Document And Entity Information(USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Feb. 10, 2012
Jun. 30, 2011
Document And Entity Information [Abstract]
Document Type
10-K
Amendment Flag
false
Document Period End Date
Dec. 31, 2011
Document Fiscal Year Focus
2011
Document Fiscal Period Focus
FY
Trading Symbol
NDAQ
Entity Registrant Name
NASDAQ OMX GROUP, INC.
Entity Central Index Key
0001120193
Current Fiscal Year End Date
--12-31
Entity Filer Category
Large Accelerated Filer
Entity Common Stock, Shares Outstanding
173,386,138
Entity Well-known Seasoned Issuer
Yes
Entity Public Float
$3.2
Entity Current Reporting Status
Yes
Entity Voluntary Filers
No
Consolidated Balance Sheets(USD $)
In Millions, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current assets:
Cash and cash equivalents
$506
$315
Restricted cash
43
60
Financial investments, at fair value
2791
2531
Receivables, net
308
298
Deferred tax assets
16
13
Open clearing contracts:
Derivative positions, at fair value
1,566
4,037
Resale agreements, at contract value
3,745
3,441
Other current assets
110
93
Total current assets
6,573
8,510
Non-current restricted cash
105
105
Property and equipment, net
193
164
Non-current deferred tax assets
392
433
Goodwill
5,061
5,127
Intangible assets, net
1,648
1,719
Other non-current assets
119
149
Total assets
14,0912
16,2072
Current liabilities:
Accounts payable and accrued expenses
164
142
Section 31 fees payable to SEC
106
82
Accrued personnel costs
132
122
Deferred revenue
124
122
Other current liabilities
121
119
Deferred tax liabilities
27
26
Open clearing contracts:
Derivative positions, at fair value
1,566
4,037
Repurchase agreements, at contract value
3,745
3,441
Current portion of debt obligations
45
140
Total current liabilities
6,030
8,231
Debt obligations
2,072
2,181
Non-current deferred tax liabilities
670
698
Non-current deferred revenue
154
170
Other non-current liabilities
179
198
Total liabilities
9,105
11,478
Commitments and contingencies
  
  
NASDAQ OMX stockholders' equity:
Common stock, $0.01 par value, 300,000,000 shares authorized, shares issued: 213,398,111 at December 31, 2011 and 213,370,086 at December 31, 2010; shares outstanding: 173,552,939 at December 31, 2011 and 175,782,683 at December 31, 2010
2
2
Preferred stock, 30,000,000 shares authorized, series A convertible preferred stock: shares issued: 1,600,000 at December 31, 2011 and December 31, 2010; shares outstanding: none at December 31, 2011 and December 31, 2010
  
  
Additional paid-in capital
3,793
3,780
Common stock in treasury, at cost: 39,845,172 shares at December 31, 2011 and 37,587,403 shares at December 31, 2010
(860)
(796)
Accumulated other comprehensive loss
(350)
(272)
Retained earnings
2,391
2,004
Total NASDAQ OMX stockholders' equity
4,976
4,718
Noncontrolling interests
10
11
Total equity
4,986
4,729
Total liabilities and equity
$14,091
$16,207
[2] Total assets decreased $2.1 billion at December 31, 2011 as compared to December 31, 2010 primarily due to a decrease in open clearing contracts reflecting decreases in derivative positions, at fair value, partially offset by increases in resale agreements, at contract value within our Market Services segment. The decrease in derivative positions, at fair value primarily reflects significant reductions in price levels within our commodities markets, fewer open positions and decreased volatility within our derivative markets, as well as currency rate fluctuations. The increase in resale agreements, at contract value was primarily due to the mix of contracts outstanding between our clearing members, which allowed us to net or offset less of these contracts against one another at December 31, 2011 compared to December 31, 2010, partially offset by lower volume and currency rate fluctuations. Total assets increased $5.5 billion at December 31, 2010 as compared to December 31, 2009 primarily due to an increase in open clearing contracts reflecting increases in derivative positions, at fair value as well as increases in resale agreements, at contract value within our Market Services segment. The increase in derivative positions, at fair value primarily reflects increased activity and higher price levels on derivative positions in the energy market. The increase for resale agreements, at contract value reflects our new clearing business launched in 2010.
Consolidated Balance Sheets (Parenthetical)(USD $)
Dec. 31, 2011
Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
Common stock, par value
$0.01
$0.01
Common stock, shares authorized
300,000,000
300,000,000
Common stock, shares issued
213,398,111
213,370,086
Common stock, shares outstanding
173,552,939
175,782,683
Preferred stock, shares authorized
30,000,000
30,000,000
Preferred stock, series A convertible preferred stock: shares issued
1,600,000
1,600,000
Preferred stock, series A convertible preferred stock: shares outstanding
0
0
Common stock in treasury, shares
39,845,172
37,587,403
Consolidated Statements Of Income(USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Revenues:
Total revenues
$3,438
$3,197
$3,411
Cost of revenues:
Transaction rebates
(1,344)
(1,312)
(1,475)
Brokerage, clearance and exchange fees
(404)
(363)
(483)
Total cost of revenues
(1,748)
(1,675)
(1,958)
Revenues less transaction rebates, brokerage, clearance and exchange fees
1,690
1,522
1,453
Operating expenses:
Compensation and benefits
458
412
408
Marketing and advertising
24
20
15
Depreciation and amortization
109
103
104
Professional and contract services
90
78
76
Computer operations and data communications
65
58
58
Occupancy
91
88
81
Regulatory
35
35
32
Merger and strategic initiatives
38
4
17
General, administrative and other
84
93
59
Total operating expenses
994
891
850
Operating income
696
631
603
Interest income
11
9
13
Interest expense
(119)
(102)
(102)
Dividend and investment income
1
(3)
2
Asset impairment charge
(18)
Loss on divestiture of businesses
(11)
Income (loss) from unconsolidated investees, net
2
2
(107)
Loss on sale of investment security
(5)
Gain on sales of businesses
12
Debt conversion expense
  
  
(25)
Income before income taxes
573
526
391
Income tax provision
190
137
128
Net income
383
389
263
Net loss attributable to noncontrolling interests
4
6
3
Net income attributable to NASDAQ OMX
387
395
266
Basic and diluted earnings per share:
Basic earnings per share
$2.20
$1.94
$1.30
Diluted earnings per share
$2.15
$1.91
$1.25
Market Services [Member]
Revenues:
Total revenues
2,886
2,700
2,934
Issuer Services [Member]
Revenues:
Total revenues
369
344
330
Market Technology [Member]
Revenues:
Total revenues
183
152
145
Other [Member]
Revenues:
Total revenues
$1
$2
Consolidated Statements Of Comprehensive Income(USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Comprehensive Income [Abstract]
Net income
$383
$389
$263
Net unrealized holding losses on available-for-sale investment securities:
Unrealized holding losses arising during the period
(15)
(3)
(5)
Income tax benefit, net of valuation allowance
11
11
Reclassification adjustment for losses realized in net income on available-for-sale investment securities
18
5
Total
3
(2)
Foreign currency translation gains (losses):
Net foreign currency translation gains (losses)
(120)
231
399
Foreign currency translation, tax
40
(98)
(184)
Total
(80)
133
215
Unrealized gains (losses) on cash flow hedges:
Unrealized gains on cash flow hedges arising during the period
2
Income tax expense
(1)
Reclassification adjustment for loss realized in net income on cash flow hedges
9
9
Income tax benefit recognized in net income during the period
(3)
Total
6
1
Employee benefit plans:
Employee benefit plan adjustment losses
(2)
(5)
(9)
Income tax benefit
1
2
6
Total
(1)
(3)
(3)
Total other comprehensive income (loss), net of tax
(78)
134
213
Comprehensive income
305
523
476
Comprehensive loss attributable to noncontrolling interests
4
6
3
Comprehensive income attributable to NASDAQ OMX
$309
$529
$479
Consolidated Statements Of Changes In Equity(USD $)
In Millions, except Share data
Common Stock [Member]
Additional Paid-In Capital [Member]
Common Stock In Treasury At Cost [Member]
Accumulated Other Comprehensive Loss [Member]
Retained Earnings [Member]
Noncontrolling Interests [Member]
Total
Balance at Dec. 31, 2008
$2
$3,569
$(10)
$(619)
$1,344
$17
$4,303
Balance (in shares) at Dec. 31, 2008
201,896,700
Net income (loss)
266
(3)
263
Change in unrealized losses on derivative financial instruments that qualify as cash flow hedges, net of tax
1
1
Foreign currency translation, net of tax
215
215
Employee benefit plan adjustments, net of tax
(3)
(3)
Conversion into common stock
118
118
Conversion of Convertible Securities (in shares)
8,246,680
Early extinguishment of a portion of the 2013 Convertible Notes
(3)
(3)
Amortization and vesting of restricted stock and PSUs
20
20
Amortization and vesting of restricted stock and PSUs (in shares)
260,721
Stock options exercised, net
22
22
Stock options exercised, net (in shares)
814,575
814,575
Other issuances of common stock, net
7
7
Other issuances of common stock, net (in shares)
166,788
Purchases of subsidiary shares from noncontrolling interests
(2)
(5)
(7)
Sale of subsidiary shares to noncontrolling interests and other adjustments
5
3
8
Balance at Dec. 31, 2009
2
3,736
(10)
(406)
1,610
12
4,944
Balance (in shares) at Dec. 31, 2009
211,385,464
Net income (loss)
395
(6)
389
Change in unrealized losses on derivative financial instruments that qualify as cash flow hedges, net of tax
6
Reclassification adjustment for loss realized in net income on cash flow hedges, net of tax
6
6
Foreign currency translation, net of tax
133
133
Employee benefit plan adjustments, net of tax
(3)
(3)
Conversion into common stock
16
(1)
15
Conversion of Convertible Securities (in shares)
845,646
Amortization and vesting of restricted stock and PSUs
23
(4)
19
Amortization and vesting of restricted stock and PSUs (in shares)
579,759
Stock options exercised, net
5
9
14
Stock options exercised, net (in shares)
708,731
708,731
Other issuances of common stock, net
1
6
7
Other issuances of common stock, net (in shares)
94,730
Purchases of subsidiary shares from noncontrolling interests
(1)
(1)
(2)
Sale of subsidiary shares to noncontrolling interests and other adjustments
6
6
Unrealized holding losses on available-for-sale securities, net
(2)
(2)
Share repurchase program
(797)
(797)
Share repurchase program (in shares)
(37,831,647)
37,587,403
Balance at Dec. 31, 2010
2
3,780
(796)
(272)
2,004
11
4,729
Balance (in shares) at Dec. 31, 2010
175,782,683
Net income (loss)
387
(4)
383
Foreign currency translation, net of tax
(80)
(80)
Employee benefit plan adjustments, net of tax
(1)
(1)
Amortization and vesting of restricted stock and PSUs
14
8
22
Amortization and vesting of restricted stock and PSUs (in shares)
632,682
Stock options exercised, net
(5)
22
17
Stock options exercised, net (in shares)
1,030,721
1,030,721
Other issuances of common stock, net
13
6
19
Other issuances of common stock, net (in shares)
90,334
Sale of subsidiary shares to noncontrolling interests and other adjustments
3
3
Unrealized holding losses on available-for-sale securities, net
3
3
Tender offer related to the 2013 Convertible Notes
(9)
(9)
Share repurchase program
(100)
(100)
Share repurchase program (in shares)
(3,983,481)
39,845,172
Balance at Dec. 31, 2011
$2
$3,793
$(860)
$(350)
$2,391
$10
$4,986
Balance (in shares) at Dec. 31, 2011
173,552,939
Consolidated Statements Of Changes In Equity (Parenthetical)(USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Changes In Equity [Abstract]
Change in unrealized losses on derivative financial instruments that qualify as cash flow hedges, tax
$(1)
Reclassification adjustment for loss realized in net income on cash flow hedges, tax
(3)
Foreign currency translation, tax
40
(98)
(184)
Conversion of convertible notes
  
  
3.75%
Employee benefit plan adjustments, tax
1
2
6
Net unrealized holding gains (losses) on available-for-sale securities, tax
$11
$11
Consolidated Statements Of Cash Flows(USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash flows from operating activities:
Net income
$383
$389
$263
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
109
103
104
Share-based compensation
36
33
35
Excess tax benefits related to share-based compensation
(10)
(2)
(4)
Loss on divestiture of businesses
11
Provision for bad debts
4
5
1
Charges related to debt extinguishment and refinancing
31
37
Gain on the early extinguishment of debt obligations
(4)
Deferred income taxes
4
(35)
(10)
Loss on sale of investment security
5
Gain on sales of businesses
(12)
Net (income) loss from unconsolidated investees
(2)
(2)
107
Debt conversion expense
  
  
25
Asset retirements and impairment charges
25
6
13
Amortization of debt issuance costs
6
6
11
Accretion of debt discounts
13
14
13
Other non-cash items included in net income
(10)
2
(2)
Net change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Receivables, net
(11)
5
33
Other assets
69
(85)
119
Accounts payable and accrued expenses
24
4
(125)
Section 31 fees payable to SEC
24
(55)
88
Accrued personnel costs
10
2
(41)
Deferred revenue
(14)
14
4
Other liabilities
(22)
(12)
(41)
Net cash provided by operating activities
669
440
582
Cash flows from investing activities:
Purchases of trading securities
(533)
(237)
(607)
Purchase of equity method investment
(16)
Proceeds from sales and redemptions of trading securities
501
350
542
Proceeds from sales and redemptions of available-for-sale investment securities
25
Proceeds from sales of equity method investments
1
54
Acquisitions of businesses, net of cash acquired
(26)
(190)
(6)
Dispositions of businesses, net of cash disposed
14
Purchases of property and equipment
(88)
(42)
(59)
Net cash used in investing activities
(146)
(118)
(53)
Cash flows from financing activities:
Proceeds from debt obligations, net of debt issuance costs
700
2,409
Payments of debt obligations
(948)
(2,216)
(340)
Cash paid for repurchase of common stock
(100)
(797)
Purchases of noncontrolling interests
(2)
(6)
Proceeds from contributions of noncontrolling interests
3
3
7
Cash inducement payment
(9)
Issuances of common stock, net of treasury stock purchases
10
6
8
Excess tax benefits related to share-based compensation
10
2
4
Net cash used in financing activities
(325)
(595)
(336)
Effect of exchange rate changes on cash and cash equivalents
(7)
(6)
27
Net increase (decrease) in cash and cash equivalents
191
(279)
220
Cash and cash equivalents at beginning of period
315
594
374
Cash and cash equivalents at end of period
506
315
594
Cash paid for:
Interest
86
53
71
Income taxes, net of refund
$129
$148
$153
Organization And Nature Of Operations
Organization And Nature Of Operations

1. Organization and Nature of Operations

We are a leading global exchange group that delivers trading, clearing, exchange technology, regulatory, securities listing, and public company services across six continents. Our global offerings are diverse and include trading and clearing across multiple asset classes, market data products, financial indexes, capital formation solutions, financial services and market technology products and services. Our technology powers markets across the globe, supporting cash equity trading, derivatives trading, clearing, and settlement and many other functions.

In the U.S., we operate The NASDAQ Stock Market, a registered national securities exchange. The NASDAQ Stock Market is the largest single cash equities securities market in the U.S. in terms of listed companies and in the world in terms of share value traded. As of December 31, 2011, The NASDAQ Stock Market was home to 2,680 listed companies with a combined market capitalization of approximately $4.4 trillion. In addition, in the U.S. we operate two additional cash equities trading markets, two options markets, a futures market and a derivatives clearinghouse. We also engage in riskless principal trading of OTC power and gas contracts.

In Europe, we operate exchanges in Stockholm (Sweden), Copenhagen (Denmark), Helsinki (Finland), and Iceland as NASDAQ OMX Nordic, and exchanges in Tallinn (Estonia), Riga (Latvia) and Vilnius (Lithuania) as NASDAQ OMX Baltic. Collectively, the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic offer trading in cash equities, bonds, structured products and ETFs, as well as trading and clearing of derivatives and clearing of resale and repurchase agreements. Through NASDAQ OMX First North, our Nordic and Baltic operations also offer alternative marketplaces for smaller companies. As of December 31, 2011, the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic, together with NASDAQ OMX First North, were home to 776 listed companies with a combined market capitalization of approximately $0.9 trillion. We also operate NASDAQ OMX Armenia.

In addition, NASDAQ OMX Commodities operates the world's largest power derivatives exchange, one of Europe's largest carbon exchanges, and together with Nord Pool Spot, N2EX, a marketplace for physical U.K. power contracts.

In some of the countries where we operate exchanges, we also provide clearing, settlement and depository services.

We manage, operate and provide our products and services in three business segments: Market Services, Issuer Services and Market Technology.

Market Services

Our Market Services segment includes our U.S. and European Transaction Services businesses, which include Access Services, as well as our Market Data and Broker Services businesses. We offer trading on multiple exchanges and facilities across several asset classes, including cash equities, derivatives, debt, commodities, structured products and ETFs. In addition, in some of the countries where we operate exchanges, we also provide clearing, settlement and depository services.

U.S. Transaction Services

In the U.S., we offer trading in cash equity securities, derivatives and ETFs on The NASDAQ Stock Market, The NASDAQ Options Market, NASDAQ OMX PHLX, NASDAQ OMX BX, NASDAQ OMX PSX and NFX, and engage in riskless principal trading of OTC power and gas contracts through NOCC. Our transaction-based platforms in the U.S. provide market participants with the ability to access, process, display and integrate orders and quotes for cash equity securities, derivatives and ETFs. The platforms allow the routing and execution of buy and sell orders as well as the reporting of transactions for cash equity securities, derivatives and ETFs, providing fee-based revenues.

Cash Equities Trading

The NASDAQ Stock Market is the largest single pool of liquidity for trading U.S.-listed cash equities, matching an average of approximately 18.1% of all U.S. cash equities volume for 2011. With NASDAQ OMX BX and NASDAQ OMX PSX, we offer a second and third quote within the U.S. cash equities marketplace, providing our customers enhanced trading choices and pricing flexibility. In 2011, NASDAQ OMX BX matched an average of approximately 2.1% of all U.S. cash equities volume and NASDAQ OMX PSX matched an average of approximately 1.0% of all U.S. cash equities volume.

Derivative Trading and Clearing

In the U.S., we operate The NASDAQ Options Market and NASDAQ OMX PHLX for the trading of equity options, ETF options, index options and foreign currency options. As of December 31, 2011, NASDAQ OMX PHLX, which operates a hybrid electronic and floor-based market, was the largest options market in the U.S. During the year ended December 31, 2011, NASDAQ OMX PHLX and The NASDAQ Options Market had an average combined market share of approximately 27.7% in the U.S. equity options market, consisting of approximately 23.1% at NASDAQ OMX PHLX and approximately 4.6% at The NASDAQ Options Market. Together, the combined market share of 27.7% represented the largest share of the U.S. equity options market and ETF options market. Our options trading platforms provide trading opportunities to both retail investors and algorithmic (high frequency) trading firms, who tend to prefer electronic trading, and institutional investors, who typically pursue more complex trading strategies and often prefer to trade on the floor.

In the U.S., we also operate NFX. NFX offers trading of foreign currency futures which clear at OCC.

Through IDCH, a division of our majority-owned subsidiary IDCG, we bring a centrally-cleared solution to the largest segment of the OTC derivatives marketplace, specifically interest rate derivatives. IDCH acts as the CCP for clearing interest rate swap products. IDCH utilizes NASDAQ OMX matching, risk, and clearing technology to clear and settle these interest rate derivative products.

NASDAQ OMX also engages in riskless principal trading of OTC power and gas contracts through our subsidiary NOCC.

European Transaction Services

Nordic Transaction Services

The exchanges that comprise NASDAQ OMX Nordic offer trading for cash equities and bonds, trading and clearing services for derivatives, and clearing services for resale and repurchase agreements. Our platform allows the exchanges to share the same trading system, which enables efficient cross-border trading and settlement, cross membership and a single source for Nordic market data.

Trading is offered in Nordic securities such as cash equities and depository receipts, warrants, convertibles, rights, fund units, ETFs, bonds and other interest-related products. NASDAQ OMX Stockholm and NASDAQ OMX Copenhagen also offer trading in derivatives, such as stock options and futures, index options and futures, fixed-income options and futures and stock loans. Settlement and registration of cash trading takes place in Sweden, Finland, Denmark and Iceland via the local central securities depositories.

 

NASDAQ OMX's trading offering also includes cash equities listed in Norway and Norwegian derivatives products. The offering is designed to provide lower trading costs and other benefits for customers seeking to trade all Nordic equity products on one platform. NASDAQ OMX has been the second largest market for trading in Norwegian stocks since 2009.

Most of our cash equity trades on the exchanges that comprise NASDAQ OMX Nordic are centrally cleared by EMCF, a leading European clearinghouse in which we own a 22% equity stake.

NASDAQ OMX Stockholm offers clearing services for fixed-income options and futures, stock options and futures and index options and futures by serving as the CCP. In doing so, we guarantee the completion of the transaction and market participants can thereby limit their counterparty risk. We also act as the counterparty for certain OTC contracts.

In September 2010, NASDAQ OMX launched a clearing service for the resale and repurchase agreement market. As a result of an agreement between the Swedish Money Market Council and NASDAQ OMX, a large portion of the Swedish Interbank resale and repurchase market is cleared through NASDAQ OMX Stockholm.

For further discussion of our Nordic clearing operations, see "Derivative Positions, at Fair Value," and "Resale and Repurchase Agreements, at Contract Value," of Note 2, "Summary of Significant Accounting Policies."

Baltic Transaction Services

NASDAQ OMX Baltic operations comprise the exchanges in Tallinn (Estonia), Riga (Latvia) and Vilnius (Lithuania). As of December 31, 2011, NASDAQ OMX owns NASDAQ OMX Tallinn and has majority ownerships in NASDAQ OMX Vilnius and NASDAQ OMX Riga. In addition, NASDAQ OMX Tallinn owns the central securities depository in Estonia, NASDAQ OMX Riga owns the central securities depository in Latvia, and NASDAQ OMX Helsinki and NASDAQ OMX Vilnius jointly own the central securities depository in Lithuania.

The exchanges that comprise NASDAQ OMX Baltic offer their members trading, clearing, payment and custody services. Issuers, primarily large local companies, are offered listing and a distribution network for their securities. The securities traded are mainly cash equities, bonds and treasury bills. Clearing, payment and custody services are offered through the central securities depositories in Estonia, Latvia and Lithuania. In addition, in Estonia and Latvia, NASDAQ OMX offers registry maintenance of fund units included in obligatory pension funds, and in Estonia, NASDAQ OMX offers the maintenance of shareholder registers for listed companies. The Baltic central securities depositories offer a complete range of cross-border settlement services.

Commodities Trading and Clearing

NASDAQ OMX Commodities offers trading and clearing of international power derivatives and carbon products. NASDAQ OMX Commodities' offering includes the world's largest power derivatives exchange and one of Europe's largest carbon exchanges.

NASDAQ OMX Commodities has 390 members across a wide range of energy producers and consumers, as well as financial institutions. NASDAQ OMX Commodities' offering is designed for banks, brokers, hedge funds and other financial institutions, as well as power utilities, industrial, manufacturing and oil companies. NASDAQ OMX Commodities offers clearing services for energy derivative and carbon product contracts by serving as the CCP. In doing so, we guarantee the completion of the transaction and market participants can thereby limit their counterparty risk. We also act as the counterparty for certain trades on OTC derivative contracts.

NASDAQ OMX Commodities, together with Nord Pool Spot, operates N2EX, a marketplace for physical U.K. power contracts.

For further discussion of our NASDAQ OMX Commodities clearing operations, see "Derivative Positions, at Fair Value," of Note 2, "Summary of Significant Accounting Policies."

Access Services

We provide market participants with several alternatives for accessing our markets for a fee. We provide co-location services to market participants whereby firms may lease space for equipment within our data center. These participants are charged monthly fees for cabinet space, connectivity and support. We also earn revenues from annual and monthly exchange membership and registration fees.

Access Services revenues also include revenues from FTEN, which we acquired in December 2010. FTEN is a leading provider of RTRM solutions for the financial securities market. As a market leader in RTRM, FTEN provides broker-dealers and their clients the ability to manage risk more effectively in real-time, which leads to better utilization of capital as well as improved regulatory compliance. Revenues for FTEN services are primarily based on subscription agreements with customers.

Market Data

Market Data revenues are earned from U.S. tape plans and U.S. and European proprietary market data products.

Net U.S. Tape Plans

The NASDAQ Stock Market operates as the exclusive Securities Information Processor of the UTP Plan for the collection and dissemination of best bid and offer information and last transaction information from markets that quote and trade in NASDAQ-listed securities. The NASDAQ Stock Market, NASDAQ OMX BX and NASDAQ OMX PSX are participants in the UTP Plan and share in the net distribution of revenue according to the plan on the same terms as the other plan participants. In the role as the Securities Information Processor, The NASDAQ Stock Market collects and disseminates quotation and last sale information for all transactions in NASDAQ-listed securities whether traded on The NASDAQ Stock Market or other exchanges. We sell this information to market participants and to data distributors, who then provide the information to subscribers. After deducting costs associated with our role as an exclusive Securities Information Processor, as permitted under the revenue sharing provision of the UTP Plan, we distribute the tape revenues to the respective UTP Plan participants, including The NASDAQ Stock Market, NASDAQ OMX BX and NASDAQ OMX PSX, based on a formula required by Regulation NMS that takes into account both trading and quoting activity. In addition, all quotes and trades in NYSE- and NYSE Amex-listed securities are reported and disseminated in real time, and as such, we share in the tape revenues for information on NYSE- and NYSE Amex-listed securities.

U.S. Market Data Products

Our market data products enhance transparency and provide critical information to professional and non-professional investors. We collect, process and create information and earn revenues as a distributor of our own, as well as select third-party content. We provide varying levels of quote and trade information to market participants and to data distributors, who in turn provide subscriptions for this information. Our systems enable distributors to gain direct access to our market depth, index values, mutual fund valuation, order imbalances, market sentiment and other analytical data. We earn revenues primarily based on the number of data subscribers and distributors of our data.

In December 2011, we acquired the business of RapiData, a leading provider of machine-readable economic news to trading firms and financial institutions. With this acquisition, we will deliver U.S. government and other economic news directly from the source to customers interested in receiving information in an electronic feed.

European Market Data Products

The exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic, as well as NASDAQ OMX Commodities, offer European market data products and services. These data products and services provide critical market transparency to professional and non-professional investors who participate in European marketplaces and, at the same time, give investors greater insight into these markets.

European market data products and services are based on the trading information from the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic, as well as NASDAQ OMX Commodities, for four classes of assets: cash equities, bonds, derivatives and commodities. We provide varying levels of quote and trade information to market participants and to data distributors, who in turn provide subscriptions for this information. We earn revenues primarily based on the number of data subscribers and distributors of our data.

Broker Services

Our Broker Services operations offer technology and customized securities administration solutions to financial participants in the Nordic market. Broker Services provides services through a registered securities company that is regulated by the SFSA. Services primarily consist of flexible back-office systems, which allow customers to entirely or partly outsource their company's back-office functions.

We offer customer and account registration, business registration, clearing and settlement, corporate action handling for reconciliations and reporting to authorities. Available services also include direct settlement with the Nordic central securities depositories, real-time updating and communication via SWIFT to deposit banks. Revenues are based on a fixed basic fee for back-office brokerage services, such as administration or licensing, maintenance and operations, and a variable portion that depends on the number of transactions completed.

Issuer Services

Our Issuer Services segment includes our Global Listing Services and Global Index Group businesses. We offer capital raising solutions to companies around the globe and have more worldwide listings than any other global exchange group—approximately 3,500 companies representing approximately $5.3 trillion in total market value as of December 31, 2011.

We operate a variety of listing platforms around the world to provide multiple global capital raising solutions for private and public companies. Our main listing markets are The NASDAQ Stock Market and the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic. We offer a consolidated global listing application to companies to enable them to apply for listing on The NASDAQ Stock Market and the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic, as well as NASDAQ Dubai. In addition, through our Corporate Solutions business, we offer companies access to innovative products and services that ease transparency, maximize board efficiency and facilitate corporate governance.

 

Global Listing Services

Our Global Listing Services business includes our U.S. Listings, European Listings and Corporate Solutions businesses.

U.S. Listings

Companies listed on The NASDAQ Stock Market represent a diverse array of industries including health care, consumer products, telecommunication services, information technology, financial services, industrials and energy. There are three types of fees applicable to companies that list on The NASDAQ Stock Market: an annual renewal fee, a listing of additional shares fees and an initial listing fee. Annual renewal fees for securities listed on The NASDAQ Stock Market are based on total shares outstanding. The fee for listing of additional shares is also based on the total shares outstanding, which we review quarterly, and the initial listing fee for securities listed on The NASDAQ Stock Market includes a listing application fee and a total shares outstanding fee.

European Listings

We also offer listings on the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic. For smaller companies and growth companies, we offer access to the financial markets through the NASDAQ OMX First North alternative marketplaces. Revenues are generated through annual fees paid by companies listed on these exchanges, which are measured in terms of the listed company's market capitalization on a trailing 12-month basis. Our European listing customers are organizations such as companies, funds or governments. Customers issue securities in the forms of cash equities, depository receipts, warrants, ETFs, convertibles, rights, options, bonds and fixed-income related products.

Corporate Solutions

Our Corporate Solutions business provides customer support services, products and programs to customers, including companies listed on our exchanges. Through our Corporate Solutions offerings, companies gain access to innovative products and services that ease transparency, mitigate risk, maximize board efficiency and facilitate better corporate governance.

Corporate Solutions revenues also include revenues from Glide Technologies, which we acquired in October 2011. Glide Technologies specializes in corporate communications and reputation management solutions. This acquisition allows us to offer a fully-integrated workflow solution for investor relations and public relations professionals.

Global Index Group

We are one of the world's leading index providers. We develop and license NASDAQ OMX branded indexes, associated derivatives and financial products as part of our Global Index Group business. We believe that these indexes and products leverage, extend and enhance the NASDAQ OMX brand. License fees for our trademark licenses vary by product based on a percentage of underlying assets, dollar value of a product issuance, number of products or number of contracts traded. In addition to generating licensing revenues, these products, particularly mutual funds and ETFs, lead to increased investments in companies listed on our global exchanges, which enhances our ability to attract new listings. We also license cash-settled options, futures and options on futures on our indexes.

 

Market Technology

Powering more than 70 markets in over 50 countries, our Market Technology segment is the world's leading technology solutions provider and partner to exchanges, clearing organizations and central securities depositories. Our technology business is also the sales channel for our complete global offering to other marketplaces.

Market Technology provides technology solutions for trading, clearing, settlement, surveillance and information dissemination for markets with wide-ranging requirements, from the leading markets in the U.S., Europe and Asia to smaller African markets. Furthermore, the solutions we offer can handle all classes of assets, including cash equities, currencies, various interest-bearing securities, commodities, energy products and derivatives. Revenues are primarily derived from license, support and facility management revenues, delivery project revenues, as well as change request, advisory and broker surveillance revenues.

License and support revenues are derived from the system solutions developed and sold by NASDAQ OMX. After we have developed and sold a system solution, the customer licenses the right to use the software and may require post contract support and other services. Facility management revenues are derived when NASDAQ OMX assumes responsibility for the continuous operation of a system platform for a customer.

Delivery project revenues are derived from the installation phase of the system solutions developed and sold by NASDAQ OMX. The majority of our delivery projects involve individual adaptations to the specific requirements of the customer, such as those relating to functionality and capacity.

Change request revenues include customer specific adaptations and modifications of the system solution sold by NASDAQ OMX after delivery has occurred. Advisory services are designed to support our customers' strategies and help them with critical decisions in a highly demanding business environment. Broker surveillance revenues are derived from surveillance solutions targeting brokers and regulators throughout the world.

For further discussion of our segments, see Note 18, "Business Segments." For further discussion of our revenue recognition policies, see "Revenue Recognition and Cost of Revenues," of Note 2, "Summary of Significant Accounting Policies."

Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements are prepared in accordance with U.S. GAAP. The financial statements include the accounts of NASDAQ OMX, its wholly-owned subsidiaries and other entities in which NASDAQ OMX has a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation. We consolidate those entities in which we are the primary beneficiary of a variable-interest entity, or VIE, and entities where we have a controlling financial interest. We were not the primary beneficiary of any VIE for any of the three years in the period ended December 31, 2011. When NASDAQ OMX is not the primary beneficiary of a VIE or does not have a controlling interest in an entity but exercises significant influence over the entity's operating and financial policies, such investment is accounted for under the equity method of accounting. We recognize our share of earnings or losses of an equity method investee based on our ownership percentage. As permitted under U.S. GAAP, for certain equity method investments for which financial information is not sufficiently timely for us to apply the equity method of accounting currently, we record our share of the earnings or losses of an investee from the most recent available financial statements on a lag. See Note 5, "Investments," for further discussion of our equity method investments.

 

We have evaluated subsequent events through the issuance date of this Annual Report on Form 10-K and determined that no events or transactions met the definition of a subsequent event for purposes of recognition or disclosure in the accompanying consolidated financial statements.

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

Use of Estimates

The preparation of 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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Foreign Currency Translation

Foreign denominated assets and liabilities are remeasured into the functional currency at exchange rates in effect at the balance sheet date and recorded through the income statement. Gains or losses resulting from foreign currency transactions are remeasured using the rates on the dates on which those elements are recognized during the period, and are included in general, administrative and other expense in the Consolidated Statements of Income.

Translation gains or losses resulting from translating our subsidiaries' financial statements from the local functional currency to the reporting currency, net of tax, are included in accumulated other comprehensive loss within stockholders' equity in the Consolidated Balance Sheets. Assets and liabilities are translated at the balance sheet date while revenues and expenses are translated at the date the transaction occurs or at an applicable average rate.

Deferred taxes are not provided on cumulative translation adjustments where we expect earnings of a foreign subsidiary to be indefinitely reinvested. The income tax effect of currency translation adjustments related to foreign subsidiaries that are not considered indefinitely reinvested is recorded as a component of deferred taxes with an offset to accumulated other comprehensive loss within stockholders' equity in the Consolidated Balance Sheets.

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks and all non-restricted highly liquid investments with original maturities of three months or less at the time of purchase. Such equivalent investments included in cash and cash equivalents in the Consolidated Balance Sheets were $361 million as of December 31, 2011 and $215 million as of December 31, 2010. Cash equivalents are carried at cost plus accrued interest, which approximates fair value due to the short maturities of these investments.

Restricted Cash

Restricted cash, which was $43 million as of December 31, 2011 and $60 million as of December 31, 2010, is not available for general use by us due to regulatory and other requirements and is classified as restricted cash in the Consolidated Balance Sheets. Non-current restricted cash was $105 million as of December 31, 2011 and 2010. As of December 31, 2011 and 2010, non-current restricted cash includes a deposit in the guaranty fund of IDCG of $80 million, which may consist of cash, cash equivalents, or short-term investments, and our $25 million capital injection to NOCC to improve its liquidity position. As of December 31, 2011 and 2010, a portion of IDCG's guaranty fund was invested in short-term reverse repurchase agreements. These reverse repurchase agreements, which totaled $4 million as of December 31, 2011 and $16 million as of December 31, 2010, are recorded at the contract amount plus accrued interest, which approximates fair value.

Financial Investments

Financial investments, at fair value are primarily comprised of trading securities, mainly Swedish government debt securities, and our available-for-sale investment security in DFM. Trading securities are bought principally to meet regulatory capital requirements for NASDAQ OMX Stockholm's clearing operations and are generally sold in the near term. Changes in fair value of trading securities are included in dividend and investment income in the Consolidated Statements of Income. Equity securities that are classified as long-term available-for-sale investment securities are carried at fair value in the Consolidated Balance Sheets in other non-current assets with unrealized gains and losses, net of tax, reported in accumulated other comprehensive loss within stockholders' equity. Realized gains and losses on these securities are included in earnings upon disposition of the securities using the specific identification method. In addition, realized losses are recognized when management determines that a decline in value is other than temporary, which requires judgment regarding the amount and timing of recovery. Indicators of other-than-temporary impairment for debt securities include issuer downgrade, default, or bankruptcy. For equity securities we also consider the extent to which cost exceeds fair value, the duration of that difference, management's judgment about the issuer's current and prospective financial condition, as well as our intent and ability to hold the security until recovery of the unrealized losses. In addition, for equity securities we also consider the performance of the investee's stock price in relation to industry indexes and review the investee's credit profile.

In the fourth quarter of 2011, we recorded a pre-tax, other-than-temporary impairment loss on our investment security in DFM of $18 million. This charge is included in asset impairment in the Consolidated Statements of Income. We did not record any other-than-temporary impairment charges in 2010 or 2009.

Fair value of both available-for-sale and trading investment securities are generally obtained from third party pricing sources. When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair values are estimated using pricing models, where the inputs to those models are based on observable market inputs. The inputs to the valuation models vary by the type of security being priced but are typically benchmark yields, reported trades, broker-dealer quotes, and prices of similar assets. Pricing models generally do not entail material subjectivity because the methodologies employed use inputs observed from active markets. See Note 14, "Fair Value of Financial Instruments," for further discussion of fair value measures.

Receivables, net

Our receivables are concentrated with our member firms, market data distributors, listed companies and market technology customers. Receivables are shown net of reserves for uncollectible accounts. The reserve for bad debts is maintained at a level that management believes to be sufficient to absorb estimated losses in the accounts receivable portfolio. The reserve is increased by the provision for bad debts which is charged against operating results and decreased by the amount of charge-offs, net of recoveries. The amount charged against operating results is based on several factors including, but not limited to, a continuous assessment of the collectability of each account, the length of time a receivable is past due and our historical experience with the particular customer. In circumstances where a specific customer's inability to meet its financial obligations is known (i.e., bankruptcy filings), we record a specific provision for bad debts against amounts due to reduce the receivable to the amount we reasonably believe will be collected. Due to changing economic, business and market conditions, we review the reserve for bad debts monthly and make changes to the reserve through the provision for bad debts as appropriate. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer's ability to pay), our estimates of recoverability could be reduced by a material amount. Total reserves netted against receivables in the Consolidated Balance Sheets were $3 million as of December 31, 2011 and 2010.

Derivative Positions, at Fair Value

Through our clearing operations in the derivative markets with NASDAQ OMX Commodities and NASDAQ OMX Stockholm, we are the legal counterparty for each derivative position traded and thereby guarantee the fulfillment of each contract. We also act as the counterparty for certain trades on OTC derivative contracts. The derivatives are not used by NASDAQ OMX Commodities or NASDAQ OMX Stockholm for the purpose of trading on their own behalf. As the legal counterparty of each transaction, NASDAQ OMX Commodities and NASDAQ OMX Stockholm bear the counterparty risk between the purchaser and seller in the contract. The counterparty risks are measured using models that are agreed to with the Financial Supervisory Authority of the applicable country, which requires us to provide minimum guarantees and maintain certain levels of regulatory capital.

The structure and operations of NASDAQ OMX Commodities and NASDAQ OMX Stockholm differ from most other clearinghouses. NASDAQ OMX Commodities and NASDAQ OMX Stockholm are not member-owned organizations, do not maintain a guarantee fund to which members contribute and do not enforce loss sharing assessments amongst members. In addition, unlike most other clearinghouses, they do not record any margin deposits and guarantee funds in the Consolidated Balance Sheets, as all risks and rewards of collateral ownership, including interest, belongs to the counterparty. Market participants must provide collateral to cover the daily margin call as needed, which is in addition to the initial collateral placed when entering into the transaction. Acceptable collateral is cash and eligible securities in a pledged bank account and/or an on-demand guarantee. All collateral is maintained at a third-party custodian bank for the benefit of the clearing members and is accessible by NASDAQ OMX in the event of default. In addition, market participants must meet certain minimum financial standards to mitigate the risk if they become unable to satisfy their obligations. For NASDAQ OMX Commodities, trading on the contracts can take place up until the delivery period which can occur over a period of several years. For NASDAQ OMX Stockholm, following the completion of a transaction, settlement primarily takes place between parties by net cash settlement or with the exchange of securities and funds. For those transactions where there is an exchange of securities and funds, the transfer of ownership is registered and the securities are stored on the owner's behalf.

The fair value of these derivative contracts with NASDAQ OMX Commodities and NASDAQ OMX Stockholm is reported gross in the Consolidated Balance Sheets as a receivable pertaining to the purchasing party and a payable pertaining to the selling party. Such receivables and payables attributable to outstanding derivative positions have been netted to the extent that such a legal offset right exists and, at the same time, that it is our intention to settle these items.

Proposed regulations, including the European Market Infrastructure Regulation, are expected to require CCPs to maintain a default fund to which clearing members of the CCP will have to contribute. In anticipation of these regulations, NASDAQ OMX Stockholm is currently preparing for the implementation of a member sponsored default fund with an expected launch date in March 2012. The level of regulatory capital will be determined in accordance with our regulatory capital policy, as approved by the SFSA. Clearing member contributions will be proportional to the exposures of each clearing member.

Resale and Repurchase Agreements, at Contract Value

Through our clearing operations in the resale and repurchase markets with NASDAQ OMX Stockholm, we are the legal counterparty for each resale and repurchase contract traded and thereby guarantee the fulfillment of each contract. We only clear these transactions once a bilateral contract between members has been entered into whereby the two members have agreed on all terms in the transaction. The resale and repurchase agreements are not used for financing purposes by NASDAQ OMX Stockholm. As the legal counterparty of each transaction, NASDAQ OMX Stockholm bears the counterparty risk between the purchaser and the seller in the resale and repurchase agreement.

The structure and operations for the resale and repurchase market are similar to the derivative markets for NASDAQ OMX Commodities and NASDAQ OMX Stockholm. As discussed above in "Derivative Positions, at Fair Value," NASDAQ OMX Commodities and NASDAQ OMX Stockholm are not member-owned organizations, do not maintain a guarantee fund to which members contribute and do not enforce loss sharing assessments amongst members. In addition, unlike most other clearinghouses, they do not record any margin deposits and guarantee funds in the Consolidated Balance Sheets, as all risks and rewards of collateral ownership, including interest, belong to the counterparty. For resale and repurchase agreements, collateral is not held by NASDAQ OMX Stockholm. All resale and repurchase clearing activities are transacted under our clearing member agreements that give us the right, in the event of default, to liquidate collateral pledged between the clearing members and to offset receivables and payables with the same counterparty.

Pledged collateral, which is transferred through NASDAQ OMX Stockholm at initiation of the bilateral contract between the two clearing member counterparties, primarily consists of Swedish government debt securities. Market participants must meet certain minimum financial standards to mitigate the risk if they become unable to satisfy their obligations. In the event that one of the participants cannot fulfill its obligation to deliver or receive the underlying security at the agreed upon price, NASDAQ OMX Stockholm is required to buy or sell the security in the open market to fulfill its obligation. In order to protect itself against a price movement in the value of the underlying security, or price risk, NASDAQ OMX Stockholm requires all participants to provide additional margin as needed, which is valued on a daily basis and is maintained at a third-party custodian bank for the benefit of the clearing members and is accessible by NASDAQ OMX Stockholm in the event of default.

We record resale and repurchase agreements at contract value plus interest gross in the Consolidated Balance Sheets as a receivable pertaining to the purchasing party and a payable pertaining to the selling party. Such receivables and payables attributable to outstanding resale and repurchase agreements have been netted to the extent that such a legal offset right exists and, at the same time, that it is our intention to settle these items.

Derivative Financial Instruments and Hedging Activities

We may hold derivative financial instruments that are designated and qualified for hedge accounting. Derivative financial instruments, which are designated or qualify for hedge accounting, are recognized in the balance sheets at fair value as either assets or liabilities. The fair value of our derivative financial instruments is determined using either market quotes or valuation models that are based upon the net present value of estimated future cash flows and incorporate current market data inputs. We report our derivative assets in either other current assets or other non-current assets and our derivative liabilities in either other current liabilities or other non-current liabilities in the Consolidated Balance Sheets depending on the terms of the contract. Any ineffectiveness is recorded in earnings. The accounting for the change in the fair value of a derivative financial instrument depends on its intended use and the resulting hedge designation, if any. As of December 31, 2011 and 2010, there were no derivative financial instruments that were designated or qualified for hedge accounting. As of December 31, 2009, our derivative financial instruments which were designated and qualified for hedge accounting were cash flow hedges of our floating rate debt. As such, the accounting for the change in fair value of the derivative was included in accumulated other comprehensive loss in the Consolidated Balance Sheets. In the first quarter of 2010, in connection with the repayment of our senior secured credit facilities in place as of December 31, 2009, we terminated our interest rate swaps and reclassified into earnings the unrealized loss of $9 million which was included in accumulated other comprehensive loss in the Consolidated Balance Sheets at December 31, 2009. This loss is included in general, administrative and other expense in the Consolidated Statements of Income for the year ended December 31, 2010. There was no material ineffectiveness recorded in earnings for each of the three years ended December 31, 2011. For further discussion of hedging activities, see below and Note 15, "Derivative Financial Instruments and Hedging Activities."

Derivative Financial Instruments that Qualify for Hedge Accounting

Derivative financial instruments that are entered into for hedging purposes are designated as such when we enter into the contract. For all derivative financial instruments that are designated for hedging activities, we formally document all of the hedging relationships between the hedge instruments and the hedged items at the inception of the relationships. We also formally document our risk management objectives and strategies for entering into the hedge transactions. We formally assess, at inception and on a quarterly basis, whether derivatives designated as hedges are highly effective in offsetting the fair value or cash flows of hedged items. If it is determined that a derivative is no longer highly effective as a hedge, we will discontinue the application of hedge accounting.

Non-Designated Derivatives

We also use derivatives as economic hedges that are not designed as accounting hedges or do not qualify for hedge accounting treatment. For derivative financial instruments that do not qualify for hedge accounting or are not designated as hedges, changes in fair value are reported in current period earnings. See Note 15, "Derivative Financial Instruments and Hedging Activities," for further discussion.

Property and Equipment, net

Property and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are generally recognized over the estimated useful lives of the related assets. Estimated useful lives generally range from 10 to 40 years for buildings and improvements, two to five years for data processing equipment and software and five to 10 years for furniture and equipment. Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining term of the related lease. Depreciation and amortization are computed using the straight-line method. See Note 6, "Property and Equipment, net," for further discussion.

Goodwill

Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of a business acquired. Goodwill is allocated to our reporting units based on the assignment of the fair values of each reporting unit of the acquired company. We are required to test goodwill for impairment at the reporting unit level annually, or in interim periods if certain events occur indicating that the carrying amount may be impaired. We test for impairment during the fourth quarter of our fiscal year using carrying amounts as of October 1. In conducting the 2011 annual impairment test for goodwill, we first performed a qualitative assessment to determine whether it was more likely than not that the fair value of a reporting unit was less than the carrying amount as a basis for determining whether it was necessary to perform the two-step quantitative goodwill impairment test described in ASC Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the two-step quantitative test for goodwill impairment is performed for the appropriate reporting units. Otherwise, we conclude that no impairment is indicated and the two-step quantitative test for goodwill impairment is not performed.

In conducting the initial qualitative assessment, we analyze actual and projected growth trends for each reporting unit, as well as historical performance versus plan and the results of prior quantitative tests performed. Additionally, each reporting unit assesses critical areas that may impact their business, including macroeconomic conditions and the related impact, market related exposures, competitive changes, new or discontinued products, changes in key personnel, or any other potential risks to their projected financial results.

If required, the quantitative goodwill impairment test is a two-step process performed at the reporting unit level. First, the fair value of each reporting unit is compared to its corresponding carrying amount, including goodwill. The fair value of each reporting unit is estimated using a combination of a discounted cash flow valuation, which incorporates assumptions regarding future growth rates, terminal values, and discount rates, as well as a guideline public company valuation, incorporating relevant trading multiples of comparable companies and other factors. The estimates and assumptions used consider historical performance and are consistent with the assumptions used in determining future profit plans for each reporting unit, which are approved by the our board of directors. If the first step results in the carrying amount exceeding the fair value of the reporting unit, then a second step must be completed in order to determine the amount of goodwill impairment that should be recorded, if any. In the second step, the implied fair value of the reporting unit's goodwill is determined by allocating the reporting unit's fair value to all of its assets and liabilities other than goodwill in a manner similar to a purchase price allocation. The implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge is recorded for any difference.

There was no impairment of goodwill for the years ended December 31, 2011, 2010 and 2009. However, events such as economic weakness and unexpected significant declines in operating results of reporting units may result in goodwill impairment charges in the future. See Note 4, "Goodwill and Purchased Intangible Assets," for further discussion.

Intangible Assets, net

Intangible assets, net, primarily include exchange and clearing registrations, customer relationships, trade names, licenses and technology. Intangible assets with finite lives are amortized on a straight-line basis over their average estimated useful lives as follows:

  •  

Technology: 3—10 years

  •  

Customer relationships: 10—30 years

  •  

Other: 4—10 years

Intangible assets deemed to have indefinite useful lives are not amortized but instead are tested for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount. The fair value of indefinite-lived intangible assets is primarily determined on the basis of estimated discounted value, using the relief from royalty approach for trade names and the Greenfield Approach for exchange and clearing registrations and licenses, both of which incorporate assumptions regarding future revenue projections and discount rates. Similar to goodwill impairment testing, we test for impairment of indefinite-lived intangible assets during the fourth quarter of our fiscal year using carrying amounts as of October 1. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment charge is recorded for the difference. For finite-lived intangible assets subject to amortization, impairment is considered upon certain "triggering events" and is recognized if the carrying amount is not recoverable and exceeds the fair value of the intangible asset. There was no impairment of finite-lived or indefinite-lived intangible assets in the years ended December 31, 2011, 2010 and 2009. See Note 4, "Goodwill and Purchased Intangible Assets," for further discussion.

Valuation of Other Long-Lived Assets

We also assess potential impairments to our other long-lived assets, including property and equipment, when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the carrying amount of the long-lived asset exceeds its fair value and is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value and is recorded as a reduction in the carrying amount of the related asset and a charge to operating results. We recorded asset impairment charges, primarily related to obsolete technology, of $2 million in 2010 and $13 million in 2009. These charges were recorded in general, administrative and other expense in the Consolidated Statements of Income. There was no impairment of other long-lived assets in 2011.

Equity Method Investments

The equity method of accounting is used when we own 20% to 50% of the outstanding voting stock of a company and when we are able to exercise significant influence over the operating and financial policies of a company. We have certain investments in which we have determined that we have significant influence and as such account for the investments under the equity method of accounting. We record our pro-rata share of earnings or losses each period and record any dividends as a reduction in the investment balance. We evaluate our equity method investments for other-than-temporary declines in value by considering a variety of factors such as the earnings capacity of the investment and the fair value of the investment compared to its carrying amount. In addition, for investments where the market value is readily determinable, we consider the underlying stock price. If the estimated fair value of the investment is less than the carrying amount and management considers the decline in value to be other than temporary, the excess of the carrying amount over the estimated fair value is recognized in the financial statements as an impairment. In December 2009, we recorded impairment losses on equity method investments of $87 million related to our investments in NASDAQ Dubai and Agora-X. We also recognized a $19 million loss on the sale of our Orc shares during 2009. See Note 5, "Investments," for further discussion. No other impairments of equity method investments were recorded in 2011, 2010 or 2009.

Revenue Recognition and Cost of Revenues

Market Services Revenues

Transaction Services

U.S. Cash Equity Trading

U.S. cash equity trading revenues are variable, based on individual customer share volumes, and recognized as transactions occur. We charge transaction fees for executing cash equity trades in NASDAQ-listed and other listed securities on The NASDAQ Stock Market, NASDAQ OMX BX, and NASDAQ OMX PSX as well as on orders that are routed to other market venues for execution.

 

In the U.S., we record execution revenues from transactions on a gross basis in revenues and record related expenses as cost of revenues.

Under our Limitation of Liability Rule and procedures, we, subject to certain caps, provide compensation for losses directly resulting from the systems' actual failure to correctly process an order, quote, message or other data into our platform. We do not record a liability for any potential claims that may be submitted under the Limitation of Liability Rule unless they meet the provisions required in accordance with U.S. GAAP. As such, losses arising as a result of the rule are accrued and charged to expense only if the loss is probable and estimable. The Limitation of Liability Rule and procedures apply to both U.S. cash equity and U.S. derivative trading in the aggregate.

For The NASDAQ Stock Market and NASDAQ OMX PSX, we credit a portion of the per share execution charge to the market participant that provides the liquidity and for NASDAQ OMX BX, we credit a portion of the per share execution charge to the market participant that takes the liquidity. We record these credits as transaction rebates that are included in cost of revenues in the Consolidated Statements of Income. These transaction rebates are paid on a monthly basis and the amounts due are included in accounts payable and accrued expenses in the Consolidated Balance Sheets.

Also, we pay Section 31 fees to the SEC for supervision and regulation of securities markets. We pass these costs along to our customers through our cash equity trading fees. We collect the fees as a pass-through charge from organizations executing eligible trades on NASDAQ's, NASDAQ OMX BX's and NASDAQ OMX PSX's platforms, and we recognize these amounts in cost of revenues when incurred. Section 31 fees received are included in cash and cash equivalents in the Consolidated Balance Sheets at the time of receipt and, as required by law, the amount due to the SEC is remitted semiannually and recorded as Section 31 fees payable to the SEC in the Consolidated Balance Sheets until paid. Since the amount recorded in revenues is equal to the amount recorded in cost of revenues, there is no impact on our revenues less transaction rebates, brokerage, clearance and exchange fees. As we hold the cash received until payment to the SEC, we earn interest income on the related cash balances.

European Cash Equity Trading

We charge transaction fees for executing trades on the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic. These transaction fees are charged per executed order and as per value traded.

The exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic do not have any revenue sharing agreements or cost of revenues, such as transaction rebates and brokerage, clearance and exchange fees.

U.S. Derivative Trading and Clearing

U.S. derivative trading and clearing revenues are variable, based on traded and cleared volumes, and recognized when executed or when contracts are cleared. The principal types of derivative contracts traded on NASDAQ OMX PHLX and The NASDAQ Options Market are equity options, ETF options, index options and currency options. We also operate NFX, which offers trading for foreign currency futures. Similar to U.S. cash equity trading, we record derivative trading and clearing revenues from transactions on a gross basis in revenues and record related expenses as cost of revenues, as we have certain risk associated with trade execution. For further discussion see "U.S. Cash Equity Trading" above.

As discussed under U.S. cash equity trading, for U.S. derivative trading and clearing, we also credit a portion of the per share execution charge to the market participant that provides the liquidity and record the transaction rebate as U.S. derivative trading and clearing cost of revenues in the Consolidated Statements of Income. These transaction rebates are paid on a monthly basis and the amounts due are included in accounts payable and accrued expenses in the Consolidated Balance Sheets.

Also, we pay Section 31 fees to the SEC for supervision and regulation of securities markets. We pass these costs along to our customers through our derivative trading and clearing fees. We collect the fees as a pass-through charge from organizations executing eligible trades on NASDAQ OMX PHLX and The NASDAQ Options Market platforms and we recognize these amounts in U.S. derivative trading and clearing cost of revenues when incurred.

Through NOCC, we engage in riskless principal trading of OTC power and gas contracts. Revenues are based on notional amounts or volume of power and gas transacted and/or delivered and are recognized upon settlement of the contracts.

As discussed above, in the U.S., our Limitation of Liability Rule and procedures apply to both U.S. cash equity and U.S. derivative trading and clearing in the aggregate. Under this rule, we, subject to certain caps, provide compensation for losses directly resulting from the systems' actual failure to correctly process an order, quote, message or other data into our platform.

European Derivative Trading and Clearing

European derivative trading and clearing revenues are also variable, based on the volume and value of traded and cleared contracts, and recognized when executed or when contracts are cleared. Derivative trading and clearing is conducted on NASDAQ OMX Stockholm and NASDAQ OMX Copenhagen. The principal types of derivative contracts traded are stock options and futures, index options and futures, fixed-income options and futures and stock loans. On NASDAQ OMX Stockholm, we offer clearing services for fixed-income options and futures, stock options and futures and index options and futures by serving as the CCP. In doing so, we guarantee the completion of the transaction and market participants can thereby limit their counterparty risk. We also act as the counterparty for certain OTC contracts.

On NASDAQ OMX Stockholm, we also offer clearing services for resale and repurchase agreements. Clearing revenues for resale and repurchase agreements are based on the value and length of the contract and are recognized when cleared.

European derivative trading and clearing revenues also include clearing revenues for commodities. NASDAQ OMX Commodities offers trading and clearing of international power derivatives and carbon products. Our trading and clearing revenues are variable, based on cleared volume, and recognized when contracts are traded or cleared. We also generate clearing revenues for contracts traded on the OTC derivative market which are also recognized when contracts are cleared. In addition, NASDAQ OMX Commodities members are billed an annual fee which is recognized ratably over the following 12-month period.

NASDAQ OMX Commodities and the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic do not have any revenue sharing agreements or cost of revenues, such as transaction rebates and brokerage, clearance and exchange fees.

Access Services

We generate revenues by providing market participants with several alternatives for accessing our markets for a fee. The type of connectivity is determined by the level of functionality a customer needs. As a result, access services revenues vary depending on the type of connection provided to customers. We provide co-location services to market participants whereby firms may lease space for equipment within our data center. These participants are charged monthly fees for cabinet space, connectivity and support. We also earn revenues from annual and monthly exchange membership and registration fees. Revenues for providing access to our markets, co-location services and revenues for monthly exchange membership and registration fees are recognized on a monthly basis as the service is provided. Revenues from annual fees for exchange membership and registration fees are recognized ratably over the following 12-month period.

Access Services revenues also include revenues from FTEN, which we acquired in December 2010. FTEN is a leading provider of RTRM solutions for the financial securities market. As a market leader in RTRM, FTEN provides broker-dealers and their clients the ability to manage risk more effectively in real-time, which leads to better utilization of capital as well as improved regulatory compliance. Revenues for FTEN services are primarily based on subscription agreements with customers and are recognized when an arrangement exists, services are delivered to the customer, the selling price of the services to be provided under the arrangement is fixed or determinable, and collectability is reasonably assured. Most contracts include professional services, implementation fees, monthly subscription fees from customers accessing on-demand services, and customer support. Implementation fees are recorded to deferred revenue when billed and are recognized ratably over the remaining expected customer life. Monthly professional services, subscription, and usage fees are recognized in the month the service is provided.

Market Data

Market Data revenues are earned from U.S. tape plans and U.S. and European proprietary market data products.

Net U.S. Tape Plans

Revenues from U.S. tape plans include eligible UTP Plan revenues that are shared among UTP Plan participants and are presented on a net basis. See "Market Data Revenue Sharing" below for further discussion of net reporting. Under the revenue sharing provision of the UTP Plan, we are permitted to deduct costs associated with acting as the exclusive Securities Information Processor from the total amount of tape revenues collected. After these costs are deducted from the tape revenues, we distribute to the respective UTP Plan participants, including The NASDAQ Stock Market, NASDAQ OMX BX and NASDAQ OMX PSX, their share of tape revenues based on a formula, required by Regulation NMS, that takes into account both trading and quoting activity. In addition, all quotes and trades in NYSE- and NYSE Amex-listed securities are reported and disseminated in real time, and as such, we share in the tape revenues for information on NYSE- and NYSE Amex-listed securities. Revenues from net U.S. tape plans are recognized on a monthly basis.

U.S. Market Data Products

We collect and process information and earn revenues as a distributor of our own market data as well as select third-party content. We provide varying levels of quote and trade information to market participants and to data distributors, who in turn sell subscriptions for this information to the public. We earn revenues primarily based on the number of data subscribers and distributors of our data. U.S. Market Data revenues are recognized on a monthly basis. These revenues, which are subscription based, are recorded net of amounts due under revenue sharing arrangements with market participants.

 

European Market Data Products

European Market Data revenues are based on the trading information from the exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic, as well as NASDAQ OMX Commodities, for four classes of securities: cash equities, bonds, derivatives and commodities. We provide varying levels of quote and trade information to market participants and to data distributors, who in turn provide subscriptions for this information. Revenues from European market data are subscription-based, are generated primarily based on the number of data subscribers and distributors of our data and are recognized on a monthly basis.

Market Data Revenue Sharing

The most significant component of Market Data revenues presented on a net basis is the UTP Plan revenue sharing in the U.S. All indicators of gross vs. net reporting under U.S. GAAP have been considered in analyzing the appropriate presentation of UTP Plan revenue sharing. However, the following are the primary indicators of net reporting:

  •  

Primary Obligor: We are the Securities Information Processor for the UTP Plan, in addition to being a participant in the UTP Plan. In our unique role as Securities Information Processor, we facilitate the collection and dissemination of revenues on behalf of the UTP Plan participants. As a participant, we share in the net distribution of revenues according to the plan on the same terms as all other plan participants.

  •  

Risk of Loss/Credit Risk: Risk of loss on the revenue is shared equally among plan participants according to the UTP Plan.

  •  

Price Latitude: The operating committee of the UTP Plan, which is comprised of representatives from each of the participants, including us solely in our capacity as a UTP Plan participant, is responsible for setting the level of fees to be paid by distributors and subscribers and taking action in accordance with the provisions of the UTP Plan, subject to SEC approval.

The exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic do not have any market data revenue sharing agreements or cost of revenues, such as transaction rebates and brokerage, clearance and exchange fees.

Broker Services

Our Broker Services operations offer technology and customized securities administration solutions to financial participants in the Nordic market. The primary services consist of flexible back-office systems which allow customers to entirely or partly outsource their company's back-office functions. Revenues from broker services are based on a fixed basic fee for administration or licensing, maintenance and operations, and a variable portion that depends on the number of transactions completed. Broker Services revenues are recognized on a continuous basis as services are rendered.

In November 2009, we sold our Broker Services operations in the United Kingdom to TD Waterhouse.

 

Issuer Services Revenues

Global Listing Services

U.S. Listing Services

Listing Services revenues in the U.S. include annual renewal fees, listing of additional shares fees and initial listing fees. Annual renewal fees do not require any judgments or assumptions by management as these amounts are recognized ratably over the following 12-month period. Listing of additional shares fees and initial listing fees are recognized on a straight-line basis over estimated service periods, which are four and six years, respectively, based on our historical listing experience and projected future listing duration.

European Listing Services

European listing fees, which are comprised of revenues derived from annual fees received from listed companies on our Nordic and Baltic exchanges and NASDAQ OMX First North, are directly related to the listed companies' market capitalization on a trailing 12-month basis. These revenues are recognized ratably over the following 12-month period.

Corporate Solutions

Global Listing Services revenues also include fees from Corporate Solutions. Revenues primarily include subscription income from Shareholder.com, Directors Desk and Glide Technologies, and fees from GlobeNewswire. Prior to October 2009, Corporate Solutions revenues also included commission income from our Carpenter Moore insurance agency business.

Fee income for services other than placement of insurance coverage is recognized as those services are provided. Shareholder.com revenues are based on subscription agreements with customers. Revenues from subscription agreements are recognized ratably over the contract period, generally one year in length. As part of subscription services, customers also are charged usage fees based upon actual usage of the services provided. Revenues from usage fees and other services are recognized when earned. Directors Desk revenues are based on subscriptions for online services for directors. Subscriptions are one year in length and revenues are recognized ratably over the year. Glide Technologies revenues are primarily based on subscription agreements with customers and are recognized ratably over the contract period, generally one year in length. GlobeNewswire generates fees primarily from wire distribution services, and revenues are recognized as services are provided. For our insurance agency business, commission income was recognized when coverage became effective, the premium due under the policy was known or could be reasonably estimated, and substantially all required services related to placing the insurance had been provided. Broker commission adjustments and commissions on premiums billed directly by underwriters were recognized when such amounts could be reasonably estimated.

Global Index Group

We develop and license NASDAQ OMX branded indexes, associated derivatives and financial products as part of our Global Index Group business. Revenues primarily include license fees from these branded indexes, associated derivatives and financial products in the U.S. and abroad. We also generate revenues by licensing and listing third-party structured products and third-party sponsored ETFs. We primarily have two types of license agreements: transaction-based licenses and asset-based licenses. Transaction-based licenses are generally renewable long-term agreements. Customers are charged based on transaction volume or a minimum contract amount, or both. If a customer is charged based on transaction volume, we recognize revenue when the transaction occurs. If a customer is charged based on a minimum contract amount, we recognize revenue on a pro-rata basis over the licensing term. Asset-based licenses are also generally long-term agreements. Customers are charged based on a percentage of assets under management for licensed products, per the agreement, on a monthly or quarterly basis. These revenues are recorded on a monthly or quarterly basis over the term of the license agreement.

Market Technology Revenues

Market Technology provides technology solutions for trading, clearing, settlement and information dissemination, and also offers facility management integration, surveillance solutions and advisory services. Revenues are derived primarily from license, support and facility management revenues, delivery project revenues, as well as change request, advisory and broker surveillance revenues.

We enter into multiple-element sales arrangements to provide technology solutions and services to our customers. In order to recognize revenues associated with each individual element of a multiple-element sales arrangement separately, we are required to establish the existence of VSOE of fair value for each element. When VSOE for individual elements of an arrangement cannot be established, revenue is generally deferred and recognized over either the final element of the arrangement or the entire term of the arrangement for which the services will be delivered.

License and support revenues are derived from the system solutions developed and sold by NASDAQ OMX and are generally entered into in multiple-element sales arrangements. After we have developed and sold a system solution, the customer licenses the right to use the software and may require post contract support and other services. Facility management revenues are also generally entered into in multiple-element sales arrangements and are derived when NASDAQ OMX assumes responsibility for the continuous operation of a system platform for a customer and receives facility management revenues which can be both fixed and volume-based. Revenues for license, support and facility management services are generally deferred and recognized over either the final element of the arrangement or the entire term of the arrangement for which the services will be delivered. We record the deferral of revenue associated with multiple-element sales arrangements in deferred revenue and non-current deferred revenue and the deferral of costs in other current assets and other non-current assets in the Consolidated Balance Sheets.

Delivery project revenues are derived from the installation phase of the system solutions developed and sold by NASDAQ OMX. The majority of our delivery projects involve individual adaptations to the specific requirements of the customer, such as those relating to functionality and capacity. We may customize our software technology and make significant modifications to the software to meet the needs of our customers, and as such, we account for these arrangements under contract accounting. Under contract accounting, when VSOE for valuing certain elements of an arrangement cannot be established, total revenues, as well as costs incurred, are deferred until the customization and significant modifications are complete and are then recognized over the post contract support period. We record the deferral of this revenue in deferred revenue and non-current deferred revenue and the deferral of costs in other current assets and other non-current assets in the Consolidated Balance Sheets.

Change request revenues include customer specific adaptations and modifications of the system solution sold by NASDAQ OMX after delivery has occurred. Change request revenues are recognized in revenue when earned. Advisory services are designed to support our customers' strategies and help them with critical decisions in a highly demanding business environment. Advisory services revenues are recognized in revenue when earned. Broker surveillance revenues are derived from surveillance solutions targeting brokers and regulators throughout the world. Broker surveillance revenues are subscription based and are recognized in revenue when earned.

 

Earnings Per Share

We present both basic and diluted EPS. Basic EPS is computed by dividing net income attributable to NASDAQ OMX adjusted for accretion on our series A convertible preferred stock by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income attributable to NASDAQ OMX adjusted for accretion on our series A convertible preferred stock and the interest impact of our 3.75% convertible notes, net of tax by the weighted-average number of common shares and common share equivalents outstanding during the period and reflects the assumed conversion of all dilutive securities which consist primarily of convertible notes, employee stock options, restricted stock and PSUs. Common share equivalents are excluded from the computation in periods for which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and, accordingly, are excluded from the calculation. See Note 13, "Earnings Per Common Share," for further discussion.

Share-Based Compensation

Accounting for share-based compensation requires the measurement and recognition of compensation expense for all equity awards based on estimated fair values. We recognize compensation expense for equity awards on a straight-line basis over the requisite service period of the award. See Note 11, "Share-Based Compensation," for further discussion.

Advertising Costs

We expense advertising costs, which include media advertising and production costs, in the periods in which the costs are incurred. Media advertising and production costs included as marketing and advertising expense in the Consolidated Statements of Income totaled $7 million in 2011, $9 million in 2010 and $5 million for 2009.

Software Costs

Significant purchased application software and operational software that are an integral part of computer hardware are capitalized and amortized on a straight-line basis over their estimated useful lives, generally two to five years. All other purchased software is charged to expense as incurred. We develop systems solutions for both internal and external use.

Certain costs incurred in connection with developing or obtaining internal use software are capitalized. Unamortized capitalized software development costs are included in data processing equipment and software, within property and equipment, net in the Consolidated Balance Sheets. Amortization of costs capitalized is included in depreciation and amortization expense in the Consolidated Statements of Income.

Certain costs of computer software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process are capitalized after the product has reached technological feasibility. Technological feasibility is established upon completion of a detail program design or, in its absence, completion. Thereafter, all software production costs are capitalized. Prior to reaching technological feasibility, all costs are charged to expense. Capitalized costs are amortized on a straight-line basis over the remaining estimated economic life of the product and are included in depreciation and amortization expense in the Consolidated Statements of Income.

Leases

We expense rent from non-cancellable operating leases, net of sublease income, on a straight line basis, based on future minimum lease payments. The net costs are included in occupancy expense in the Consolidated Statements of Income. See Note 16, "Leases," for further discussion.

 

Income Taxes

We use the asset and liability method to provide income taxes on all transactions recorded in the 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 consolidated financial statements. Interest and/or penalties related to income tax matters are recognized in income tax expense.

Recently Adopted Accounting Pronouncements

ASC Topic 820— In January 2010, the FASB issued amended guidance relating to ASC Topic 820. The amended guidance requires new disclosures as follows:

  •  

Amounts related to transfers in and out of Levels 1 and 2 shall be disclosed separately and the reasons for the transfers shall be described.

  •  

In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements on a gross basis.

The guidance also provides amendments that clarify existing disclosures related to the following:

  •  

Reporting fair value measurement disclosures for each class of assets and liabilities.

  •  

Providing disclosure surrounding the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 fair value measurements.

This accounting guidance was effective for us beginning on January 1, 2010, except for the disclosure requirements surrounding the reconciliation of Level 3 fair value measurements, which were effective for us on January 1, 2011. Since this guidance only requires additional disclosure, it did not affect our financial position or results of operations.

ASC Topic 220—In June 2011, the FASB issued amended guidance relating to ASC Topic 220, which eliminates the option to present the components of other comprehensive income as part of the statement of equity. Instead, the amended guidance requires entities to report components of comprehensive income in either a single continuous statement of comprehensive income containing two sections, net income and other comprehensive income, or in two separate but consecutive statements. This accounting guidance is effective for us on January 1, 2012 with early adoption permitted. We adopted this guidance as of June 30, 2011 and present two separate but consecutive statements presenting the components of comprehensive income. Since this guidance only required a change in the format of the presentation of comprehensive income, it did not affect our financial position or results of operations.

 

ASC Topic 350—In September 2011, the FASB issued amended guidance relating to ASC Topic 350, which affects all entities that have goodwill reported in the financial statements. The amended guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test described in ASC Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, an entity determines that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then performing the two-step impairment test is unnecessary. This accounting guidance is effective for us on January 1, 2012 with early adoption permitted. We adopted this guidance as of September 30, 2011 and used the qualitative assessment option for our annual goodwill impairment test performed for fiscal 2011. The testing procedures and results are described under "Goodwill" above. Since this guidance only changed the manner in which we assess goodwill for impairment, it did not affect our financial position or results of operations.

Acquisitions And Strategic Initiatives
Acquisitions And Strategic Initiatives

3. Acquisitions and Strategic Initiative

We completed the following acquisitions and strategic initiative in 2011, 2010 and 2009. Financial results of each transaction are included in our Consolidated Statements of Income from the dates of each acquisition or strategic initiative.

2011 Acquisitions

We completed the following acquisition during 2011:

 

     Purchase
Consideration		      Total Net Liabilities
Acquired		     Purchased
Intangible Assets		      Goodwill  
     (in millions)  

Glide Technologies

    $ 22       $ (2 )   $ 4       $ 20   
  

 

 

     

 

 

    

 

 

     

 

 

  

In October 2011, we acquired Glide Technologies, a London-based service provider specializing in corporate communications and reputation management solutions, for $22 million. We acquired net liabilities, at fair value, totaling $1 million and recorded a non-current deferred tax liability of $1 million related to purchased intangible assets, resulting in total net liabilities acquired of $2 million. The purchased intangible assets totaling $4 million consisted of technology and customer relationships. Glide Technologies is part of our Global Corporate Solutions business within our Issuer Services segment.

The amounts in the table above represent the preliminary allocation of the purchase price and are subject to revision during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date. Adjustments to the provisional values during the measurement period will be pushed back to the date of acquisition. Comparative information for periods after acquisition but before the period in which the adjustments are identified will be adjusted to reflect the effects of the adjustments as if they were taken into account as of the acquisition date. Changes to amounts recorded as assets and liabilities may result in a corresponding adjustment to goodwill. There were no adjustments to the provisional values for Glide Technologies during the year ended December 31, 2011.

Acquisition of the Business of RapiData

In December 2011, we acquired the business of RapiData, a leading provider of machine-readable economic news to trading firms and financial institutions, for an immaterial amount. With this acquisition, we will deliver U.S. government and other economic news directly from the source to customers interested in receiving information in an electronic feed. This service is part of our Market Data business within our Market Services segment.

 

2010 Acquisitions

We completed the following acquisitions during 2010:

 

     Purchase
Consideration		      Total Net (Liabilities)
Assets Acquired		     Purchased
Intangible Assets		      Goodwill  
     (in millions)  

FTEN(1)

   $ 110       $ (1 )   $ 46       $ 65   

SMARTS(2)

     77         (5 )      28         54   

Nord Pool ASA(3)

     17         7        2         8   
  

 

 

     

 

 

    

 

 

     

 

 

  

Total for 2010

    $ 204       $ 1      $ 76       $ 127   
  

 

 

     

 

 

    

 

 

     

 

 

  

(1) 

In December 2010, we acquired FTEN, a leading provider of RTRM solutions for the financial securities market, for $110 million. FTEN purchase consideration included $11 million held in escrow to be paid in 2012, in accordance with the purchase agreement. We acquired net assets, at fair value, totaling $3 million and recorded a current deferred tax liability of $2 million and a non-current deferred tax liability of $16 million related to purchased intangible assets, and we also recorded a non-current deferred tax asset of $14 million related to net operating loss carry forwards, resulting in total net liabilities acquired of $1 million. The total deferred tax liabilities of $18 million represent the tax effect of the difference between the estimated assigned fair value of the acquired intangible assets ($46 million) and the tax basis ($0) of such assets. The estimated amount of $18 million is determined by multiplying the difference of $46 million by FTEN's effective tax rate of 39.55%. The purchased intangible assets of $46 million consisted of $23 million in customer relationships, $12 million in technology, $9 million for the FTEN trade name and $2 million related to non-compete agreements.

(2) 

In August 2010, we acquired SMARTS, a leading technology provider of surveillance solutions to exchanges, regulators and brokers, to diversify our Market Technology business and enter the broker surveillance and compliance market. We completed our acquisition of SMARTS for $77 million, which included a $75 million initial purchase price as well as a $2 million working capital adjustment. SMARTS purchase consideration also included $11 million held in escrow to be paid in 2012 and 2013, in accordance with the purchase agreement. We acquired net assets, at fair value, totaling $3 million and recorded a current deferred tax liability of $1 million and a non-current deferred tax liability of $7 million related to purchased intangible assets, resulting in total net liabilities acquired of $5 million. The total deferred tax liabilities of $8 million represent the tax effect of the difference between the estimated assigned fair value of the acquired intangible assets ($28 million) and the tax basis ($0) of such assets. The estimated amount of $8 million is determined by multiplying the difference of $28 million by SMARTS' effective tax rate of 30%. The purchased intangible assets of $28 million consisted of $11 million in technology and $17 million in customer relationships.

(3) 

In May 2010, we acquired Nord Pool, a derivatives trading market, for $17 million (101 million Norwegian Krone). We acquired net assets, at fair value, totaling $8 million and recorded a non-current deferred tax liability of $1 million related to purchased intangible assets, resulting in total net assets acquired of $7 million. Through this acquisition, we now hold a Norwegian exchange license and operate the Nordic power market and the European carbon market on one trading platform.

We finalized the allocation of the purchase price for FTEN in the fourth quarter of 2011, SMARTS in the third quarter of 2011, and Nord Pool in the second quarter of 2011. There were no adjustments to the provisional values for these acquisitions during the year ended December 31, 2011.

 

Acquisition of ZVM

In December 2010, we acquired ZVM, a provider of webcasting and investor relation communication services for companies in the Nordic region, for an immaterial amount. ZVM, which is the leading provider of webcasting services in Northern Europe, adds to the growing range of capabilities and services NASDAQ OMX offers public and private companies in the U.S. and Europe.

Acquisition of Assets of North American Energy Credit and Clearing Corp.

In March 2010, we purchased the assets of North American Energy Credit and Clearing Corp. for an immaterial amount. With this purchase, NASDAQ OMX expanded its presence in the OTC energy commodity markets. As previously discussed, the acquisition of these assets was effected through NOCC. In March 2010, we also provided cash of $25 million to NOCC to improve its liquidity position. As of December 31, 2011 and 2010, this amount is classified as non-current restricted cash in the Consolidated Balance Sheets.

2009 Strategic Initiative

Investment in European Multilateral Clearing Facility N.V.

In January 2009, we acquired a 22% stake in EMCF, a leading European clearinghouse, which is accounted for under the equity method of accounting.

Pro Forma Results and Acquisition-related Costs

The consolidated financial statements for the years ended December 31, 2011, 2010 and 2009 include the financial results of the above 2011, 2010 and 2009 acquisitions and strategic initiative from the date of each acquisition or strategic initiative. Pro forma financial results for the acquisitions completed in 2011 and 2010 and the strategic initiative completed in 2009 have not been presented since these acquisitions and the strategic initiative both individually and in the aggregate were not material to our financial results.

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

Goodwill And Purchased Intangible Assets
Goodwill And Purchased Intangible Assets

4. Goodwill and Purchased Intangible Assets

Goodwill

The following table presents the changes in goodwill by business segment during the year ended December 31, 2011:

 

     Market
Services		     Issuer
Services		     Market
Technology		     Total  
   (in millions)  

Balance at December 31, 2010

    $ 4,679     $ 292     $ 156     $ 5,127  

Goodwill acquired

      —          20       —          20  

Foreign currency translation adjustment

      (77 )      (6 )      (3 )      (86 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2011

    $ 4,602     $ 306     $ 153     $ 5,061  
  

 

 

    

 

 

    

 

 

    

 

 

  

As of December 31, 2011, the amount of goodwill that is expected to be deductible for tax purposes in future periods is $96 million.

 

The goodwill acquired for Issuer Services shown above relates to our acquisition of Glide Technologies in October 2011. See Note 3, "Acquisitions and Strategic Initiatives," for further discussion.

Purchased Intangible Assets

The following table presents details of our total purchased intangible assets, both finite- and indefinite-lived:

 

    December 31, 2011     December 31, 2010  
  Gross
Amount		     Accumulated
Amortization		     Net
Amount		     Weighted-
Average
Useful
Life (in
Years)		     Gross
Amount		     Accumulated
Amortization		     Net
Amount		     Weighted-
Average
Useful
Life (in
Years)		  
    (in millions)     (in millions)  

Finite-Lived Intangible Assets

               

Technology

   $ 42      $ (10 )    $ 32        8      $ 72      $ (41 )    $ 31        6   

Customer relationships

     854        (196 )      658        21        853        (152 )      701        21   

Other

     6        (2 )      4        8        6        (1 )      5        8   

Foreign currency translation adjustment

     (25 )      4        (21 )        (15 )      4        (11 )   
 

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Total finite-lived intangible assets

   $ 877      $ (204 )    $ 673        $ 916      $ (190 )    $ 726     
 

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Indefinite-Lived Intangible Assets

                

Exchange and clearing registrations

   $ 790      $ —        $ 790        $ 790      $ —        $ 790     

Trade names

     181        —          181          181        —          181     

Licenses

     78        —          78          78        —          78     

Foreign currency translation adjustment

     (74 )      —          (74 )        (56 )      —          (56 )   
 

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Total indefinite-lived intangible assets

   $ 975      $ —        $ 975        $ 993      $ —        $ 993     
 

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Total intangible assets

   $ 1,852      $ (204 )    $ 1,648        $ 1,909      $ (190 )    $ 1,719     
 

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Amortization expense for purchased finite-lived intangible assets was $55 million for the year ended December 31, 2011 and $57 million for the years ended December 31, 2010 and 2009. The decrease in amortization expense in 2011 compared to 2010 was primarily due to a developed technology intangible asset purchased in connection with our acquisition of OMX AB in 2008 being fully amortized in February 2011, partially offset by intangible asset amortization expense on identifiable finite-lived intangible assets purchased in connection with the acquisitions of SMARTS and FTEN as well as certain subsidiaries of Nord Pool from the date of each acquisition.

 

The estimated future amortization expense (excluding the impact of foreign currency translation adjustments of $21 million as of December 31, 2011) of purchased finite-lived intangible assets as of December 31, 2011 is as follows:

 

     (in millions)  

2012

    $ 53   

2013

      51   

2014

      49   

2015

      47   

2016

      43   

2017 and thereafter

      451   
  

 

 

  

Total

    $ 694   
  

 

 

  

Investments
Investments

5. Investments

Trading Securities

Trading securities, which are included in financial investments, at fair value in the Consolidated Balance Sheets, were $261 million as of December 31, 2011 and $220 million as of December 31, 2010. These securities are primarily comprised of Swedish government debt securities, of which $212 million as of December 31, 2011 and $190 million as of December 31, 2010, are restricted assets to meet regulatory capital requirements primarily for NASDAQ OMX Stockholm's clearing operations.

Available-for-Sale Investment Security

Investment in DFM

Our available-for-sale investment security, which is included in financial investments, at fair value in the Consolidated Balance Sheets, represents our investment in DFM. In May 2010, we completed the exchange of our equity interest in NASDAQ Dubai for a 1% investment in DFM. See "Investment in NASDAQ Dubai" below for further discussion.

As of December 31, 2011, the cost basis of this investment security was $36 million and the fair value was $18 million. We reviewed the carrying amount of this investment security to determine whether an other-than-temporary decline in value existed as of December 31, 2011. We considered factors affecting the investee, factors affecting the industry the investee operates in and general market trends. We also considered the length of time the market value has been below the carrying amount and the near-term prospects for recovery of unrealized losses. Based on this review, we determined that the decline in value of this security below its carrying amount was other than temporary and we wrote down our investment to fair value resulting in an $18 million pre-tax, non-cash impairment charge, which is included in asset impairment charge in the Consolidated Statements of Income for the year ended December 31, 2011. As of December 31, 2010, the cost basis of this security was $36 million and the fair value was $33 million. The gross change of $3 million between the cost basis and fair value was reflected as an unrealized holding loss in accumulated other comprehensive loss in the Consolidated Balance Sheets, net of taxes.

Equity Method Investments

In general, the equity method of accounting is used when we own 20% to 50% of the outstanding voting stock and when we are able to exercise significant influence over the operating and financial policies of a company.

 

Equity interest in our equity method investments was $27 million as of December 31, 2011 and December 31, 2010, which consisted primarily of our equity interest in EMCF, a leading European clearinghouse in which we own a 22% equity stake. Equity method investments are included in other non-current assets in the Consolidated Balance Sheets.

Income (loss) recognized from our equity interest in the earnings and losses of these companies was a net gain of $2 million for the years ended December 31, 2011 and December 31, 2010, and a net loss of $107 million for the year ended December 31, 2009. The net loss during the year ended December 31, 2009 was primarily due to impairment charges relating to NASDAQ Dubai and Agora-X and the sale of our investment in Orc. See "Investment in NASDAQ Dubai," "Impairment of Agora-X," and "Investment in Orc Software," below for further discussion.

Income (loss) recognized from our equity method investments is included in income (loss) from unconsolidated investees, net in the Consolidated Statements of Income.

Investment in NASDAQ Dubai

In May 2010, we participated in the realignment of the ownership structure of NASDAQ Dubai, in which NASDAQ Dubai became a wholly-owned subsidiary of DFM, a publicly traded company controlled by Borse Dubai. We received a 1% equity interest in DFM in exchange for our equity interest in NASDAQ Dubai. Our existing technology and trademark licensing arrangements with Borse Dubai and NASDAQ Dubai remain unchanged.

In connection with the realignment of the ownership structure discussed above, a third-party specialist determined the fair value of NASDAQ Dubai. Based on this valuation, we determined our carrying value of NASDAQ Dubai was no longer recoverable and was in fact impaired, and we wrote down our investment to fair value which resulted in an $82 million pre-tax, non-cash impairment charge for the year ended December 31, 2009.

At the time of the realignment in May 2010, we recorded a pre-tax, non cash loss of $1 million in income (loss) from unconsolidated investees, net in the Consolidated Statements of Income, which was based on the difference between the price of DFM common stock multiplied by the number of shares of DFM acquired and the carrying value of our investment in NASDAQ Dubai at the time of the exchange.

NASDAQ Dubai and DFM are related parties, as both of them are primarily owned by Borse Dubai, our largest stockholder as of December 31, 2011.

Impairment of Agora-X

In 2009, we entered into an agreement to increase our investment in Agora-X from 20% to 85%. At that time, in evaluating the fair value of the total investment, it was determined that our carrying value of Agora-X was no longer recoverable and was in fact impaired, and we wrote down our investment to fair value which resulted in a pre-tax, non-cash impairment charge of $5 million.

Investment in Orc Software

During 2009, we sold shares representing 25.25% of the share capital of Orc to a group of Swedish and other international investors for $54 million in cash. As a result of the sale, we recognized a $19 million loss, which includes costs directly related to the sale, primarily broker fees. The loss is included in income (loss) from unconsolidated investees, net in the Consolidated Statements of Income for the year ended December 31, 2009.

Property And Equipment, Net
Property And Equipment, Net

6. Property and Equipment, net

 

The following table presents our major categories of property and equipment, net:

 

     December 31,  
   2011     2010  
   (in millions)  

Data processing equipment and software

    $ 392      $ 348   

Furniture, equipment and leasehold improvements

      193        180   
  

 

 

    

 

 

  
     585        528   

Less: accumulated depreciation and amortization

      (392 )      (364 ) 
  

 

 

    

 

 

  

Total property and equipment, net

    $ 193      $ 164   
  

 

 

    

 

 

  

 

Depreciation and amortization expense for property and equipment was $54 million for the year ended December 31, 2011, $46 million for the year ended December 31, 2010 and $47 million for the year ended December 31, 2009. The increase in depreciation and amortization expense in 2011 compared to 2010 is primarily due to depreciation on assets placed into service in 2011 related to data processing equipment and software, partially offset by assets being fully depreciated in 2011. These amounts are included in depreciation and amortization expense in the Consolidated Statements of Income.

 

As of December 31, 2011 and 2010, we do not own any real estate properties.

Deferred Revenue
Deferred Revenue

7. Deferred Revenue

Deferred revenue represents cash payments received that are yet to be recognized as revenue. At December 31, 2011, we have estimated that our deferred revenue, which is primarily related to Global Listing Services and Market Technology revenues, will be recognized in the following years:

 

     Initial
Listing
Revenues		      Listing of
Additional
Shares Revenues		      Annual
Renewal and Other
Revenues		      Market
Technology
Revenues(1) 		     Total  
   (in millions)  

Fiscal year ended:

               

2012

    $   13       $ 36       $ 25       $ 50       $   124   

2013

      9         28         —           33         70   

2014

      7         16         —           21         44   

2015

      6         6         —           12         24   

2016

      3         —           —           7         10   

2017 and thereafter

      1         —           —           5         6   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   $   39       $ 86       $ 25       $ 128       $ 278   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(1) 

The timing of recognition of our deferred Market Technology revenues is dependent upon the completion of customization and any significant modifications made pursuant to existing contracts. As such, as it relates to these revenues, the timing represents our best estimate.

 

The changes in our deferred revenue during the years ended December 31, 2011 and 2010 are reflected in the following table.

 

     Initial
Listing
Revenues		     Listing of
Additional
Shares Revenues		     Annual
Renewal and Other
Revenues		     Market
Technology
Revenues(2) 		    Total  
     (in millions)  

Balance at January 1, 2010

    $ 46      $ 76      $ 18      $   125      $ 265   

Additions(1)

     14        46        222        32        314   

Amortization(1)

     (18 )      (39 )      (219 )      (13 )      (289 ) 

Translation adjustment

      —          —          —          2        2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2010

    $ 42      $ 83      $ 21      $ 146      $ 292   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Additions(1)

     13        43        219        49        324   

Amortization(1)

     (16 )      (40 )      (214 )      (66 )      (336 ) 

Translation adjustment

      —          —          (1 )      (1 )      (2 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2011

    $ 39      $ 86      $ 25      $ 128      $ 278   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(1) 

The additions and amortization for initial listing revenues, listing of additional shares revenues and annual renewal and other revenues primarily reflect Issuer Services revenues from U.S. listing revenues.

(2) 

Market Technology deferred revenues include revenues from delivered client contracts in the support phase charged during the period. Under contract accounting, where customization and significant modifications to the software are made to meet the needs of our customers, total revenues, as well as costs incurred, are deferred until significant modifications are completed and delivered. Once delivered, deferred revenue and the related deferred costs are recognized over the post contract support period. We have included the deferral of costs in other current assets and other non-current assets in the Consolidated Balance Sheets. The amortization of Market Technology deferred revenue primarily includes revenues earned from client contracts recognized during the period.

Debt Obligations
Debt Obligations

8. Debt Obligations

The following table presents the changes in the carrying value of our debt obligations during the year ended December 31, 2011:

 

     December 31,
2010		     Additions     Payments,
Conversions,
Accretion and
Other		     December 31,
2011		  
     (in millions)  

3.75% convertible notes due October 22, 2012 (net of discount)(1)

   $ —        $ —        $             —        $         —     

2.50% convertible senior notes due August 15, 2013(2)

     388        —          (300 )      88   

4.00% senior unsecured notes due January 15, 2015 (net of discount)(3)

     398        —          1        399   

5.55% senior unsecured notes due January 15, 2020 (net of discount)(3)

     598        —          —          598   

5.25% senior unsecured notes due January 16, 2018 (net of discount)(3)

     367        —          —          367   

$1.2 billion senior unsecured five-year credit facility:

         

$450 million senior unsecured term loan facility credit agreement due September 19, 2016 (average interest rate of 1.66% for the period September 19, 2011 through December 31, 2011)(4)

     —          450        (11 )     439   

$750 million revolving credit commitment due September 19, 2016 (average interest rate of 1.43% for the period October 19, 2011 through December 31, 2011)(4)

     —          250       (24 )      226   

$700 million senior unsecured term loan facility credit agreement repaid September 2011 (average interest rate of 2.25% for the period January 1, 2011 through September 19, 2011)(5)

     570        —          (570 )      —     
  

 

 

    

 

 

    

 

 

    

 

 

  

Total debt obligations

      2,321        700        (904 )      2,117   

Less current portion

      (140 )      (45 )      140        (45 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Total long-term debt obligations

    $         2,181      $           655      $ (764 )    $ 2,072   
  

 

 

    

 

 

    

 

 

    

 

 

  

(1) 

As of December 31, 2011 and 2010, approximately $0.5 million aggregate principal amount of the 3.75% convertible notes remained outstanding.

(2) 

See "2.50% Convertible Senior Notes" below for further discussion.

(3) 

See "Senior Unsecured Notes" below for further discussion.

(4) 

See "2011 Credit Facility" below for further discussion.

(5) 

See "2010 Credit Facility" below for further discussion.

2.50% Convertible Senior Notes

During the first quarter of 2008, in connection with the business combination with OMX AB, we completed the offering of $475 million aggregate principal amount of 2.50% convertible senior notes due August 15, 2013. The interest rate on the notes is 2.50% per annum payable semi-annually in arrears on February 15 and August 15.

 

The 2013 Convertible Notes are convertible in certain circumstances specified in the indenture for the notes. Upon conversion, holders will receive, at the election of NASDAQ OMX, cash, common stock or a combination of cash and common stock. It is our current intent and policy to settle the principal amount of the notes in cash. The conversion rate, subject to adjustment in certain events, is 18.1386 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $55.13 per share of common stock. At December 31, 2011, the remaining aggregate principal amount outstanding of the 2013 Convertible Notes is convertible into 1,686,577 shares of our common stock. Subject to certain exceptions, if we undergo a "fundamental change" as described in the indenture, holders may require us to purchase their notes at a price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest.

Tender Offer and Early Extinguishment of Debt

On September 20, 2011, we commenced a cash tender offer for any and all of the $428 million aggregate principal amount outstanding of the 2013 Convertible Notes, or the Offer. We offered to purchase the 2013 Convertible Notes at a price of $1,025 for each $1,000 of principal amount tendered, plus accrued and unpaid interest up to, but not including, October 19, 2011, the date of purchase. Holders representing approximately 78.3% of the aggregate principal amount of the outstanding 2013 Convertible Notes participated in the Offer resulting in the tender of $335 million of the aggregate outstanding principal amount of the 2013 Convertible Notes for a total purchase price of $346 million, which included the premium discussed above, accrued interest, and other costs. We funded the Offer with cash on hand and availability under the revolver in our 2011 Credit Facility. See "2011 Credit Facility" below for further discussion of our credit facility. As a result of the tender, in October 2011, we recorded a pre-tax charge of $25 million consisting of the write-off of the associated unamortized debt discount of $22 million, debt issuance costs of $2 million, as well as other costs of $1 million. This charge was recorded in general, administrative and other expense in the Consolidated Statements of Income for 2011. The 2013 Convertible Notes purchased pursuant to the Offer were cancelled and are no longer outstanding.

In 2009, we repurchased $47 million principal amount of the 2.50% convertible senior notes for a cash payment of $40 million and recognized a pre-tax gain on the early extinguishment of debt of $4 million (net of debt issuance and other costs of $1 million) which is recorded in general, administrative and other expense in the Consolidated Statements of Income for 2009.

The tender offer and early extinguishment of debt discussed above resulted in a remaining aggregate principal amount outstanding of the 2013 Convertible Notes of $93 million as of December 31, 2011.

Liability and Equity Components

Since the settlement structure of the 2013 Convertible Notes permits settlement in cash upon conversion, we are required to separately account for the liability and equity components of the convertible debt in a manner that reflects our nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This entails bifurcation of a component of the debt, classification of that component in equity and then accretion of the resulting discount on the debt being reflected in the income statement as part of interest expense.

 

The changes in the liability and equity components of the 2013 Convertible Notes during the years ended December 31, 2011 and 2010 are as follows:

 

     Liability Component     Equity Component  
     (in millions)     (in millions)  
     Principal
Balance		     Unamortized
Debt
Discount		     Net
Carrying
Amount		     Gross
Equity
Component		     Deferred
Taxes		      Net Equity
Component		  

December 31, 2009

    $         428      $             54      $         374     $             80      $         32       $             48  

Accretion of debt discount

      —          (14 )      14       —          —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

December 31, 2010

    $ 428      $ 40      $ 388     $ 80      $ 32       $ 48  

Accretion of debt discount

      —          (13 )      13       —          —           —     

Tender offer

      (335 )      (22 )      (313 )      (9 )     —           (9 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

December 31, 2011

    $ 93      $ 5      $ 88     $ 71      $ 32       $ 39  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

The unamortized debt discount on the convertible debt was $5 million as of December 31, 2011 and $40 million as of December 31, 2010 and is included in debt obligations in the Consolidated Balance Sheets. The remaining amount of $5 million will be accreted as part of interest expense through August 15, 2013, the maturity date of the convertible debt. The decrease in the unamortized debt discount in 2011 compared to 2010 is due to the write-off of $22 million associated with the Offer as discussed above and the accretion of the debt discount during 2011 of $13 million. The effective annual interest rate on the 2013 Convertible Notes was 6.53% for the years ended December 31, 2011, 2010 and 2009, which includes the accretion of the debt discount in addition to the annual contractual interest rate of 2.50%.

The equity component of the convertible debt included in additional paid-in capital in the Consolidated Balance Sheets was $39 million at December 31, 2011 and $48 million at December 31, 2010. The difference of $9 million reflects the cash paid in connection with the Offer, discussed above, that was attributable to the extinguishment of the equity component of the convertible debt.

Interest expense recognized on the 2013 Convertible Notes in the Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009 is as follows:

 

     Year Ended
December 31,		  
   2011      2010      2009  
   (in millions)  

Components of interest expense recognized on the 2013 Convertible Notes

         

Accretion of debt discount

    $   13       $   14       $   13   

Contractual interest

      9         10         11   
  

 

 

     

 

 

     

 

 

  

Total interest expense recognized on the 2013 Convertible Notes

    $ 22       $ 24       $ 24   
  

 

 

     

 

 

     

 

 

  

Debt Issuance Costs

In 2008, in conjunction with the issuance of the 2013 Convertible Notes, we incurred debt issuance costs of $10 million. These costs, which were capitalized and included in other non-current assets in the Consolidated Balance Sheets, are being amortized over the life of the debt obligation. In connection with the Offer in October 2011, we recorded a pre-tax charge for the write-off of the associated debt issuance costs of $2 million for the year ended December 31, 2011. In connection with the early extinguishment of a portion of these notes in 2009, we recorded a pre-tax charge for the write-off of the associated debt issuance costs of $1 million for the year ended December 31, 2009. See "Tender Offer and Early Extinguishment of Debt" above for further discussion. Amortization expense, which is recorded as additional interest expense for these costs, was $1 million for the year ended December 31, 2011 and $2 million for the years ended December 31, 2010 and 2009.

Senior Unsecured Notes

4.00% and 5.55% Senior Unsecured Notes

In January 2010, NASDAQ OMX issued $1 billion of senior unsecured notes, or the Notes. The Notes were issued at a discount in two separate series consisting of $400 million aggregate principal amount of 4.00% senior notes due 2015, or the 2015 Notes, and $600 million aggregate principal amount of 5.55% senior notes due 2020, or the 2020 Notes. As a result of the discount, the proceeds received from the issuance were less than the aggregate principal amounts. As of December 31, 2011, the balance of $399 million for the 2015 Notes and the balance of $598 million for the 2020 Notes reflect the aggregate principal amounts, less the unamortized debt discount. The unamortized debt discount will be accreted through interest expense over the life of the Notes.

The 2015 Notes pay interest semiannually at a rate of 4.00% per annum until January 15, 2015, and the 2020 Notes pay interest semiannually at a rate of 5.55% per annum until January 15, 2020. The Notes are general unsecured obligations of ours and rank equally with all of our existing and future unsubordinated obligations. The Notes are not guaranteed by any of our subsidiaries. The Notes were issued under an indenture that, among other things, limits our ability to consolidate, merge or sell all or substantially all of our assets, create liens, and enter into sale and leaseback transactions.

Debt Issuance Costs

We incurred debt issuance and other costs of $8 million in connection with the issuance of the Notes. These costs, which are capitalized and included in other non-current assets in the Consolidated Balance Sheets, are being amortized over the life of the debt obligations. Amortization expense, which is recorded as additional interest expense for these costs, was $1 million for both the years ended December 31, 2011 and 2010.

5.25% Senior Unsecured Notes

In December 2010, NASDAQ OMX issued $370 million of 5.25% senior unsecured notes due January 16, 2018. We applied the net proceeds from the 2018 Notes of $367 million and cash on hand of $3 million to repay all amounts outstanding under our $400 million senior unsecured bridge facility, or the Bridge Facility, discussed below, as well as related fees.

The 2018 Notes were issued at a discount. As a result of the discount, the proceeds received from the issuance were less than the aggregate principal amount. As of December 31, 2011, the balance of $367 million reflects the aggregate principal amount, less the unamortized debt discount. The unamortized debt discount will be accreted through interest expense over the life of the 2018 Notes.

The 2018 Notes pay interest semiannually at a rate of 5.25% per annum until January 16, 2018 and such rate may vary with NASDAQ OMX's debt rating up to a rate not to exceed 7.25%. The 2018 Notes are general unsecured obligations of ours and rank equally with all of our existing and future unsubordinated obligations. They are not guaranteed by any of our subsidiaries. The 2018 Notes were issued under indentures that among other things, limit our ability to consolidate, merge or sell all or substantially all of our assets, create liens, and enter into sale and leaseback transactions. In addition, upon a change of control triggering event (as defined in the indenture), the terms require us to repurchase all or part of each holder's notes for cash equal to 101% of the aggregate principal amount purchased plus accrued and unpaid interest, if any.

 

Debt Issuance Costs

We incurred debt issuance costs of $3 million in connection with the issuance of the 2018 Notes. These costs, which are capitalized and included in other non-current assets in the Consolidated Balance Sheets, are being amortized over the life of the debt obligation. Amortization expense, which is recorded as additional interest expense for these costs, was immaterial for both the years ended December 31, 2011 and 2010.

Credit Facilities

2011 Credit Facility

In September 2011, NASDAQ OMX entered into a $1.2 billion senior unsecured five-year credit facility which matures on September 19, 2016. The 2011 Credit Facility consists of our 2016 Term loan of $450 million and a $750 million revolving credit commitment (including a swingline facility and letter of credit facility). NASDAQ OMX applied the $450 million in proceeds from the 2016 Term Loan to repay the remaining $450 million principal amount outstanding on our 2010 Credit Facility, as defined below. As a result, NASDAQ OMX terminated the associated credit agreement. See "2010 Credit Facility" below for further discussion.

In October 2011, we borrowed $250 million under the revolving credit commitment portion of the 2011 Credit Facility and utilized cash on hand of $96 million in order to fund the purchase of the 2013 Convertible Notes tendered in the Offer. In November 2011, we made an optional prepayment of $24 million on our revolving credit commitment. As a result, availability under the revolving credit commitment was $524 million as of December 31, 2011.

The loans under the 2011 Credit Facility have a variable interest rate based on either the London Interbank Offered Rate, or LIBOR, or the Federal Funds Rate, plus an applicable margin that varies with NASDAQ OMX's debt rating.

Under the 2011 Credit Facility, beginning in December 2011 we are required to pay quarterly principal payments equal to 2.50% of the aggregate original principal amounts borrowed under the 2016 Term Loan. In the fourth quarter of 2011, we made a required quarterly principal payment of $11 million on our 2016 Term Loan.

The 2011 Credit Facility contains financial and operating covenants. Financial covenants include an interest expense coverage ratio and a maximum leverage ratio. Operating covenants include limitations on NASDAQ OMX's ability to incur additional indebtedness, grant liens on assets, enter into affiliate transactions and pay dividends. The 2011 Credit Facility also contains customary affirmative covenants, including access to financial statements, notice of defaults and certain other material events, maintenance of business and insurance, and events of default, including cross-defaults to our material indebtedness.

NASDAQ OMX is permitted to repay borrowings under the 2011 Credit Facility at any time in whole or in part, without penalty. We are also required to repay loans outstanding under the 2011 Credit Facility with net cash proceeds from sales of property and assets of NASDAQ OMX and its subsidiaries (excluding inventory sales and other sales in the ordinary course of business) and casualty and condemnation proceeds, in each case subject to specified exceptions and thresholds.

Debt Issuance Costs

We incurred debt issuance and other costs of $5 million in connection with the entry into the 2011 Credit Facility. These costs, which are capitalized and included in other non-current assets in the Consolidated Balance Sheets, are being amortized over the life of the 2011 Credit Facility. Amortization expense, which is recorded as additional interest expense for these costs, was immaterial for the year ended December 31, 2011.

 

2010 Credit Facility

In January 2010, NASDAQ OMX entered into a $950 million senior unsecured three-year credit facility, or the 2010 Credit Facility. The 2010 Credit Facility provided for a $250 million revolving credit commitment (including a swingline facility and letter of credit facility), a $350 million funded Tranche A term loan, or the Term Loan A, and a $350 million funded Tranche X term loan, or the Term Loan X and, together with Term Loan A, the Term Loans. The loans under the 2010 Credit Facility had a variable interest rate based on either the LIBOR or the Federal Funds Rate, plus an applicable margin that varied with NASDAQ OMX's debt rating.

NASDAQ OMX applied the net proceeds from the Notes, the $700 million funded Term Loans and cash on hand to repay all amounts outstanding under our senior secured credit facilities in place as of December 31, 2009 and related fees. As a result, NASDAQ OMX terminated the associated credit agreement.

Under our 2010 Credit Facility, we were required to pay quarterly principal payments of $35 million on our Term Loans. In the first half of 2011, we made required quarterly principal payments of $70 million, as well as an optional principal payment of $50 million on our Term Loans. In September 2011, we applied the proceeds of $450 million from the 2016 Term Loan discussed above, to repay the remaining $450 million principal amount outstanding on our Term Loans. As a result, NASDAQ OMX terminated the associated credit agreement. See "2011 Credit Facility" above for further discussion of the 2011 Credit Facility.

Debt Issuance and Other Costs

We incurred debt issuance and other costs of $13 million in connection with the entry into the 2010 Credit Facility. These costs, which were capitalized and included in other non-current assets in the Consolidated Balance Sheets, were being amortized over the life of the debt obligation. In September 2011, as a result of repayment of our 2010 Credit Facility, we recorded a pre-tax charge of $6 million, which primarily included the write-off of the remaining unamortized balance of debt issuance costs. This charge is included in general, administrative and other expense in the Consolidated Statements of Income for the year ended December 31, 2011. Amortization expense, which was recorded as additional interest expense for these costs, was $3 million for the year ended December 31, 2011 and $4 million for the year ended December 31, 2010.

Bridge Facility

In December 2010, NASDAQ OMX entered into the Bridge Facility, and borrowed $370 million to partially finance the purchase of our stock from Borse Dubai. See "Share Repurchase Programs and Share Repurchase from Borse Dubai," of Note 12, "NASDAQ OMX Stockholders' Equity," for further discussion of our share repurchase from Borse Dubai. We applied the net proceeds from the issuance of our 2018 Notes, discussed above, and cash on hand to repay all amounts outstanding under the Bridge Facility and terminated the Bridge Facility as of December 31, 2010. The effective interest rate on borrowings under the Bridge Facility was 1.76%.

Other Credit Facilities

In addition to the revolving credit commitment discussed above, we have credit facilities related to our clearinghouses in order to meet liquidity and regulatory requirements. At December 31, 2011, these credit facilities, which are available in multiple currencies, primarily Swedish Krona and U.S. dollar, totaled $447 million ($206 million in available liquidity and $241 million to satisfy regulatory requirements), none of which was utilized. At December 31, 2010, these facilities totaled $440 million ($196 million in available liquidity and $244 million to satisfy regulatory requirements), none of which was utilized.

 

Debt Covenants

At December 31, 2011, we were in compliance with the covenants of all of our debt obligations.

Income Taxes
Income Taxes

9. Income Taxes

The income tax provision consists of the following amounts:

 

     Year Ended December 31,  
       2011             2010             2009      
     (in millions)  

Current income taxes:

       

Federal

    $     129      $     116      $ 96   

State

      34        36        32   

Foreign

      23        20        10   
  

 

 

    

 

 

    

 

 

  

Total current income taxes

      186        172        138   
  

 

 

    

 

 

    

 

 

  

Deferred income taxes:

       

Federal

      (18 )      (25 )      (26 ) 

State

      —          (26 )      8   

Foreign

      22        16        8   
  

 

 

    

 

 

    

 

 

  

Total deferred income taxes

      4        (35 )      (10 ) 
  

 

 

    

 

 

    

 

 

  

Total income tax provision

    $ 190      $ 137      $     128   
  

 

 

    

 

 

    

 

 

  

U.S. federal taxes have not been provided on undistributed earnings of certain non-U.S. subsidiaries to the extent such earnings will be reinvested abroad for an indefinite period of time. At December 31, 2011, the cumulative amount of undistributed earnings in these subsidiaries is approximately $60 million. We have the intent and ability to indefinitely reinvest the undistributed earnings of our non-U.S. subsidiaries.

A reconciliation of the income tax provision, based on the U.S. federal statutory rate, to our actual income tax provision for the years ended December 31, 2011, 2010 and 2009 is as follows:

 

     Year Ended December 31,  
       2011             2010             2009      
   (in millions)  

Federal income tax provision at the statutory rate

      35.0 %      35.0 %      35.0 % 

State income tax provision, net of federal effect

      3.3 %      4.2 %      6.6 % 

Foreign income tax provision at a rate different than the federal rate

      (3.8 )%      (3.2 )%      (3.6 )% 

Earnings from foreign affiliates, not subject to tax

      (3.4 )%      (3.5 )%      (4.8 )% 

Nondeductible expenses

      0.2 %      0.3 %      2.8 % 

Change in deferred taxes due to change in tax rate(1)

     0.5 %      (3.0 )%      —     

Excess capital loss carry back(1)

     —          (2.4 )%      —     

Other, net

      1.4 %      (1.4 )%      (3.3 )% 
  

 

 

    

 

 

    

 

 

  

Actual income tax provision(1)

     33.2 %      26.0 %      32.7 % 
  

 

 

    

 

 

    

 

 

  

(1) 

The higher effective tax rate in 2011 when compared to 2010 was primarily due to the impact of changes in tax laws in certain jurisdictions where NASDAQ OMX operates. Also, 2010 results included reductions in deferred tax liabilities due to a revised effective tax rate and a tax deduction for a capital loss. The lower effective tax rate in 2010 when compared to 2009 was primarily due to the restructuring of certain NASDAQ OMX subsidiaries. These transactions resulted in reductions in deferred tax liabilities due to a revised effective tax rate and a tax deduction for a capital loss.

The temporary differences, which give rise to our deferred tax assets and (liabilities), consisted of the following:

 

     December 31,  
       2011              2010      
   (in millions)  

Deferred tax assets:

      

Deferred revenues

    $         30       $         28   

U.S. federal net operating loss

      15         20   

Foreign net operating loss

      99         104   

State net operating loss

      4         1   

Compensation and benefits

      88         77   

Foreign currency translation

      194         155   

Lease reserves

      19         8   

Tax credits

      19         5   

Excess capital loss

      —           64   

Other

      15         15   
  

 

 

     

 

 

  

Gross deferred tax assets

      483         477   
  

 

 

     

 

 

  

Deferred tax liabilities:

      

Amortization of software development costs and depreciation

      (40 )       (25 ) 

Amortization of acquired intangible assets

      (629 )       (653 ) 

Accretion of debt discount

      (4 )       (19 ) 

Other

      (24 )       (27 ) 
  

 

 

     

 

 

  

Gross deferred tax liabilities

      (697 )       (724 ) 
  

 

 

     

 

 

  

Net deferred tax liabilities before valuation allowance

      (214 )       (247 ) 
  

 

 

     

 

 

  

Less: valuation allowance

      (75 )       (31 ) 
  

 

 

     

 

 

  

Net deferred tax liabilities

    $ (289 )     $ (278 ) 
  

 

 

     

 

 

  

A valuation allowance has been established with regards to the tax benefits primarily associated with certain net operating losses and impairment losses, as it is more likely than not that these benefits will not be realized in the future.

In 2011, our U.S. federal net operating loss of $15 million, which includes $10 million related to the acquisition of FTEN in December 2010 and $5 million related to subsidiaries of OMX that are not included in our U.S. federal consolidated income tax return, will expire in years 2023-2031. Our foreign net operating loss of $99 million, as of December 31, 2011, includes $33 million that will expire in years 2018-2021 and $66 million that has no expiration date. Also, our state net operating loss of $4 million, as of December 31, 2011,will expire in years 2013-2031.

 

The following represents the domestic and foreign components of income before income tax provision:

 

     Year Ended December 31,  
   2011      2010      2009  
   (in millions)  

Domestic

    $   392       $   393       $   325   

Foreign

      181         133         66   
  

 

 

     

 

 

     

 

 

  

Income before income tax provision

    $ 573       $ 526       $ 391   
  

 

 

     

 

 

     

 

 

  

In 2011, 2010 and 2009, we recorded income tax benefits of $10 million, $2 million and $4 million, respectively, primarily related to share-based compensation. These amounts were recorded as additional paid-in-capital in the Consolidated Balance Sheets.

We are subject to examination by federal, state and local, and foreign tax authorities. We regularly assess the likelihood of additional assessments by each jurisdiction and have established tax reserves that we believe are adequate in relation to the potential for additional assessments. We believe that the resolution of tax matters will not have a material effect on our financial condition but may be material to our operating results for a particular period and upon the effective tax rate for that period.

As of December 31, 2011, we had $18 million of unrecognized benefits, of which $11 million would affect our effective tax rate if recognized. As of December 31, 2010, we had $12 million of unrecognized benefits, of which $8 million would affect our effective tax rate if recognized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

     Year Ended
December 31,		  
       2011             2010      
   (in millions)  

Beginning balance

    $ 12      $ 11   

Additions as a result of tax positions taken in prior periods

      6        1   

Additions as a result of tax positions taken in the current period

      3        2   

Reductions related to settlements with taxing authorities

      (2 )      (2 ) 

Reductions as a result of lapses of the applicable statute of limitations

      (1 )      —     
  

 

 

    

 

 

  

Ending balance

    $     18      $     12   
  

 

 

    

 

 

  

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2011, we had accrued $5 million for interest and penalties, net of tax effect. As of December 31, 2010, we had accrued $4 million for interest and penalties, net of tax effect.

NASDAQ OMX 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 2008 and 2009 are currently under audit by the Internal Revenue Service. The review of federal income tax returns for the years 2007 and 2010 is expected to commence in 2012. Several state tax returns are currently under examination by the respective tax authorities for the years 2000 through 2009 and we are subject to examination for 2010. Non-U.S. tax returns are subject to review by the respective tax authorities for the years 2003 through 2010. In 2011, we settled audits with various taxing jurisdictions and paid a total of $1 million with respect to the years 2006 through 2009. Since this amount was included in our unrecognized tax benefits as of December 31, 2010, such payments did not affect our 2011 effective tax rate. The outcome of these audits did not have a material impact on our financial position or results of operations. We anticipate that the amount of unrecognized tax benefits at December 31, 2011 will significantly decrease in the next twelve months as we expect to settle certain tax audits. The final outcome of such audits cannot yet be determined. We anticipate that such adjustments will not have a material impact on our consolidated financial position or results of operations.

In the fourth quarter of 2010, we received an appeal from the Finnish Tax Authority in which such authority challenges certain interest expense deductions claimed by NASDAQ OMX in Finland for the year 2008. NASDAQ OMX's tax return position with respect to this deduction was previously reviewed and approved by the Finnish Tax Authority. The appeal also demands certain penalties be paid with regard to the company's tax return filing position. If the Finnish Tax Authority prevails in its challenge, additional tax and penalties for the years 2008-2011 would total approximately $23 million. We expect the Finnish Tax Authority to agree with our position once its review is completed and, as such, we believe it is unlikely NASDAQ OMX will be assessed any additional tax and penalties. Through December 31, 2011, we have recorded the tax benefits associated with the filing position.

In June 2009, NASDAQ OMX filed an application for an advance tax ruling with the Swedish Tax Council for Advance Tax Rulings. The application was filed to confirm whether certain interest expense is deductible for Swedish tax purposes under legislation that became effective on January 1, 2009. In June 2010, we received a favorable response from the Swedish Tax Council for Advance Tax Rulings in which all members of the Council agreed that the interest expense is deductible for Swedish tax purposes. The Swedish Tax Agency appealed the Council's ruling to the Swedish Supreme Administrative Court. In November 2011, the Swedish Supreme Administrative Court rendered a ruling consistent with the favorable ruling from the Swedish Tax Council for Advance Tax Rulings. Since we have recorded all tax benefits associated with this matter, the ruling did not affect our financial position or results of operations.

Employee Benefits
Employee Benefits

10. Employee Benefits

U.S. Defined-Benefit Pension and Supplemental Executive Retirement Plans

We maintain non-contributory, defined-benefit pension plans, non-qualified supplemental executive retirement plans, or SERPs, for certain senior executives and post-retirement benefit plans for eligible employees in the U.S., collectively referred to as the NASDAQ OMX Benefit Plans.

Our pension plans and SERPs are frozen. Future service and salary for all participants do not count toward an accrual of benefits under the pension plans and SERPs.

 

Components of Net Periodic Benefit Cost

The following table sets forth the components of net periodic pension, SERP and post-retirement benefits costs from the NASDAQ OMX Benefit Plans recognized in compensation and benefits expense in the Consolidated Statements of Income:

 

     Year Ended
December 31,		  
       2011             2010             2009      
   (in millions)  

Components of net periodic benefit cost

       

Interest cost

    $ 6      $ 7      $ 7   

Expected return on plan assets

      (5 )      (5 )      (4 ) 

Recognized net actuarial (gain) loss

      3        3        (2 ) 

Settlement loss recognized

      —          1        1   
  

 

 

    

 

 

    

 

 

  

Net periodic benefit cost

    $       4      $       6      $       2   
  

 

 

    

 

 

    

 

 

  

Benefit Obligations and Funded Status

The following table provides a reconciliation of the changes in the benefit obligation, the plan assets and the funded status of the NASDAQ OMX Benefit Plans.

 

     2011     2010  
   Pension     SERP     Post-
retirement		     Total     Pension     SERP     Post-
retirement		     Total  
   (in millions)  

Change in benefit obligation

                 

Benefit obligation at beginning of year

    $ 83      $ 30      $ 12      $ 125      $ 77      $ 29      $ 9      $ 115   

Interest cost

      4        1        1        6        4        2        1        7   

Actuarial losses (gains)

      (1 )      —          (2 )      (3 )      —          —          1        1   

Benefits paid

      (3 )      (2 )      —          (5 )      (2 )      (2 )      —          (4 ) 

Settlements

      —          —          —          —          (3 )      —          —          (3 ) 

Loss due to change in discount rate

      3        1        —          4        7        1        1        9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Benefit obligation at end of year

      86        30        11        127        83        30        12        125   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Change in plan assets

                 

Fair value of plan assets at beginning of year

      65        —          —          65        58        —          —          58   

Actual return on plan assets

      (1 )      —          —          (1 )      7        —          —          7   

Company contributions

      1        2        —          3        5        2        —          7   

Benefits paid

      (3 )      (2 )      —          (5 )      (2 )      (2 )      —          (4 ) 

Settlements

      —          —          —          —          (3 )      —          —          (3 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Fair value of plan assets at end of year

      62        —          —          62        65        —          —          65   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Underfunded status of the plans

      (24 )      (30 )      (11 )      (65 )      (18 )      (30 )      (12 )      (60 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Accumulated benefit obligation

    $ 86      $ 30      $ 11      $ 127      $ 83      $ 30      $ 12      $ 125   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

The total underfunded status of the NASDAQ OMX Benefit Plans of $65 million at December 31, 2011 and $60 million at December 31, 2010 is included in other non-current liabilities and accrued personnel costs in the Consolidated Balance Sheets. No plan assets are expected to be returned to us during the year ending December 31, 2012.

Actuarial Assumptions

The following tables provide the weighted-average actuarial assumptions for the NASDAQ OMX Benefit Plans.

Weighted-average assumptions used to determine benefit obligations at the end of the fiscal year:

 

     2011     2010  

Discount rate:

     

Pension