ | 10,379,540 | |||||||||||
Decrease of 10% |
$ | 162.90 | 42,400 | $ | 6,874,480 | $ | 2,741,309 | $ | 9,615,789 | |||||||||||
Increase of 10% |
$ | 199.10 | 42,400 | $ | 8,401,981 | $ | 2,741,309 | $ | 11,143,290 |
Preliminary Estimated Purchase Price Allocation
The total preliminary estimated purchase price described above has been allocated to NYSE Euronexts tangible and intangible assets and liabilities for purposes of these pro forma financial statements based on their estimated relative fair values assuming the mergers were completed on the pro forma balance sheet date presented. The final allocation will be based upon valuations and other analyses for which there is currently insufficient information to make a definitive allocation. Accordingly, the purchase price allocation adjustments are preliminary and have been made
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solely for the purpose of providing pro forma financial statements. The final purchase price allocation will be determined after the mergers are consummated and after completion of a thorough analysis to determine the fair value of NYSE Euronexts tangible assets and liabilities, including fixed assets and investments, and identifiable intangible assets and liabilities. As a result, the final acquisition accounting adjustments, including those resulting from conforming NYSE Euronexts accounting policies to those of ICE, could differ materially from the pro forma adjustments presented herein. Any increase or decrease in the fair value of NYSE Euronexts tangible and identifiable intangible assets and liabilities, as compared to the information shown herein, would also change the portion of purchase price allocable to goodwill and could impact the operating results of the combined company following the mergers due to differences in amortization related to these assets and liabilities. The total preliminary estimated purchase price was allocated based on NYSE Euronexts balance sheet as of June 30, 2013 as follows (in thousands):
NYSE Euronext historical equity |
$ | 6,119,000 | ||
NYSE Euronext historical goodwill |
(4,027,000 | ) | ||
NYSE Euronext historical intangible assets |
(5,573,000 | ) | ||
Fair value adjustment of deferred revenue |
653,000 | |||
Fair value adjustment of debt assumed |
(110,348 | ) | ||
Deferred tax impact of fair value adjustment deferred revenue |
(267,730 | ) | ||
Deferred tax impact of fair value adjustment debt assumed |
46,346 | |||
Deferred tax liability on historical intangible assets |
1,650,000 | |||
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Net tangible liabilities assumed |
(1,509,732 | ) | ||
Preliminary identifiable intangible assets |
8,222,000 | |||
Deferred tax liabilities on preliminary identifiable intangible assets |
(2,582,514 | ) | ||
Preliminary goodwill |
6,249,786 | |||
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Total Preliminary Estimated Purchase Price |
$ | 10,379,540 | ||
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Preliminary identifiable intangible assets in the pro forma financial statements consist of anticipated intangibles derived from national securities exchange registrations, customer relationships and trade names, of which customer relationships and certain trade names are amortizable. The amortization related to these amortizable identifiable intangible assets is reflected as a pro forma adjustment to the pro forma statements of income using the straight-line method. Management has determined the estimated remaining useful life of these assets based on its consideration of relevant factors. An indefinite remaining useful life for national securities exchange registrations has been estimated since the registrations represent rights to operate exchanges in perpetuity based on the long history of the NYSE Euronext exchanges to be acquired and the expectation that a market participant would continue to operate them indefinitely. Indefinite remaining useful lives for the NYSE and Euronext trade names have been estimated based on their long history in the marketplace, their continued use following the mergers, and their importance to the business of NYSE Euronext and prominence in the industry. A three year remaining useful life for the Liffe trade name has been estimated based on the period in which ICE expects a market participant would use the name prior to rebranding and the length of time the name is expected to maintain recognition and value in the marketplace. An
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average 21 year remaining useful life for customer relationships has been estimated based on the projected economic benefits associated with this asset. The 21 year estimated useful life represents the approximate point in the projection period in which a majority of the assets cash flows are expected to be realized based on assumed attrition rates. These assumptions have been based on discussions with NYSE Euronext management due to the limits on each companys ability to share certain information, which includes access to NYSE Euronexts historical customer data.
The identifiable intangible assets and related amortization are preliminary and have been based on discussions with NYSE Euronexts management, preliminary valuation studies, due diligence and information presented in public filings. As discussed above, the amount that will ultimately be allocated to identifiable intangible assets and liabilities, and the related amount of amortization, may differ materially from this preliminary allocation. In addition, the periods impacted by amortization expense will ultimately be based upon the periods in which we expect to derive the associated economic benefits or detriments. Therefore, the amount of amortization expense following the mergers may differ significantly between periods based upon the final value assigned to, and amortization methodology used for, each identifiable intangible. Intangible amortization has been presented in one line item on the pro forma statements of income; however, the ultimate classification of intangible amortization expense could differ materially, depending upon the final determination of the nature and amount of each identifiable intangible asset and liability.
The deferred tax liabilities above represent the estimated tax effect on the identifiable intangibles as there will be no tax basis in these assets. This determination is preliminary and subject to change based upon the final determination of the fair value of the identifiable intangible assets.
Goodwill represents the excess of the preliminary estimated purchase price over the fair value of the underlying net assets. Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any indicators of impairment.
2. Pro Forma Adjustments
The unaudited pro forma condensed combined statements of income reflect the following adjustments:
a) | To eliminate listing and technology fees charged by NYSE Euronext to ICE. |
b) | To remove revenue relating to the amortization of deferred revenue balances, net of revenue recognized for listings that occurred in 2013 and 2012, that have been eliminated in the pro forma adjustments. See adjustment o) below. |
c) | To remove acquisition-related transaction costs related to the mergers, including $23.4 million and $16.3 million incurred by ICE and NYSE Euronext for the six months ended June 30, 2013, respectively, and $9.2 million and $8.0 million incurred by ICE and NYSE Euronext for the year ended December 31, 2012, respectively. |
d) | To record $30.5 million and $61.0 million in amortization expense for the six months ended June 30, 2013 and for the year ended December 31, 2012, respectively, on the acquired intangible assets described in adjustment m) below. To eliminate $30.0 million and $61.1 million in amortization expense for the six months ended June 30, 2013 and for the year ended December 31, 2012, respectively, recognized related to NYSE Euronext historical intangible assets. |
e) | To reduce interest income earned on ICE cash on hand to be used to fund a portion of the cash merger consideration, to record interest expense on $1.8 billion in combined new debt to be incurred by ICE Group and ICE to fund a portion of the cash merger consideration expected to consist of a combination of senior notes anticipated to be issued in one or more tranches by ICE Group and anticipated borrowings by ICE under its revolving credit facility, |
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to record increased interest expense on ICEs current outstanding term loans and unused revolving credit facility in accordance with the terms of the facilities, and to reduce interest expense for the amortization of the adjustment to the existing NYSE Euronext bonds to record them at fair market value. |
Six Months Ended June 30, 2013 |
Year Ended December 31, 2012 |
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ICE interest income earned on cash paid for merger consideration |
$ | 1,422 | $ | 1,626 | ||||
Interest expense incurred on new debt |
22,625 | 45,625 | ||||||
Increase in interest expense on outstanding ICE term loans based on higher interest rate |
2,139 | 4,690 | ||||||
Increase in commitment fees resulting from higher undrawn commitment fee rate |
1,922 | 4,679 | ||||||
Reduction of interest expense from the amortization of the fair value adjustment to the existing NYSE Euronext bonds |
(18,542 | ) | (37,558 | ) | ||||
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Pro forma adjustment to other expense |
$ | 9,566 | $ | 19,062 | ||||
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For purposes of the pro forma interest expense on the $1.8 billion of new debt to be incurred to fund a portion of the cash merger consideration, ICE has assumed an interest rate of 2.5% per annum. Borrowings under ICEs revolving credit facility are expected to be refinanced following the mergers under a commercial paper program. Any borrowings by ICE Group through the issuance of senior notes or refinancing of borrowings under ICEs revolving credit facility are subject to market conditions and other factors outside the control of ICE Group and ICE and there can be no assurance that ICE and ICE Group will be able to issue senior notes or refinance such borrowings. In addition, additional interest expense is recorded related to ICEs outstanding term loans and unused commitment fee on ICEs revolving credit facility based on a presumed higher rate of interest in accordance with the terms of the agreements and the associated changes in the leverage ratios. See Note 3 for more information on these financing transactions related to the mergers.
f) | To record the tax effect on pro forma adjustments at a combined U.S. (federal and state) statutory income tax rate of 41% for the six months ended June 30, 2013 and 40% for the year ended December 31, 2012. |
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g) | To adjust the weighted average number of shares outstanding based on the standard election amount of $11.27 in cash plus 0.1703 of an ICE Group share for each share of NYSE Euronext stock outstanding as of September 5, 2013, as well as the dilutive impact of the NYSE Euronext restricted stock and stock option awards to be exchanged for ICE Group stock awards in connection with the mergers, as follows: |
Six Months Ended June 30, 2013 |
Year Ended December 31, 2012 |
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(In thousands) | ||||||||
Basic: |
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Elimination of NYSE Euronext historical weighted average shares |
(243,000 | ) | (250,000 | ) | ||||
ICE Group estimated incremental shares issued to NYSE Euronext stockholders related to the mergers |
41,424 | 41,424 | ||||||
Issuance of ICE Group common stock in exchange for outstanding NYSE Euronext restricted stock awards |
734 | 734 | ||||||
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Weighted average share adjustment, net |
(200,842 | ) | (207,842 | ) | ||||
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Diluted: |
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Elimination of NYSE Euronext weighted average shares |
(244,000 | ) | (250,000 | ) | ||||
ICE Group estimated incremental shares issued to NYSE Euronext stockholders related to the mergers |
41,424 | 41,424 | ||||||
Issuance of ICE Group common stock in exchange for outstanding NYSE Euronext restricted stock awards |
734 | 734 | ||||||
Dilutive impact of NYSE Euronext stock awards assumed by ICE Group |
96 | 49 | ||||||
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Weighted average share adjustment, net |
(201,746 | ) | (207,793 | ) | ||||
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The unaudited pro forma condensed combined balance sheet reflects the following adjustments:
h) | To reflect the use of ICE cash on hand to fund a portion of the cash merger consideration, as described in Note 1 above, equal to the $2.7 billion aggregate cash-consideration, less the $1.8 billion in new debt expected to be incurred by ICE Group and ICE, net of $9.3 million in debt issuance costs. |
i) | To reclassify minimum cash balances to be maintained in certain markets to restricted cash to conform to ICEs accounting policy. |
j) | To reflect the impact of $151.4 million estimated transaction costs anticipated to be paid by both ICE and NYSE Euronext prior to, or concurrent with, the closing of the mergers, net of $40.5 million paid during the six months ended June 30, 2013 and the year ended December 31, 2012. Of the combined $151.4 million in estimated transaction costs, $81.4 million relates to investment banker fees as specified in the relevant agreements. The remaining $70.0 million in estimated transaction costs primarily relate to professional fees associated with the mergers, including legal, accounting, tax, regulatory filing and printing fees to be paid to third parties based on actual expenses incurred to date and each partys best estimate of its remaining fees as provided to ICE and NYSE Euronext. |
k) | To reclassify NYSE Euronext developed technology as it will be recognized as an intangible asset in connection with purchase accounting. ICE will continue to assess the fair value of all property, plant and equipment, including this technology, as integration decisions are made. Therefore, fair value adjustments to these assets may change and will be accounted for accordingly if and when such a determination is made. |
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l) | To eliminate $4.0 billion of historical NYSE Euronext goodwill and record $6.2 billion of goodwill resulting from the mergers. See Note 1 above for preliminary estimated purchase price allocation. |
m) | To reflect the elimination of $5.6 billion of historical intangible assets of NYSE Euronext and the recording of $8.2 billion of identifiable intangible assets related to the mergers. The estimated intangible assets attributable to the mergers are comprised of the following: |
Estimated Fair Value (In thousands) |
Estimated remaining useful life (in years) |
Estimated amortization expense for the six months ended June 30, 2013 (In thousands) |
Estimated amortization expense for year ended December 31, 2012 (In thousands) |
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National securities exchange registrations |
$ | 6,790,000 | Indefinite | N/A | N/A | |||||||||||
Customer relationships |
1,112,000 | 16 to 25 | $ | 28,000 | $ | 56,000 | ||||||||||
Trade names |
320,000 | 3 to Indefinite | 2,500 | 5,000 | ||||||||||||
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Total |
$ | 8,222,000 | $ | 30,500 | $ | 61,000 | ||||||||||
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As part of these preliminary estimates, national securities exchange registrations and customer relationships were valued using the excess earnings approach and trade names were valued using the relief-from-royalty method under the income approach. Amortization expense was calculated using a straight-line method. See Note 1 for a discussion of the estimated remaining useful life for each intangible asset category identified above.
n) | To remove accrued acquisition-related transaction costs related to the mergers. |
o) | To eliminate $653.0 million in deferred revenue balances (and the related $267.7 million in deferred tax assets) relating to NYSE Euronext original listing fees to reflect that, following the completion of the mergers, the combined company would not have assumed a legal performance obligation to their customers. |
p) | To record a deferred tax liability of $2.6 billion related to the $8.2 billion estimated fair value of identifiable intangible assets at an estimated blended statutory income tax rate of 31% for the relevant U.S. and foreign taxing jurisdictions, and to eliminate $1.7 billion of NYSE Euronext historical deferred tax liabilities associated with historical identifiable intangible assets. |
q) | To record new debt of $1.8 billion expected to be incurred to fund a portion of the cash merger consideration, net of $9.3 million in debt issuance costs. See Note 3 for more information on these financing transactions. In addition, to record an increase of $110.3 million to the historical NYSE Euronext outstanding debt at its fair value (and to record the related $46.3 million in deferred tax assets) as of June 30, 2013, based on current public debt prices. |
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r) | To eliminate NYSE Euronexts historical equity balances that remain after adjusting for the mergers and to reflect estimated transaction costs as discussed above in adjustments j) and n). |
s) | To reflect the issuance of 42.4 million shares of ICE Group common stock in connection with the merger (par value of $0.01 per share), as discussed in Note 1, valued at a per share price of $181.00, which was the ICE closing stock price on September 5, 2013. |
3. Financing Considerations
The pro forma financial statements assume, as summarized in Note 1, that the preliminary estimated purchase price for the mergers is $10.4 billion, comprised of $7.6 billion in equity consideration (including the issuance of 42.4 million shares of ICE Group common stock in exchange for outstanding shares of NYSE Euronext common stock, restricted stock and stock options) and $2.7 billion in cash consideration. ICE expects to fund the cash portion of the purchase price by using $941.3 million from ICEs existing unrestricted cash balances and anticipated borrowings of $1.8 billion.
ICE has an aggregate $2.1 billion five-year senior unsecured multicurrency revolving credit facility in place, of which $1.8 billion was available to be borrowed by ICE for general corporate purposes as of June 30, 2013. The ICE revolving credit facility matures on November 9, 2016. ICE management does not anticipate repatriating any undistributed earnings of non-U.S. subsidiaries to fund the cash portion of the NYSE Euronext merger consideration. Further, ICE expects its available U.S. cash and anticipated borrowings will be sufficient to fund the cash merger consideration at closing and ICE Groups anticipated U.S. operating cash flow will be sufficient to fund ICE Groups announced $300 million annual future dividend program it anticipates implementing following completion of the mergers. The declaration and payment of any dividends will be at the sole discretion of ICE Groups board of directors.
The outstanding debt of the combined company in the pro forma balance sheet as of June 30, 2013 consists of (i) $1.8 billion in a combination of senior notes anticipated to be issued in one or more tranches by ICE Group and anticipated borrowings by ICE under its revolving credit facility to fund a portion of the cash merger consideration at an assumed interest rate of 2.5%, together with estimated unamortized debt issuance costs of $9.3 million, (ii) ICEs term loan facility, which had $402.8 million outstanding with a 1.45% interest rate as of June 30, 2013, (iii) ICEs senior notes, tranche A, which has $200.0 million outstanding with a 4.13% interest rate as of June 30, 2013, (iv) ICEs senior notes, tranche B, which has $200.0 million outstanding with a 4.69% interest rate as of June 30, 2013, (v) NYSE Euronexts European bonds, which have $1.2 billion outstanding with a 5.375% interest rate as of June 30, 2013 (plus an additional $104.2 million pro forma adjustment to record the debt to its fair value), and (vi) NYSE Euronexts U.S. bonds (October 2017 maturity), which have $850.0 million outstanding with a 2.0% interest rate as of June 30, 2013 (plus an additional $6.1 million pro forma adjustment to record the debt to its fair value).
Subsequent to the closing of the mergers, ICE intends to refinance its anticipated borrowings under its revolving credit facility through the issuance of new debt, which ICE expects will be in the form of a commercial paper program. ICE does not currently expect the average interest rate on any issuance of debt securities combined with refinancing under a commercial paper program to be materially different from the interest rate available under ICEs revolving credit facility at the time of issuance.
The pro forma financial statements reflect our estimate of the amount of financing required to complete the mergers. The actual amount of financing required for the mergers will not be determined until the closing date of the mergers when the actual purchase price, the actual amount of existing unrestricted cash balances of ICE, and the total value
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of ICE Group common stock to be issued are known. The actual amount of available cash at closing and the total value of common stock to be issued in the mergers to NYSE Euronext stockholders may vary materially from preliminary estimates. The pro forma financial statements also reflect an assumed interest rate for the $1.8 billion of varying forms of debt expected to be incurred based on current market conditions and rates as of the date of these pro forma financial statements and based on instruments and facilities with similar terms and tenors. However, the actual interests incurred on the debt may vary significantly based upon, among other factors outside our control, market conditions, the amount of each form of debt incurred, ICE Groups ability to issue senior notes, ICEs ability to borrow under its revolving credit facility to finance a portion of the cash merger consideration, and ICEs ability to refinance its borrowing under its revolving credit facility with a commercial paper program in connection with the closing of the mergers. There can be no assurance that ICE Group and ICE will be able to issue senior notes (or on anticipated terms), incur indebtedness under ICEs revolving credit facility or refinance any of its anticipated borrowings under the revolving credit facility. A 100 basis point increase or decrease in interest rates on the $1.8 billion new debt, compared to the rates used for determining interest expense in the pro forma statements of income, would have an approximate $18.3 million impact on our assumed annual interest expense.
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