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S&P Global Inc. - Quarter Report: 2017 September (Form 10-Q)




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 1-1023  
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S&P Global Inc.
(Exact name of registrant as specified in its charter)
New York
13-1026995
(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

55 Water Street, New York, New York
10041
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: 212-438-1000
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES þ NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “small reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
þ Large accelerated filer
o Accelerated filer
o Non-accelerated filer
o Smaller reporting company
o Emerging growth company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class
Shares Outstanding
Date
Common stock (par value $1.00 per share)
255.0 million
October 20, 2017

1

S&P Global Inc.
INDEX
 
 
Page Number
 
 
 


2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of S&P Global Inc.

We have reviewed the consolidated balance sheet of S&P Global Inc. (and subsidiaries) (the “Company”) as of September 30, 2017, the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2017 and 2016, the related statements of cash flows for the nine-month periods ended September 30, 2017 and 2016, and the related consolidated statement of equity for the nine-month period ended September 30, 2017. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of S&P Global Inc. (and subsidiaries) as of December 31, 2016, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 9, 2017.


/s/ ERNST & YOUNG LLP

New York, New York
October 26, 2017

3

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements

S&P Global Inc.
Consolidated Statements of Income
(Unaudited)
(in millions, except per share amounts)
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Revenue
$
1,513

 
$
1,439

 
$
4,475

 
$
4,262

Expenses:
 
 
 
 
 
 
 
Operating-related expenses
421

 
431

 
1,282

 
1,352

Selling and general expenses
388

 
337

 
1,077

 
986

Depreciation
22

 
22

 
61

 
63

Amortization of intangibles
24

 
23

 
73

 
71

Total expenses
855

 
813

 
2,493

 
2,472

Gain on disposition
—

 
(722
)
 
—

 
(722
)
Operating profit
658

 
1,348

 
1,982

 
2,512

Interest expense, net
37

 
39

 
110

 
122

Income before taxes on income
621

 
1,309

 
1,872

 
2,390

Provision for taxes on income
169

 
386

 
533

 
731

Net income
452

 
923

 
1,339

 
1,659

Less: net income attributable to noncontrolling interests
(38
)
 
(31
)
 
(105
)
 
(90
)
Net income attributable to S&P Global Inc.
$
414

 
$
892

 
$
1,234

 
$
1,569

 
 
 
 
 
 
 
 
Earnings per share attributable to S&P Global Inc. common shareholders:
 
 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
Basic
$
1.62

 
$
3.39

 
$
4.80

 
$
5.94

Diluted
$
1.61

 
$
3.36

 
$
4.75

 
$
5.89

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
255.5

 
262.9

 
257.0

 
264.1

Diluted
257.9

 
265.3

 
259.5

 
266.4

 
 
 
 
 
 
 
 
Actual shares outstanding at period end
 
 
 
 
255.0

 
259.1

 
 
 
 
 
 
 
 
Dividend declared per common share
$
0.41

 
$
0.36

 
$
1.23

 
$
1.08

 
See accompanying notes to the unaudited consolidated financial statements.

4

S&P Global Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
 
(in millions)
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
452

 
$
923

 
$
1,339

 
$
1,659

 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
24

 
(14
)
 
96

 
(55
)
Income tax effect
—

 
3

 
—

 
3

 
24

 
(11
)
 
96

 
(52
)
 
 
 
 
 
 
 
 
Pension and other postretirement benefit plans
3

 
3

 
7

 
19

Income tax effect
(1
)
 
(1
)
 
—

 
(5
)
 
2

 
2

 
7

 
14

 
 
 
 
 
 
 
 
Unrealized loss on investment
(8
)
 
—

 
(10
)
 
—

Income tax effect
—

 
—

 
—

 
—

 
(8
)
 
—

 
(10
)
 
—

 
 
 
 
 
 
 
 
Unrealized gain on forward exchange contracts
4

 
1

 
3

 
4

Income tax effect
(1
)
 
—

 
(1
)
 
(1
)
 
3

 
1

 
2

 
3

 
 
 
 
 
 
 
 
Comprehensive income
473

 
915

 
1,434

 
1,624

Less: comprehensive income attributable to nonredeemable noncontrolling interests
(4
)
 
(2
)
 
(10
)
 
(8
)
Less: comprehensive income attributable to redeemable noncontrolling interests
(34
)
 
(29
)
 
(95
)
 
(82
)
Comprehensive income attributable to S&P Global Inc.
$
435

 
$
884

 
$
1,329

 
$
1,534



See accompanying notes to the unaudited consolidated financial statements.

5

S&P Global Inc.
Consolidated Balance Sheets
 
(in millions)
September 30,
2017
 
December 31,
2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,312

 
$
2,392

Accounts receivable, net of allowance for doubtful accounts: 2017 - $35; 2016 - $28
1,188

 
1,122

Prepaid and other current assets
153

 
157

Total current assets
3,653

 
3,671

Property and equipment, net of accumulated depreciation: 2017 - $541; 2016 - $537
259

 
271

Goodwill
2,992

 
2,949

Other intangible assets, net
1,421

 
1,506

Other non-current assets
389

 
272

Total assets
$
8,714

 
$
8,669

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
170

 
$
183

Accrued compensation and contributions to retirement plans
373

 
409

Income taxes currently payable
77

 
95

Unearned revenue
1,424

 
1,509

Other current liabilities
364

 
415

Total current liabilities
2,408


2,611

Long-term debt
3,568

 
3,564

Pension and other postretirement benefits
258

 
274

Other non-current liabilities
426

 
439

Total liabilities
6,660

 
6,888

Redeemable noncontrolling interest (Note 8)
1,161

 
1,080

Commitments and contingencies (Note 12)

 

Equity:
 
 
 
Common stock
412

 
412

Additional paid-in capital
418

 
502

Retained income
10,066

 
9,210

Accumulated other comprehensive loss
(678
)
 
(773
)
Less: common stock in treasury
(9,379
)
 
(8,701
)
Total equity — controlling interests
839

 
650

Total equity — noncontrolling interests
54

 
51

Total equity
893

 
701

Total liabilities and equity
$
8,714

 
$
8,669

    

See accompanying notes to the unaudited consolidated financial statements.

6

S&P Global Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
(in millions)
Nine Months Ended
 
September 30,
 
2017
 
2016
Operating Activities:
 
 
 
Net income
$
1,339

 
$
1,659

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation
61

 
63

Amortization of intangibles
73

 
71

Provision for losses on accounts receivable
17

 
10

Stock-based compensation
65

 
54

Gain on disposition
—

 
(722
)
Other
42

 
48

Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
 
 
 
Accounts receivable
(64
)
 
(26
)
Prepaid and other current assets
3

 
5

Accounts payable and accrued expenses
(50
)
 
(81
)
Unearned revenue
(107
)
 
(6
)
Accrued legal settlements
(4
)
 
(134
)
Other current liabilities
(94
)
 
(10
)
Net change in prepaid/accrued income taxes
(42
)
 
383

Net change in other assets and liabilities
(36
)
 
(57
)
Cash provided by operating activities
1,203

 
1,257

Investing Activities:
 
 
 
Capital expenditures
(77
)
 
(67
)
Acquisitions, net of cash acquired
(80
)
 
(145
)
Proceeds from dispositions
2

 
1,071

Changes in short-term investments
—

 
(1
)
Cash (used for) provided by investing activities
(155
)
 
858

Financing Activities:
 
 
 
Payments on short-term debt, net
—

 
(143
)
Proceeds from issuance of senior notes, net
—

 
493

Dividends paid to shareholders
(316
)
 
(286
)
Distributions to noncontrolling interest holders
(69
)
 
(59
)
Contingent consideration payments
—

 
(15
)
Repurchase of treasury shares
(846
)
 
(1,123
)
Exercise of stock options
69

 
84

Employee withholding tax on share-based payments
(49
)
 
(55
)
Cash used for financing activities
(1,211
)
 
(1,104
)
Effect of exchange rate changes on cash from continuing operations
83

 
(93
)
Net change in cash and cash equivalents
(80
)
 
918

Cash and cash equivalents at beginning of period
2,392

 
1,481

Cash and cash equivalents at end of period
$
2,312

 
$
2,399


See accompanying notes to the unaudited consolidated financial statements.

7

S&P Global Inc.
Consolidated Statement of Equity
(Unaudited)

 (in millions)
Common Stock $1 par
 
Additional Paid-in Capital
 
Retained Income
 
Accumulated Other Comprehensive Loss
 
Less: Treasury Stock
 
Total SPGI Equity
 
Noncontrolling Interests
 
Total Equity
Balance as of December 31, 2016
$
412

 
$
502

 
$
9,210

 
$
(773
)
 
$
8,701

 
$
650

 
$
51

 
$
701

Comprehensive income 1
 
 
 
 
1,234

 
95

 
 
 
1,329

 
10

 
1,339

Dividends
 
 
 
 
(316
)
 
 
 
 
 
(316
)
 
(8
)
 
(324
)
Share repurchases
 
 
(75
)
 
 
 
 
 
771

 
(846
)
 
(5
)
 
(851
)
Employee stock plans
 
 
(9
)
 
 
 
 
 
(93
)
 
84

 
8

 
92

Change in redemption value of redeemable noncontrolling interest
 
 
 
 
(62
)
 
 
 
 
 
(62
)
 
 
 
(62
)
Other
 
 
—

 

 
 
 

 
—

 
(2
)
 
(2
)
Balance as of September 30, 2017
$
412

 
$
418

 
$
10,066

 
$
(678
)
 
$
9,379

 
$
839

 
$
54

 
$
893

1
Excludes $95 million attributable to our redeemable noncontrolling interest.

See accompanying notes to the unaudited consolidated financial statements.



8

S&P Global Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
 
1.
Nature of Operations and Basis of Presentation

S&P Global Inc. (together with its consolidated subsidiaries, "S&P Global," the “Company,” “we,” “us” or “our”) is a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

Our operations consist of three reportable segments: Ratings, Market and Commodities Intelligence and S&P Dow Jones Indices ("Indices").
•
Ratings is an independent provider of credit ratings, research, and analytics, offering investors and other market participants information, ratings and benchmarks.
•
Market and Commodities Intelligence is a global provider of multi-asset-class data, research and analytical capabilities, which integrate cross-asset analytics and desktop services and deliver their customers in the commodity and energy markets access to high-value information, data, analytic services and pricing and quality benchmarks. On September 7, 2016, we completed the sale of J.D. Power with the results included in Market and Commodities Intelligence results through that date.
•
Indices is a global index provider that maintains a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors.
The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Therefore, the financial statements included herein should be read in conjunction with the financial statements and notes included in our Form 10-K for the year ended December 31, 2016 (our “Form 10-K”). Certain prior-year amounts have been reclassified to conform with current presentation.

In the opinion of management, all normal recurring adjustments considered necessary for a fair statement of the results of the interim periods have been included. The operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the full year.

Our critical accounting estimates are disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, valuation of long-lived assets, goodwill and other intangible assets, pension plans, incentive compensation and stock-based compensation, income taxes, contingencies and redeemable noncontrolling interests. Since the date of our Form 10-K, there have been no material changes to our critical accounting policies and estimates. 

2.
Acquisitions and Divestitures

Acquisitions

2017
In August of 2017, we acquired a 6.02% investment in Algomi Limited ("Algomi"), an innovative fintech company focused on providing software-enabled liquidity solutions to both buy-side and sell-side firms within the credit markets. Our investment in Algomi will help facilitate product collaboration and enable future business expansion. We accounted for the investment in Algomi using the cost method of accounting. The investment with Algomi is not material to our consolidated financial statements.

In June of 2017, CRISIL, included within our Ratings segment, acquired 8.9% of the outstanding shares of CARE Ratings Limited ("CARE") from Canara Bank. CARE is a Securities and Exchange Board of India registered credit rating agency providing various rating and grading services in India whose shares are publicly traded on both the Bombay Stock Exchange and the National Stock Exchange of India. We accounted for the investment in CARE as available-for-sale using the fair value method of accounting. The investment balance as of September 30, 2017 of $53 million is included in other non-current assets in our consolidated balance sheet. The changes in the fair value of this investment is reported in accumulated other comprehensive loss in our consolidated balance sheet. The investment in CARE is not material to our consolidated financial statements.


9

2016
In October of 2016, Indices acquired Trucost plc, a leader in carbon and environmental data and risk analysis through its subsidiary S&P Global Indices UK Limited. The purchase will build on Indices current portfolio of Environmental, Social and Governance solutions. The acquisition of Trucost plc is not material to our consolidated financial statements.

In September of 2016, Market and Commodities Intelligence acquired PIRA Energy Group ("PIRA"), a global provider of energy research and forecasting products and services. The purchase enhances Market and Commodities Intelligence's energy analytical capabilities by expanding its oil offering and strengthening its position in the natural gas and power markets. We accounted for the acquisition of PIRA using the purchase method of accounting. The acquisition of PIRA is not material to our consolidated financial statements.

In June of 2016, Ratings acquired a 49% equity investment in Thailand's TRIS Rating Company Limited from its parent company, TRIS Corporation Limited. The transaction extends an existing association between Ratings and TRIS Rating and deepens their commitment to capital markets in Thailand. We accounted for the acquisition of TRIS Rating Company using the equity method of accounting. The equity investment in TRIS Rating is not material to our consolidated financial statements.

In June of 2016, Market and Commodities Intelligence acquired RigData, a provider of daily information on rig activity for the natural gas and oil markets across North America. The purchase enhances Market and Commodities Intelligence's energy analytical capabilities by strengthening its position in natural gas and enhancing its oil offering. We accounted for the acquisition of RigData using the purchase method of accounting. The acquisition of RigData is not material to our consolidated financial statements.

In March of 2016, Market and Commodities Intelligence acquired Commodity Flow, a specialist technology and business intelligence service for the global waterborne commodity and energy markets. The purchase helps extend Market and Commodities Intelligence's trade flow analytical capabilities and complements its existing shipping services. We accounted for the acquisition of Commodity Flow using the purchase method of accounting. The acquisition of Commodity Flow is not material to our consolidated financial statements.

Divestitures

2017
In April of 2017, we signed a letter of intent to sell our facility at East Windsor, New Jersey. The fixed assets of the facility of $5 million have been classified as held for sale, which is included in prepaid and other current assets in our consolidated balance sheet as of September 30, 2017.

In January of 2017, we completed the sale of Quant House SAS ("QuantHouse"), included in our Market and Commodities Intelligence segment, to QH Holdco, an independent third party. In November of 2016, we entered into a put option agreement that gave the Company the right, but not the obligation, to put the entire share capital of QuantHouse to QH Holdco. As a result, we classified the assets and liabilities of QuantHouse, net of our costs to sell, as held for sale, which is included in prepaid and other current assets and other current liabilities, respectively, in our consolidated balance sheet as of December 31, 2016. On January 4, 2017, we exercised the put option, thereby entering into a definitive agreement to sell QuantHouse to QH Holdco. On January 9, 2017, we completed the sale of QuantHouse to QH Holdco. Following the sale, the assets and liabilities of QuantHouse are no longer reported in our consolidated balance sheet as of September 30, 2017.

The components of assets and liabilities held for sale related to QuantHouse in the consolidated balance sheet consist of the following:
(in millions)
December 31,
 
2016
Accounts receivable, net
$
4

Other assets
3

Assets of a business held for sale
$
7

 
 
Accounts payable and accrued expenses
$
3

Unearned revenue
7

Other liabilities
35

Liabilities of a business held for sale
$
45


10

2016
In September of 2016, we completed the sale of J.D. Power, included within our Market and Commodities Intelligence segment, for $1.1 billion to XIO Group, a global alternative investments firm headquartered in London. During the three and nine months ended September 30, 2016, we recorded a pre-tax gain of $722 million ($521 million after-tax) in gain on disposition in the consolidated statement of income related to the sale of J.D. Power.

The operating profit of our businesses that were disposed of or held for sale for the periods ended September 30, 2017 and 2016 is as follows:
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
2017
 
2016
Operating profit 1
$
—

 
$
22

 
$
—

 
$
29

1 The three and nine months ended September 31, 2016 exclude a pre-tax gain on the sale of J.D. Power of $722 million.

3.
Income Taxes

The effective income tax rate was 27.3% and 28.5% for the three and nine months ended September 30, 2017, respectively, and 29.5% and 30.6% for the three and nine months ended September 30, 2016, respectively. The decrease in 2017 was primarily due to the recognition of excess tax benefits associated with share-based payments in the statement of income, the resolution of tax audits and a benefit from an acquisition-related adjustment.

At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The tax expense or benefit related to significant unusual or infrequently occurring items that will be separately reported or reported net of their related tax effect, and are individually computed, is recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.

The Company is continuously subject to tax examinations in various jurisdictions. As of September 30, 2017 and December 31, 2016, the total amount of federal, state and local, and foreign unrecognized tax benefits was $138 million and $161 million, respectively, exclusive of interest and penalties. We recognize accrued interest and penalties related to unrecognized tax benefits in interest expense and operating-related expense, respectively. In addition, as of September 30, 2017 and December 31, 2016, we had $53 million and $44 million, respectively, of accrued interest and penalties associated with unrecognized tax benefits. Based on the current status of income tax audits, we believe that the total amount of unrecognized tax benefits on the balance sheet may be reduced by up to approximately $32 million in the next twelve months as a result of the resolution of local tax examinations.

In November of 2015, the Financial Accounting Standards Board ("FASB") issued guidance to simplify the presentation of deferred income taxes. The guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption was permitted. We early adopted this guidance in the fourth quarter of 2016, prospectively, and accordingly prior year amounts have not been reclassified.


11

4.
Debt 
(in millions)
September 30,
2017
 
December 31,
2016
2.5% Senior Notes, due 2018 1
$
399

 
$
398

3.3% Senior Notes, due 2020 2
697

 
696

4.0% Senior Notes, due 2025 3
692

 
691

4.4% Senior Notes, due 2026 4
892

 
891

2.95% Senior Notes, due 2027 5
492

 
492

6.55% Senior Notes, due 2037 6
396

 
396

Total debt
3,568

 
3,564

Less: short-term debt including current maturities
—

 
—

Long-term debt
$
3,568

 
$
3,564

1 
Interest payments are due semiannually on February 15 and August 15, and as of September 30, 2017, the unamortized debt discount and issuance costs total $1 million.
2 
Interest payments are due semiannually on February 14 and August 14, and as of September 30, 2017, the unamortized debt discount and issuance costs total $3 million.
3 
Interest payments are due semiannually on June 15 and December 15, and as of September 30, 2017, the unamortized debt discount and issuance costs total $8 million.
4 
Interest payments are due semiannually on February 15 and August 15, and as of September 30, 2017, the unamortized debt discount and issuance costs total $8 million.
5 
Interest payments are due semiannually on January 22 and July 22, and as of September 30, 2017, the unamortized debt discount and issuance costs total $8 million.
6 
Interest payments are due semiannually on May 15 and November 15, and as of September 30, 2017, the unamortized debt discount and issuance costs total $4 million.

The fair value of our long-term debt borrowings was $3.8 billion and $3.7 billion as of September 30, 2017 and December 31, 2016, respectively, and was estimated based on quoted market prices.

On June 30, 2017, we entered into a revolving $1.2 billion five-year credit agreement (our "credit facility") that will terminate on June 30, 2022. This credit facility replaced our $1.2 billion five year credit facility that was scheduled to terminate on June 30, 2020. The previous credit facility was canceled immediately after the new credit facility became effective. There were no outstanding borrowings under the previous credit facility when it was replaced.

We have the ability to borrow a total of $1.2 billion through our commercial paper program, which is supported by our credit facility. As of September 30, 2017 and December 31, 2016, there were no commercial paper borrowings outstanding.

Depending on our corporate credit rating, we pay a commitment fee of 8 to 17.5 basis points for our credit facility, whether or not amounts have been borrowed. We currently pay a commitment fee of 12.5 basis points. The interest rate on borrowings under our credit facility is, at our option, calculated using rates that are primarily based on either the prevailing London Inter-Bank Offer Rate, the prime rate determined by the administrative agent or the Federal Funds Rate. For certain borrowings under this credit facility, there is also a spread based on our corporate credit rating.

Our credit facility contains certain covenants. The only financial covenant requires that our indebtedness to cash flow ratio, as defined in our credit facility, is not greater than 4 to 1, and this covenant level has never been exceeded.

5.
Derivative Instruments

Cash Flow Hedges

Our exposure to market risk includes changes in foreign exchange rates. We have operations in foreign countries where the functional currency is primarily the local currency. For international operations that are determined to be extensions of the parent company, the U.S. dollar is the functional currency. We typically have naturally hedged positions in most countries from a local currency perspective with offsetting assets and liabilities. As of September 30, 2017 and December 31, 2016, we have entered

12

into foreign exchange forward contracts to hedge the effect of adverse fluctuations in foreign currency exchange rates. We do not enter into any derivative financial instruments for speculative purposes.
During the three months ended March 31, 2017, we entered into a series of foreign exchange forward contracts to hedge a portion of our Indian rupee, British pound, and euro exposures through the fourth quarter of 2017. These contracts are intended to offset the impact of movement of exchange rates on future revenue and operating costs and are scheduled to mature within twelve months. The changes in the fair value of these contracts are initially reported in accumulated other comprehensive loss in our consolidated balance sheet and are subsequently reclassified into revenue and selling and general expenses in the same period that the hedged transaction affects earnings.
During the three months ended March 31, 2016, we entered into a series of foreign exchange forward contracts to hedge a portion of our Indian rupee exposure through the fourth quarter of 2016. These contracts were intended to offset the impact of movement of exchange rates on future operating costs and matured at the end of each quarter during 2016. The changes in the fair value of these contracts were initially reported in accumulated other comprehensive loss in our consolidated balance sheet and were subsequently reclassified into selling and general expenses in the same period that the hedge contract matured.
As of September 30, 2017, we estimate that $4 million of the net gains related to derivatives designated as cash flow hedges recorded in other comprehensive income (loss) is expected to be reclassified into earnings within the next twelve months. There was no material hedge ineffectiveness for the three and nine months ended September 30, 2017 and 2016. As of September 30, 2017 and September 30, 2016, the aggregate notional value of our outstanding foreign currency forward contracts was $133 million and $78 million, respectively.
The following table provides information on the location and fair value amounts of our cash flow hedges as of September 30, 2017 and December 31, 2016:
(in millions)
Balance Sheet Location
 
September 30, 2017
 
December 31, 2016
Prepaid and other current assets 1
Foreign exchange forward contracts
$
5

 
$
3

1 
Foreign currency forward contracts are recorded at fair value that is based on foreign currency exchange rates in active markets; therefore we classify these derivative contracts as Level 2.
The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges for the periods ended September 30:
Three Months
(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (effective portion)
 
Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
 
Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
Cash flow hedges - designated as hedging instruments
2017
 
2016
 
 
 
2017
 
2016
Foreign exchange forward contracts
$
3

 
$
1

 
Selling and general expenses
 
$
2

 
$
1


Nine Months
(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (effective portion)
 
Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
 
Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
Cash flow hedges - designated as hedging instruments
2017
 
2016
 
 
 
2017
 
2016
Foreign exchange forward contracts
$
2

 
$
3

 
Selling and general expenses
 
$
6

 
$
3



13

The activity related to the change in unrealized gains (losses) in accumulated other comprehensive loss was as follows for the periods ended September 30:
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
2017
 
2016
Net unrealized gains (losses) on cash flow hedges, net of taxes, beginning of period
$
1

 
$
1

 
$
2

 
$
(1
)
Change in fair value, net of tax
5

 
2

 
8

 
6

Reclassification into earnings, net of tax
(2
)
 
(1
)
 
(6
)
 
(3
)
Net unrealized gains on cash flow hedges, net of taxes, end of period
$
4

 
$
2

 
$
4

 
$
2


6.
Employee Benefits

We maintain a number of active defined contribution retirement plans for our employees. The majority of our defined benefit plans are frozen. As a result, no new employees will be permitted to enter these plans and no additional benefits for current participants in the frozen plans will be accrued.

We have supplemental benefit plans that provide senior management with supplemental retirement, disability and death benefits. Certain supplemental retirement benefits are based on final monthly earnings. In addition, we sponsor voluntary 401(k) plans under which we may match employee contributions up to certain levels of compensation as well as profit-sharing plans under which we contribute a percentage of eligible employees' compensation to the employees' accounts.

We also provide certain medical, dental and life insurance benefits for active and retired employees and eligible dependents. The medical and dental plans and supplemental life insurance plan are contributory, while the basic life insurance plan is noncontributory. We currently do not prefund any of these plans.

We recognize the funded status of our defined benefit retirement and postretirement plans in the consolidated balance sheets, with a corresponding adjustment to accumulated other comprehensive loss, net of taxes. The amounts in accumulated other comprehensive loss represent unrecognized actuarial losses and unrecognized prior service costs. These amounts will be subsequently recognized as net periodic benefit cost pursuant to our accounting policy for amortizing such amounts.

The components of net periodic benefit cost for our retirement plans and postretirement plans for the periods ended September 30 are as follows: 

Retirement Plans
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
2017
 
2016
Service cost
$
1

 
$
1

 
$
2

 
$
2

Interest cost
19

 
19

 
55

 
59

Expected return on assets
(32
)
 
(30
)
 
(95
)
 
(92
)
Amortization of actuarial loss
4

 
4

 
14

 
12

Net periodic benefit cost
$
(8
)
 
$
(6
)
 
$
(24
)
 
$
(19
)

Postretirement Plans
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
2017
 
2016
Interest cost
$
—

 
$
1

 
$
1

 
$
2

Amortization of prior service credit / actuarial gain
—

 
(1
)
 
(2
)
 
(1
)
Net periodic benefit cost
$
—

 
$
—

 
$
(1
)
 
$
1


As discussed in our Form 10-K, we changed certain discount rate assumptions on our retirement and postretirement plans, which became effective on January 1, 2017. The effect of the assumption changes on retirement and postretirement expense for the three

14

and nine months ended September 30, 2017 did not have a material impact to our financial position, results of operations or cash flows.

In the first nine months of 2017, we contributed $6 million to our retirement plans and expect to make additional required contributions of approximately $2 million to our retirement plans during the remainder of the year. We may elect to make additional non-required contributions depending on investment performance and the pension plan status in the fourth quarter of 2017.

7.
Stock-Based Compensation

We issue stock-based incentive awards to our eligible employees and Directors under the 2002 Employee Stock Incentive Plan and a Director Deferred Stock Ownership Plan. The 2002 Employee Stock Incentive Plan permits the granting of nonqualified stock options, stock appreciation rights, performance stock, restricted stock and other stock-based awards.

Stock-based compensation for the periods ended September 30 is as follows:
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
2017
 
2016
Stock option expense
$
1

 
$
2

 
$
2

 
$
6

Restricted stock and unit awards expense
23

 
18

 
63

 
48

Total stock-based compensation expense 
$
24

 
$
20

 
$
65

 
$
54


During the nine months ended September 30, 2017, the Company granted 0.4 million shares of restricted stock and unit awards, which had a weighted average grant date fair value of $130.24 per share. Total unrecognized compensation expense related to unvested restricted stock and unit awards as of September 30, 2017 was $83 million, which is expected to be recognized over a weighted average period of 1.8 years.

8.
Equity

Stock Repurchases

On December 4, 2013, the Board of Directors approved a share repurchase program authorizing the purchase of 50 million shares, which was approximately 18% of the total shares of our outstanding common stock at that time.

In any period, share repurchase transactions could result in timing differences between the recognition of those repurchases and their settlement for cash. This could result in a difference between the cash used for financing activities related to common stock repurchased and the comparable change in equity.

Share repurchases for the periods ended September 30 were as follows: 
(in millions, except average price)
Three Months
 
Nine Months
 
2017
 
2016
 
2017
 
2016
Total number of shares purchased 1
2.8

 
5.3

 
5.4

 
8.8

Average price paid per share 2
$
—

 
$
—

 
$
133.01

 
$
98.05

Total cash utilized 3
$
500

 
$
750

 
$
846

 
$
1,097

1 
The three and nine months ended September 30, 2017 and 2016 include shares received as part of our accelerated share repurchase agreements described in more detail below.
2 
Average price paid per share information does not include the accelerated share repurchase transactions as discussed in more detail below.
3 
In December of 2015, 0.3 million shares were repurchased for approximately $26 million, which settled in January of 2016. Cash used for financing activities only reflects those shares which settled during the nine months ended September 30, 2016 resulting in $1,123 million of cash used to repurchase shares.

Our purchased shares may be used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options. As of September 30, 2017, approximately 20.4 million shares remained available under the current share repurchase program which has no expiration date and purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions.


15

Accelerated Share Repurchase Agreements

We entered into an accelerated share repurchase ("ASR") agreement with a financial institution on August 1, 2017 to initiate share repurchases aggregating $500 million. The ASR agreement was structured as an uncapped ASR agreement in which we paid $500 million and received an initial delivery of approximately 2.8 million shares, representing 85% of the $500 million at a price equal to the then market price of the Company. The total number of shares to be repurchased under the ASR agreement will be equal to $500 million divided by the volume weighted-average share price, less a discount, over the term of the ASR agreement. The final settlement of the transaction under the ASR agreement is expected to be completed no later than October 31, 2017. The repurchased shares are held in Treasury. The ASR agreement was executed under the current share repurchase program, approved on December 4, 2013.

Using a portion of the proceeds received from the sale of J.D. Power, we entered into an ASR agreement with a financial institution on September 7, 2016 to initiate share repurchases aggregating $750 million. The ASR agreement was structured as a capped ASR agreement in which we paid $750 million and received an initial delivery of approximately 4.4 million shares and an additional amount of 0.9 million shares during the month of September 2016, representing the minimum number of shares of our common stock to be repurchased based on a calculation using a specified capped price per share. We completed the ASR agreement on December 7, 2016 and received an additional 0.9 million shares, which settled on December 12, 2016. We repurchased a total of 6.1 million shares under the ASR agreement for an average purchase price of $122.18 per share. The total number of shares repurchased under the ASR agreement was based on the volume weighted-average share price, minus a discount, of our common stock over the term of the ASR agreement. The repurchased shares are held in Treasury. The ASR agreement was executed under the current share repurchase program, approved on December 4, 2013.

Redeemable Noncontrolling Interests

The agreement with the minority partners that own 27% of our S&P Dow Jones Indices LLC joint venture contains redemption features whereby interests held by minority partners are redeemable either (i) at the option of the holder or (ii) upon the occurrence of an event that is not solely within our control. Specifically, under the terms of the operating agreement of S&P Dow Jones Indices LLC, after December 31, 2017, CME Group and CME Group Index Services LLC ("CGIS") will have the right at any time to sell, and we are obligated to buy, at least 20% of their share in S&P Dow Jones Indices LLC. In addition, in the event there is a change of control of the Company, for the 15 days following a change in control, CME Group and CGIS will have the right to put their interest to us at the then fair value of CME Group's and CGIS' minority interest.

If interests were to be redeemed under this agreement, we would generally be required to purchase the interest at fair value on the date of redemption. This interest is presented on the consolidated balance sheets outside of equity under the caption “Redeemable noncontrolling interest” with an initial value based on fair value for the portion attributable to the net assets we acquired, and based on our historical cost for the portion attributable to our S&P Index business. We adjust the redeemable noncontrolling interest each reporting period to its estimated redemption value, but never less than its initial fair value, considering a combination of an income and market valuation approach. Our income and market valuation approaches incorporate Level 3 fair value measures for instances when observable inputs are not available, including assumptions related to expected future net cash flows, long-term growth rates, the timing and nature of tax attributes, and the redemption features. Any adjustments to the redemption value will impact retained income.

Noncontrolling interests that do not contain such redemption features are presented in equity.

Changes to redeemable noncontrolling interest during the nine months ended September 30, 2017 were as follows:
(in millions)
 
Balance as of December 31, 2016
$
1,080

Net income attributable to noncontrolling interest
95

Distributions payable to noncontrolling interest
(76
)
Redemption value adjustment
62

Balance as of September 30, 2017
$
1,161



16

Accumulated Other Comprehensive Loss

The following table summarizes the changes in the components of accumulated other comprehensive loss for the nine months ended September 30, 2017:
(in millions)
Foreign Currency Translation Adjustment
 
Pension and Postretirement Benefit Plans
 
Unrealized Gain (Loss) on Forward Exchange Contracts
 
Unrealized Loss on Investment
 
Accumulated Other Comprehensive Loss
Balance as of December 31, 2016
$
(332
)
 
$
(443
)
 
$
2

 
—

 
$
(773
)
Other comprehensive income before reclassifications
96

 
(1
)
 
8

 
(10
)
 
93

Reclassifications from accumulated other comprehensive loss to net earnings
—

 
8

1 

(6
)
2 

—

 
2

Net other comprehensive income
96

 
7

 
2

 
(10
)
 
95

Balance as of September 30, 2017
$
(236
)
 
$
(436
)
 
$
4

 
$
(10
)
 
$
(678
)
1 
See Note 6 — Employee Benefits for additional details of items reclassed from accumulated other comprehensive loss to net earnings.
2 
See Note 5 — Derivative Instruments for additional details of items reclassed from accumulated other comprehensive loss to net earnings.

The net actuarial loss and prior service cost related to pension and other postretirement benefit plans included in other comprehensive income is net of a tax provision of $3 million for the nine months ended September 30, 2017.

9.
Earnings Per Share

Basic earnings per common share (“EPS”) is computed by dividing net income attributable to the common shareholders of the Company by the weighted-average number of common shares outstanding. Diluted EPS is computed in the same manner as basic EPS, except the number of shares is increased to include additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued. Potential common shares consist primarily of stock options and restricted performance shares calculated using the treasury stock method.

The calculation for basic and diluted EPS for the periods ended September 30 is as follows: 
(in millions, except per share amounts)
Three Months
 
Nine Months

2017
 
2016
 
2017
 
2016
Amounts attributable to S&P Global Inc. common shareholders:
 
 
 
 
 
 
 
Net income
$
414

 
$
892

 
$
1,234

 
$
1,569

 
 
 
 
 
 
 
 
Basic weighted-average number of common shares outstanding
255.5

 
262.9

 
257.0

 
264.1

Effect of stock options and other dilutive securities
2.4

 
2.4

 
2.5

 
2.3

Diluted weighted-average number of common shares outstanding
257.9

 
265.3

 
259.5

 
266.4

 
 
 
 
 
 
 
 
Earnings per share attributable to S&P Global Inc. common shareholders:
 
 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
Basic
$
1.62

 
$
3.39

 
$
4.80

 
$
5.94

Diluted
$
1.61

 
$
3.36

 
$
4.75

 
$
5.89


We have certain stock options and restricted performance shares that are potentially excluded from the computation of diluted EPS. The effect of the potential exercise of stock options is excluded when the average market price of our common stock is lower than the exercise price of the related option during the period or when a net loss exists because the effect would have been antidilutive. Additionally, restricted performance shares are excluded because the necessary vesting conditions had not been met or when a net loss exists. For the three and nine months ended September 30, 2017 and 2016, there were no stock options excluded. Restricted performance shares outstanding of 0.9 million and 0.7 million as of September 30, 2017 and 2016, respectively, were excluded.


17

10.
Restructuring

During 2017 and 2016, we continued to evaluate our cost structure and further identified cost savings associated with streamlining our management structure and our decision to exit non-strategic businesses. Our 2017 and 2016 restructuring plans consisted of a company-wide workforce reduction of approximately 200 and 230 positions, respectively, and are further detailed below. The charges for the restructuring plan are classified as selling and general expenses within the consolidated statements of income and the reserves are included in other current liabilities in the consolidated balance sheets.

In certain circumstances, reserves are no longer needed because of efficiencies in carrying out the plans or because employees previously identified for separation resigned from the Company and did not receive severance or were reassigned due to circumstances not foreseen when the original plans were initiated. In these cases, we reverse reserves through the consolidated statements of income during the period when it is determined they are no longer needed.

The initial restructuring charge recorded and the ending reserve balance as of September 30, 2017 by segment is as follows:
 
2017 Restructuring Plans
 
2016 Restructuring Plans
(in millions)
Initial Charge Recorded
 
Ending Reserve Balance
 
Initial Charge Recorded
 
Ending Reserve Balance
Ratings
$
15

 
$
15

 
$
14

 
$
4

Market and Commodities Intelligence
5

 
4

 
10

 
5

Indices
—

 
—

 
1

 
—

Corporate
4

 
4

 
5

 
3

Total
$
24

 
$
23

 
$
30

 
$
12


We recorded a pre-tax restructuring charge of $24 million related to employee severance charges for the 2017 restructuring plan during the nine months ended September 30, 2017 and have reduced the reserve by $1 million. The ending reserve balance for the 2016 restructuring plan was $23 million as of December 31, 2016. For the nine months ended September 30, 2017, we have reduced the reserve for the 2016 restructuring plan by $11 million. The reductions primarily related to cash payments for employee severance charges.

11.
Segment and Related Information

We have three reportable segments: Ratings, Market and Commodities Intelligence and Indices. Our Chief Executive Officer is our chief operating decision-maker and evaluates performance of our segments and allocates resources based primarily on operating profit. Segment operating profit does not include unallocated expense or interest expense as these are costs that do not affect the operating results of our segments.

A summary of operating results by segment for the periods ended September 30 is as follows: 
Three Months
2017
 
2016
(in millions)
Revenue
 
Operating Profit
 
Revenue
 
Operating Profit
Ratings 1
$
739

 
$
376

 
$
642

 
$
346

Market and Commodities Intelligence 2
615

 
208

 
658

 
924

Indices 3
187

 
119

 
164

 
107

Intersegment elimination 4
(28
)
 
—

 
(25
)
 
—

Total operating segments
1,513

 
703

 
1,439

 
1,377

Unallocated expense 5
—

 
(45
)
 
—

 
(29
)
Total
$
1,513

 
$
658

 
$
1,439

 
$
1,348



18

Nine Months
2017
 
2016
(in millions)
Revenue
 
Operating Profit
 
Revenue
 
Operating Profit
Ratings 1
$
2,199

 
$
1,149

 
$
1,877

 
$
1,004

Market and Commodities Intelligence 2
1,815

 
586

 
1,990

 
1,293

Indices 3
542

 
352

 
468

 
308

Intersegment elimination 4
(81
)
 
—

 
(73
)
 
—

Total operating segments
4,475

 
2,087

 
4,262

 
2,605

Unallocated expense 5
—

 
(105
)
 
—

 
(93
)
Total
$
4,475

 
$
1,982

 
$
4,262

 
$
2,512

1 
Operating profit includes employee severance charges of $15 million for the three and nine months ended September 30, 2017 and legal settlement expenses of $2 million for the nine months ended September 30, 2017. Operating profit includes a benefit related to net legal settlement insurance recoveries of $17 million and $63 million for the three and nine months ended September 30, 2016, respectively, and employee severance charges of $6 million for the nine months ended September 30, 2016. Operating profit also includes amortization of intangibles from acquisitions of $1 million for the three months ended September 30, 2017 and 2016 and $3 million and $4 million for the nine months ended September 30, 2017 and 2016, respectively.
2 
Operating profit for the nine months ended September 30, 2017 includes a charge to exit a leased facility of $6 million, employee severance charges of $5 million, an asset write-off of $2 million, and non-cash acquisition and disposition-related adjustments of $15 million. As of September 7, 2016, we completed the sale of J.D. Power with the results included in Market and Commodities Intelligence results through that date. Operating profit for the three and nine months ended September 30, 2016 includes disposition-related costs of $6 million and $17 million, respectively, an acquisition-related cost of $1 million, and a gain on the sale of J.D. Power of $722 million. Operating profit for the nine months ended September 30, 2016 includes a technology-related impairment charge of $24 million. Operating profit also includes amortization of intangibles from acquisitions of $22 million and $21 million for the three months ended September 30, 2017 and 2016, respectively, and $66 million and $63 million for the nine months ended September 30, 2017 and 2016, respectively.
3 
Operating profit includes amortization of intangibles from acquisitions of $1 million for the three months ended September 30, 2017 and 2016 and $4 million for the nine months ended September 30, 2017 and 2016.
4 
Revenue for Ratings and expenses for Market and Commodities Intelligence include an intersegment royalty charged to Market and Commodities Intelligence for the rights to use and distribute content and data developed by Ratings.
5 
Operating profit includes employee severance charges of $4 million for the three and nine months ended September 30, 2017 and a disposition-related reserve release of $3 million for the nine months ended September 30, 2016.

The following provides revenue by geographic region for the periods ended September 30:
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
2017
 
2016
U.S.
$
916

 
$
887

 
$
2,733

 
$
2,641

European region
359

 
333

 
1,062

 
966

Asia
157

 
145

 
431

 
437

Rest of the world
81

 
74

 
249

 
218

Total
$
1,513

 
$
1,439

 
$
4,475

 
$
4,262


See Note 2 — Acquisitions and Divestitures and Note 10 — Restructuring for additional actions that impacted the segment operating results.

12.
Commitments and Contingencies

Related Party Agreements

In June of 2012, we entered into a new license agreement (the "License Agreement") with the holder of S&P Dow Jones Indices LLC noncontrolling interest, CME Group, which replaced the 2005 license agreement between Indices and CME Group. Under the terms of the License Agreement, S&P Dow Jones Indices LLC receives a share of the profits from the trading and clearing of CME Group's equity index products. During the three and nine months ended September 30, 2017, S&P Dow Jones Indices LLC earned $18 million and $56 million, respectively, of revenue under the terms of the License Agreement. The entire amount of this revenue is included in our consolidated statement of income and the portion related to the 27% noncontrolling interest is removed in net income attributable to noncontrolling interests.

19


Legal & Regulatory Matters

In the normal course of business both in the United States and abroad, the Company and its subsidiaries are defendants in a number of legal proceedings and are often the subject of government and regulatory proceedings, investigations and inquiries. Many of these proceedings, investigations and inquiries relate to the ratings activity of S&P Global Ratings brought by issuers and alleged purchasers of rated securities. In addition, various government and self-regulatory agencies frequently make inquiries and conduct investigations into our compliance with applicable laws and regulations, including those related to ratings activities and antitrust matters. Any of these proceedings, investigations or inquiries could ultimately result in adverse judgments, damages, fines, penalties or activity restrictions, which could adversely impact our consolidated financial condition, cash flows, business or competitive position.

The Company believes that it has meritorious defenses to the pending claims and potential claims in the matters described below and is diligently pursuing these defenses, and in some cases working to reach an acceptable negotiated resolution. However, in view of the uncertainty inherent in litigation and government and regulatory enforcement matters, we cannot predict the eventual outcome of these matters or the timing of their resolution, or in most cases reasonably estimate what the eventual judgments, damages, fines, penalties or impact of activity restrictions may be. As a result, we cannot provide assurance that the outcome of the matters described below will not have a material adverse effect on our consolidated financial condition, cash flows, business or competitive position. As litigation or the process to resolve pending matters progresses, as the case may be, we will continue to review the latest information available and assess our ability to predict the outcome of such matters and the effects, if any, on our consolidated financial condition, cash flows, business and competitive position, which may require that we record liabilities in the consolidated financial statements in future periods.

With respect to the matters identified below, we have recognized a liability when both (a) information available indicates that it is probable that a liability has been incurred as of the date of these financial statements and (b) the amount of loss can reasonably be estimated.

S&P Global Ratings

Financial Crisis Litigation

The Company and its subsidiaries continue to defend civil cases brought by private and public plaintiffs arising out of ratings activities prior to and during the global financial crisis of 2008-2009. Included in these civil cases are several lawsuits in Australia against the Company and Standard & Poor’s International, LLC relating to alleged investment losses in collateralized debt obligations (“CDOs”) rated by S&P Global Ratings. Discovery in certain of these cases, including the Australia matters, is ongoing. We can provide no assurance that we will not be obligated to pay significant amounts in order to resolve these matters on terms deemed acceptable.

U.S. Securities and Exchange Commission

As a nationally recognized statistical rating organization registered with the SEC under Section 15E of the Securities Exchange Act of 1934, S&P Global Ratings is in ongoing communication with the staff of the SEC regarding compliance with its extensive obligations under the federal securities laws. Although S&P Global Ratings seeks to promptly address any compliance issues that it detects or that the staff of the SEC raises, there can be no assurance that the SEC will not seek remedies against S&P Global Ratings for one or more compliance deficiencies.

Trani Prosecutorial Proceeding

In 2014, the prosecutor in the Italian city of Trani obtained criminal indictments against several current and former S&P Global Ratings managers and ratings analysts for alleged market manipulation, and against Standard & Poor’s Credit Market Services Europe under Italy’s vicarious liability statute, for having allegedly failed to properly supervise the ratings analysts and prevent them from committing market manipulation. The prosecutor’s theories were based on various actions by S&P Global Ratings taken with respect to Italian sovereign debt between May of 2011 and January of 2012. On March 30, 2017, following trial, the court in Trani issued an oral verdict acquitting each of the individual defendants and Standard & Poor’s Credit Market Services Europe of all charges, and on September 27, 2017, the court filed a written opinion supporting the verdict. If the prosecutor appeals and the verdict is reversed, a conviction could result in criminal penalties, as well as civil damages claims and other sanctions against Standard & Poor’s Credit Market Services Europe or the Company. Such claims and sanctions cannot be quantified at this stage.


20

Shareholder Derivative Actions
    
In August of 2015, two purported shareholders commenced a putative derivative action on behalf of the Company in New York State Supreme Court titled Retirement Plan for General Employees of the City of North Miami Beach and Robin Stein v. Harold McGraw III, et al. The complaint asserts claims for, among other things, breach of fiduciary duty, waste of corporate assets, and mismanagement against the board of directors and certain former directors and employees of the Company. Plaintiffs seek recovery from the defendants based primarily on allegations that S&P Global Ratings’ credit ratings practices for certain residential mortgage-backed securities and collateralized debt obligations misrepresented the credit risks of those securities, allegedly resulting in losses to the Company. In January of 2016, a different purported shareholder commenced a separate putative derivative action on behalf of the Company in New York State Supreme Court titled L.A. Grika v. Harold McGraw III, et al. The allegations in the complaint are substantially similar to those in the North Miami Beach matter. The complaint asserts claims for, among other things, breach of fiduciary duty, aiding and abetting breaches of fiduciary duty, unjust enrichment, contribution and indemnification against Harold McGraw III, Douglas L. Peterson, and nine former employees of the Company. The Grika matter was transferred to the judge presiding over the North Miami Beach matter. In December of 2016, the court issued orders granting the Company's motions to dismiss both the North Miami Beach and Grika matters. In January of 2017, the plaintiffs in both matters filed notices of appeal. On September 5, 2017, the plaintiffs in the North Miami Beach matter filed a brief in support of their appeal.

13.
Recently Issued or Adopted Accounting Standards

In August of 2017, FASB issued guidance to enhance the hedge accounting model for both nonfinancial and financial risk components, which includes amendments to address certain aspects of recognition and presentation disclosure. The guidance is effective for reporting periods beginning after December 15, 2018. We do not expect this guidance to have a significant impact on our consolidated financial instruments.

In May of 2017, FASB issued guidance that provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This guidance does not change the accounting for modifications but
clarifies when modification accounting guidance should be applied. Under the new guidance, an entity should apply modification accounting in response to a change in the terms and conditions of an entity's share-based payment awards unless three newly specified criteria are met. The guidance is effective for reporting periods beginning after December 15, 2017; however, early adoption is permitted. We do not expect this guidance to have a significant impact on our consolidated financial statements.

In March of 2017, FASB issued guidance to enhance the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance requires employers to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. The guidance is effective for reporting periods beginning after December 15, 2017; however, early adoption is permitted. We are currently assessing the impact of this guidance on our consolidated financial statements.

In January of 2017, the FASB issued guidance that simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance is effective for reporting periods beginning after December 15, 2019; however, early adoption is permitted. We do not expect this guidance to have a significant impact on our consolidated financial statements.

In January of 2017, the FASB issued guidance that clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for reporting periods beginning after December 15, 2017. We do not expect this guidance to have a significant impact on our consolidated financial statements.

In August of 2016, the FASB issued guidance providing amendments to eight specific statement of cash flows classification issues. The guidance is effective for reporting periods beginning after December 15, 2017; however, early adoption is permitted. We do not expect this guidance to have a significant impact on our consolidated financial statements.


21

In March of 2016, the FASB issued guidance to modify several aspects of accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification in the statement of cash flows. This guidance requires recognizing excess tax benefits and deficiencies as income tax expense or benefit in the statement of income, instead of in equity. The guidance was effective on January 1, 2017 and was adopted as follows: 1) prospectively for the recognition of excess tax benefits and deficiencies in the tax provision, 2) retrospectively for the classification of excess tax benefits and deficiencies in the statement of cash flows, and 3) retrospectively for the classification of cash paid for shares withheld to satisfy employee taxes in the statement of cash flows. For the nine months ended September 30, 2017, excess tax benefits from share-based payments of $51 million were recognized as an income tax benefit in our consolidated statements of income and classified as an operating activity in our consolidated statements of cash flows. For the nine months ended September 30, 2016, we reclassified $31 million of excess tax benefits from share-based payments from a financing activity to an operating activity in our consolidated statements of cash flows. In addition, cash paid for shares withheld on the employees' behalf of $49 million was classified as a financing activity in our consolidated statements of cash flows for the nine months ended September 30, 2017. Cash paid for employee taxes of $55 million was reclassified from an operating activity to a financing activity in our consolidated statements of cash flows for the nine months ended September 30, 2016.

In February of 2016, the FASB issued guidance that amends accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities but will recognize expenses similar to current lease accounting. The guidance is effective for reporting periods beginning after December 15, 2018; however early adoption is permitted. The new guidance must be adopted using a modified retrospective approach to each prior reporting period presented with various optional practical expedients. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

In January of 2016, the FASB issued guidance to enhance the reporting model for financial instruments, which includes amendments to address certain aspects of recognition, measurement, presentation and disclosure. The guidance is effective for reporting periods beginning after December 15, 2017. We do not expect this guidance to have a significant impact on our consolidated financial statements.

In May of 2014, the FASB and the International Accounting Standards Board (“IASB”) issued jointly a converged standard on the recognition of revenue from contracts with customers, which is intended to improve the financial reporting of revenue and comparability of the top line in financial statements globally. The core principle of the new standard is for the recognition of revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively and improve guidance for multiple-element arrangements. In August of 2015, the FASB issued guidance deferring the effective date of the new revenue standard by one year. Subsequently, the FASB issued implementation guidance related to the new revenue standard, including the following: In March of 2016, the FASB issued guidance to clarify the implementation guidance on principal versus agent considerations; in April of 2016, the FASB clarified guidance on performance obligations and the licensing implementation guidance; in May of 2016, the FASB issued a practical expedient in response to identified implementation issues. The new guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. We will use the modified retrospective transition method and are evaluating the impact that the adoption of this standard will have on our consolidated financial statements. We are continuing our evaluation of potential changes to our accounting policies, business processes, systems and internal controls to support the recognition and disclosure requirements under the new standard. At this point, we believe the new standard will have an impact on: 1) the accounting for certain long-term deferred revenue in our Ratings segment which may contain a financing component, 2) the accounting for fees for certain Ratings products that are currently recognized over time or at a point in time to match when the customer obtains control of the product, 3) the presentation of sales of certain of our jointly-owned products in or Market and Commodities Intelligence segment, revenue will be recognized on a gross rather than net basis, and 4) the capitalization of costs to obtain a contract and the related amortization period of those costs. We do not expect that these changes from the adoption of this standard will have a significant impact on our consolidated financial statements.


22

14.
Condensed Consolidating Financial Statements

On September 22, 2016, we issued $500 million of 2.95% senior notes due in 2027. On May 26, 2015, we issued $700 million of 4.0% senior notes due in 2025. On August 18, 2015, we issued $2.0 billion of senior notes, consisting of $400 million of 2.5% senior notes due in 2018, $700 million of 3.3% senior notes due in 2020 and $900 million of 4.4% senior notes due in 2026. See Note 4 — Debt for additional information.

The senior notes described above are fully and unconditionally guaranteed by Standard & Poor's Financial Services LLC, a 100% owned subsidiary of the Company. The following condensed consolidating financial statements present the results of operations, financial position and cash flows of S&P Global Inc., Standard & Poor's Financial Services LLC, and the Non-Guarantor Subsidiaries of S&P Global Inc. and Standard & Poor's Financial Services LLC, and the eliminations necessary to arrive at the information for the Company on a consolidated basis.

 
Statement of Income
 
Three Months Ended September 30, 2017
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Revenue
$
184

 
$
435

 
$
929

 
$
(35
)
 
$
1,513

Expenses:
 
 
 
 
 
 
 
 
 
Operating-related expenses
8

 
124

 
324

 
(35
)
 
421

Selling and general expenses
62

 
101

 
225

 
—

 
388

Depreciation
9

 
3

 
10

 
—

 
22

Amortization of intangibles
—

 
—

 
24

 
—

 
24

Total expenses
79

 
228

 
583

 
(35
)
 
855

Operating profit
105

 
207

 
346

 
—

 
658

Interest expense (income), net
41

 
—

 
(4
)
 
—

 
37

Non-operating intercompany transactions
91

 
(13
)
 
(91
)
 
13

 
—

(Loss) income before taxes on income
(27
)
 
220

 
441

 
(13
)
 
621

(Benefit) provision for taxes on income
(45
)
 
107

 
107

 
—

 
169

Equity in net income of subsidiaries
409

 
—

 
—

 
(409
)
 
—

Net income
$
427

 
$
113

 
$
334

 
$
(422
)
 
$
452

Less: net income attributable to noncontrolling interests
—

 
—

 
—

 
(38
)
 
(38
)
Net income attributable to S&P Global Inc.
$
427

 
$
113

 
$
334

 
$
(460
)
 
$
414

Comprehensive income
$
405

 
$
113

 
$
382

 
$
(427
)
 
$
473



23

 
Statement of Income
 
Nine Months Ended September 30, 2017
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Revenue
$
545

 
$
1,320

 
$
2,712

 
$
(102
)
 
$
4,475

Expenses:
 
 
 
 
 
 
 
 
 
Operating-related expenses
78

 
359

 
947

 
(102
)
 
1,282

Selling and general expenses
108

 
273

 
696

 
—

 
1,077

Depreciation
23

 
9

 
29

 
—

 
61

Amortization of intangibles
—

 
—

 
73

 
—

 
73

Total expenses
209

 
641

 
1,745

 
(102
)
 
2,493

Operating profit
336

 
679

 
967

 
—

 
1,982

Interest expense (income), net
119

 
—

 
(9
)
 
—

 
110

Non-operating intercompany transactions
270

 
(55
)
 
(1,717
)
 
1,502

 
—

(Loss) income before taxes on income
(53
)
 
734

 
2,693

 
(1,502
)
 
1,872

(Benefit) provision for taxes on income
(91
)
 
325

 
299

 
—

 
533

Equity in net income of subsidiaries
2,697

 
—

 
—

 
(2,697
)
 
—

Net income
$
2,735

 
$
409

 
$
2,394

 
$
(4,199
)
 
$
1,339

Less: net income attributable to noncontrolling interests
—

 
—

 
—

 
(105
)
 
(105
)
Net income attributable to S&P Global Inc.
$
2,735

 
$
409

 
$
2,394

 
$
(4,304
)
 
$
1,234

Comprehensive income
$
2,724

 
$
409

 
$
2,500

 
$
(4,199
)
 
$
1,434






24

 
Statement of Income
 
Three Months Ended September 30, 2016
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Revenue
$
175

 
$
383

 
$
914

 
$
(33
)
 
$
1,439

Expenses:
 
 
 
 
 
 
 
 
 
Operating-related expenses
20

 
111

 
333

 
(33
)
 
431

Selling and general expenses
52

 
49

 
236

 
—

 
337

Depreciation
8

 
2

 
12

 
—

 
22

Amortization of intangibles
—

 
—

 
23

 
—

 
23

Total expenses
80

 
162

 
604

 
(33
)
 
813

Gain on disposition
(705
)
 
—

 
(17
)
 
—

 
(722
)
Operating profit
800

 
221

 
327

 
—

 
1,348

Interest expense (income), net
43

 
—

 
(4
)
 
—

 
39

Non-operating intercompany transactions
14

 
(21
)
 
(41
)
 
48

 
—

Income before taxes on income
743

 
242

 
372

 
(48
)
 
1,309

Provision for taxes on income
184

 
95

 
107

 
—

 
386

Equity in net income of subsidiaries
457

 
76

 
—

 
(533
)
 
—

Net income
$
1,016

 
$
223

 
$
265

 
$
(581
)
 
$
923

Less: net income attributable to noncontrolling interests
—

 
—

 
—

 
(31
)
 
(31
)
Net income attributable to S&P Global Inc.
$
1,016

 
$
223

 
$
265

 
$
(612
)
 
$
892

Comprehensive income
$
1,069

 
$
216

 
$
191

 
$
(561
)
 
$
915



25

 
Statement of Income
 
Nine Months Ended September 30, 2016
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Revenue
$
516

 
$
1,138

 
$
2,703

 
$
(95
)
 
$
4,262

Expenses:
 
 
 
 
 
 
 
 
 
Operating-related expenses
67

 
342

 
1,038

 
(95
)
 
1,352

Selling and general expenses
106

 
145

 
735

 
—

 
986

Depreciation
28

 
7

 
28

 
—

 
63

Amortization of intangibles
—

 
—

 
71

 
—

 
71

Total expenses
201

 
494

 
1,872

 
(95
)
 
2,472

Gain on disposition
(705
)
 
—

 
(17
)
 
—

 
(722
)
Operating profit
1,020

 
644

 
848

 
—

 
2,512

Interest expense (income), net
129

 
—

 
(7
)
 
—

 
122

Non-operating intercompany transactions
249

 
(62
)
 
(739
)
 
552

 
—

Income before taxes on income
642

 
706

 
1,594

 
(552
)
 
2,390

Provision for taxes on income
166

 
263

 
302

 
—

 
731

Equity in net income of subsidiaries
1,865

 
220

 
—

 
(2,085
)
 
—

Net income
$
2,341

 
$
663

 
$
1,292

 
$
(2,637
)
 
$
1,659

Less: net income attributable to noncontrolling interests
—

 
—

 
—

 
(90
)
 
(90
)
Net income attributable to S&P Global Inc.
$
2,341

 
$
663

 
$
1,292

 
$
(2,727
)
 
$
1,569

Comprehensive income
$
2,351

 
$
662

 
$
1,247

 
$
(2,636
)
 
$
1,624






26

 
Balance Sheet
 
September 30, 2017
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
243

 
$
—

 
$
2,069

 
$
—

 
$
2,312

Accounts receivable, net of allowance for doubtful accounts
138

 
204

 
846

 
—

 
1,188

Intercompany receivable
912

 
1,775

 
1,961

 
(4,648
)
 
—

Prepaid and other current assets
74

 
(3
)
 
82

 
—

 
153

Total current assets
1,367

 
1,976

 
4,958

 
(4,648
)
 
3,653

Property and equipment, net of accumulated depreciation
149

 
1

 
109

 
—

 
259

Goodwill
261

 
—

 
2,724

 
7

 
2,992

Other intangible assets, net
—

 
—

 
1,421

 
—

 
1,421

Investments in subsidiaries
6,800

 
5

 
8,900

 
(15,705
)
 
—

Intercompany loans receivable
114

 
—

 
1,629

 
(1,743
)
 
—

Other non-current assets
166

 
57

 
166

 
—

 
389

Total assets
$
8,857

 
$
2,039

 
$
19,907

 
$
(22,089
)
 
$
8,714

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
61

 
$
13

 
$
96

 
$
—

 
$
170

Intercompany payable
3,044

 
699

 
905

 
(4,648
)
 
—

Accrued compensation and contributions to retirement plans
120

 
66

 
187

 
—

 
373

Income taxes currently payable
4

 
—

 
73

 
—

 
77

Unearned revenue
287

 
210

 
927

 
—

 
1,424

Other current liabilities
133

 
21

 
210

 
—

 
364

Total current liabilities
3,649

 
1,009

 
2,398

 
(4,648
)
 
2,408

Long-term debt
3,568

 
—

 
—

 
—

 
3,568

Intercompany loans payable
108

 
—

 
1,635

 
(1,743
)
 
—

Pension and other postretirement benefits
185

 
—

 
73

 
—

 
258

Other non-current liabilities
49

 
72

 
305

 
—

 
426

Total liabilities
7,559

 
1,081

 
4,411

 
(6,391
)
 
6,660

Redeemable noncontrolling interest
—

 
—

 
—

 
1,161

 
1,161

Equity:
 
 
 
 
 
 
 
 
 
Common stock
412

 
—

 
2,292

 
(2,292
)
 
412

Additional paid-in capital
(301
)
 
593

 
11,380

 
(11,254
)
 
418

Retained income
10,869

 
365

 
2,266

 
(3,434
)
 
10,066

Accumulated other comprehensive loss
(303
)
 
—

 
(419
)
 
44

 
(678
)
Less: common stock in treasury
(9,379
)
 
—

 
(24
)
 
24

 
(9,379
)
Total equity - controlling interests
1,298

 
958

 
15,495

 
(16,912
)
 
839

Total equity - noncontrolling interests
—

 
—

 
1

 
53

 
54

Total equity
1,298

 
958

 
15,496

 
(16,859
)
 
893

Total liabilities and equity
$
8,857

 
$
2,039

 
$
19,907

 
$
(22,089
)
 
$
8,714


27

 
Balance Sheet
 
December 31, 2016
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
711

 
$
—

 
$
1,681

 
$
—

 
$
2,392

Accounts receivable, net of allowance for doubtful accounts
138

 
131

 
853

 
—

 
1,122

Intercompany receivable
(165
)
 
837

 
870

 
(1,542
)
 
—

Prepaid and other current assets
77

 
2

 
79

 
(1
)
 
157

Total current assets
761

 
970

 
3,483

 
(1,543
)
 
3,671

Property and equipment, net of accumulated depreciation
159

 
1

 
111

 
—

 
271

Goodwill
261

 
—

 
2,679

 
9

 
2,949

Other intangible assets, net
—

 
—

 
1,506

 
—

 
1,506

Investments in subsidiaries
5,464

 
680

 
7,826

 
(13,970
)
 
—

Intercompany loans receivable
17

 
—

 
1,354

 
(1,371
)
 
—

Other non-current assets
134

 
24

 
114

 
—

 
272

Total assets
$
6,796

 
$
1,675

 
$
17,073

 
$
(16,875
)
 
$
8,669

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
73

 
$
22

 
$
88

 
$
—

 
$
183

Intercompany payable
1,324

 
40

 
177

 
(1,541
)
 
—

Accrued compensation and contributions to retirement plans
129

 
69

 
211

 
—

 
409

Income taxes currently payable
43

 
—

 
52

 
—

 
95

Unearned revenue
273

 
191

 
1,045

 
—

 
1,509

Other current liabilities
165

 
(51
)
 
301

 
—

 
415

Total current liabilities
2,007

 
271

 
1,874

 
(1,541
)
 
2,611

Long-term debt
3,564

 
—

 
—

 
—

 
3,564

Intercompany loans payable
11

 
—

 
1,360

 
(1,371
)
 
—

Pension and other postretirement benefits
196

 
—

 
78

 
—

 
274

Other non-current liabilities
52

 
74

 
314

 
(1
)
 
439

Total liabilities
5,830

 
345

 
3,626

 
(2,913
)
 
6,888

Redeemable noncontrolling interest
—

 
—

 
—

 
1,080

 
1,080

Equity:
 
 
 
 
 
 
 
 
 
Common stock
412

 
—

 
2,460

 
(2,460
)
 
412

Additional paid-in capital
(174
)
 
1,154

 
10,485

 
(10,963
)
 
502

Retained income
9,721

 
176

 
1,034

 
(1,721
)
 
9,210

Accumulated other comprehensive loss
(292
)
 
—

 
(525
)
 
44

 
(773
)
Less: common stock in treasury
(8,701
)
 
—

 
(7
)
 
7

 
(8,701
)
Total equity - controlling interests
966

 
1,330

 
13,447

 
(15,093
)
 
650

Total equity - noncontrolling interests
—

 
—

 
—

 
51

 
51

Total equity
966

 
1,330

 
13,447

 
(15,042
)
 
701

Total liabilities and equity
$
6,796

 
$
1,675

 
$
17,073

 
$
(16,875
)
 
$
8,669



28

 
Statement of Cash Flows
 
Nine Months Ended September 30, 2017
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Operating Activities:
 
 
 
 
 
 
 
 
 
Net income
$
2,735

 
$
409

 
$
2,394

 
$
(4,199
)
 
$
1,339

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
 
 
 
     Depreciation
24

 
9

 
28

 
—

 
61

     Amortization of intangibles
—

 
—

 
73

 
—

 
73

     Provision for losses on accounts receivable
1

 
2

 
14

 
—

 
17

     Stock-based compensation
23

 
15

 
27

 
—

 
65

     Other
27

 
15

 
—

 
—

 
42

Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
 
 
 
 
 
 
 
 
 
     Accounts receivable
(2
)
 
(73
)
 
11

 
—

 
(64
)
     Prepaid and other current assets
(8
)
 
2

 
9

 
—

 
3

     Accounts payable and accrued expenses
(19
)
 
56

 
(87
)
 
—

 
(50
)
     Unearned revenue
14

 
17

 
(138
)
 
—

 
(107
)
     Accrued legal settlements
—

 
(1
)
 
(3
)
 
—

 
(4
)
     Other current liabilities
(42
)
 
(11
)
 
(41
)
 
—

 
(94
)
     Net change in prepaid/accrued income taxes
(27
)
 
(18
)
 
3

 
—

 
(42
)
     Net change in other assets and liabilities
(42
)
 
(5
)
 
11

 
—

 
(36
)
Cash provided by operating activities
2,684

 
417

 
2,301

 
(4,199
)
 
1,203

Investing Activities:
 
 
 
 
 
 
 
 
 
     Capital expenditures
(34
)
 
(17
)
 
(26
)
 
—

 
(77
)
     Acquisitions, net of cash acquired
—

 
—

 
(80
)
 
—

 
(80
)
     Proceeds from dispositions
—

 
—

 
2

 
—

 
2

Cash used for investing activities
(34
)
 
(17
)
 
(104
)
 
—

 
(155
)
Financing Activities:
 
 
 
 
 
 
 
 
 
     Dividends paid to shareholders
(316
)
 
—

 
—

 
—

 
(316
)
 Distributions to noncontrolling interest holders
—

 
—

 
(69
)
 
—

 
(69
)
     Repurchase of treasury shares
(846
)
 
—

 
—

 
—

 
(846
)
     Exercise of stock options
63

 
—

 
6

 
—

 
69

     Employee withholding tax on share-based payments
(49
)
 
—

 
—

 
—

 
(49
)
     Intercompany financing activities
(1,960
)
 
(400
)
 
(1,839
)
 
4,199

 
—

Cash used for financing activities
(3,108
)
 
(400
)
 
(1,902
)
 
4,199

 
(1,211
)
Effect of exchange rate changes on cash from continuing operations
(10
)
 
—

 
93

 
—

 
83

Net change in cash and cash equivalents
(468
)
 
—

 
388

 
—

 
(80
)
Cash and cash equivalents at beginning of period
711

 
—

 
1,681

 
—

 
2,392

Cash and cash equivalents at end of period
$
243

 
$
—

 
$
2,069

 
$
—

 
$
2,312



29

 
Statement of Cash Flows
 
Nine Months Ended September 30, 2016
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Operating Activities:
 
 
 
 
 
 
 
 
 
Net income
$
2,341

 
$
663

 
$
1,292

 
$
(2,637
)
 
$
1,659

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
 
 
 
     Depreciation
28

 
7

 
28

 
—

 
63

     Amortization of intangibles
—

 
—

 
71

 
—

 
71

     Provision for losses on accounts receivable
2

 
—

 
8

 
—

 
10

     Stock-based compensation
17

 
12

 
25

 
—

 
54

     Gain on disposition
(705
)
 
—

 
(17
)
 
—

 
(722
)
     Other
(66
)
 
3

 
111

 
—

 
48

Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
 
 
 
 
 
 
 
 
 
     Accounts receivable
5

 
159

 
(190
)
 
—

 
(26
)
     Prepaid and other current assets
(7
)
 
13

 
(1
)
 
—

 
5

     Accounts payable and accrued expenses
(24
)
 
(147
)
 
90

 
—

 
(81
)
     Unearned revenue
20

 
(385
)
 
359

 
—

 
(6
)
     Accrued legal settlements
—

 
(108
)
 
(26
)
 
—

 
(134
)
     Other current liabilities
(15
)
 
(25
)
 
30

 
—

 
(10
)
     Net change in prepaid/accrued income taxes
328

 
—

 
55

 
—

 
383

     Net change in other assets and liabilities
(35
)
 
29

 
(51
)
 
—

 
(57
)
Cash provided by operating activities
1,889

 
221

 
1,784

 
(2,637
)
 
1,257

Investing Activities:
 
 
 
 
 
 
 
 
 
     Capital expenditures
(34
)
 
(11
)
 
(22
)
 
—

 
(67
)
     Acquisitions, net of cash acquired
(140
)
 
—

 
(5
)
 
—

 
(145
)
     Proceeds from dispositions
1,047

 
—

 
24

 
—

 
1,071

     Changes in short-term investments
—

 
—

 
(1
)
 
—

 
(1
)
Cash used for investing activities
873

 
(11
)
 
(4
)
 
—

 
858

Financing Activities:
 
 
 
 
 
 
 
 
 
     Payments on short-term debt, net
(143
)
 
—

 
—

 
—

 
(143
)
     Proceeds from issuance of senior notes, net
493

 
—

 
—

 
—

 
493

     Dividends paid to shareholders
(286
)
 
—

 
—

 
—

 
(286
)
 Distributions to noncontrolling interest holders
—

 
—

 
(59
)
 
—

 
(59
)
     Contingent consideration payments
(5
)
 
—

 
(10
)
 
—

 
(15
)
     Repurchase of treasury shares
(1,123
)
 
—

 
—

 
—

 
(1,123
)
     Exercise of stock options
83

 
—

 
1

 
—

 
84

     Employee withholding tax on share-based payments
(55
)
 
—

 
—

 
—

 
(55
)
     Intercompany financing activities
(1,155
)
 
(210
)
 
(1,272
)
 
2,637

 
—

Cash used for financing activities
(2,191
)
 
(210
)
 
(1,340
)
 
2,637

 
(1,104
)
Effect of exchange rate changes on cash from continuing operations
—

 
—

 
(93
)
 
—

 
(93
)
Net change in cash and cash equivalents
571

 
—

 
347

 
—

 
918

Cash and cash equivalents at beginning of period
167

 
—

 
1,314

 
—

 
1,481

Cash and cash equivalents at end of period
$
738

 
$
—

 
$
1,661

 
$
—

 
$
2,399



30

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

The following Management's Discussion and Analysis (“MD&A”) provides a narrative of the results of operations and financial condition of S&P Global Inc. (together with its consolidated subsidiaries, "S&P Global," the “Company,” “we,” “us” or “our”) for the three and nine months ended September 30, 2017. The MD&A should be read in conjunction with the consolidated financial statements, accompanying notes and MD&A included in our Form 10-K for the year ended December 31, 2016 (our “Form 10-K”), which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The MD&A includes the following sections:
•
Overview
•
Results of Operations — Comparing the Three and Nine Months Ended September 30, 2017 and 2016
•
Liquidity and Capital Resources
•
Reconciliation of Non-GAAP Financial Information
•
Critical Accounting Estimates
•
Recently Issued or Adopted Accounting Standards
•
Forward-Looking Statements

OVERVIEW

We are a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

Our operations consist of three reportable segments: Ratings, Market and Commodities Intelligence and S&P Dow Jones Indices ("Indices").
•
Ratings is an independent provider of credit ratings, research, and analytics, offering investors and other market participants information, ratings and benchmarks.
•
Market and Commodities Intelligence is a global provider of multi-asset-class data, research and analytical capabilities, which integrate cross-asset analytics and desktop services and deliver their customers in the commodity and energy markets access to high-value information, data, analytic services and pricing and quality benchmarks. On September 7, 2016, we completed the sale of J.D. Power with the results included in Market and Commodities Intelligence's results through that date.
•
Indices is a global index provider that maintains a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors.

31

Key results for the periods ended September 30 are as follows: 
(in millions, except per share amounts)
Three Months

Nine Months

2017

2016

% Change 1

2017

2016

% Change 1
Revenue
$
1,513

 
$
1,439


5%

$
4,475

 
$
4,262

 
5%
Operating profit 2
$
658

 
$
1,348


(51)%

$
1,982

 
$
2,512

 
(21)%
Operating margin %
43
%
 
94
%
 

 
44
%
 
59
%
 
 
Diluted earnings per share from net income
$
1.61

 
$
3.36

 
(52)%
 
$
4.75

 
$
5.89

 
(19)%
1
% changes in the tables throughout the MD&A are calculated off of the actual number, not the rounded number presented.
2 
Operating profit for the three and nine months ended September 30, 2017 includes employee severance charges of $19 million and $24 million, respectively. Operating profit for the nine months ended September 30, 2017 includes a charge to exit a leased facility of $6 million, an asset write-off of $2 million, non-cash acquisition and disposition-related adjustments of $15 million, and legal settlement expenses of $2 million. Operating profit for the three and nine months ended September 30, 2016 includes a benefit related to net legal settlement insurance recoveries of $17 million and $63 million, respectively, disposition-related costs of $6 million and $17 million, respectively, an acquisition-related cost of $1 million, and a gain on the sale of J.D. Power of $722 million. Operating profit for the nine months ended September 30, 2016 includes a technology-related impairment charge of $24 million, employee severance charges of $6 million, and a $3 million disposition-related reserve release. Operating profit also includes amortization of intangibles from acquisitions of $24 million and $23 million for the three months ended September 30, 2017 and 2016, respectively, and $73 million and $71 million for the nine months ended September 30, 2017 and 2016, respectively.

Three Months

Revenue increased 5% driven by increases at Ratings and Indices, partially offset by a decrease at Market and Commodities Intelligence. The increase at Ratings was primarily due to growth in corporate bond ratings revenue and bank loan ratings revenue. Revenue growth at Indices was primarily due to higher levels of assets under management for exchange-traded funds ("ETFs"). The decrease at Market and Commodities Intelligence was primarily due to the disposition of non-core businesses in 2016, partially offset by annualized contract value growth in the S&P Global Market Intelligence Desktop and Global Risk Services products and continued demand for Platts’ proprietary content at S&P Global Platts.

Operating profit decreased 51%. Excluding the unfavorable impact of the gain on the sale of J.D. Power in 2016 of 58 percentage points, higher employee severance charges in 2017 of 2 percentage points and higher net legal settlement insurance recoveries in 2016 of 1 percentage point, operating profit increased 10%. This increase was primarily due to revenue growth at Ratings and Indices as discussed above, partially offset by higher compensation costs due to additional increased incentive costs and additional headcount.

Nine Months

Revenue increased 5% driven by increases at Ratings and Indices, partially offset by a decrease at Market and Commodities Intelligence. The increase at Ratings was primarily due to growth in corporate bond ratings revenue and bank loan ratings revenue. Revenue growth at Indices was primarily due to higher levels of assets under management for ETFs and mutual funds. The decrease at Market and Commodities Intelligence was primarily due to the disposition of non-core businesses in 2016, partially offset by annualized contract value growth in the S&P Global Market Intelligence Desktop and Global Risk Services products and continued demand for Platts’ proprietary content at S&P Global Platts.

Operating profit decreased 21%. Excluding the unfavorable impact of the gain on the sale of J.D. Power in 2016 of 32 percentage points, higher net legal settlement insurance recoveries in 2016 of 3 percentage points and higher employee severance charges in 2017 of 1 percentage point, partially offset by the favorable impact of a technology-related impairment charge in 2016 of 1 percentage point, operating profit increased 14%. This increase was primarily due to revenue growth at Ratings and Indices as discussed above, partially offset by higher compensation costs due to increased incentive costs and additional headcount.

Outlook

We are a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide. Our purpose is to provide the intelligence that is essential for companies, governments and individuals to make decisions with conviction. We seek to deliver on this purpose within the framework of our core values of integrity, excellence and relevance.


32

With the successful completion of our Growth and Performance Plan, we are aligning our efforts against two key strategic priorities, growth and excellence. We strive to deliver on our strategic priorities in the following four categories by:

Financial

•
Delivering strong financial performance and long-term value to our shareholders.

Growth

•
Engaging with the world around us;

•
Investing to meet customer needs in high growth areas; and

•
Expanding in international markets.

Excellence

•
Embracing operational excellence in all that we do; and

•
Accelerating digital transformation and stimulating innovation.

Talent

•
Enhancing leadership and accountability.

There can be no assurance that we will achieve success in implementing any one or more of these strategies as a variety of factors could unfavorably impact operating results, including prolonged difficulties in the global credit markets and a change in the regulatory environment affecting our businesses.


33

RESULTS OF OPERATIONS — COMPARING THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

Consolidated Review 
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenue
$
1,513

 
$
1,439

 
5%
 
$
4,475

 
$
4,262

 
5%
Total Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating-related expenses
421

 
431

 
(2)%
 
1,282

 
1,352

 
(5)%
Selling and general expenses
388

 
337

 
15%
 
1,077

 
986

 
9%
Depreciation and amortization
46

 
45

 
1%
 
134

 
134

 
—%
Total expenses
855

 
813

 
5%
 
2,493

 
2,472

 
1%
Gain on disposition
—

 
(722
)
 
N/M
 
—

 
(722
)
 
N/M
Operating profit
658

 
1,348

 
(51)%
 
1,982

 
2,512

 
(21)%
Interest expense, net
37

 
39

 
(6)%
 
110

 
122

 
(9)%
Provision for taxes on income
169

 
386

 
(56)%
 
533

 
731

 
(27)%
Net income
452

 
923

 
(51)%
 
1,339

 
1,659

 
(19)%
Less: net income attributable to noncontrolling interests
(38
)
 
(31
)
 
19%
 
(105
)
 
(90
)
 
17%
Net income attributable to S&P Global Inc.
$
414

 
$
892

 
(54)%
 
$
1,234

 
$
1,569

 
(21)%
N/M - not meaningful
Revenue

The following table provides consolidated revenue information for the periods ended September 30:
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenue
$
1,513

 
$
1,439

 
5%
 
$
4,475

 
$
4,262

 
5%
 
 
 
 
 
 
 
 
 
 
 
 
Subscription / Non-transaction revenue
$
958

 
$
917

 
5%
 
$
2,798

 
$
2,703

 
4%
Asset linked fees
$
118

 
$
100

 
17%
 
$
340

 
$
278

 
22%
Non-subscription / Transaction revenue
$
437

 
$
422

 
4%
 
$
1,337

 
$
1,281

 
4%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     Subscription / Non-transaction revenue
63
%
 
64
%
 
 
 
62
%
 
63
%
 
 
     Asset linked fees
8
%
 
7
%
 
 
 
8
%
 
7
%
 
 
     Non-subscription / Transaction revenue
29
%
 
29
%
 
 
 
30
%
 
30
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. revenue
$
916

 
$
887

 
3%
 
$
2,733

 
$
2,641

 
3%
International revenue:
 
 
 
 
 
 
 
 
 
 
 
     European region
359

 
333

 
8%
 
1,062

 
966

 
10%
     Asia
157

 
145

 
8%
 
431

 
437

 
(1)%
     Rest of the world
81

 
74

 
10%
 
249

 
218

 
15%
Total international revenue
$
597

 
$
552

 
8%
 
$
1,742

 
$
1,621

 
7%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     U.S. revenue
61
%
 
62
%
 
 
 
61
%
 
62
%
 
 
     International revenue
39
%
 
38
%
 
 
 
39
%
 
38
%
 
 



34

spgi-201793_chartx59062.jpg spgi-201793_chartx00253.jpg

Three Months

Subscription / non-transaction revenue increased 5% primarily from growth in S&P Global Market Intelligence's average contract values, continued demand for Platts’ proprietary content and an increase in surveillance fees at Ratings, largely offset by the unfavorable impact of the disposition of non-core businesses in 2016. Asset linked fees increased 17% due to the impact of higher levels of assets under management for ETFs. Non-subscription / transaction revenue increased 4% due to an increase in corporate bond ratings revenue and bank loan ratings revenue at Ratings, partially offset by the unfavorable impact of the disposition of non-core businesses in 2016. See “Segment Review” below for further information.

The favorable impact of foreign exchange rates increased revenue by less than 1 percentage point. This impact refers to constant currency comparisons estimated by recalculating current year results of foreign operations using the average exchange rate from the prior year.

Nine Months

Subscription / non-transaction revenue increased 4% primarily from growth in S&P Global Market Intelligence's average contract values, continued demand for Platts’ proprietary content and an increase in surveillance fees at Ratings, partially offset by the unfavorable impact of the disposition of non-core businesses in 2016. Asset linked fees increased 22% due to the impact of higher levels of assets under management for ETFs and mutual funds. Non-subscription / transaction revenue increased 4% primarily due to an increase in corporate bond ratings revenue and bank loan ratings revenue at Ratings, partially offset by the unfavorable impact of the disposition of non-core businesses in 2016. See “Segment Review” below for further information.

The unfavorable impact of foreign exchange rates reduced revenue by less than 1 percentage point. This impact refers to constant currency comparisons estimated by recalculating current year results of foreign operations using the average exchange rate from the prior year.


35

Total Expenses

The following tables provide an analysis by segment of our operating-related expenses and selling and general expenses for the periods ended September 30:

Three Months
(in millions)
2017
 
2016
 
% Change
 
Operating-
related expenses
 
Selling and
general expenses
 
Operating-
related expenses
 
Selling and
general expenses
 
Operating-
related expenses
 
Selling and
general expenses
Ratings 1
$
213

 
$
141

 
$
193

 
$
95

 
10%
 
49%
Market and Commodities Intelligence 2
205

 
170

 
238

 
185

 
(14)%
 
(8)%
Indices
31

 
34

 
25

 
30

 
26%
 
13%
Intersegment eliminations 3
(28
)
 
—

 
(25
)
 
—

 
(11)%
 
N/M
Total segments
421

 
345

 
431

 
310

 
(2)%
 
11%
Corporate 4
—

 
43

 
—

 
27

 
N/M
 
62%
Total
$
421

 
$
388

 
$
431

 
$
337

 
(2)%
 
15%
N/M - not meaningful
1 
In 2017, selling and general expenses include employee severance charges of $15 million. In 2016, selling and general expenses include a benefit related to net legal settlement insurance recoveries of $17 million.
2 
In 2016, selling and general expenses include disposition-related costs of $6 million, an acquisition-related cost of $1 million, and a gain on the sale of J.D. Power of $722 million.
3 
Intersegment eliminations relate to a royalty charged to Market and Commodities Intelligence for the rights to use and distribute content and data developed by Ratings.
4 
In 2017, selling and general expenses include employee severance charges of $4 million.

Operating-Related Expenses

Operating-related expenses decreased 2%. The decrease at Market and Commodities Intelligence was due to the disposition of non-core businesses in 2016. This decrease was partially offset by increases at Ratings and Indices due to higher compensation costs related to increased incentive costs and additional headcount.

Intersegment eliminations primarily relate to a royalty charged to Market and Commodities Intelligence for the rights to use and distribute content and data developed by Ratings.

Selling and General Expenses

Selling and general expenses increased 15%. Excluding the unfavorable impact of higher employee severance charges in 2017 of 6 percentage points and higher net legal settlement insurance recoveries in 2016 of 5 percentage points, partially offset by the favorable impact of higher disposition-related costs in 2016 of 2 percentage points, selling and general expenses increased 6%. The increase is due to higher compensation costs related to incentives and additional headcount at Ratings and Indices, partially offset by the disposition of non-core businesses at Market and Commodities Intelligence in 2016. Additionally, selling and general expenses at Corporate increased primarily due to Company-wide technology projects, professional service fees and performance related incentive compensation.

Depreciation and Amortization

Depreciation and amortization remained relatively unchanged compared to the third quarter of 2016, increasing 1%.


36

Nine Months
(in millions)
2017
 
2016
 
% Change
 
Operating-
related expenses
 
Selling and
general expenses
 
Operating-
related expenses
 
Selling and
general expenses
 
Operating-
related expenses
 
Selling and
general expenses
Ratings 1
$
627

 
$
397

 
$
583

 
$
264

 
8%
 
50%
Market and Commodities Intelligence 2
621

 
514

 
749

 
574

 
(17)%
 
(10)%
Indices
115

 
68

 
93

 
61

 
22%
 
11%
Intersegment eliminations 3
(81
)
 
—

 
(73
)
 
—

 
(11)%
 
N/M
Total segments
1,282

 
979

 
1,352

 
899

 
(5)%
 
9%
Corporate 4
—

 
98

 
—

 
87

 
N/M
 
13%
Total
$
1,282

 
$
1,077

 
$
1,352

 
$
986

 
(5)%
 
9%
N/M - not meaningful
1 
In 2017, selling and general expenses include employee severance charges of $15 million and legal settlement expenses of $2 million. In 2016, selling and general expenses include a benefit related to net legal settlement insurance recoveries of $63 million and employee severance charges of $6 million.
2 
In 2017, selling and general expenses include non-cash acquisition and disposition-related adjustments of $15 million, a charge to exit a leased facility of $6 million, employee severance charges of $5 million, and an asset write-off of $2 million. In 2016, selling and general expenses include disposition-related costs of $17 million, an acquisition-related cost of $1 million, a gain on the sale of J.D. Power of $722 million, and a technology-related impairment charge of $24 million.
3 
Intersegment eliminations relate to a royalty charged to Market and Commodities Intelligence for the rights to use and distribute content and data developed by Ratings.
4 
In 2017, selling and general expenses include employee severance charges of $4 million. In 2016, selling and general expenses include a $3 million disposition-related reserve release.

Operating-Related Expenses

Operating-related expenses decreased 5%. The decrease at Market and Commodities Intelligence was due to the disposition of non-core businesses in 2016. This decrease was partially offset by increases at Ratings and Indices due to higher compensation costs related to increased incentive costs and additional headcount.

Intersegment eliminations primarily relate to a royalty charged to Market and Commodities Intelligence for the rights to use and distribute content and data developed by Ratings.

Selling and General Expenses

Selling and general expenses increased 9%. Excluding the unfavorable impact of higher net legal settlement insurance recoveries in 2016 of 7 percentage points, non-cash acquisition and disposition-related adjustments in 2016 of 2 percentage points, a charge to exit a leased facility of 1 percentage point and employee severance charges of 1 percentage point, partially offset by the favorable impact of a technology-related impairment charge in 2016 of 2 percentage points and disposition-related costs in 2016 of 2 percentage points, selling and general expenses increased 2%. This is due to higher compensation costs related to incentives and additional headcount at Ratings and Indices, offset by the disposition of non-core businesses at Market and Commodities Intelligence in 2016. Additionally, selling and general expenses at Corporate increased primarily due to Company-wide technology projects, professional service fees and performance related incentive compensation.

Depreciation and Amortization

Depreciation and amortization remained unchanged compared to the first nine months of 2016.


37

Gain on Disposition
During the three and nine months ended September 30, 2016, we recorded a pre-tax gain of $722 million in gain on disposition in the consolidated statement of income related to the sale of J.D. Power.
Operating Profit
We consider operating profit to be an important measure for evaluating our operating performance and we evaluate operating profit for each of the reportable business segments in which we operate.
We internally manage our operations by reference to “segment operating profit” with economic resources allocated primarily based on segment operating profit. Segment operating profit is defined as operating profit before unallocated expense. Segment operating profit is one of the key metrics we use to evaluate operating performance. Segment operating profit is not, however, a measure of financial performance under U.S. GAAP, and may not be defined and calculated by other companies in the same manner.
The tables below reconcile segment operating profit to total operating profit for the periods ended September 30:

Three Months
(in millions)
2017
 
2016
 
% Change
Ratings 1
$
376

 
$
346

 
9%
Market and Commodities Intelligence 2
208

 
924

 
(77)%
Indices 3
119

 
107

 
10%
Total segment operating profit
703

 
1,377

 
(49)%
Unallocated expense 4
(45
)
 
(29
)
 
60%
Total operating profit
$
658

 
$
1,348

 
(51)%

1 
2017 includes employee severance charges of $15 million. 2016 includes a benefit related to net legal settlement insurance recoveries of $17 million. 2017 and 2016 also includes amortization of intangibles from acquisitions of $1 million.
2 
2016 includes disposition-related costs of $6 million, an acquisition-related cost of $1 million, and a gain on the sale of J.D. Power of $722 million. 2017 and 2016 also includes amortization of intangibles from acquisitions of $22 million and $21 million, respectively.
3 
2017 and 2016 includes amortization of intangibles from acquisitions of $1 million.
4 
2017 includes employee severance charges of $4 million.

Segment Operating Profit — Decreased 49% as compared to the third quarter of 2016. Excluding the unfavorable impact of the gain on the sale of J.D. Power in 2016 of 58 percentage points, higher net legal settlement insurance recoveries in 2016 of 1 percentage point and higher employee severance charges in 2017 of 1 percentage point, operating profit increased 11%. This increase was primarily due to revenue growth at Ratings and Indices as discussed above, partially offset by higher compensation costs due to additional increased incentive costs and additional headcount. See “Segment Review” below for further information.

Unallocated Expense — These expenses, included in selling and general expenses, mainly include costs for corporate center functions, select initiatives and unoccupied office space. Unallocated expense increased 60% as compared to the third quarter of 2016. Excluding the unfavorable impact of employee severance charges in 2017 of 16 percentage points, unallocated expense increased 44%. This increase was primarily due to Company-wide technology projects, professional service fees and performance related incentive compensation.

Foreign exchange rates had a favorable impact on operating profit of 1 percentage point. This impact refers to constant currency comparisons and the remeasurement of monetary assets and liabilities. Constant currency impacts are estimated by re-calculating current year results of foreign operations using the average exchange rate from the prior year. Remeasurement impacts are based on the variance between current-year and prior-year foreign exchange rate fluctuations on assets and liabilities denominated in currencies other than the individual businesses functional currency.


38

Nine Months
(in millions)
2017
 
2016
 
% Change
Ratings 1
$
1,149

 
$
1,004

 
14%
Market and Commodities Intelligence 2
586

 
1,293

 
(55)%
Indices 3
352

 
308

 
14%
Total segment operating profit
2,087

 
2,605

 
(20)%
Unallocated expense 4
(105
)
 
(93
)
 
13%
Total operating profit
$
1,982

 
$
2,512

 
(21)%

1 
2017 includes employee severance charges of $15 million and legal settlement expenses of $2 million. 2016 includes a benefit related to net legal settlement insurance recoveries of $63 million and employee severance charges of $6 million. 2017 and 2016 also includes amortization of intangibles from acquisitions of $3 million and $4 million, respectively.
2 
2017 includes non-cash acquisition and disposition-related adjustments of $15 million, a charge to exit a leased facility of $6 million, employee severance charges of $5 million, and an asset-write off of $2 million. 2016 includes disposition-related costs of $17 million, an acquisition-related cost of $1 million, a gain on the sale of J.D. Power of $722 million, and a technology-related impairment charge of $24 million. 2017 and 2016 also includes amortization of intangibles from acquisitions of $66 million and $63 million, respectively.
3 
2017 and 2016 includes amortization of intangibles from acquisitions of $4 million.
4 
2017 includes employee severance charges of $4 million. 2016 includes a $3 million disposition-related reserve release.

Segment Operating Profit — Decreased 20% as compared to the first nine months of 2016. Excluding the unfavorable impact of the gain on the sale of J.D. Power in 2016 of 31 percentage points, higher net legal settlement insurance recoveries in 2016 of 3 percentage points and higher employee severance charges in 2017 of 1 percentage point, partially offset by the favorable impact of a technology-related impairment charge in 2016 of 1 percentage point, operating profit increased 14%. This increase was primarily due to revenue growth at Ratings and Indices as discussed above, partially offset by higher compensation costs due to increased incentive costs and additional headcount. See “Segment Review” below for further information.

Unallocated Expense — These expenses, included in selling and general expenses, mainly include costs for corporate center functions, select initiatives and unoccupied office space. Unallocated expense increased 13% as compared to the first nine months of 2016. Excluding the unfavorable impact of employee severance charges in 2017 of 5 percentage points and a disposition-related reserve release in 2016 of 3 percentage points, unallocated expense increased 5%. This increase was primarily due to Company-wide technology projects, professional service fees and performance related incentive compensation.

Foreign exchange rates had an unfavorable impact on operating profit of 1 percentage point. This impact refers to constant currency comparisons and the remeasurement of monetary assets and liabilities. Constant currency impacts are estimated by re-calculating current year results of foreign operations using the average exchange rate from the prior year. Remeasurement impacts are based on the variance between current-year and prior-year foreign exchange rate fluctuations on assets and liabilities denominated in currencies other than the individual businesses functional currency.

Interest Expense, net

Net interest expense decreased compared to the third quarter and first nine months of 2016 primarily as a result of the favorable impact of lower interest rates on the $500 million of senior notes issued in 2016 compared to the $400 million senior notes that were repaid in 2016.

Provision for Income Taxes

The effective income tax rate was 27.3% and 28.5% for the three and nine months ended September 30, 2017, respectively, and 29.5% and 30.6% for the three and nine months ended September 30, 2016, respectively. The decrease in 2017 was primarily due to the recognition of excess tax benefits associated with share-based payments in the statement of income, the resolution of tax audits and a benefit from an acquisition-related adjustment.

The Company is continuously subject to tax examinations in various jurisdictions.  In May 2017, the IRS issued a 30-Day Letter proposing to increase the Company’s federal income tax for the 2015 tax year by approximately $242 million. The proposed increase relates primarily to the IRS’s proposed disallowance of claimed tax deductions for certain amounts paid in 2015 to settle lawsuits by nineteen states and the District of Columbia.  We vigorously disagree with the proposed adjustment and have filed a

39

formal protest with the IRS to contest the matter before the IRS Appeals Office. This development does not materially change our initial assessment of the deductibility of our settlement payments.

Segment Review

Ratings

Ratings is an independent provider of credit ratings, research, and analytics to investors, issuers and other market participants. Credit ratings are one of several tools investors can use when making decisions about purchasing bonds and other fixed income investments. They are opinions about credit risk and our ratings express our opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time. Our credit ratings can also relate to the credit quality of an individual debt issue, such as a corporate or municipal bond, and the relative likelihood that the issue may default.

Ratings differentiates its revenue between transaction and non-transaction. Transaction revenue primarily includes fees associated with:
•
ratings related to new issuance of corporate and government debt instruments, and structured finance debt instruments;
•
bank loan ratings; and
•
corporate credit estimates, which are intended, based on an abbreviated analysis, to provide an indication of our opinion regarding creditworthiness of a company which does not currently have a Ratings credit rating.

Non-transaction revenue primarily includes fees for surveillance of a credit rating, annual fees for customer relationship-based pricing programs, fees for entity credit ratings and global research and analytics. Non-transaction revenue also includes an intersegment royalty charged to Market and Commodities Intelligence for the rights to use and distribute content and data developed by Ratings. Royalty revenue was $25 million and $73 million for the three and nine months ended September 30, 2017, respectively, and $23 million and $68 million for the three and nine months ended September 30, 2016, respectively.

The following table provides revenue and segment operating profit information for the periods ended September 30: 
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenue
$
739

 
$
642

 
15%
 
$
2,199

 
$
1,877

 
17%
 
 
 
 
 
 
 
 
 
 
 
 
Non-transaction revenue
$
367

 
$
343

 
7%
 
$
1,061

 
$
1,010

 
5%
Transaction revenue
$
372

 
$
299

 
24%
 
$
1,138

 
$
867

 
31%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     Non-transaction revenue
50
%
 
53
%
 
 
 
48
%
 
54
%
 
 
     Transaction revenue
50
%
 
47
%
 
 
 
52
%
 
46
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. revenue
$
425

 
$
370

 
15%
 
$
1,276

 
$
1,098

 
16%
International revenue
$
314

 
$
272

 
15%
 
$
923

 
$
779

 
19%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     U.S. revenue
58
%
 
58
%
 
 
 
58
%
 
58
%
 
 
     International revenue
42
%
 
42
%
 
 
 
42
%
 
42
%
 
 
 


 


 

 


 


 

Operating profit 1
$
376

 
$
346

 
9%
 
$
1,149

 
$
1,004

 
14%
Operating margin %
51
%
 
54
%
 
 
 
52
%
 
54
%
 
 
1 
Operating profit includes employee severance charges of $15 million for the three and nine months ended September 30, 2017 and legal settlement expenses of $2 million for the nine months ended September 30, 2017. Operating profit includes a benefit related to net legal settlement insurance recoveries of $17 million and $63 million for the three and nine months ended September 30, 2016, respectively, and employee severance charges of $6 million for the nine months ended September 30, 2016. Operating profit also includes amortization of intangibles from acquisitions of $1 million for the three months ended September 30, 2017 and 2016 and $3 million and $4 million for the nine months ended September 30, 2017 and 2016, respectively.

40


Three Months

Revenue increased 15%, which includes the favorable impact of foreign exchange rates that increased revenue by 1 percentage point. Transaction revenue grew primarily due to an increase in corporate bond ratings revenue driven by an increase in corporate bond issuance and growth in bank loan ratings revenue in Europe and the U.S. as refinancing activity continued in the quarter. An increase in structured finance revenue was driven by increased U.S. collateralized loan obligations ("CLO") and U.S. commercial mortgage backed securities ("CMBS") issuance. These increases were partially offset by a decline in public finance revenue driven by lower issuance. Non-transaction revenue grew primarily due to an increase in surveillance fees and higher entity credit ratings revenue.

Operating profit increased 9%. Excluding the unfavorable impact of employee severance charges in 2017 of 5 percentage points higher net insurance recoveries in 2016 of 5 percentage points, operating profit increased 19%. This increase is primarily due to revenue growth, partially offset by higher compensation costs related to merit increases, additional headcount and increased incentive costs. Foreign exchange rates had an unfavorable impact on operating profit of 2 percentage points.

Nine Months

Revenue increased 17%, which includes the unfavorable impact of foreign exchange rates that reduced revenue by 1 percentage point. Transaction revenue grew primarily due to an increase in corporate bond ratings revenue driven by an increase in corporate bond issuance and growth in bank loan ratings revenue in the U.S. and Europe. The increase in bank loan ratings revenue was driven largely by a combination of new issuance and repricing activity in the leveraged loan market. An increase in structured finance revenue was driven by increased U.S. CLO and U.S. CMBS issuance. These increases were partially offset by a decline in public finance revenue driven by lower issuance. Non-transaction revenue grew primarily due to an increase in surveillance fees and higher entity credit ratings revenue, partially offset by a decline in Ratings Evaluation Service activity.

Operating profit increased 14%. Excluding the unfavorable impact of higher net insurance recoveries in 2016 of 8 percentage points and higher employee severance charges of 1 percentage point, operating profit increased 23%. This increase is primarily due to revenue growth, partially offset by higher compensation costs related to increased incentive costs and additional headcount. Foreign exchange rates had an unfavorable impact on operating profit of 2 percentage points.

Market Issuance Volumes

We monitor market issuance volumes regularly within Ratings. Market issuance volumes noted within the discussion that follows are based on the domicile of the issuer. Issuance volumes can be reported in two ways: by “domicile” which is based on where an issuer is located or where the assets associated with an issue are located, or based on “marketplace” which is where the bonds are sold. The following tables depict changes in issuance levels as compared to the prior year, based on a composite of Thomson Financial, Harrison Scott Publications, Dealogic and Ratings' internal estimates.
 
Third Quarter
Compared to Prior Year
 
Year-to-Date
Compared to Prior Year
Corporate Bond Issuance
U.S.
 
Europe
 
Global
 
U.S.
 
Europe
 
Global
High-yield issuance
1%
 
(29)%
 
3%
 
18%
 
36%
 
40%
Investment grade
9%
 
(22)%
 
(5)%
 
7%
 
(7)%
 
(3)%
Total new issue dollars — Corporate issuance
7%
 
(22)%
 
(4)%
 
9%
 
(2)%
 
1%

•
Corporate issuance in the U.S. increased for the quarter as some issuers went to market in advance of expected interest rate increases while issuance in Europe declined largely reflecting restrained acquisition activity, strong liquidity and already completed refinancing transactions.

41

 
Third Quarter Compared to Prior Year
 
Year-to-Date Compared to Prior Year
Structured Finance
U.S.
 
Europe
 
Global
 
U.S.
 
Europe
 
Global
Asset-backed securities (“ABS”)
(16)%
 
(31)%
 
(1)%
 
5%
 
(25)%
 
4%
Structured credit
116%
 
178%
 
128%
 
173%
 
86%
 
151%
Commercial mortgage-backed securities (“CMBS”)
46%
 
(40)%
 
31%
 
32%
 
(17)%
 
27%
Residential mortgage-backed securities (“RMBS”)
6%
 
24%
 
35%
 
46%
 
—%
 
24%
Covered bonds
*
 
1%
 
(2)%
 
*
 
1%
 
(5)%
Total new issue dollars — Structured finance
26%
 
13%
 
28%
 
46%
 
4%
 
24%
*
Represents no activity in 2017 and 2016.

•
ABS issuance was down in the U.S. and Europe in the quarter reflecting lower market volume.
•
Issuance was up in the U.S. and European structured credit markets driven by increased CLO refinancing engagements primarily due to overall market conditions.
•
CMBS issuance was up in the U.S. reflecting increased market volume due to a low interest rate environment. European CMBS issuance was down, although from a low 2016 base.
•
RMBS volume was up driven primarily by a strong Australian housing market.
•
Covered bond (debt securities backed by mortgages or other high-quality assets that remain on the issuer's balance sheet) issuance in Europe was up partially due to the impact from the European Central Bank's covered bond asset purchase program.
For a further discussion of the legal and regulatory environment see Note 12 – Commitments and Contingencies to the consolidated financial statements of this Form 10-Q.

Market and Commodities Intelligence

Market and Commodities Intelligence's portfolio of capabilities are designed to help the financial community track performance, generate better investment returns, identify new trading and investment ideas, perform risk analysis, develop mitigation strategies and provide high-value information to the commodity and energy markets that enable its customers to make better informed trading and business decisions.

In January of 2017, we completed the sale of Quant House SAS ("QuantHouse"), included in our Market and Commodities Intelligence segment, to QH Holdco, an independent third party. In November of 2016, we entered into a put option agreement that gave the Company the right, but not the obligation, to put the entire share capital of QuantHouse to QH Holdco. As a result, we classified the assets and liabilities of QuantHouse, net of our costs to sell, as held for sale, which is included in prepaid and other current assets and other current liabilities, respectively, in our consolidated balance sheet as of December 31, 2016. On January 4, 2017, we exercised the put option, thereby entering into a definitive agreement to sell QuantHouse to QH Holdco. On January 9, 2017, we completed the sale of QuantHouse to QH Holdco. Following the sale, the assets and liabilities of QuantHouse are no longer reported in our consolidated balance sheet as of September 30, 2017.

Market and Commodities Intelligence includes the following business lines:
•
Desktop — a product suite that provides data, analytics and third-party research for global finance professionals, which includes the Market Intelligence Desktop and Market Intelligence Add On (which are inclusive of the S&P Capital IQ and SNL Desktop products);
•
Data Management Solutions — integrated bulk data feeds that can be customized, which includes Compustat, GICS, Point In Time Financials and CUSIP;
•
Risk Services — commercial arm that sells Ratings' credit ratings and related data, analytics and research, which includes subscription-based offerings, RatingsDirect® and RatingsXpress® and
•
S&P Global Platts — the leading independent provider of information and benchmark prices for the commodity and energy markets. S&P Global Platts provides essential price data, analytics, and industry insight that enable the commodity and energy markets to perform with greater transparency and efficiency. Additionally, S&P Global Platts generates revenue from licensing of our proprietary market price data and price assessments to commodity exchanges.


42

On September 7, 2016, we completed the sale of J.D. Power with the results included in Market and Commodities Intelligence's results through that date.

The following table provides revenue and segment operating profit information for the periods ended September 30: 
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenue
$
615

 
$
658

 
(6)%
 
$
1,815

 
$
1,990

 
(9)%
 
 
 
 
 
 
 
 
 
 
 
 
Subscription revenue 2
$
583

 
$
566

 
3%
 
$
1,714

 
$
1,671

 
3%
Non-subscription revenue 2
$
32

 
$
92

 
(65)%
 
$
101

 
$
319

 
(68)%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     Subscription revenue
95
%
 
86
%
 
 
 
94
%
 
84
%
 
 
     Non-subscription revenue
5
%
 
14
%
 
 
 
6
%
 
16
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. revenue
$
349

 
$
393

 
(11)%
 
$
1,045

 
$
1,186

 
(12)%
International revenue
$
266

 
$
265

 
1%
 
$
770

 
$
804

 
(4)%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     U.S. revenue
57
%
 
60
%
 
 
 
58
%
 
60
%
 
 
     International revenue
43
%
 
40
%
 
 
 
42
%
 
40
%
 
 
 


 


 

 


 


 

Operating profit 1
$
208

 
$
924

 
(77)%
 
$
586

 
$
1,293

 
(55)%
Operating margin %
34
%
 
140
%
 
 
 
32
%
 
65
%
 
 
1 
Operating profit includes a charge to exit a leased facility of $6 million, employee severance charges of $5 million, an asset write-off of $2 million, and non-cash acquisition and disposition-related adjustments of $15 million for the nine months ended September 30, 2017. Operating profit for the three and nine months ended September 30, 2016 includes disposition-related costs of $6 million and $17 million, respectively, an acquisition-related cost of $1 million, and a gain on the sale of J.D. Power of $722 million. Operating profit for the nine months ended September 30, 2016 includes a technology-related impairment charge of $24 million. Operating profit also includes amortization of intangibles from acquisitions of $22 million and $21 million for the three months ended September 30, 2017 and 2016, respectively, and $66 million and $63 million for the nine months ended September 30, 2017 and 2016, respectively.
2 
In the third quarter of 2017, we reevaluated our subscription and non-subscription revenue presentation which resulted in a reclassification of $18 million and $25 million from non-subscription revenue to subscription revenue for the three months ended March 31, 2017 and June 30, 2017, respectively.

Three Months

Revenue decreased 6% and was unfavorably impacted by 13 percentage points from the net impact of an acquisition and dispositions. Excluding the acquisition and dispositions, revenue increased driven by growth in annualized contract values in the Market Intelligence Desktop products, RatingsXpress® and RatingsDirect®. The number of users and customers continued to grow for each of these products in the quarter. Additionally, strength in S&P Global Platts' proprietary content due to continued demand for market data and price assessment products, led by petroleum, contributed to revenue growth. Both domestic and international revenue were unfavorably impacted by the dispositions discussed below. Revenue was favorably impacted by the acquisition of PIRA Energy Group ("PIRA") in September of 2016 and unfavorably impacted by the dispositions of J.D. Power in September of 2016, Standard & Poor's Securities Evaluations, Inc. ("SPSE") and Credit Market Analysis ("CMA") in October of 2016, Equity and Fund Research in October of 2016 and QuantHouse in January of 2017. The favorable impact of foreign exchange rates increased revenue by 1 percentage point.

Operating profit decreased 77%. Excluding the unfavorable impact of the gain on J.D. Power in 2016 of 79 percentage points, partially offset by the favorable impact of disposition-related costs in 2016 of 1 percentage point, operating profit increased 1 percentage point. The increase is due to margin improvement from existing businesses, partially offset by the unfavorable impact of the dispositions discussed above. Foreign exchange rates had an unfavorable impact on operating profit of less than 1 percentage point.


43

Nine Months

Revenue decreased 9% and was unfavorably impacted by 16 percentage points from the net impact of acquisitions and dispositions. Excluding these acquisitions and dispositions, revenue increased driven by growth in annualized contract values in the Market Intelligence Desktop products, RatingsXpress® and RatingsDirect®. The number of users and customers continued to grow for each of these products in the first nine months of 2017. Additionally, strength in S&P Global Platts' proprietary content due to continued demand for market data and price assessment products, led by petroleum, contributed to revenue growth. Both domestic and international revenue decreased due to the unfavorable impact of the dispositions discussed below. Revenue was favorably impacted by the acquisitions of RigData and PIRA in June of 2016 and September of 2016, respectively. Revenue was unfavorably impacted by the dispositions of J.D. Power in September of 2016, SPSE and CMA in October of 2016, Equity Fund Research in October of 2016 and QuantHouse in January of 2017. The unfavorable impact of foreign exchange rates reduced revenue by less than 1 percentage point.

Operating profit decreased 55%. Excluding the unfavorable impact of the gain on J.D. Power in 2016 of 56 percentage points, non-cash acquisition and disposition-related adjustments in 2017 of 1 percentage point, employee severance charges in 2017 of 1 percentage point and a charge to exit a leased facility in 2017 of 1 percentage point, partially offset by the favorable impact of a technology-related impairment charge in 2016 of 2 percentage points and disposition-related costs in 2016 of 1 percentage point, operating profit increased 1 percentage point. The increase is due to margin improvement from existing businesses, partially offset by the unfavorable impact of the dispositions discussed above. Foreign exchange rates had an unfavorable impact on operating profit of less than 1 percentage point.

Indices

Indices is a global index provider that maintains a wide variety of indices to meet an array of investor needs. Indices’ mission is to provide transparent benchmarks to help with decision making, collaborate with the financial community to create innovative products and provide investors with tools to monitor world markets.
Indices primarily derives revenue from asset linked fees based on the S&P and Dow Jones Indices and to a lesser extent generates subscription revenue and transaction revenue. Specifically, Indices generates revenue from the following sources:
•
Investment vehicles — asset linked fees such as ETFs and mutual funds, that are based on the S&P Dow Jones Indices' benchmarks and generate revenue through fees based on assets and underlying funds;
•
Exchange traded derivatives — generate royalties based on trading volumes of derivatives contracts listed on various exchanges;
•
Index-related licensing fees — fixed or variable annual and per-issue fees for over-the-counter derivatives and retail-structured products; and
•
Data and customized index subscription fees — fees from supporting index fund management, portfolio analytics and research.


44

The following table provides revenue and segment operating profit information for the periods ended September 30: 
(in millions)
Three Months
 
Nine Months
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenue
$
187

 
$
164

 
14%
 
$
542

 
$
468

 
16%
 
 
 
 
 
 
 
 
 
 
 
 
Asset linked fees
$
118

 
$
100

 
17%
 
$
340

 
$
278

 
22%
Subscription revenue
$
36

 
$
33

 
9%
 
$
104

 
$
95

 
9%
Transaction revenue
$
33

 
$
31

 
6%
 
$
98

 
$
95

 
3%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     Asset linked fees
63
%
 
61
%
 
 
 
63
%
 
59
%
 
 
     Subscription revenue
19
%
 
20
%
 
 
 
19
%
 
20
%
 
 
     Transaction revenue
18
%
 
19
%
 
 
 
18
%
 
21
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. revenue
$
155

 
$
135

 
14%
 
$
448

 
$
388

 
15%
International revenue
$
32

 
$
29

 
10%
 
$
94

 
$
80

 
18%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     U.S. revenue
83
%
 
82
%
 
 
 
83
%
 
83
%
 
 
     International revenue
17
%
 
18
%
 
 
 
17
%
 
17
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit 1
$
119

 
$
107

 
10%
 
$
352

 
$
308

 
14%
Less: net operating profit attributable to noncontrolling interests
33

 
28

 

 
95

 
82

 

Net operating profit
$
86

 
$
79

 
8%
 
$
257

 
$
226

 
13%
Operating margin %
64
%
 
65
%
 
 
 
65
%
 
66
%
 
 
Net operating margin %
46
%
 
48
%
 
 
 
47
%
 
48
%
 
 
1 
Operating profit includes amortization of intangibles from acquisitions of $1 million for the three months ended September 30, 2017 and 2016 and $4 million for the nine months ended September 30, 2017 and 2016.

Three Months

Revenue at Indices increased 14%, primarily driven by higher levels of assets under management ("AUM") for ETFs. Revenue growth was favorably impacted by 1 percentage point from the acquisition of Trucost plc ("Trucost") in October of 2016. Ending AUM for ETFs in the third quarter of 2017 increased 33% to $1.214 trillion and average AUM for ETFs increased 31% to $1.183 trillion compared to the third quarter of 2016. The favorable impact of foreign exchange rates increased revenue by less than 1 percentage point.

Operating profit grew 10%. The impact of revenue growth was partially offset by higher compensation costs and increased operating costs to support revenue growth and business initiatives at Indices. Higher compensation costs related to increased incentive costs and additional headcount partially related to the acquisition of Trucost. Foreign exchange rates had a favorable impact on operating profit of 1 percentage point.

Nine Months

Revenue at Indices increased 16%, primarily driven by higher levels of AUM for ETFs and mutual funds. Revenue growth was favorably impacted by 1 percentage point from the acquisition of Trucost in October of 2016. Ending AUM for ETFs in the first nine months of 2017 increased 33% to $1.214 trillion and average AUM for ETFs increased 35% to $1.130 trillion compared to the first nine months of 2016. The favorable impact of foreign exchange rates increased revenue by less than 1 percentage point.


45

Operating profit grew 14%. The impact of revenue growth was partially offset by higher compensation costs and increased operating costs to support revenue growth and business initiatives at Indices. Higher compensation costs related to increased incentive costs and additional headcount partially related to the acquisition of Trucost. Foreign exchange rates had a favorable impact on operating profit of 1 percentage point.

LIQUIDITY AND CAPITAL RESOURCES

We continue to maintain a strong financial position. Our primary source of funds for operations is cash from our businesses. Cash on hand, cash flows from operations and availability under our existing credit facility are expected to be sufficient to meet any additional operating and recurring cash needs into the foreseeable future. We use our cash for a variety of needs, including but not limited to: ongoing investments in our businesses, strategic acquisitions, share repurchases, dividends, repayment of debt, capital expenditures and investment in our infrastructure.

Cash Flow Overview

Cash and cash equivalents were $2,312 million as of September 30, 2017, a decrease of $80 million from December 31, 2016, and consisted of approximately 10% of domestic cash and 90% of cash held abroad. Typically, cash held outside the U.S. is anticipated to be utilized to fund international operations or to be reinvested outside of the U.S., as a significant portion of our opportunities for growth in the coming years is expected to be abroad. In the event funds from international operations are needed to fund operations in the U.S., we would be required to accrue for and pay taxes in the U.S. to repatriate these funds.

The following table provides cash flow information for the nine months ended September 30: 
(in millions)
2017
 
2016
 
% Change
Net cash provided by (used for):
 
 
 
 
 
Operating activities
$
1,203

 
$
1,257

 
(4)%
Investing activities
$
(155
)
 
$
858

 
N/M
Financing activities
$
(1,211
)
 
$
(1,104
)
 
10%

In the first nine months of 2017, free cash flow decreased to $1,057 million compared to $1,131 million in the first nine months of 2016. The decrease is primarily due to the decrease in cash provided by operating activities as discussed below. Free cash flow is a non-GAAP financial measure and reflects our cash flow provided by operating activities less capital expenditures and dividends and other payments paid to noncontrolling interests. Capital expenditures include purchases of property and equipment and additions to technology projects. See “Reconciliation of Non-GAAP Financial Information” below for a reconciliation of cash flow provided by operating activities, the most directly comparable U.S. GAAP financial measure, to free cash flow and free cash flow excluding certain items.

Operating activities

Cash provided by operating activities decreased $54 million to $1,203 million for the first nine months of 2017. The decrease is mainly due to the timing of estimated tax payments and other working capital changes.

Investing activities

Our cash outflows from investing activities are primarily for acquisitions and capital expenditures, while cash inflows are primarily proceeds from dispositions.

Cash used for investing activities was $155 million for the first nine months of 2017 compared to cash provided by investing activities of $858 million in the first nine months of 2016, primarily due to proceeds from the sale of J.D. Power of $1.1 billion in 2016. See Note 2 — Acquisitions and Divestitures for further discussion.

Financing activities

Our cash outflows from financing activities consist primarily of share repurchases, dividends to shareholders and repayments of short-term and long-term debt, while cash inflows are primarily attributable to the borrowing of short-term and long-term debt and proceeds from the exercise of stock options.

Cash used for financing activities increased to $1,211 million for the first nine months of 2017 as compared to $1,104 million in the first nine months of 2016. The increase is primarily attributable to proceeds received from the $500 million issuances of senior notes in 2016, partially offset by a decrease in cash used for share repurchases in 2017.

During the first nine months of 2017, we used cash to repurchase 5.4 million shares for $846 million. We entered into an accelerated share repurchase ("ASR") agreement with a financial institution on August 1, 2017 to initiate share repurchases aggregating $500 million. During the first nine months of 2016, we used cash to repurchase 9.1 million shares for $1,123 million, which includes 0.3 million shares for approximately $26 million that settled in January of 2016. Using a portion of the proceeds received from the sale of J.D. Power, we entered into an ASR agreement with a financial institution on September 7, 2016 to initiate share repurchases aggregating $750 million. See Note 8 — Equity for further discussion.

Additional Financing

On June 30, 2017, we entered into a $1.2 billion five year-credit agreement (our "credit facility") that will terminate on June 30, 2022. This credit facility replaced our $1.2 billion five year credit facility that was scheduled to terminate on June 30, 2020. The previous credit facility was canceled immediately after the new credit facility became effective. There were no outstanding borrowings under the previous credit facility when it was replaced.

We have the ability to borrow a total of $1.2 billion through our commercial paper program, which is supported by our credit facility. As of September 30, 2017 and December 31, 2016, there were no commercial paper borrowings outstanding.

Depending on our corporate credit rating, we pay a commitment fee of 8 to 17.5 basis points for our credit facility, whether or not amounts have been borrowed. We currently pay a commitment fee of 12.5 basis points. The interest rate on borrowings under our credit facility is, at our option, calculated using rates that are primarily based on either the prevailing London Inter-Bank Offer Rate, the prime rate determined by the administrative agent or the Federal Funds Rate. For certain borrowings under this credit facility, there is also a spread based on our corporate credit rating.

Our credit facility contains certain covenants. The only financial covenant requires that our indebtedness to cash flow ratio, as defined in our credit facility, is not greater than 4 to 1, and this covenant level has never been exceeded.

Dividends

On January 25, 2017, the Board of Directors approved an increase in the quarterly common stock dividend from $0.36 per share to $0.41 per share.

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

Free cash flow is a non-GAAP financial measure and reflects our cash flow provided by operating activities less capital expenditures and distributions to noncontrolling interest holders. Capital expenditures include purchases of property and equipment and additions to technology projects. Our cash flow provided by operating activities is the most directly comparable U.S. GAAP financial measure to free cash flow. Additionally, we have considered certain items in evaluating free cash flow, which are included in the table below.

We believe the presentation of free cash flow and free cash flow excluding certain items allows our investors to evaluate the cash generated from our underlying operations in a manner similar to the method used by management. We use free cash flow to conduct and evaluate our business because we believe it typically presents a more conservative measure of cash flows since capital expenditures and distributions to noncontrolling interest holders are considered a necessary component of ongoing operations. Free cash flow is useful for management and investors because it allows management and investors to evaluate the cash available to us to prepay debt, make strategic acquisitions and investments and repurchase stock.


46

The presentation of free cash flow and free cash flow excluding certain items are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow, as we calculate it, may not be comparable to similarly titled measures employed by other companies. The following table presents a reconciliation of our cash flow provided by operating activities to free cash flow excluding the impact of the item below for the nine months ended September 30: 
(in millions)
2017
 
2016
 
% Change
Cash provided by operating activities
$
1,203

 
$
1,257

 
(4
)%
Capital expenditures
(77
)
 
(67
)
 


Distributions to noncontrolling interest holders
(69
)
 
(59
)
 


Free cash flow
1,057

 
1,131

 
(7
)%
Tax on gain from sale of SPSE and CMA
67

 
—

 
 
Payment of legal settlements
4

 
134

 


Legal settlement insurance recoveries
—

 
(77
)
 


Tax benefit from legal settlements
—


(21
)
 


Free cash flow excluding above items
$
1,128

 
$
1,167

 
(3
)%

(in millions)
2017
 
2016
 
% Change
Cash (used for) provided by investing activities
(155
)
 
858

 
N/M

Cash used for financing activities
(1,211
)
 
(1,104
)
 
10
%

CRITICAL ACCOUNTING ESTIMATES

Our accounting policies are described in Note 1 — Accounting Policies to the consolidated financial statements in our Form 10-K. As discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K, we consider an accounting estimate to be critical if it required assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate or different estimates could have a material effect on our results of operations. These critical estimates include those related to revenue recognition, allowance for doubtful accounts, valuation of long-lived assets, goodwill and other intangible assets, pension plans, incentive compensation and stock-based compensation, income taxes, contingencies and redeemable non-controlling interests. We base our estimates on historical experience, current developments and on various other assumptions that we believe to be reasonable under these circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that cannot readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates. Since the date of our Form 10-K, there have been no changes to our critical accounting estimates.

RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS

See Note 13 – Recently Issued or Adopted Accounting Standards to the consolidated financial statements of this Form 10-Q for further information.


47

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management’s current views concerning future events, trends, contingencies or results, appear at various places in this report and use words like “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “potential,” “predict,” “project,” “strategy,” “target” and similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will” and “would.” For example, management may use forward-looking statements when addressing topics such as: the outcome of contingencies; future actions by regulators; changes in the Company’s business strategies and methods of generating revenue; the development and performance of the Company’s services and products; the expected impact of acquisitions and dispositions; the Company’s effective tax rates; and the Company’s cost structure, dividend policy, cash flows or liquidity.
Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:

•
worldwide economic, financial, political and regulatory conditions, including economic conditions and regulatory changes that may result from the United Kingdom’s planned exit from the European Union;
•
the rapidly evolving regulatory environment, in the United States and abroad, affecting S&P Global Ratings, S&P Global Platts, S&P Dow Jones Indices, and S&P Global Market Intelligence, including new and amended regulations and the Company’s compliance therewith;
•
our ability to make acquisitions and dispositions and successfully integrate the businesses we acquire;
•
the outcome of litigation, government and regulatory proceedings, investigations and inquiries and the outcome of any review by controlling tax authorities of the Company’s tax positions;
•
the health of debt and equity markets, including credit quality and spreads, the level of liquidity and future debt issuances;
•
the demand and market for credit ratings in and across the sectors and geographies where the Company operates;
•
concerns in the marketplace affecting the Company’s credibility or otherwise affecting market perceptions of the integrity or utility of independent credit ratings;
•
the effect of competitive products and pricing, including the level of success of new product developments and global expansion;
•
consolidation in the Company’s end-customer markets and the introduction of competing products or technologies by other companies;
•
the impact of cost-cutting pressures across the financial services industry;
•
a decline in the demand for credit risk management tools by financial institutions;
•
the level of merger and acquisition activity in the United States and abroad;
•
the volatility of the energy marketplace;
•
the health of the commodities markets;
•
the impact of cost-cutting pressures and reduced trading in oil and other commodities markets;
•
our ability to incentivize and retain key employees;
•
the Company’s ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential information and data, and the potential of a system or network disruption that results in regulatory penalties, remedial costs or improper disclosure of confidential information or data;
•
the Company’s ability to successfully recover should it experience a disaster or other business continuity problem from a hurricane, flood, earthquake, terrorist attack, pandemic, security breach, cyber-attack, power loss, telecommunications failure or other natural or man-made event;
•
changes in applicable tax or accounting requirements;
•
the level of the Company’s future cash flows and capital investments;
•
the impact on the Company’s revenue and net income caused by fluctuations in foreign currency exchange rates; and
•
the Company’s exposure to potential criminal sanctions or civil penalties if it fails to comply with foreign and U.S. laws and regulations that are applicable in the domestic and international jurisdictions in which it operates, including sanctions laws relating to countries such as Iran, Russia, Sudan and Syria, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, and local laws prohibiting corrupt payments to government officials, as well as import and export restrictions.

The factors noted above are not exhaustive. The Company and its subsidiaries operate in a dynamic business environment in which new risks emerge frequently. Accordingly, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made, except as required by applicable law. Further information about the Company’s businesses, including information about factors that could materially

48

affect its results of operations and financial condition, is contained in the Company’s filings with the SEC, including the “Risk Factors” section in the Company’s most recently filed Annual Report on Form 10-K.

49

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk includes changes in foreign exchange rates. We have operations in foreign countries where the functional currency is primarily the local currency. For international operations that are determined to be extensions of the parent company, the U.S. dollar is the functional currency. We typically have naturally hedged positions in most countries from a local currency perspective with offsetting assets and liabilities. As of September 30, 2017 and December 31, 2016, we entered into foreign exchange forward contracts to hedge the effect of adverse fluctuations in foreign currency exchange rates. We have not entered into any derivative financial instruments for speculative purposes. See Note 5 - Derivative Instruments to the consolidated financial statements of this Form 10-Q for further discussion.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed so that information required to be disclosed in our reports filed with the U.S. Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2017, an evaluation was performed under the supervision and with the participation of management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2017.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




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PART II – OTHER INFORMATION
Item 1. Legal Proceedings

See Note 12 – Commitments and Contingencies - Legal & Regulatory Matters to the consolidated financial statements of this Form 10-Q for information on our legal proceedings.

Item 1a. Risk Factors

Our Form 10-K contains detailed cautionary statements which identify all known material risks, uncertainties and other factors that could cause our actual results to differ materially from historical or expected results. There have been no material changes to the risk factors we have previously disclosed in Item 1a, Risk Factors, in our Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On December 4, 2013, the Board of Directors approved a share repurchase program authorizing the purchase of up to 50 million shares, which was approximately 18% of the Company's outstanding shares at that time. During the third quarter of 2017, we repurchased 2.8 million shares, and as of September 30, 2017, 20.4 million shares remained under our current repurchase program.

We entered into an accelerated share repurchase ("ASR") agreement with a financial institution on August 1, 2017 to initiate share repurchases aggregating $500 million. The ASR agreement was structured as an uncapped ASR agreement in which we paid $500 million and received an initial delivery of approximately 2.8 million shares, representing 85% of the $500 million at a price equal to the then market price of the Company. The total number of shares to be repurchased under the ASR agreement will be equal to $500 million divided by the volume weighted-average share price, less a discount, over the term of the ASR agreement. The final settlement of the transaction under the ASR agreement is expected to be completed no later than October 31, 2017. The repurchased shares are held in Treasury. The ASR agreement was executed under the current share repurchase program, approved on December 4, 2013.

Repurchased shares may be used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options. Our current repurchase program has no expiration date and purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions.

The following table provides information on our purchases of our outstanding common stock during the third quarter of 2017 pursuant to our current share repurchase program (column c). In addition to these purchases, the number of shares in column (a) include shares of common stock that are tendered to us to satisfy our employees’ tax withholding obligations in connection with the vesting of awards of restricted shares (we repurchase such shares based on their fair market value on the vesting date). There were no other share repurchases during the quarter outside the repurchases noted below.

Period
 
(a) Total Number of Shares Purchased
 
(b) Average Price Paid per Share
 
(c) Total Number of Shares Purchased as
Part of Publicly Announced Programs
 
(d) Maximum Number of Shares that may yet be Purchased Under the Programs
July 1 — July 31, 2017
 
628

 
$
145.99

 
—

 
23.2 million
August 1 — August 31, 2017 1
 
2,768,474

 
154.11

 
2,767,107

 
20.4 million
September 1 — September 30, 2017
 
2,398

 
153.63

 
—

 
20.4 million
Total — Quarter 1
 
2,771,500

 
$
152.69

 
2,767,107

 
20.4 million

1 
Average price paid per share information does not include the accelerated share repurchase transaction as discussed in more detail above.

Item 5. Other Information

IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT DISCLOSURE


51

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which amended the Securities Exchange Act of 1934, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether, during the reporting period, it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable laws and regulations.

Revenue during the third quarter of 2017 attributable to the transactions or dealings by the Company described below was approximately $136,500 with net profit from such sales being a fraction of the revenues.

During the third quarter of 2017, Platts, a division of the Company that provides energy-related information in over 150 countries, sold information and informational materials, which are generally exempt from U.S. economic sanctions, to fourteen subscribers that are owned or controlled, or appear to be owned or controlled, by the Government of Iran (the “GOI”). The Company, among other things, offers customers that subscribe to its publications access to proprietary data, analytics, and industry information that enable commodities markets to perform with greater transparency and efficiency. This division provided such data related to the energy and petrochemicals markets to the subscribers referenced above, generating revenue that was a de minimis portion of both the division's and the Company’s revenue. Seven of the subscribers are designated by OFAC as GOI entities; and seven appear, based on publicly available information, to be owned or controlled by GOI entities. In addition, during the third quarter of 2017, this division entered into a contract to sell information and informational materials to another subscriber that is owned or controlled by the Government of Iran, but no revenues were received under this contract during the third quarter. We believe that these transactions were permissible under U.S. sanctions pursuant to certain statutory and regulatory exemptions for the exportation of information and informational materials. The Company will continue to monitor its provision of products and services to these Iranian customers so that such activity continues to be permissible under U.S. sanctions. 


52

Item 6. Exhibits

 
 
(10.1)

 
 
(12)
 
 
(15)
 
 
(31.1)
 
 
(31.2)
 
 
(32)
 
 
(101.INS)
XBRL Instance Document
 
 
(101.SCH)
XBRL Taxonomy Extension Schema
 
 
(101.CAL)
XBRL Taxonomy Extension Calculation Linkbase
 
 
(101.LAB)
XBRL Taxonomy Extension Label Linkbase
 
 
(101.PRE)
XBRL Taxonomy Extension Presentation Linkbase
 
 
(101.DEF)
XBRL Taxonomy Extension Definition Linkbase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




53

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
S&P Global Inc.
 
 
 
Registrant

 
 
 
 
Date:
October 26, 2017
By:
/s/ Ewout L. Steenbergen
 
 
 
Ewout L. Steenbergen
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
Date:
October 26, 2017
By:
/s/ Robert J. MacKay
 
 
 
Robert J. MacKay
 
 
 
Senior Vice President and Corporate Controller

54