EURONEXT_Registration_Document_2017

OPERATING AND FINANCIAL REVIEW

Overview

The Group operates in various countries with local tax regulations. New tax legislation being issued in certain territories as well as transactions that the Group enters into regularly result in potential tax exposures. The calculation of Euronext’s tax liabilities involves uncertainties in the application of complex tax laws. Euronext’s estimate for the potential outcome of any uncertain tax position is highly judgmental. However, Euronext believes that it has adequately provided for uncertain tax positions. Settlement of these uncertainties in a manner inconsistent with Euronext’s expectations could have a material impact on its results of operations, financial condition and cash flows. The Group recognises a liability for uncertain tax positions when it’s probable that an outflow of economic recourses will occur. Measurement of the liability for uncertain tax positions is based on management’s best estimate of the amount of tax benefit/ cost that will be realised upon settlement. Fair Value of Equity Investments The Group holds investments in unlisted equity securities, which are carried at fair value on the balance sheet. In 2017, the Group changed its valuation technique applied to value the Group’s investments in unlisted equity securities, which are further described in Notes 19 and 30 of the Consolidated Financial Statements included in this Registration Document. Classification of Investments in Associates The Group classifies the interest in LCH S.A. as an investment in associate suggesting significant influence even though it owns less than 20% of the voting rights (see Note 7). The Group concludes it has significant influence over this investment, which is derived from the governance structure that was put in place and the Group’s position as the largest customer and sole minority shareholder of LCH S.A. Contingent Consideration and Buy Options Resulting from Business Combinations The Group may structure its business combinations in a way that leads to recognition of contingent consideration to selling shareholders and/or buy options for equity held by non-controlling interests (see Note 5). Contingent consideration and buy options are recognized at fair value on acquisition date. When the contingent consideration or buy optionmeets the definition of a financial liability or financial instrument, it is subsequently re-measured to fair value at each reporting date. The determination of fair value is based on the expected level of EBITDA over the last 12 months that precede the contractual date (in case of contingent consideration) or exercise date of the underlying call- and put options (in case of buy option). The Group monitors the expected EBITDA based on updated forecast information from the acquired companies involved. Purchase Price Allocation The cost of other intangible assets that are acquired in the course of business combinations, corresponds to their acquisition date fair values. Assets with a finite useful life are amortized using the straight-line method over their expected useful life. Assets with an indefinite useful life are tested for impairment at least once a year.

Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The estimates and assumptions that may have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. Euronext has discussed the development and selection of these critical accounting policies and estimates with its independent auditors. Significant judgments made in the preparation of the Consolidated Financial Statements include the following: Impairment of Goodwill Goodwill represents the excess of the consideration paid in a business combination over the Group’s share in the fair value of the net identifiable assets and liabilities of the acquired business at the date of acquisition. Goodwill is not amortised but is tested at least annually for impairment, or whenever an event or change in circumstances indicate a potential impairment. For the purpose of impairment testing, goodwill arising in a business combination is allocated to the cash-generating units (“CGUs”) or groups of CGUs that are expected to benefit from the synergies of the combination. Each CGU or CGU group to which goodwill is allocated represents the lowest level within the group at which the goodwill is monitored for internal management purposes. Goodwill is monitored and tested at the Group level, which represents a single operating segment. The carrying value of a CGU group is compared to its recoverable amount, which is derived from the discounted future free cash flows of the CGU group. Cash flow projections are based on budget and business plan approved by management and covering a five year period. Cash flows beyond the business plan period are extrapolated using a perpetual growth rate. The key assumptions used and the related sensitivity analysis are described in Note 17 of the Consolidated Financial Statements included in this Registration Document. Income Taxes Due to the inherent complexities arising from the nature of the Group’s business, from conducting business and being taxed in a substantial number of jurisdictions, significant judgments and estimates are required to be made for income taxes. The Group computes income tax expense for each of the jurisdictions in which it operates. However, actual amounts of income tax due only become final upon filing and acceptance of the tax return by relevant authorities, which may not occur for several years subsequent to issuance of the Consolidated Financial Statements. The estimation of income taxes also includes evaluating the recoverability of deferred income tax assets based on an assessment of the ability to use the underlying future tax deductions against future taxable income before they expire. This assessment is based upon existing tax laws and estimates of future taxable income. To the extent estimates differ from the final tax return, earnings may be affected in a subsequent period.

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2017 REGISTRATION DOCUMENT