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S&P Global Inc. - Quarter Report: 2019 June (Form 10-Q)

    



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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  
spgbarrgbposa16.jpg
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
Securities registered pursuant to Section 12(b) of the Act:
Class
Trading Symbol
Name of Exchange on which registered
Common stock (par value $1.00 per share)
SPGI
New York Stock Exchange
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted 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 such files).                                             Yes ☑ 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.
☑
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
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 by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        YES ☐ NO ☑

As of July 26, 2019 (latest practicable date), 246.3 million shares of the issuer's classes of common stock (par value $1.00 per share) were outstanding.

1

S&P Global Inc.
INDEX
 
 
Page Number
 
 
 


2

Report of Independent Registered Public Accounting Firm 

To the Shareholders and Board of Directors of S&P Global Inc.  

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of S&P Global Inc. (and subsidiaries) (the “Company”) as of June 30, 2019, the related consolidated statements of income, comprehensive income, and equity for the three- and six-month periods ended June 30, 2019 and 2018, the related consolidated statements of cash flows for the six-month periods ended June 30, 2019 and 2018, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements 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) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, the related consolidated statements of income, comprehensive income, equity and cash flows for the year then ended, and the related notes and schedule (not presented herein); and in our report dated February 12, 2019, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements 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 PCAOB, 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.

/s/ ERNST & YOUNG LLP

New York, New York
August 1, 2019




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
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
1,704

 
$
1,609

 
$
3,275

 
$
3,176

Expenses:
 
 
 
 
 
 
 
Operating-related expenses
452

 
441

 
898

 
877

Selling and general expenses
387

 
444

 
755

 
819

Depreciation
21

 
19

 
41

 
40

Amortization of intangibles
31

 
33

 
63

 
57

Total expenses
891

 
937

 
1,757

 
1,793

Operating profit
813

 
672

 
1,518

 
1,383

Other (income) expense, net
(6
)
 
(11
)
 
97

 
(16
)
Interest expense, net
37

 
26

 
73

 
61

Income before taxes on income
782

 
657

 
1,348

 
1,338

Provision for taxes on income
180

 
156

 
293

 
303

Net income
602

 
501

 
1,055

 
1,035

Less: net income attributable to noncontrolling interests
(47
)
 
(40
)
 
(90
)
 
(84
)
Net income attributable to S&P Global Inc.
$
555

 
$
461

 
$
965

 
$
951

 
 
 
 
 
 
 
 
Earnings per share attributable to S&P Global Inc. common shareholders:
 
 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
Basic
$
2.25

 
$
1.83

 
$
3.92

 
$
3.78

Diluted
$
2.24

 
$
1.82

 
$
3.89

 
$
3.75

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
246.1

 
251.1

 
246.4

 
251.7

Diluted
247.4

 
253.3

 
247.9

 
253.8

 
 
 
 
 
 
 
 
Actual shares outstanding at period end

 

 
246.3

 
251.4

 
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
Six Months Ended
 
June 30,
June 30,
 
2019
 
2018
2019
 
2018
Net income
$
602

 
$
501

$
1,055

 
$
1,035

 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
Foreign currency translation adjustment
(17
)
 
(75
)
1

 
(52
)
Income tax effect
2

 
15

4

 
(3
)
 
(15
)
 
(60
)
5

 
(55
)
 
 
 
 
 
 
 
Pension and other postretirement benefit plans
—

 
(15
)
114

 
(11
)
Income tax effect
—

 
4

(28
)
 
3

 
—

 
(11
)
86

 
(8
)
 
 
 
 
 
 
 
Unrealized gain on investment and forward exchange contracts
(4
)
 
(5
)
—

 
(4
)
Income tax effect
1

 
1

—

 
1

 
(3
)
 
(4
)
—

 
(3
)
 
 
 
 
 
 
 
Comprehensive income
584

 
426

1,146

 
969

Less: comprehensive income attributable to nonredeemable noncontrolling interests
(3
)
 
(5
)
(6
)
 
(8
)
Less: comprehensive income attributable to redeemable noncontrolling interests
(44
)
 
(36
)
(84
)
 
(76
)
Comprehensive income attributable to S&P Global Inc.
$
537

 
$
385

$
1,056

 
$
885



See accompanying notes to the unaudited consolidated financial statements.

5

S&P Global Inc.
Consolidated Balance Sheets
 
(in millions)
June 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,881

 
$
1,917

Restricted cash
39

 
41

Accounts receivable, net of allowance for doubtful accounts: 2019 - $38; 2018 - $34
1,543

 
1,449

Prepaid and other current assets
231

 
197

Total current assets
3,694

 
3,604

Property and equipment, net of accumulated depreciation: 2019 - $623; 2018 - $596
280

 
270

Right of use assets
669

 
—

Goodwill
3,519

 
3,535

Other intangible assets, net
1,453

 
1,524

Other non-current assets
570

 
525

Total assets
$
10,185

 
$
9,458

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
214

 
$
211

Accrued compensation and contributions to retirement plans
269

 
354

Income taxes currently payable
88

 
72

Unearned revenue
1,709

 
1,641

Other current liabilities
419

 
351

Total current liabilities
2,699


2,629

Long-term debt
3,664

 
3,662

Lease liabilities — non-current
621

 
—

Pension and other postretirement benefits
230

 
229

Other non-current liabilities
511

 
634

Total liabilities
7,725

 
7,154

Redeemable noncontrolling interest (Note 8)
1,890

 
1,620

Commitments and contingencies (Note 12)

 

Equity:
 
 
 
Common stock
294

 
294

Additional paid-in capital
790

 
833

Retained income
11,710

 
11,284

Accumulated other comprehensive loss
(651
)
 
(742
)
Less: common stock in treasury
(11,631
)
 
(11,041
)
Total equity — controlling interests
512

 
628

Total equity — noncontrolling interests
58

 
56

Total equity
570

 
684

Total liabilities and equity
$
10,185

 
$
9,458

    

See accompanying notes to the unaudited consolidated financial statements.

6

S&P Global Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
(in millions)
Six Months Ended
 
June 30,
 
2019
 
2018
Operating Activities:
 
 
 
Net income
$
1,055

 
$
1,035

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation
41

 
40

Amortization of intangibles
63

 
57

Provision for losses on accounts receivable
12

 
10

Deferred income taxes
12

 
22

Stock-based compensation
33

 
46

Pension settlement charge, net of taxes
85

 
—

Other
38

 
80

Changes in operating assets and liabilities, net of effect of acquisitions:
 
 
 
Accounts receivable
(95
)
 
19

Prepaid and other current assets
(42
)
 
(19
)
Accounts payable and accrued expenses
(74
)
 
(217
)
Unearned revenue
—

 
41

Accrued legal settlements
(1
)
 
(29
)
Other current liabilities
(83
)
 
(69
)
Net change in prepaid/accrued income taxes
33

 
24

Net change in other assets and liabilities
(67
)
 
(137
)
Cash provided by operating activities
1,010

 
903

Investing Activities:
 
 
 
Capital expenditures
(46
)
 
(60
)
Acquisitions, net of cash acquired
(4
)
 
(246
)
Changes in short-term investments
(3
)
 
1

Cash used for investing activities
(53
)
 
(305
)
Financing Activities:
 
 
 
Proceeds from issuance of senior notes, net
—

 
489

Payments on senior notes
—

 
(403
)
Dividends paid to shareholders
(281
)
 
(253
)
Distributions to noncontrolling interest holders, net
(59
)
 
(78
)
Purchase of CRISIL shares
—

 
(25
)
Repurchase of treasury shares
(644
)
 
(1,100
)
Exercise of stock options
31

 
16

Employee withholding tax on share-based payments and other
(55
)
 
(50
)
Cash used for financing activities
(1,008
)
 
(1,404
)
Effect of exchange rate changes on cash
13

 
(38
)
Net change in cash, cash equivalents, and restricted cash
(38
)
 
(844
)
Cash, cash equivalents, and restricted cash at beginning of period
1,958

 
2,779

Cash, cash equivalents, and restricted cash at end of period
$
1,920

 
$
1,935


See accompanying notes to the unaudited consolidated financial statements.

7

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

Three Months Ended June 30, 2019
 (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 March 31, 2019
$
294

 
$
772

 
$
11,532

 
$
(633
)
 
$
11,638

 
$
327

 
$
61

 
$
388

Comprehensive income 1
 
 
 
 
555

 
(18
)
 
 
 
537

 
3

 
540

Dividends (Dividend declared per common share — $0.57 per share)
 
 
 
 
(140
)
 
 
 
 
 
(140
)
 
(6
)
 
(146
)
Employee stock plans
 
 
18

 
 
 
 
 
(7
)
 
25

 
 
 
25

Change in redemption value of redeemable noncontrolling interest
 
 
 
 
(237
)
 
 
 
 
 
(237
)
 
 
 
(237
)
Balance as of June 30, 2019
$
294

 
$
790

 
$
11,710

 
$
(651
)
 
$
11,631

 
$
512

 
$
58

 
$
570

Three Months Ended June 30, 2018
 (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 March 31, 2018
$
412

 
$
335

 
$
10,424

 
$
(630
)
 
$
10,537

 
$
4

 
$
61

 
$
65

Comprehensive income 1
 
 
 
 
461

 
(75
)
 
 
 
386

 
5

 
391

Dividends (Dividend declared per common share — $0.50 per share)
 
 
 
 
(126
)
 
 
 
 
 
(126
)
 
(7
)
 
(133
)
Employee stock plans
 
 
70

 
 
 
 
 
(1
)
 
71

 
(1
)
 
70

Change in redemption value of redeemable noncontrolling interest
 
 
 
 
(82
)
 
 
 
 
 
(82
)
 
 
 
(82
)
Increase in CRISIL ownership
 
 
(25
)
 
 
 
 
 
 
 
(25
)
 
(1
)
 
(26
)
Stock consideration for Kensho
 
 
352

 
 
 
 
 
 
 
352

 
 
 
352

Other
 
 
 
 
 
 
 
 
 
 
—

 
(4
)
 
(4
)
Balance as of June 30, 2018
$
412

 
$
732

 
$
10,677

 
$
(705
)
 
$
10,536

 
$
580

 
$
53

 
$
633









8

Consolidated Statements of Equity (continued)
Six Months Ended June 30, 2019
 (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, 2018
$
294

 
$
833

 
$
11,284

 
$
(742
)
 
$
11,041

 
$
628

 
$
56

 
$
684

Comprehensive income 1
 
 
 
 
965

 
91

 
 
 
1,056

 
6

 
1,062

Dividends (Dividend declared per common share — $1.14 per share)
 
 
 
 
(281
)
 
 
 
 
 
(281
)
 
(6
)
 
(287
)
Share repurchases
 
 


 
 
 
 
 
644

 
(644
)
 

 
(644
)
Employee stock plans
 
 
(43
)
 
 
 
 
 
(54
)
 
11

 

 
11

Capital contribution from noncontrolling interest
 
 
 
 
(36
)
 
 
 
 
 
(36
)
 
 
 
(36
)
Change in redemption value of redeemable noncontrolling interest
 
 
 
 
(222
)
 
 
 
 
 
(222
)
 
 
 
(222
)
Other
 
 
 
 

 
 
 
 
 
—

 
2

 
2

Balance as of June 30, 2019
$
294

 
$
790

 
$
11,710

 
$
(651
)
 
$
11,631

 
$
512

 
$
58

 
$
570


Six Months Ended June 30, 2018
 (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, 2017
$
412

 
$
525

 
$
10,025

 
$
(649
)
 
$
9,602

 
$
711

 
$
57

 
$
768

Comprehensive income 1
 
 
 
 
951

 
(66
)
 
 
 
885

 
8

 
893

Dividends (Dividend declared per common share — $1.00 per share)
 
 
 
 
(253
)
 
 
 
 
 
(253
)
 
(7
)
 
(260
)
Share repurchases
 
 
(150
)
 
 
 
 
 
950

 
(1,100
)
 
 
 
(1,100
)
Employee stock plans
 
 
30

 
 
 
 
 
(16
)
 
46

 

 
46

Change in redemption value of redeemable noncontrolling interest
 
 
 
 
(72
)
 
 
 
 
 
(72
)
 
 
 
(72
)
Increase in CRISIL ownership
 
 
(25
)
 
 
 
 
 
 
 
(25
)
 
(1
)
 
(26
)
Stock consideration for Kensho
 
 
352

 
 
 
 
 
 
 
352

 
 
 
352

Other 2
 
 
 
 
26

 
10

 
 
 
36

 
(4
)
 
32

Balance as of June 30, 2018
$
412

 
$
732

 
$
10,677

 
$
(705
)
 
$
10,536

 
$
580

 
$
53

 
$
633

1 Excludes comprehensive income of $44 million and $36 million for the three months ended June 30, 2019 and 2018, respectively, and $84 million and $76 million for the six months ended June 30, 2019 and 2018, respectively, attributable to our redeemable noncontrolling interest.
2 Reflects opening balance sheet adjustments related to the adoption of the new revenue recognition standard and the reclassification of the unrealized loss on investments from Accumulated other comprehensive loss to Retained income.
See accompanying notes to the unaudited consolidated financial statements.

9

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 four reportable segments: S&P Global Ratings ("Ratings"), S&P Global Market Intelligence ("Market Intelligence"), S&P Global Platts ("Platts") 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 Intelligence is a global provider of multi-asset-class data, research and analytical capabilities, which integrate cross-asset analytics and desktop services.
•
Platts is the leading independent provider of information and benchmark prices for the commodity and energy markets.
•
Indices is a global index provider that maintains a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors.
Beginning in the first quarter of 2019, the contract obligations for revenue from Kensho Technologies Inc.’s (“Kensho”) major customers were transferred to Market Intelligence for fulfillment.  As a result of this transfer, from January 1, 2019 revenue from contracts with Kensho’s customers is reflected in Market Intelligence’s results.  In 2018, the revenue from contracts with Kensho’s customers was reported in Corporate revenue. See Note 2 — Acquisitions and Divestitures for additional information.

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 notes 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, 2018 (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 six months ended June 30, 2019 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.

Restricted Cash

Restricted cash of $39 million and $41 million included in our consolidated balance sheets as of June 30, 2019 and December 31, 2018, respectively, primarily includes amounts held in escrow accounts in connection with our acquisition of Kensho.


10

Contract Assets

Contract assets include unbilled amounts from when the Company transfers service to a customer before a customer pays consideration or before payment is due. As of June 30, 2019 and December 31, 2018, contract assets were $47 million and $26 million, respectively, and are included in accounts receivable in our consolidated balance sheets.

Unearned Revenue

We record unearned revenue when cash payments are received or due in advance of our performance. The increase in the unearned revenue balance at June 30, 2019 compared to December 31, 2018 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $1.2 billion of revenues recognized that were included in the unearned revenue balance at the beginning of the period.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of contracts for work that has not yet been performed. As of June 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $1.5 billion. We expect to recognize revenue on approximately half and three-quarters of the remaining performance obligations over the next 12 and 24 months, respectively, with the remainder recognized thereafter.

We do not disclose the value of unfulfilled performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts where revenue is a usage-based royalty promised in exchange for a license of intellectual property.

Costs to Obtain a Contract

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that the costs associated with certain sales commission programs are incremental to the costs to obtain contracts with customers and therefore meet the criteria to be capitalized. Total capitalized costs to obtain a contract were $96 million and $101 million as of June 30, 2019 and December 31, 2018, respectively, and are included in prepaid and other current assets and other non-current assets on our consolidated balance sheets. The capitalized asset will be amortized over a period consistent with the transfer to the customer of the goods or services to which the asset relates, calculated based on the customer term and the average life of the products and services underlying the contracts which has been determined to be approximately 5 years. The expense is recorded within selling and general expenses.

We expense sales commissions when incurred if the amortization period is one year or less. These costs are recorded within selling and general expenses.

Other (Income) Expense, net

The components of other (income) expense, net for the three and six months ended June 30 are as follows: 
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
2019
 
2018
Other components of net periodic benefit cost 1
$
(7
)
 
$
(8
)
 
$
96

 
$
(16
)
Net loss (gain) from investments
1

 
(3
)
 
1

 
—

Other (income) expense, net
$
(6
)
 
$
(11
)
 
$
97

 
$
(16
)


1    During the first quarter of 2019, the Company purchased a group annuity contract under which an insurance company assumed a portion of
the Company's obligation to pay pension benefits to the plan's beneficiaries. The purchase of this group annuity contract was funded by pension plan assets. The non-cash pre-tax settlement charge of $113 million for the six months ended June 30, 2019 reflects the accelerated recognition of a portion of unamortized actuarial losses in the plan.


11

2.
Acquisitions and Divestitures

Acquisitions

2019

In July of 2019, S&P Global completed the acquisition of the Orion technology center from Ness Technologies. Orion was developed to become S&P Global's center of excellence for technology talent to focus on innovations by providing employees with access to the latest technologies and global communications infrastructure, as well as physical spaces that enable highly-collaborative teams. The acquisition of Orion is not material to our consolidated financial statements.

2018

In June of 2018, Market Intelligence acquired the RateWatch business ("RateWatch") from TheStreet, Inc., a B2B data business
that offers subscription and custom reports on bank deposits, loans, fees and other product data to the financial services industry. The acquisition will complement and strengthen Market Intelligence's core capabilities of providing differentiated data and analytics solutions for the banking sector. The acquisition of RateWatch is not material to our consolidated financial statements.

In April of 2018, we acquired Kensho for approximately $550 million, net of cash acquired, in a mix of cash and stock. Kensho is a leading-edge provider of next-generation analytics, artificial intelligence, machine learning, and data visualization systems to Wall Street's premier global banks and investment institutions, as well as the National Security community. The acquisition will strengthen S&P Global's emerging technology capabilities, enhance our ability to deliver essential, actionable insights that will transform the user experience for our clients, and accelerate efforts to improve efficiency and effectiveness of our core internal operations. The acquisition of Kensho is not material to our consolidated financial statements.

In February of 2018, Market Intelligence acquired Panjiva, Inc. ("Panjiva"), a privately-held company that provides deep, differentiated, sector-relevant insights on global supply chains, leveraging data science and technology to make sense of large, unstructured datasets. The acquisition will help strengthen the insights, products and data that we provide to our clients throughout the world. The acquisition of Panjiva is not material to our consolidated financial statements.

In January of 2018, CRISIL, included within our Ratings segment, acquired a 100% stake in Pragmatix Services Private Limited ("Pragmatix"), a data analytics company focused on delivering cutting edge solutions in the "data to intelligence" life cycle to the Banking, Financial Services and Insurance vertical. The acquisition will strengthen CRISIL's position as an agile, innovative and global analytics company. The acquisition of Pragmatix is not material to our consolidated financial statements.

Divestitures

2019

In July of 2019, we entered into an agreement to sell RigData, a business within our Platts segment. RigData is a provider of daily information on rig activity for the natural gas and oil markets across North America. On July 31, 2019, we completed the sale of RigData to Drilling Info, Inc.

In March of 2019, we entered into an agreement to sell Standard & Poor's Investment Advisory Services LLC  ("SPIAS"), a business within our Market Intelligence segment, to Goldman Sachs Asset Management ("GSAM"). SPIAS provides non-discretionary investment advice across institutional sub-advisory and intermediary distribution channels globally. On July 1, 2019, we completed the sale of SPIAS to GSAM.

The operating profit of our businesses held for sale for the periods ending June 30, 2019 and 2018 is as follows:
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
2019
 
2018
Operating profit
$
3

 
$
3

 
$
6

 
$
6



2018

During the six months ended June 30, 2018, we did not complete any dispositions.


12

3.
Income Taxes

The effective income tax rate was 23.0% and 21.7% for the three and six months ended June 30, 2019, respectively, and 23.8% and 22.7% for the three and six months ended June 30, 2018, respectively. The decrease in 2019 was primarily due to the recognition of excess tax benefits associated with share-based payments in the statement of income.

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 June 30, 2019 and December 31, 2018, the total amount of federal, state and local, and foreign unrecognized tax benefits was $114 million and $147 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. As of June 30, 2019 and December 31, 2018, we had $20 million and $35 million, respectively, of accrued interest and penalties associated with unrecognized tax benefits. The reduction in uncertain tax positions and associated accrued interest relates primarily to settlements of tax audits with New York City. Based on the current status of income tax audits, we believe that the total amount of unrecognized tax benefits may decrease by approximately $5 million in the next twelve months as a result of the resolution of tax examinations.

4.
Debt 

A summary of long-term debt outstanding is as follows:
(in millions)
June 30,
2019
 
December 31,
2018
3.3% Senior Notes, due 2020 1
699

 
698

4.0% Senior Notes, due 2025 2
693

 
693

4.4% Senior Notes, due 2026 3
893

 
892

2.95% Senior Notes, due 2027 4
493

 
493

6.55% Senior Notes, due 2037 5
396

 
396

4.5% Senior Notes, due 2048 6
490

 
490

Long-term debt
$
3,664

 
$
3,662



1 
Interest payments are due semiannually on February 14 and August 14, and as of June 30, 2019, the unamortized debt discount and issuance costs total $1 million.
2 
Interest payments are due semiannually on June 15 and December 15, and as of June 30, 2019, the unamortized debt discount and issuance costs total $7 million.
3 
Interest payments are due semiannually on February 15 and August 15, and as of June 30, 2019, the unamortized debt discount and issuance costs total $7 million.
4 
Interest payments are due semiannually on January 22 and July 22, and as of June 30, 2019, the unamortized debt discount and issuance costs total $7 million.
5 
Interest payments are due semiannually on May 15 and November 15, and as of June 30, 2019, the unamortized debt discount and issuance costs total $4 million.
6 
Interest payments are due semiannually on May 15 and November 15, beginning on November 15, 2018, and as of June 30, 2019, the unamortized debt discount and issuance costs total $10 million.

The fair value of our long-term debt borrowings was $4.1 billion and $3.8 billion as of June 30, 2019 and December 31, 2018, respectively, and was estimated based on quoted market prices.

We have the ability to borrow a total of $1.2 billion through our commercial paper program, which is supported by our revolving $1.2 billion five-year credit agreement (our "credit facility") that we entered into on June 30, 2017. This credit facility will terminate on June 30, 2022. As of June 30, 2019 and December 31, 2018, there were no commercial paper borrowings outstanding.


13

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 10 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.


14

5.
Derivative Instruments

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 June 30, 2019 and December 31, 2018, we have entered into foreign exchange forward contracts to mitigate or hedge the effect of adverse fluctuations in foreign exchange rates. Foreign exchange forward contracts are recorded at fair value that is based on foreign exchange rates in active markets; therefore, we classify these derivative contracts within Level 2 of the fair value hierarchy. We do not enter into any derivative financial instruments for speculative purposes.

Undesignated Derivative Instruments

During the six months ended June 30, 2019 and twelve months ended December 31, 2018, we entered into foreign exchange forward contracts in order to mitigate the change in fair value of specific assets and liabilities in the consolidated balance sheets. These forward contracts do not qualify for hedge accounting. As of June 30, 2019, the aggregate notional value of these outstanding forward contracts was $68 million. The changes in fair value of these forward contracts are recorded in prepaid and other current assets and other current liabilities in the consolidated balance sheet with their corresponding change in fair value recognized into selling and general expenses in the consolidated statement of income. The amount recorded in prepaid and other current assets as of June 30, 2019 was $2 million. The amount recorded in selling and general expense for the three and six months ended June 30, 2019 related to these contracts was a net gain of $3 million and $5 million, respectively.

Cash Flow Hedges

During the six months ended June 30, 2019 and twelve months ended December 31, 2018, we entered into a series of foreign exchange forward contracts to hedge a portion of the Indian rupee, British pound, and Euro exposures through the second quarter of 2020 and the fourth quarter of 2019, respectively. 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.
As of June 30, 2019, we estimate that $4 million of the net gains related to derivatives designated as cash flow hedges recorded in other comprehensive income is expected to be reclassified into earnings within the next twelve months. There was no material hedge ineffectiveness for the three and six months ended June 30, 2019.
As of June 30, 2019, the aggregate notional value of our outstanding foreign currency forward contracts designated as cash flow hedges was $229 million.
The following table provides information on the location and fair value amounts of our cash flow hedges as of June 30, 2019 and December 31, 2018:
(in millions)

 
June 30,
 
December 31,
Balance Sheet Location
 
2019
 
2018
Derivatives designated as cash flow hedges:
 
 
 
 
Prepaid and other current assets
Foreign exchange forward contracts
$
4

 
$
3


The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges for the periods ended June 30:
Three Months
(in millions)
Gain (Loss) recognized in Accumulated Other Comprehensive Loss (effective portion)
 
Location of Gain (Loss) 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
2019
 
2018
 
 
 
2019
 
2018
Foreign exchange forward contracts
$
(3
)
 
$
(4
)
 
Revenue, Selling and general expenses
 
$
1

 
$
(1
)


15

Six Months
(in millions)
Gain (Loss) recognized in Accumulated Other Comprehensive Loss (effective portion)
 
Location of Gain (Loss) 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
2019
 
2018
 
 
 
2019
 
2018
Foreign exchange forward contracts
$
—

 
$
(3
)
 
Revenue, Selling and general expenses
 
$
4

 
$
(1
)


The activity related to the change in unrealized gains (losses) in accumulated other comprehensive loss was as follows for the periods ended June 30:
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
2019
 
2018
Net unrealized gains on cash flow hedges, net of taxes, beginning of period
$
7

 
$
3

 
$
4

 
$
2

Change in fair value, net of tax
(2
)
 
(5
)
 
4

 
(4
)
Reclassification into earnings, net of tax
(1
)
 
1

 
(4
)
 
1

Net unrealized gains (losses) on cash flow hedges, net of taxes, end of period
$
4

 
$
(1
)
 
$
4

 
$
(1
)


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 providing senior management with supplemental retirement, disability and death benefits. Certain supplemental retirement benefits are based on final monthly earnings. In addition, we sponsor a voluntary 401(k) plan 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.

Net periodic benefit cost for our retirement and postretirement plans other than the service cost component are included in other income, net in our consolidated statements of income.

16


The components of net periodic benefit cost for our retirement plans and postretirement plans for the periods ended June 30 are as follows: 
(in millions)
Three Months
Six Months
 
2019
 
2018
2019
 
2018
Service cost
$
1

 
$
1

$
1

 
$
1

Interest cost
14

 
18

33

 
36

Expected return on assets
(23
)
 
(31
)
(54
)
 
(63
)
Amortization of prior service credit / actuarial loss
2

 
4

4

 
9

Net periodic benefit cost
(6
)
 
(8
)
(16
)
 
(17
)
Settlement charge 1
—

 
—

113

 
—

Net benefit cost
$
(6
)
 
$
(8
)
$
97

 
$
(17
)
 
1 The Company purchased a group annuity contract under which an insurance company assumed a portion of the Company's obligation to pay pension benefits to the plan's beneficiaries. The purchase of this group annuity contract was funded by pension plan assets. The non-cash pre-tax settlement charge reflects the accelerated recognition of a portion of unamortized actuarial losses in the plan.

Net periodic benefit cost related to our postretirement plans reflected in the table above was not material for the three and six months ended June 30, 2019 and 2018, respectively.

As discussed in our Form 10-K, we changed certain discount rate assumptions for our retirement and postretirement plans which became effective on January 1, 2019. The effect of the assumption changes on retirement and postretirement expense for the three and six months ended June 30, 2019 did not have a material impact to our financial position, results of operations or cash flows.

In the first six months of 2019, we contributed $41 million to our retirement plans and expect to make additional required contributions of approximately $5 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 second half of 2019.

7.
Stock-Based Compensation

We issue stock-based incentive awards to our eligible employees under the 2019 Stock Incentive Plan ("2019 Plan") and to our eligible non-employee Directors under a Director Deferred Stock Ownership Plan. No further awards may be granted under the 2002 Stock Incentive Plan ("2002 Plan"), although awards granted under the 2002 Plan prior to the adoption of the new 2019 Plan in June of 2019 remain outstanding in accordance with their terms. The remaining outstanding options under the 2002 Plan will have fully met their maximum term and expire in the second quarter of 2028. The new 2019 Plan permits the granting of incentive stock options, nonqualified stock options, stock appreciation rights, performance stock, restricted stock and other stock-based awards.

Stock-based compensation for the periods ended June 30 is as follows:
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
2019
 
2018
Stock option expense
$
1

 
$
2

 
$
1

 
$
2

Restricted stock and unit awards expense
21

 
32

 
32

 
44

Total stock-based compensation expense 
$
22

 
$
34

 
$
33

 
$
46


 
During the six months ended June 30, 2019, the Company granted 0.3 million shares of restricted stock and unit awards, which had a weighted average grant date fair value of $212.56 per share.

Total unrecognized compensation expense related to unvested stock option awards and unvested restricted stock and unit awards as of June 30, 2019 was $1 million and $98 million, respectively, which is expected to be recognized over a weighted average period of 1.0 years and 2.0 years, respectively.


17

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 June 30 were as follows: 
(in millions, except average price)
Three Months
 
Six Months
 
2019
 
2018
 
2019
 
2018
Total number of shares purchased 1
—

 
—

 
3.4

 
5.0

Average price paid per share 2
$
—

 
$
—

 
$
184.51

 
$
178.11

Total cash utilized
$
—

 
$
—

 
$
644

 
$
1,100


1 
The six months ended June 30, 2019 and 2018 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 agreements as discussed in more detail below.
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 June 30, 2019, approximately 7.2 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.

Accelerated Share Repurchase Agreements

2019
We entered into an accelerated share repurchase ("ASR") agreement with a financial institution on February 11, 2019 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 2.2 million shares, representing 85% of the $500 million at a price equal to the then market price of the Company. We completed the ASR agreement on July 31, 2019 and will receive an additional 0.1 million shares in August of 2019 resulting in a total of 2.3 million shares repurchased under the ASR agreement for an average purchase price of $214.65 per share. The total number of shares repurchased under the ASR agreement is equal to $500 million divided by the volume weighted-average share price, less a discount. The repurchased shares are held in Treasury. The ASR agreement was executed under the current share repurchase program, approved by the Board of Directors on December 4, 2013.

2018
We entered into an ASR agreement with a financial institution on October 29, 2018 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 2.5 million shares, representing 85% of the $500 million at a price equal to the then market price of the Company. We completed the ASR agreement on January 2, 2019 and received an additional 0.4 million shares. We repurchased a total of 2.9 million shares under the ASR agreement for an average purchase price of $173.80 per share. The total number of shares repurchased under the ASR agreement is equal to $500 million divided by the volume weighted-average share price, less a discount. The repurchased shares are held in Treasury. The ASR agreement was executed under the current share repurchase program, approved on December 4, 2013.

We entered into an ASR agreement with a financial institution on March 6, 2018 to initiate share repurchases aggregating $1 billion. The ASR agreement was structured as an uncapped ASR agreement in which we paid $1 billion and received an initial delivery of approximately 4.5 million shares, representing 85% of the $1 billion at a price equal to the then market price of the Company. We completed the ASR agreement on September 25, 2018 and received an additional 0.6 million shares. We repurchased a total of 5.1 million shares under the ASR agreement for an average purchase price of $197.49 per share. The total number of shares repurchased under the ASR agreement is equal to $1 billion divided by the volume weighted-average share price, less a discount. The repurchased shares are held in Treasury. The ASR agreement was executed under the current share repurchase program, approved by the Board of Directors on December 4, 2013.


18

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, CME Group and CME Group Index Services LLC ("CGIS") has 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, using both income and market valuation approaches. Our income and market valuation approaches incorporate Level 3 fair value measures for instances when observable inputs are not available. The more significant judgmental assumptions used to estimate the value of the S&P Dow Jones Indices LLC joint venture include an estimated discount rate, a range of assumptions that form the basis of the expected future net cash flows (e.g., the revenue growth rates and operating margins), and a company specific beta. The significant judgmental assumptions used that incorporate market data, including the relative weighting of market observable information and the comparability of that information in our valuation models, are forward-looking and could be affected by future economic and market conditions. 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 six months ended June 30, 2019 were as follows:
(in millions)
 
Balance as of December 31, 2018
$
1,620

Net income attributable to noncontrolling interest
84

Capital contribution from noncontrolling interest
36

Distributions payable to noncontrolling interest
(72
)
Redemption value adjustment
222

Balance as of June 30, 2019
$
1,890



Accumulated Other Comprehensive Loss

The following table summarizes the changes in the components of accumulated other comprehensive loss for the six months ended June 30, 2019:
(in millions)
Foreign Currency Translation Adjustment
 
Pension and Postretirement Benefit Plans
 
Unrealized Gain (Loss) on Foreign Forward Exchange Contracts
 
Accumulated Other Comprehensive Loss
Balance as of December 31, 2018
$
(339
)
 
$
(407
)
 
$
4

 
$
(742
)
Other comprehensive income before reclassifications
5

 
(3
)
 
4

 
6

Reclassifications from accumulated other comprehensive loss to net earnings
—

 
89

1 
(4
)
2 
85

Net other comprehensive income
5

 
86

 
—

 
91

Balance as of June 30, 2019
$
(334
)
 
$
(321
)
 
$
4

 
$
(651
)
1 
Reflects amortization of net actuarial losses and is net of a tax benefit of $28 million for the six months ended June 30, 2019. 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.


19

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 of basic and diluted EPS for the periods ended June 30 is as follows: 
(in millions, except per share amounts)
Three Months
 
Six Months

2019
 
2018
 
2019
 
2018
Amounts attributable to S&P Global Inc. common shareholders:
 
 
 
 
 
 
 
Net income
$
555

 
$
461

 
$
965

 
$
951

 
 
 
 
 
 
 
 
Basic weighted-average number of common shares outstanding
246.1

 
251.1

 
246.4

 
251.7

Effect of stock options and other dilutive securities
1.3

 
2.2

 
1.5

 
2.1

Diluted weighted-average number of common shares outstanding
247.4

 
253.3

 
247.9

 
253.8

 
 
 
 
 
 
 
 
Earnings per share attributable to S&P Global Inc. common shareholders:
 
 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
Basic
$
2.25

 
$
1.83

 
$
3.92

 
$
3.78

Diluted
$
2.24

 
$
1.82

 
$
3.89

 
$
3.75



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 six months ended June 30, 2019 and 2018, there were no stock options excluded. Restricted performance shares outstanding of 0.6 million and 0.8 million as of June 30, 2019 and 2018, respectively, were excluded.

10.
Restructuring

We continuously evaluate our cost structure to identify cost savings associated with streamlining our management structure. Our 2019 and 2018 restructuring plan consisted of a company-wide workforce reduction of approximately 170 and 160 positions, respectively, and are further detailed below. The charges for the restructuring plans 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 June 30, 2019 by segment is as follows:
 
2019 Restructuring Plan
 
2018 Restructuring Plan
(in millions)
Initial Charge Recorded
 
Ending Reserve Balance
 
Initial Charge Recorded
 
Ending Reserve Balance
Ratings
$
11

 
$
11

 
$
8

 
$
1

Market Intelligence
1

 
1

 
7

 
4

Platts
1

 
1

 
—

 
—

Corporate
7

 
7

 
10

 
1

Total
$
20

 
$
20

 
$
25

 
$
6



20

We recorded a pre-tax restructuring charge of $20 million primarily related to employee severance charges for the 2019 restructuring plan during the six months ended June 30, 2019. The ending reserve balance for the 2018 restructuring plan was $24 million as of December 31, 2018. For the six months ended June 30, 2019, we have reduced the reserve for the 2018 restructuring plan by $18 million. The reductions primarily related to cash payments for employee severance charges.

11. Segment and Related Information

We have four reportable segments: Ratings, Market Intelligence, Platts 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 Corporate Unallocated, other expense (income), net, or interest expense, net, as these are amounts that do not affect the operating results of our reportable segments.

Beginning in the first quarter of 2019, the contract obligations for revenue from Kensho's major customers were transferred to Market Intelligence for fulfillment.  As a result of this transfer, from January 1, 2019 revenue from contracts with Kensho’s customers is reflected in Market Intelligence’s results.  In 2018, the revenue from contracts with Kensho’s customers was reported in Corporate revenue.

A summary of operating results for the periods ended June 30 is as follows: 
Revenue
Three Months

Six Months
(in millions)
2019

2018

2019

2018
Ratings
$
801


$
775


$
1,497


$
1,523

Market Intelligence
487


449


969


889

Platts
213


205


420


401

Indices
235


207


452


418

Corporate
—


5


—


5

Intersegment elimination 1
(32
)

(32
)

(63
)

(60
)
Total revenue
$
1,704


$
1,609


$
3,275


$
3,176

Operating Profit
Three Months
 
Six Months
(in millions)
2019
 
2018
 
2019
 
2018
Ratings 2
$
455

 
$
369

 
$
818

 
$
777

Market Intelligence 3
147

 
127

 
292

 
238

Platts 4
107

 
98

 
201

 
188

Indices 5
162

 
137

 
311

 
285

Total reportable segments
871

 
731

 
1,622

 
1,488

Corporate Unallocated 6
(58
)
 
(59
)
 
(104
)
 
(105
)
Total operating profit
$
813

 
$
672

 
$
1,518

 
$
1,383

 
Note - In the fourth quarter of 2018, Trucost was transferred from Indices to Market Intelligence and historical reporting was retroactively revised to reflect the change.
 
1 
Revenue for Ratings and expenses for Market Intelligence include an intersegment royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
2 
Operating profit includes employee severance charges of $11 million for the three and six months ended June 30, 2019. Operating profit includes legal settlement expenses of $73 million for the three and six months ended June 30, 2018. Operating profit also includes amortization of intangibles from acquisitions of $1 million for the three and six months ended June 30, 2019 and 2018.
3 
Operating profit includes employee severance charges of $1 million for the three and six months ended June 30, 2019. Operating profit also includes amortization of intangibles from acquisitions of $19 million and $18 million for the three months ended June 30, 2019 and 2018, respectively, and $37 million and $36 million for the six months ended June 30, 2019 and 2018, respectively.
4 
Operating profit includes employee severance charges of $1 million for the three and six months ended June 30, 2019. Operating profit also includes amortization of intangibles from acquisitions of $3 million and $4 million for the three months ended June 30, 2019 and 2018, respectively, and $7 million and $9 million for the six months ended June 30, 2019 and 2018, respectively.
5 
Operating profit for includes amortization of intangibles from acquisitions of $1 million for the three months ended June 30, 2019 and 2018 and $3 million for the six months ended June 30, 2019 and 2018.
6 
Operating loss includes Kensho retention related expenses of $5 million and $12 million for the three months ended June 30, 2019 and 2018, respectively, and $11 million and $12 million for the six months ended June 30, 2019 and 2018, respectively. Operating loss includes employee severance charges of $7 million and a lease impairment of $5 million for the three and six months ended June 30, 2019. Operating

21

loss also includes amortization of intangibles from acquisitions of $7 million and $14 million for the three and six months months ended June 30, 2019, respectively, and $8 million for the three and six months ended June 30, 2018.
The following table presents our revenue disaggregated by revenue type:
(in millions)
Ratings
 
Market Intelligence
 
Platts
 
Indices
 
Corporate
 
Intersegment Elimination 1
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2019
Subscription
$
—

 
$
471

 
$
195

 
$
40

 
$
—

 
$
—

 
$
706

Non-transaction
372

 
—

 
—

 
—

 
—

 
(32
)
 
340

Non-subscription / Transaction
429

 
12

 
3

 
—

 
—

 
—

 
444

Asset-linked fees
—

 
4

 
—

 
159

 
—

 
—

 
163

Sales usage-based royalties
—

 
—

 
15

 
36

 
—

 
—

 
51

Total revenue
$
801

 
$
487

 
$
213

 
$
235

 
$
—

 
$
(32
)
 
$
1,704

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
 
 
Services transferred at a point in time
$
429

 
$
12

 
$
3

 
$
—

 
$
—

 
$
—

 
$
444

Services transferred over time
372

 
475

 
210

 
235

 
—

 
(32
)
 
1,260

Total revenue
$
801

 
$
487

 
$
213

 
$
235

 
$
—

 
$
(32
)
 
$
1,704

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019
Subscription
$
—

 
$
939

 
$
386

 
$
80

 


 
$
—

 
$
1,405

Non-transaction
737

 
—

 
—

 
—

 
—

 
(63
)
 
674

Non-subscription / Transaction
760

 
21

 
5

 
—

 
—

 
—

 
786

Asset-linked fees
—

 
9

 
—

 
302

 
—

 
—

 
311

Sales usage-based royalties
—

 
—

 
29

 
70

 
—

 
—

 
99

Total revenue
$
1,497

 
$
969

 
$
420

 
$
452

 
$
—

 
$
(63
)
 
$
3,275

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
 
 
Services transferred at a point in time
$
760

 
$
21

 
$
5

 
$
—

 
$
—

 
$
—

 
$
786

Services transferred over time
737

 
948

 
415

 
452

 
—

 
(63
)
 
2,489

Total revenue
$
1,497

 
$
969

 
$
420

 
$
452

 
$
—

 
$
(63
)
 
$
3,275


22

(in millions)
Ratings
 
Market Intelligence
 
Platts
 
Indices
 
Corporate
 
Intersegment Elimination 1
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
Subscription
$
—

 
$
431

 
$
188

 
$
34

 
$
5

 
$
—

 
$
658

Non-transaction
378

 
—

 
—

 
—

 
—

 
(32
)
 
346

Non-subscription / Transaction
397

 
13

 
4

 
—

 
—

 
—

 
414

Asset-linked fees
—

 
5

 
—

 
135

 
—

 
—

 
140

Sales usage-based royalties
—

 
—

 
13

 
38

 
—

 
—

 
51

Total revenue
$
775

 
$
449

 
$
205

 
$
207

 
$
5

 
$
(32
)
 
$
1,609

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
 
 
Services transferred at a point in time
$
397

 
$
13

 
$
4

 
$
—

 
$
—

 
$
—

 
$
414

Services transferred over time
378

 
436

 
201

 
207

 
5

 
(32
)
 
1,195

Total revenue
$
775

 
$
449

 
$
205

 
$
207

 
$
5

 
$
(32
)
 
$
1,609

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
Subscription
$
—

 
$
856

 
$
369

 
$
64

 
$
5

 
$
—

 
$
1,294

Non-transaction
757

 
—

 
—

 
—

 
—

 
(60
)
 
697

Non-subscription / Transaction
766

 
23

 
6

 
—

 
—

 
—

 
795

Asset-linked fees
—

 
10

 
—

 
265

 
—

 
—

 
275

Sales usage-based royalties
—

 
—

 
26

 
89

 
—

 
—

 
115

Total revenue
$
1,523

 
$
889

 
$
401

 
$
418

 
$
5

 
$
(60
)
 
$
3,176

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
 
 
Services transferred at a point in time
$
766

 
$
23

 
$
6

 
$
—

 
$
—

 
$
—

 
$
795

Services transferred over time
757

 
866

 
395

 
418

 
5

 
(60
)
 
2,381

Total revenue
$
1,523

 
$
889

 
$
401

 
$
418

 
$
5

 
$
(60
)
 
$
3,176

1 
Intersegment eliminations primarily consists of a royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.

The following provides revenue by geographic region for the periods ended June 30:
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
2019
 
2018
U.S.
$
1,023

 
$
962

 
$
1,966

 
$
1,915

European region
415

 
402

 
788

 
782

Asia
177

 
158

 
346

 
314

Rest of the world
89

 
87

 
175

 
165

Total
$
1,704

 
$
1,609

 
$
3,275

 
$
3,176



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

12. Commitments and Contingencies

Leases

We determine whether an arrangement meets the criteria for an operating lease or a finance lease at the inception of the arrangement. We have operating leases for office space and equipment. Our leases have remaining lease terms of 1 year to 14 years, some of which include options to extend the leases for up to 12 years, and some of which include options to terminate the leases within

23

1 year. We consider these options in determining the lease term used to establish our right-of use ("ROU") assets and associated lease liabilities. We sublease certain real estate leases to third parties which mainly consist of operating leases for space within our offices.

Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expenses for these leases on a straight line-basis over the lease term in operating-related expenses and selling and general expenses.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. Our future minimum based payments used to determine our lease liabilities include minimum based rent payments and escalations. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The following table provides information on the location and amounts of our leases on our consolidated balance sheet as of June 30, 2019:
(in millions)
 
June 30,
Balance Sheet Location
 
2019
Assets
 
 
Right of use assets
Lease right-of-use assets
$
669

Liabilities
 
 
Other current liabilities
Current lease liabilities
109

Lease liabilities — non-current

Noncurrent lease liabilities
621



The components of lease expense for the periods ended June 30 are as follows: 
(in millions)
Three Months
 
Six Months
 
2019
 
2019
Operating lease cost
$
41

 
$
77

Sublease income
(4
)
 
(8
)
Total lease cost
$
37

 
$
69


Supplemental information related to leases for the periods ended June 30 are as follows:
(in millions)
Three Months
 
Six Months
 
2019
 
2019
Cash paid for amounts included in the measurement for operating lease liabilities
 
 
 
Operating cash flows from operating leases
$
36

 
$
71

 
 
 
 
Right-of-use assets obtained in exchange for lease obligations
 
 
 
Operating leases
23

 
737



Weighted-average remaining lease term and discount rate for our operating leases as of June 30 are as follows:
 
2019
Weighted-average remaining lease term (years)
9.5

Weighted-average discount rate
3.93
%



24

Maturities of lease liabilities for our operating leases are as follows:
(in millions)
 
2019 (Excluding the six months ended June 30, 2019)
$
84

2020
122

2021
104

2022
89

2023
81

2024 and beyond
421

Total undiscounted lease payments
$
901

Less: Imputed interest
171

Present value of lease liabilities
$
730



Related Party Agreements

In March of 2018, the Company made a $20 million contribution to the S&P Global Foundation included in selling and general expenses.

In June of 2012, we entered into a license agreement (the "License Agreement") with the holder of S&P Dow Jones Indices LLC noncontrolling interest, CME Group, replacing 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 six months ended June 30, 2019, S&P Dow Jones Indices LLC earned $30 million and $59 million, respectively, of revenue under the terms of the License Agreement. During the three and six months ended June 30, 2018, S&P Dow Jones Indices LLC earned $24 million and $55 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.

Legal and 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. For example, 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. 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.

In view of the uncertainty inherent in litigation and government and regulatory enforcement matters, we cannot predict the eventual outcome of such matters or the timing of their resolution, or in most cases reasonably estimate what the eventual judgments, damages, fines, penalties or impact of activity (if any) restrictions may be. As a result, we cannot provide assurance that such outcomes 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 or competitive position, which may require that we record liabilities in the consolidated financial statements in future periods.



25

13. Recently Issued or Adopted Accounting Standards

In November of 2018, the Financial Accounting Standards Board ("FASB") issued guidance that provides clarification on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under Accounting Standards Codification ("ASC") 606. The guidance is effective for reporting periods beginning after December 15, 2019; however early adoption is permitted. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

In August of 2018, the FASB issued guidance to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for reporting periods beginning after December 15, 2019; however early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In August of 2017, the 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 was effective on January 1, 2019, and the adoption of this guidance did not have a significant impact 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 June of 2016, the FASB issued guidance that amends the measurement of credit losses on certain financial instruments by requiring the use of an expected loss methodology, which will result in more timely recognition of credit losses. The Company currently expects that the most notable impact of this guidance may relate to its processes around the assessment of the adequacy of its allowance for doubtful accounts on accounts receivable and the recognition of credit losses. The guidance is effective for reporting periods beginning after December 15, 2019. We do not expect this guidance to have a significant impact on our consolidated financial statements.

In February of 2016, the FASB issued guidance amending the accounting for leases that requires a lessee to recognize "right of use" assets with offsetting lease liabilities on the balance sheet, with expenses recognized similar to previously issued guidance. This guidance is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. We adopted the new lease standard effective January 1, 2019 using the modified retrospective transition method. In July of 2018, the FASB issued a subsequent update providing entities an additional transition method to adopt the new lease standard, allowing entities to adopt the standard prospectively without restating prior period's financial statements. We have elected this transition method upon adoption on January 1, 2019. We have also elected to apply the "package" of practical expedients permitting entities to forgo reassessment of (1) the lease classification of expired or existing leases, (2) whether any expired or existing contracts contain leases, and (3) the accounting for initial direct costs of existing leases. This standard had a material impact on our consolidated balance sheet, but did not have an impact on our consolidated statements of income or cash flows. As part of our implementation process, we have refined our processes, procedures, and controls to capture the complete population of leases that incorporates a third party software solution to report the financial statement impact of the new standard. See Note 12 — Commitments and Contingencies for further details on our leases.


26

14.
Condensed Consolidating Financial Statements

On May 17, 2018, we issued $500 million of 4.5% notes due in 2048. 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 that were repaid 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 June 30, 2019
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Revenue
$
208

 
$
489

 
$
1,047

 
$
(40
)
 
$
1,704

Expenses:
 
 
 
 
 
 
 
 
 
Operating-related expenses
46

 
110

 
336

 
(40
)
 
452

Selling and general expenses
51

 
83

 
253

 
—

 
387

Depreciation
10

 
4

 
7

 
—

 
21

Amortization of intangibles
—

 
—

 
31

 
—

 
31

Total expenses
107

 
197

 
627

 
(40
)
 
891

Operating profit
101

 
292

 
420

 
—

 
813

Other income, net

(5
)
 
—

 
(1
)
 
—

 
(6
)
Interest expense (income), net
40

 
—

 
(3
)
 
—

 
37

Non-operating intercompany transactions
95

 
(20
)
 
(1,234
)
 
1,159

 
—

Income before taxes on income
(29
)
 
312

 
1,658

 
(1,159
)
 
782

(Benefit) provision for taxes on income
(3
)
 
89

 
94

 
—

 
180

Equity in net income of subsidiaries
1,741

 
—

 
—

 
(1,741
)
 
—

Net income
$
1,715

 
$
223

 
$
1,564

 
$
(2,900
)
 
$
602

Less: net income attributable to noncontrolling interests
—

 
—

 
—

 
(47
)
 
(47
)
Net income attributable to S&P Global Inc.
$
1,715

 
$
223

 
$
1,564

 
$
(2,947
)
 
$
555

Comprehensive income
$
1,721

 
$
223

 
$
1,540

 
$
(2,900
)
 
$
584



27

 
Statement of Income
 
Six Months Ended June 30, 2019
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Revenue
$
409

 
$
925

 
$
2,018

 
$
(77
)
 
$
3,275

Expenses:
 
 
 
 
 
 
 
 
 
Operating-related expenses
85

 
228

 
662

 
(77
)
 
898

Selling and general expenses
75

 
163

 
517

 
—

 
755

Depreciation
22

 
6

 
13

 
—

 
41

Amortization of intangibles
—

 
—

 
63

 
—

 
63

Total expenses
182

 
397

 
1,255

 
(77
)
 
1,757

Operating profit
227

 
528

 
763

 
—

 
1,518

Other expense (income), net

102

 
—

 
(5
)
 
—

 
97

Interest expense (income), net
77

 
—

 
(4
)
 
—

 
73

Non-operating intercompany transactions
191

 
(37
)
 
(1,336
)
 
1,182

 
—

Income before taxes on income
(143
)
 
565

 
2,108

 
(1,182
)
 
1,348

(Benefit) provision for taxes on income
(43
)
 
159

 
177

 
—

 
293

Equity in net income of subsidiaries
2,247

 
—

 
—

 
(2,247
)
 
—

Net income
$
2,147

 
$
406

 
$
1,931

 
$
(3,429
)
 
$
1,055

Less: net income attributable to noncontrolling interests
—

 
—

 
—

 
(90
)
 
(90
)
Net income attributable to S&P Global Inc.
$
2,147

 
$
406

 
$
1,931

 
$
(3,519
)
 
$
965

Comprehensive income
$
2,235

 
$
406

 
$
1,935

 
$
(3,430
)
 
$
1,146




28

 
Statement of Income
 
Three Months Ended June 30, 2018
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Revenue
$
200

 
$
463

 
$
985

 
$
(39
)
 
$
1,609

Expenses:
 
 
 
 
 
 
 
 
 
Operating-related expenses
43

 
107

 
330

 
(39
)
 
441

Selling and general expenses
69

 
57

 
318

 
—

 
444

Depreciation
11

 
2

 
6

 
—

 
19

Amortization of intangibles
—

 
—

 
33

 
—

 
33

Total expenses
123

 
166

 
687

 
(39
)
 
937

Operating profit
77

 
297

 
298

 
—

 
672

Other income, net


(6
)
 
—

 
(5
)
 
—

 
(11
)
Interest expense (income), net
28

 
—

 
(2
)
 
—

 
26

Non-operating intercompany transactions
86

 
(22
)
 
(358
)
 
294

 
—

Income before taxes on income
(31
)
 
319

 
663

 
(294
)
 
657

Provision for taxes on income
27

 
75

 
54

 
—

 
156

Equity in net income of subsidiaries
812

 
—

 
—

 
(812
)
 
—

Net income
$
754

 
$
244

 
$
609

 
$
(1,106
)
 
$
501

Less: net income attributable to noncontrolling interests
—

 
—

 
—

 
(40
)
 
(40
)
Net income attributable to S&P Global Inc.
$
754

 
$
244

 
$
609

 
$
(1,146
)
 
$
461

Comprehensive income
$
764

 
$
244

 
$
521

 
$
(1,103
)
 
$
426



29

 
Statement of Income
 
Six Months Ended June 30, 2018
 
(Unaudited)
(in millions)
S&P Global Inc.
 
Standard & Poor's Financial Services LLC
 
Non-Guarantor Subsidiaries
 
Eliminations
 
S&P Global Inc. Consolidated
Revenue
$
391

 
$
897

 
$
1,962

 
$
(74
)
 
$
3,176

Expenses:
 
 
 
 
 
 
 
 
 
Operating-related expenses
74

 
224

 
653

 
(74
)
 
877

Selling and general expenses
108

 
143

 
568

 
—

 
819

Depreciation
20

 
4

 
16

 
—

 
40

Amortization of intangibles
—

 
—

 
57

 
—

 
57

Total expenses
202

 
371

 
1,294

 
(74
)
 
1,793

Operating profit
189

 
526

 
668

 
—

 
1,383

Other income, net


(14
)
 
—

 
(2
)
 
—

 
(16
)
Interest expense (income), net
66

 
1

 
(6
)
 
—

 
61

Non-operating intercompany transactions
186

 
(43
)
 
(1,454
)
 
1,311

 
—

Income before taxes on income
(49
)
 
568

 
2,130

 
(1,311
)
 
1,338

Provision for taxes on income
13

 
146

 
144

 
—

 
303

Equity in net income of subsidiaries
2,324

 
—

 
—

 
(2,324
)
 
—

Net income
$
2,262

 
$
422

 
$
1,986

 
$
(3,635
)
 
$
1,035

Less: net income attributable to noncontrolling interests
—

 
—

 
—

 
(84
)
 
(84
)
Net income attributable to S&P Global Inc.
$
2,262

 
$
422

 
$
1,986

 
$
(3,719
)
 
$
951

Comprehensive income
$
2,251

 
$
421

 
$
1,932

 
$
(3,635
)
 
$
969















30

 
Balance Sheet
 
June 30, 2019
 
(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
$
556

 
$
—

 
$
1,325

 
$
—

 
$
1,881

Restricted cash
—

 
—

 
39

 
—

 
39

Accounts receivable, net of allowance for doubtful accounts
269

 
195

 
1,079

 
—

 
1,543

Intercompany receivable
585

 
2,330

 
3,281

 
(6,196
)
 
—

Prepaid and other current assets
45

 
—

 
186

 
—

 
231

Total current assets
1,455

 
2,525

 
5,910

 
(6,196
)
 
3,694

Property and equipment, net of accumulated depreciation
205

 
—

 
75

 
—

 
280

Right of use assets
404

 
2

 
263

 
—

 
669

Goodwill
261

 
—

 
3,251

 
7

 
3,519

Other intangible assets, net
—

 
—

 
1,453

 
—

 
1,453

Investments in subsidiaries
10,631

 
6

 
8,008

 
(18,645
)
 
—

Intercompany loans receivable
137

 
—

 
1,137

 
(1,274
)
 
—

Other non-current assets
208

 
43

 
320

 
(1
)
 
570

Total assets
$
13,301

 
$
2,576

 
$
20,417

 
$
(26,109
)
 
$
10,185

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
100

 
$
7

 
$
107

 
$
—

 
$
214

Intercompany payable
5,107

 
55

 
1,034

 
(6,196
)
 
—

Accrued compensation and contributions to retirement plans
108

 
27

 
134

 
—

 
269

Income taxes currently payable
18

 
—

 
70

 
—

 
88

Unearned revenue
268

 
259

 
1,182

 
—

 
1,709

Other current liabilities
187

 
20

 
212

 
—

 
419

Total current liabilities
5,788

 
368

 
2,739

 
(6,196
)
 
2,699

Long-term debt
3,664

 
—

 
—

 
—

 
3,664

Lease liabilities — non-current
386

 
1

 
234

 
—

 
621

Intercompany loans payable
120

 
—

 
1,154

 
(1,274
)
 
—

Pension and other postretirement benefits
162

 
—

 
68

 
—

 
230

Other non-current liabilities
131

 
76

 
304

 
—

 
511

Total liabilities
10,251

 
445

 
4,499

 
(7,470
)
 
7,725

Redeemable noncontrolling interest
—

 
—

 
—

 
1,890

 
1,890

Equity:
 
 
 
 
 
 
 
 
 
Common stock
294

 
—

 
2,371

 
(2,371
)
 
294

Additional paid-in capital
26

 
622

 
9,679

 
(9,537
)
 
790

Retained income
14,569

 
1,509

 
4,353

 
(8,721
)
 
11,710

Accumulated other comprehensive loss
(209
)
 
—

 
(485
)
 
43

 
(651
)
Less: common stock in treasury
(11,630
)
 
—

 
(1
)
 
—

 
(11,631
)
Total equity - controlling interests
3,050

 
2,131

 
15,917

 
(20,586
)
 
512

Total equity - noncontrolling interests
—

 
—

 
1

 
57

 
58

Total equity
3,050

 
2,131

 
15,918

 
(20,529
)
 
570

Total liabilities and equity
$
13,301

 
$
2,576

 
$
20,417

 
$
(26,109
)
 
$
10,185


31

 
Balance Sheet
 
December 31, 2018
(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
$
694

 
$
—

 
$
1,223

 
$
—

 
$
1,917

Restricted cash
—

 
—

 
41

 
—

 
41

Accounts receivable, net of allowance for doubtful accounts
163

 
109

 
1,177

 
—

 
1,449

Intercompany receivable
550

 
2,138

 
2,873

 
(5,561
)
 
—

Prepaid and other current assets
58

 
3

 
136

 
—

 
197

Total current assets
1,465

 
2,250

 
5,450

 
(5,561
)
 
3,604

Property and equipment, net of accumulated depreciation
192

 
—

 
78

 
—

 
270

Right of use assets
—

 
—

 
—

 
—

 
—

Goodwill
261

 
—

 
3,265

 
9

 
3,535

Other intangible assets, net
—

 
—

 
1,524

 
—

 
1,524

Investments in subsidiaries
8,599

 
6

 
8,030

 
(16,635
)
 
—

Intercompany loans receivable
130

 
—

 
1,643

 
(1,773
)
 
—

Other non-current assets
194

 
45

 
286

 
—

 
525

Total assets
$
10,841

 
$
2,301

 
$
20,276

 
$
(23,960
)
 
$
9,458

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
89

 
$
15

 
$
107

 
$
—

 
$
211

Intercompany payable
4,453

 
32

 
1,076

 
(5,561
)
 
—

Accrued compensation and contributions to retirement plans
125

 
33

 
196

 
—

 
354

Income taxes currently payable
1

 
—

 
71

 
—

 
72

Unearned revenue
240

 
235

 
1,166

 
—

 
1,641

Other current liabilities
180

 
16

 
155

 
—

 
351

Total current liabilities
5,088

 
331

 
2,771

 
(5,561
)
 
2,629

Long-term debt
3,662

 
—

 
—

 
—

 
3,662

Lease liabilities — non-current
—

 
—

 
—

 
—

 
—

Intercompany loans payable
114

 
—

 
1,659

 
(1,773
)
 
—

Pension and other postretirement benefits
162

 
—

 
67

 
—

 
229

Other non-current liabilities
166

 
75

 
393

 
—

 
634

Total liabilities
9,192

 
406

 
4,890

 
(7,334
)
 
7,154

Redeemable noncontrolling interest
—

 
—

 
—

 
1,620

 
1,620

Equity:
 
 
 
 
 
 
 
 
 
Common stock
294

 
—

 
2,279

 
(2,279
)
 
294

Additional paid-in capital
72

 
618

 
9,784

 
(9,641
)
 
833

Retained income
12,622

 
1,277

 
3,824

 
(6,439
)
 
11,284

Accumulated other comprehensive loss
(299
)
 
—

 
(489
)
 
46

 
(742
)
Less: common stock in treasury
(11,040
)
 
—

 
(13
)
 
12

 
(11,041
)
Total equity - controlling interests
1,649

 
1,895

 
15,385

 
(18,301
)
 
628

Total equity - noncontrolling interests
—

 
—

 
1

 
55

 
56

Total equity
1,649

 
1,895

 
15,386

 
(18,246
)
 
684

Total liabilities and equity
$
10,841

 
$
2,301

 
$
20,276

 
$
(23,960
)
 
$
9,458




32

 
Statement of Cash Flows
 
Six Months Ended June 30, 2019
 
(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
$
2,147

 
$
406

 
$
1,931

 
$
(3,429
)
 
$
1,055

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
 
 
 
     Depreciation
22

 
6

 
13

 
—

 
41

     Amortization of intangibles
—

 
—

 
63

 
—

 
63

     Provision for losses on accounts receivable
3

 
3

 
6

 
—

 
12

     Deferred income taxes
4

 
1

 
7

 
—

 
12

     Stock-based compensation
9

 
4

 
20

 
—

 
33

     Pension settlement charge, net of taxes
85

 
—

 
—

 
—

 
85

     Other
8

 
7

 
23

 
—

 
38

Changes in operating assets and liabilities, net of effect of acquisitions:
 
 
 
 
 
 
 
 
 
     Accounts receivable
(109
)
 
(88
)
 
102

 
—

 
(95
)
     Prepaid and other current assets
(1
)
 
2

 
(43
)
 
—

 
(42
)
     Accounts payable and accrued expenses
1

 
(13
)
 
(62
)
 
—

 
(74
)
     Unearned revenue
28

 
27

 
(55
)
 
—

 
—

     Accrued legal settlements
—

 
(1
)
 
—

 
—

 
(1
)
     Other current liabilities
(57
)
 
(3
)
 
(23
)
 
—

 
(83
)
     Net change in prepaid/accrued income taxes
33

 
—

 
—

 
—

 
33

     Net change in other assets and liabilities
(26
)
 
(4
)
 
(37
)
 

 
(67
)
Cash provided by operating activities
2,147

 
347

 
1,945

 
(3,429
)
 
1,010

Investing Activities:
 
 
 
 
 
 
 
 
 
     Capital expenditures
(25
)
 
(3
)
 
(18
)
 
—

 
(46
)
     Acquisitions, net of cash acquired
—

 
—

 
(4
)
 
—

 
(4
)
     Changes in short-term investments
—

 
—

 
(3
)
 
—

 
(3
)
Cash used for investing activities
(25
)
 
(3
)
 
(25
)
 
—

 
(53
)
Financing Activities:
 
 
 
 
 
 
 
 
 
     Dividends paid to shareholders
(281
)
 
—

 
—

 
—

 
(281
)
 Distributions to noncontrolling interest holders, net
—

 
—

 
(59
)
 
—

 
(59
)
     Repurchase of treasury shares
(644
)
 
—

 
—

 
—

 
(644
)
     Exercise of stock options
29

 
—

 
2

 
—

 
31

Employee withholding tax on share-based payments and other
(53
)
 
—

 
(2
)
 
—

 
(55
)
     Intercompany financing activities
(1,311
)
 
(344
)
 
(1,774
)
 
3,429

 
—

Cash used for financing activities
(2,260
)
 
(344
)
 
(1,833
)
 
3,429

 
(1,008
)
Effect of exchange rate changes on cash
—

 
—

 
13

 
—

 
13

Net change in cash, cash equivalents, and restricted cash
(138
)
 
—

 
100

 
—

 
(38
)
Cash, cash equivalents, and restricted cash at beginning of period
694

 
—

 
1,264

 
—

 
1,958

Cash, cash equivalents, and restricted cash at end of period
$
556

 
$
—

 
$
1,364

 
$
—

 
$
1,920



33

 
Statement of Cash Flows
 
Six Months Ended June 30, 2018
 
(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
$
2,262

 
$
422

 
$
1,986

 
$
(3,635
)
 
$
1,035

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
 
 
 
     Depreciation
20

 
4

 
16

 
—

 
40

     Amortization of intangibles
—

 
—

 
57

 
—

 
57

     Provision for losses on accounts receivable
—

 
1

 
9

 
—

 
10

     Deferred income taxes
(86
)
 
—

 
108

 

 
22

     Stock-based compensation
14

 
8

 
24

 
—

 
46

     Other
19

 
—

 
61

 
—

 
80

Changes in operating assets and liabilities, net of effect of acquisitions:
 
 
 
 
 
 
 
 
 
     Accounts receivable
(6
)
 
(29
)
 
54

 
—

 
19

     Prepaid and other current assets
(20
)
 
1

 
—

 
—

 
(19
)
     Accounts payable and accrued expenses
(48
)
 
(68
)
 
(101
)
 
—

 
(217
)
     Unearned revenue
9

 
30

 
2

 
—

 
41

     Accrued legal settlements

 
—

 
(29
)
 
—

 
(29
)
     Other current liabilities
20

 
(4
)
 
(85
)
 
—

 
(69
)
     Net change in prepaid/accrued income taxes
24

 
1

 
(1
)
 
—

 
24

     Net change in other assets and liabilities
(27
)
 
2

 
(112
)
 
—

 
(137
)
Cash provided by operating activities
2,181

 
368

 
1,989

 
(3,635
)
 
903

Investing Activities:
 
 
 
 
 
 
 
 
 
     Capital expenditures
(43
)
 
(10
)
 
(7
)
 
—

 
(60
)
     Acquisitions, net of cash acquired
—

 
—

 
(246
)
 
—

 
(246
)
     Changes in short-term investments
—

 
—

 
1

 
—

 
1

Cash used for investing activities
(43
)
 
(10
)
 
(252
)
 
—

 
(305
)
Financing Activities:
 
 
 
 
 
 
 
 
 
     Proceeds from issuance of senior notes, net
489

 
—

 
—

 
—

 
489

     Payments on senior notes
(403
)
 
—

 
—

 
—

 
(403
)
     Dividends paid to shareholders
(253
)
 
—

 
—

 
—

 
(253
)
 Distributions to noncontrolling interest holders, net
—

 
—

 
(78
)
 
—

 
(78
)
     Purchase of CRISIL shares
—

 
—

 
(25
)
 
—

 
(25
)
     Repurchase of treasury shares
(1,100
)
 
—

 
—

 
—

 
(1,100
)
     Exercise of stock options
14

 
—

 
2

 
—

 
16

Employee withholding tax on share-based payments and other
(50
)
 
—

 
—

 
—

 
(50
)
     Intercompany financing activities
(701
)
 
(358
)
 
(2,576
)
 
3,635

 
—

Cash used for financing activities
(2,004
)
 
(358
)
 
(2,677
)
 
3,635

 
(1,404
)
Effect of exchange rate changes on cash
1

 
—

 
(39
)
 
—

 
(38
)
Net change in cash, cash equivalents, and restricted cash
135

 
—

 
(979
)
 
—

 
(844
)
Cash, cash equivalents, and restricted cash at beginning of period
632

 
—

 
2,147

 
—

 
2,779

Cash, cash equivalents, and restricted cash at end of period
$
767

 
$
—

 
$
1,168

 
$
—

 
$
1,935




34

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 six months ended June 30, 2019. 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, 2018 (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 Six Months Ended June 30, 2019 and 2018
•
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 four reportable segments: S&P Global Ratings ("Ratings"), S&P Global Market Intelligence ("Market Intelligence"), S&P Global Platts ("Platts") 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 Intelligence is a global provider of multi-asset-class data, research and analytical capabilities, which integrate cross-asset analytics and desktop services.
•
Platts is the leading independent provider of information and benchmark prices for the commodity and energy markets.
•
Indices is a global index provider maintaining a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors.
Beginning in the first quarter of 2019, the contract obligations for revenue from Kensho Technologies Inc.’s (“Kensho”) major customers were transferred to Market Intelligence for fulfillment.  As a result of this transfer, from January 1, 2019 revenue from contracts with Kensho’s customers is reflected in Market Intelligence’s results.  In 2018, the revenue from contracts with Kensho’s customers was reported in Corporate revenue. See Note 2 — Acquisitions and Divestitures for additional information.
Key results for the periods ended June 30 are as follows: 
(in millions, except per share amounts)
Three Months

Six Months

2019

2018

% Change 1

2019

2018

% Change 1
Revenue
$
1,704

 
$
1,609


6%

$
3,275

 
$
3,176

 
3%
Operating profit 2
$
813

 
$
672


21%

$
1,518

 
$
1,383

 
10%
Operating margin %
48
%
 
42
%
 

 
46
%
 
44
%
 
 
Diluted earnings per share from net income
$
2.24

 
$
1.82

 
23%
 
$
3.89

 
$
3.75

 
4%
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 six months ended June 30, 2019 includes employee severance charges of $20 million and a lease impairment of $5 million. Additionally, operating profit for the three and six months ended June 30, 2019 includes Kensho retention related expense of $5 million and $11 million, respectively. Operating profit for the three and six months ended June 30, 2018 includes legal settlement expenses of $73 million and Kensho retention related expense of $12 million. Operating profit also includes amortization of intangibles from acquisitions of $31 million and $63 million for the three and six months ended June 30, 2019, respectively and $33 million and $57 million for the three and six months ended June 30, 2018, respectively.


35

Three Months

Revenue increased 6% driven by increases at all of our reportable segments. Revenue growth at Market Intelligence was driven by annualized contract value growth in Credit Risk Solutions, Data Management Solutions and the Market Intelligence Desktop products. The increase at Ratings was driven by higher corporate bond ratings revenue, partially offset by lower bank loan ratings revenue. Revenue growth at Indices was favorably impacted by the buyout of the balance of intellectual property rights in a family of indices from one of our co-marketing and index development partners in the fourth quarter of 2018, a benefit related to a recent contract renegotiation, and a retrospective fee for previously unidentified index usage. The increase at Platts was primarily due to continued demand for market data and price assessment products. Foreign exchange rates had an unfavorable impact of 1 percentage point.

Operating profit increased 21%, with a favorable impact from foreign exchange rates of 1 percentage point. Excluding the impact of higher legal settlement expenses in 2018 of 13 percentage points, higher Kensho retention related expense in 2018 of 1 percentage point, partially offset by the unfavorable impact of higher employee severance charges in 2019 of 3 percentage points and a lease impairment charge in 2019 of 1 percentage point, operating profit increased 11%. The increase was primarily due to revenue growth at all of our reportable segments, partially offset by higher technology costs and higher compensation costs driven by annual merit increases and additional headcount.

Six Months

Revenue increased 3% driven by increases at Market Intelligence, Indices and Platts, partially offset by a decrease at Ratings. The increase at Market Intelligence was driven by annualized contract value growth in the Market Intelligence Desktop, Credit Risk Solutions and Data Management Solutions products. Revenue growth at Indices was favorably impacted by the buyout of the balance of intellectual property rights in a family of indices from one of our co-marketing and index development partners in the fourth quarter of 2018, a benefit related to a recent contract renegotiation, and a retrospective fee for previously unidentified index usage. The increase at Platts was primarily due to continued demand for market data and price assessment products. These increases were partially offset by a decrease at Ratings driven by lower bank loan ratings revenue, partially offset by higher corporate bond ratings revenue. Foreign exchange rates had an unfavorable impact of 1 percentage point.

Operating profit increased 10%, with a favorable impact from foreign exchange rates of 1 percentage point. Excluding the impact of higher legal settlement expenses in 2018 of 6 percentage points, partially offset by the unfavorable impact of higher employee severance charges in 2019 of 2 percentage points, operating profit increased 6%. The increase was primarily due to revenue growth at Market Intelligence, Indices and Platts, and decreased expenses driven by a $20 million reduction in contributions made to the S&P Global Foundation in 2018. These increases to operating profit were partially offset by a decrease in revenue at Ratings, increased expenses in 2019 from the acquisition of Kensho in April of 2018, higher technology costs and higher compensation costs driven by annual merit increases and additional headcount.

Our Strategy

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.

We seek to deliver an exceptional, differentiated customer experience across the globe. We strive for operational excellence, continuous innovation, and a high performance culture driven by our best-in-class talent. We strive to deliver on our strategic priorities in the following four categories by:

Finance

•
Delivering revenue growth and EBITA margin targets and delivering on commitments to return capital to shareholders and create capacity to invest;

•
Investing for mid- to long-term revenue growth that meets or exceeds market growth rates; and

•
Pursuing a disciplined acquisition, investment and partnership strategy.


36

Customer

•
Strengthening and growing the core businesses;

•
Delivering a modern, digital, integrated platform and user experience that enhances customer value, accompanied by thoughtful user migration plans;

•
Expanding our presence in China to capture market opportunities;

•
Building and promoting new products to solve customer pain points and deliver new commercial propositions in ESG, data marketplace, and small and medium-sized enterprises; and

•
Enhancing teamwork and adopting commercial tools and processes to improve the clarity and quality of insights we gather from customers, and improve revenue capture.

Operations

•
Transforming technology infrastructure to support growth, improve cost efficiency and mitigate cyber risk;

•
Adopting core management systems, tools and processes across the Company to improve priortization and agility, drive execution, and reduce complexity;

•
Developing an enterprise-wide data strategy and execution plan, leveraging machine learning and data science; and

•
Further enhancing our commitment to our robust risk, internal control and compliance culture.

People

•
Creating an inclusive performance-driven culture that drives employee engagement;

•
Promoting internal mobility and attracting and retaining the best people; and

•
Improving diversity in overall representation through talent acquisition and retention.

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.


37

RESULTS OF OPERATIONS — COMPARING THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

Consolidated Review 
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Revenue
$
1,704

 
$
1,609

 
6%
 
$
3,275

 
$
3,176

 
3%
Total Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating-related expenses
452

 
441

 
3%
 
898

 
877

 
2%
Selling and general expenses
387

 
444

 
(13)%
 
755

 
819

 
(8)%
Depreciation and amortization
52

 
52

 
(1)%
 
104

 
97

 
7%
Total expenses
891

 
937

 
(5)%
 
1,757

 
1,793

 
(2)%
Operating profit
813

 
672

 
21%
 
1,518

 
1,383

 
10%
Other expense (income), net
(6
)
 
(11
)
 
45%
 
97

 
(16
)
 
N/M
Interest expense, net
37

 
26

 
41%
 
73

 
61

 
21%
Provision for taxes on income
180

 
156

 
15%
 
293

 
303

 
(4)%
Net income
602

 
501

 
20%
 
1,055

 
1,035

 
2%
Less: net income attributable to noncontrolling interests
(47
)
 
(40
)
 
(15)%
 
(90
)
 
(84
)
 
(7)%
Net income attributable to S&P Global Inc.
$
555

 
$
461

 
21%
 
$
965

 
$
951

 
1%

Revenue

The following table provides consolidated revenue information for the periods ended June 30:
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Revenue
$
1,704

 
$
1,609

 
6%
 
$
3,275

 
$
3,176

 
3%
 
 
 
 
 
 
 
 
 
 
 
 
Subscription revenue
$
706

 
$
658

 
8%
 
$
1,405

 
$
1,294

 
9%
Non-transaction revenue
340

 
346

 
(2)%
 
674

 
697

 
(3)%
Non-subscription / transaction revenue
444

 
414

 
7%
 
786

 
795

 
(1)%
Asset-linked fees
163

 
140

 
16%
 
311

 
275

 
13%
Sales usage-based royalties
51

 
51

 
(1)%
 
99

 
115

 
(14)%
 
 
 
 
 
 
 
 
 
 
 
 
% of total revenue:

 

 
 
 

 

 
 
     Subscription revenue
41
%
 
41
%
 
 
 
43
%
 
41
%
 
 
     Non-transaction revenue
20
%
 
21
%
 
 
 
21
%
 
22
%
 
 
     Non-subscription / transaction revenue
26
%
 
26
%
 
 
 
24
%
 
25
%
 
 
     Asset-linked fees
10
%
 
9
%
 
 
 
9
%
 
9
%
 
 
     Sales usage-based royalties
3
%
 
3
%
 
 
 
3
%
 
3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. revenue
$
1,023

 
$
962

 
6%
 
$
1,966

 
$
1,915

 
3%
International revenue:
 
 
 
 
 
 
 
 
 
 
 
     European region
415

 
402

 
3%
 
788

 
782

 
1%
     Asia
177

 
158

 
12%
 
346

 
314

 
10%
     Rest of the world
89

 
87

 
2%
 
175

 
165

 
6%
Total international revenue
$
681

 
$
647

 
5%
 
$
1,309

 
$
1,261

 
4%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     U.S. revenue
60
%
 
60
%
 
 
 
60
%
 
60
%
 
 
     International revenue
40
%
 
40
%
 
 
 
40
%
 
40
%
 
 


38


chart-bd240d61390b5679bfc.jpg chart-d62cc40dceac59b8929.jpg

Three Months

Subscription revenue increased primarily from growth in Market Intelligence's average contract values and continued demand for Platt's proprietary content. Higher data subscription revenue at Indices also contributed to subscription revenue growth. Non-transaction revenue decreased at Ratings primarily due to a decrease at CRISIL, lower entity credit ratings revenue and a decline in Ratings Evaluation Service ("RES") activity. Non-subscription / transaction revenue increased driven by higher corporate bond ratings revenue, partially offset by lower bank loan ratings revenue at Ratings. Asset-linked fees was favorably impacted by the buyout of the balance of intellectual property rights in a family of indices from one of our co-marketing and index development partners in the fourth quarter of 2018, a benefit related to a recent contract renegotiation, and a retrospective fee for previously unidentified index usage. Additionally, asset linked fees increased due to the impact of higher levels of assets under management for mutual funds and ETFs at Indices. See “Segment Review” below for further information.

The unfavorable impact of foreign exchange rates reduced revenue by 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.

Six Months

Subscription revenue increased primarily from growth in Market Intelligence's average contract values and continued demand for Platt's proprietary content. Higher data subscription revenue at Indices also contributed to subscription revenue growth. Non-transaction revenue decreased at Ratings primarily due to a decrease at CRISIL, a decline in RES activity and lower entity credit ratings revenue. Non-subscription / transaction revenue decreased driven by a decline in bank loan ratings revenue, partially offset by an increase in corporate bond ratings revenue at Ratings. Asset-linked fees was favorably impacted by the buyout of the balance of intellectual property rights in a family of indices from one of our co-marketing and index development partners in the fourth quarter of 2018, a benefit related to a recent contract renegotiation, and a retrospective fee for previously unidentified index usage. Additionally, asset linked fees increased due to the impact of higher levels of assets under management for mutual funds and ETFs at Indices. The decline in sales-usage based royalties was driven by lower exchange-traded derivative volumes at Indices. See “Segment Review” below for further information.

The unfavorable impact of foreign exchange rates reduced revenue by 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.


39

Total Expenses

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

Three Months
(in millions)
2019
 
2018
 
% 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

 
$
123

 
$
217

 
$
181

 
(2)%
 
(32)%
Market Intelligence 2
173

 
142

 
165

 
133

 
5%
 
7%
Platts 3
54

 
47

 
51

 
50

 
6%
 
(6)%
Indices 4
36

 
35

 
33

 
35

 
9%
 
3%
Intersegment eliminations 5
(32
)
 
—

 
(32
)
 
—

 
(1)%
 
N/M
Total segments
444

 
347

 
434

 
399

 
2%
 
(13)%
Corporate Unallocated expense 6
8

 
40

 
7

 
45

 
17%
 
(12)%
Total
$
452

 
$
387

 
$
441

 
$
444

 
3%
 
(13)%
N/M - not meaningful
1 
In 2019, selling and general expenses include employee severance charges of $11 million. In 2018, selling and general expenses include legal settlement expenses of $73 million.
2 
In 2019, selling and general expenses include employee severance charges of $1 million.
3 
In 2019, selling and general expenses include employee severance charges of $1 million.
4 
In 2019, selling and general expenses include employee severance charges of $1 million.
5 
Intersegment eliminations primarily relate to a royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
6 In 2019, selling and general expenses include employee severance charges of $7 million and a lease impairment of $5 million. In 2019 and 2018, selling and general expenses include Kensho retention related expense of $5 million and $12 million, respectively.

Operating-Related Expenses

Operating-related expenses increased 3% driven by increases at Market Intelligence, Indices and Platts, partially offset by a decrease at Ratings. The increase at Market Intelligence was primarily due to higher technology costs and an increase in intersegment royalties tied to annualized contract value growth. The increase at Indices was primarily related to increased costs to support revenue growth and business initiatives and higher compensation costs. Platts increased due to higher compensation costs primarily related to annual merit increases and higher technology costs. These increases were partially offset by a decrease at Ratings driven by lower professional fees, partially offset by an increase in costs related to the development of a global center for technology talent in India.

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


40

Selling and General Expenses

Selling and general expenses decreased 13%. Excluding the impact of legal settlement expenses in 2018 of 16 percentage points and higher Kensho retention related expense in 2018 of 2 percentage points, partially offset by the unfavorable impact of higher employee severance charges in 2019 of 5 percentage points and a lease impairment in 2019 of 1 percentage point, selling and general expenses decreased 1%. This decrease was primarily driven by a reduction in professional fees, a decrease in expenses at Kensho and lower expenses at Platts driven by the favorable impact of foreign exchange rates. These decreases were partially offset by increases at Market Intelligence and Ratings primarily due to higher technology costs.

Depreciation and Amortization

Depreciation and amortization was $52 million for the three months ended June 30, 2019, decreasing 1% compared to the three months ended June 30, 2018.

Six Months

(in millions)
2019
 
2018
 
% Change
 
Operating-
related expenses
 
Selling and
general expenses
 
Operating-
related expenses
 
Selling and
general expenses
 
Operating-
related expenses
 
Selling and
general expenses
Ratings 1
$
422

 
$
239

 
$
432

 
$
297

 
(2)%
 
(20)%
Market Intelligence 2
342

 
287

 
335

 
267

 
2%
 
8%
Platts3
109

 
98

 
100

 
101

 
9%
 
(3)%
Indices4
69

 
67

 
63

 
66

 
9%
 
4%
Intersegment eliminations 5
(63
)
 
—

 
(60
)
 
—

 
(4)%
 
N/M
Total segments
879

 
691

 
870

 
731

 
1%
 
(5)%
Corporate Unallocated expense 6
19

 
64

 
7

 
88

 
N/M
 
(28)%
Total
$
898

 
$
755

 
$
877

 
$
819

 
2%
 
(8)%

1 
In 2019, selling and general expenses include employee severance charges of $11 million. In 2018, selling and general expenses include legal settlement expenses of $73 million.
2 
In 2019, selling and general expenses include employee severance charges of $1 million.
3 
In 2019, selling and general expenses include employee severance charges of $1 million.
4 
In 2019, selling and general expenses include employee severance charges of $1 million.
5 
Intersegment eliminations primarily relate to a royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
6 In 2019, selling and general expenses include employee severance charges of $7 million and a lease impairment of $5 million. In 2019 and 2018, selling and general expenses include Kensho retention related expense of $11 million and $12 million, respectively.

Operating-Related Expenses

Operating-related expenses increased 2% driven by the acquisition of Kensho in April of 2018 and increases at Platts, Market Intelligence and Indices, partially offset by a decrease at Ratings. Platts increased due to higher compensation costs primarily related to annual merit increases and higher technology costs. The increase at Market Intelligence was primarily due to higher technology costs and an increase in intersegment royalties tied to annualized contract value growth.The increase at Indices was primarily related to increased costs to support revenue growth and business initiatives and higher compensation costs. These increases were partially offset by a decrease at Ratings driven by lower professional fees and decreased compensation costs due to decreased headcount from attrition and prior year restructuring actions, partially offset by an increase in costs related to the development of a global center for technology talent in India.

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


41

Selling and General Expenses

Selling and general expenses decreased 8%. Excluding the impact of legal settlement expenses in 2018 of 9 percentage points, partially offset by the unfavorable impact of higher employee severance charges in 2019 of 2 percentage points and a lease impairment charge in 2019 of 1 percentage point, selling and general expenses decreased 2%. This decrease was primarily driven by a $20 million contribution made by the Company to the S&P Global Foundation in 2018, partially offset by an increase at Market Intelligence due to higher technology and compensation costs.

Depreciation and Amortization

Depreciation and amortization increased 7% compared to the six months ended June 30, 2018 due to an increase in amortization expense primarily from the acquisition of Kensho in April of 2018.

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 operating profit with economic resources allocated primarily based on each segment's contribution to operating profit. Segment operating profit is defined as operating profit before Corporate Unallocated. 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 table below reconciles segment operating profit to total operating profit for the periods ended June 30:

Three Months
(in millions)
2019
 
2018
 
% Change
Ratings 1
$
455

 
$
369

 
23%
Market Intelligence 2
147

 
127

 
15%
Platts 3
107

 
98

 
9%
Indices 4
162

 
137

 
19%
Total segment operating profit
871

 
731

 
19%
Corporate Unallocated 5
(58
)
 
(59
)
 
1%
Total operating profit
$
813

 
$
672

 
21%
     
1 2019 includes employee severance charges of $11 million and 2018 includes legal settlement expenses of $73 million. 2019 and 2018 include amortization of intangibles from acquisitions of $1 million.
2 
2019 includes employee severance charges of $1 million. 2019 and 2018 include amortization of intangibles from acquisitions of $19 million and $18 million, respectively.
3 
2019 includes employee severance charges of $1 million. 2019 and 2018 include amortization of intangibles from acquisitions of $3 million and $4 million, respectively.
4 
2019 and 2018 include amortization of intangibles from acquisitions of $1 million.
5 
2019 includes employee severance charges of $7 million, Kensho retention related expense of $5 million, a lease impairment charge of $5 million and amortization of intangibles from acquisitions of $7 million. 2018 includes Kensho retention related expense of $12 million and amortization of intangibles from acquisitions of $8 million.

Segment Operating Profit — Increased 19% as compared to 2018. Excluding the impact of higher legal settlement expenses in 2018 of 11 percentage points, partially offset by the unfavorable impact of higher employee severance charges in 2019 of 2 percentage points, operating profit increased 10%. The increase was primarily due to an increase in revenue at all of our reportable segments, partially offset by increased costs at Market Intelligence and Indices. See “Segment Review” below for further information.

Corporate Unallocated — Corporate Unallocated includes costs for corporate functions, select initiatives, unoccupied office space and Kensho, included in selling and general expenses, and Kensho revenue in 2018. Corporate Unallocated improved 1% compared to 2018. Excluding the unfavorable impact of higher employee severance charges in 2019 of 18 percentage points, a lease impairment

42

charge in 2019 of 14 percentage points, partially offset by the favorable impact of lower Kensho retention related expense in 2019 of 19 percentage points and lower deal-related amortization in 2019 of 4 percentage points, Corporate Unallocated improved 10% driven by a reduction in professional fees.

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.

Six Months

(in millions)
2019
 
2018
 
% Change
Ratings 1
$
818

 
$
777

 
5%
Market Intelligence 2
292

 
238

 
22%
Platts 3
201

 
188

 
7%
Indices 4
311

 
285

 
9%
Total segment operating profit
1,622

 
1,488

 
9%
Corporate Unallocated 5
(104
)
 
(105
)
 
—%
Total operating profit
$
1,518

 
$
1,383

 
10%
 
1 
2019 includes employee severance charges of $11 million and 2018 includes legal settlement expenses of $73 million. 2019 and 2018 include amortization of intangibles from acquisitions of $1 million.
2 
2019 includes employee severance charges of $1 million. 2019 and 2018 include amortization of intangibles from acquisitions of $37 million and $36 million, respectively.
3 
2019 includes employee severance charges of $1 million. 2019 and 2018 include amortization of intangibles from acquisitions of $7 million and $9 million, respectively.
4 
2019 and 2018 include amortization of intangibles from acquisitions of $3 million.
5 
2019 includes Kensho retention related expense of $11 million, employee severance charges of $7 million, a lease impairment charge of $5 million and amortization of intangibles from acquisitions of $14 million. 2018 includes Kensho retention related expense of $12 million and amortization of intangibles from acquisitions of $8 million.

Segment Operating Profit — Increased 9% as compared to 2018. Excluding the impact of higher legal settlement expenses in 2018 of 5 percentage points, partially offset by the unfavorable impact of higher employee severance charges in 2019 of 1 percentage point, operating profit increased 5% primarily driven by revenue increases at Market Intelligence, Indices and Platts, partially offset by a decrease in revenue at Ratings. This increase was partially offset by increased costs at Market Intelligence, Indices and Platts. See “Segment Review” below for further information.

Corporate Unallocated — Corporate Unallocated includes costs for corporate functions, select initiatives, unoccupied office space and Kensho, included in selling and general expenses, and Kensho revenue in 2018. Corporate Unallocated remained relatively unchanged compared to 2018. Excluding the unfavorable impact of higher employee severance charges in 2019 of 8 percentage points, higher deal-related amortization in 2019 of 8 percentage points and a lease impairment charge of 5 percentage points, corporate unallocated improved 21% driven by a $20 million contribution made by the Company to the S&P Global Foundation in 2018.

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.

Other (Income) Expense, net

Other (income) expense, net primarily includes the net periodic benefit cost for our retirement and post retirement plans. Other income, net was $6 million and $11 million for the three months ended June 30, 2019 and 2018, respectively, primarily due to a

43

gain on investment in 2018 of $3 million that did not recur in 2019. During the first quarter of 2019, the Company purchased a group annuity contract under which an insurance company assumed the Company’s obligation to pay pension benefits to approximately 4,600 retirees and beneficiaries. This purchase eliminates all future investment or mortality risk associated with these retirees. The purchase of this group annuity contract was funded with pension plan assets.  As a result, the Company’s outstanding pension benefit obligation was reduced by approximately $370 million, representing approximately 24% of the total obligations of the Company’s qualified pension plans. In connection with this transaction, the Company recorded a pre-tax settlement charge of $113 million, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. Other expense, net was $97 million for the first six months of 2019 and other income, net was $16 million for the first six months of 2018. Excluding this pension settlement charge, other income, net remained unchanged at $16 million for six months ended June 30, 2019 and 2018.

Interest Expense, net

Net interest expense increased compared to the three and six months ended June 30, 2018 driven by the release of reserves for accrued interest in 2018 related to the resolution of various tax audits.

Provision for Income Taxes

The effective income tax rate was 23.0% and 21.7% for the three and six months ended June 30, 2019, respectively, and 23.8% and 22.7% for the three and six months ended June 30, 2018, respectively. The decrease in 2019 was primarily due to the recognition of excess tax benefits associated with share-based payments in the statement of income.

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 Intelligence for the rights to use and distribute content and data developed by Ratings. Royalty revenue was $29 million and $58 million for the three and six months ended June 30, 2019, respectively, and $26 million and $52 million for the three and six June 30, 2018, respectively.


44

The following table provides revenue and segment operating profit information for the periods ended June 30: 
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Revenue
$
801

 
$
775

 
3%
 
$
1,497

 
$
1,523

 
(2)%
 
 
 
 
 
 
 
 
 
 
 
 
Transaction revenue
$
429

 
$
397

 
8%
 
$
760

 
$
766

 
(1)%
Non-transaction revenue
$
372

 
$
378

 
(1)%
 
$
737

 
$
757

 
(3)%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     Transaction revenue
54
%
 
51
%
 
 
 
51
%
 
50
%
 
 
     Non-transaction revenue
46
%
 
49
%
 
 
 
49
%
 
50
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. revenue
$
454

 
$
444

 
2%
 
$
852

 
$
866

 
(2)%
International revenue
$
347

 
$
331

 
5%
 
$
645

 
$
657

 
(2)%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     U.S. revenue
57
%
 
57
%
 
 
 
57
%
 
57
%
 
 
     International revenue
43
%
 
43
%
 
 
 
43
%
 
43
%
 
 
 


 


 

 


 


 

Operating profit 1
$
455

 
$
369

 
23%
 
$
818

 
$
777

 
5%
Operating margin %
57
%
 
48
%
 
 
 
55
%
 
51
%
 
 
1 
Operating profit for the three and six months ended June 30, 2019 includes employee severance charges of $11 million. Operating profit for the three and six months ended June 30, 2018 includes legal settlement expenses of $73 million. Operating profit also includes amortization of intangibles from acquisitions of $1 million for the three and six months ended June 30, 2019 and 2018.

Three Months

Revenue increased 3%, with a 2 percentage point unfavorable impact from foreign exchange rates. Transaction revenue increased due to higher corporate bond ratings revenue primarily driven by increased U.S. high-yield corporate bond issuance volumes. This increase was partially offset by lower bank loan ratings mainly driven by reduced issuance volumes in the U.S. Non-transaction revenue decreased due to a decrease at CRISIL, primarily within the risk and analytics sector, lower entity credit ratings revenue and a decline in Ratings Evaluation Service activity, partially offset by an increase in surveillance fees and royalty revenue. Transaction and non-transaction revenue benefited from improved contract terms across product categories.

Operating profit increased 23%, with a 3 percentage point unfavorable impact from foreign exchange rates. Excluding the impact of higher legal settlement expenses in 2018 of 21 percentage points, partially offset by the unfavorable impact of higher employee severance charges in 2019 of 3 percentage points, operating profit increased 5%. This increase was primarily due to the increase in revenue discussed above, partially offset by the unfavorable impact of foreign exchange rates. Expenses remained relatively flat as higher costs related to the development of a global center for technology in India were offset by lower incentive costs, lower professional fees and a reduction in legal expenses.

45


Six Months

Revenue decreased 2%, with a 2 percentage point unfavorable impact from foreign exchange rates. Non-transaction revenue decreased due to a decrease at CRISIL, primarily within the risk and analytics sector, a decline in Ratings Evaluation Service activity and lower entity credit ratings revenue, partially offset by an increase royalty revenue and surveillance fees. Transaction revenue decreased due to lower bank loan ratings revenue mainly driven by reduced issuance volumes in the U.S., partially offset by higher corporate bond ratings revenue primarily driven by increased U.S. high-yield corporate bond issuance volumes. Additionally, transaction revenue was unfavorably impacted by a decrease in structured finance revenue driven by decreased collateralized loan obligations ("CLO") and asset-backed securities issuance. Transaction and non-transaction revenue benefited from improved contract terms across product categories.

Operating profit increased 5%, with a 2 percentage point unfavorable impact from foreign exchange rates. Excluding the impact of higher legal settlement expenses in 2018 of 9 percentage points, partially offset by the unfavorable impact of higher employee severance charges in 2019 of 1 percentage point, operating profit decreased 2%.This decrease was primarily due to the decrease in revenue discussed above and an increase in costs related to the development of a global center for technology in India, partially offset by lower professional service fees, a reduction in legal expenses and lower incentive costs.

Market Issuance Volumes

We monitor market issuance volumes regularly within Ratings. Market issuance volumes noted within the discussion that follows are based on where an issuer is located or where the assets associated with an issue are located. Structured Finance issuance includes amounts when a transaction closes, not when initially priced and excludes domestically-rated Chinese issuance. The following tables depict changes in issuance levels as compared to the prior year based on data from SDC Platinum for Corporate bond issuance and based on a composite of external data feeds and Ratings' internal estimates for Structured Finance issuance.
 
Second 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
41%
 
(4)%
 
27%
 
21%
 
(15)%
 
12%
Investment-grade issuance
5%
 
(17)%
 
(4)%
 
1%
 
(13)%
 
(1)%
Total issuance
10%
 
(15)%
 
(1)%
 
4%
 
(14)%
 
—%
*
Includes Industrials and Financial Services.

•
Corporate issuance in the U.S. was up in the quarter and first half of 2019 driven by a strong double-digit increase in high-yield issuance. Accommodating views from the U.S. Federal Reserve regarding interest rates throughout 2019 moved investors toward more fixed-rate debt. M&A activity was a driver of large financing transactions that contributed to increased investment-grade issuance in the quarter. The decline in corporate issuance in Europe for the quarter and year-to-date was mainly driven by uncertainty in the European markets primarily related to Brexit.
 
Second Quarter Compared to Prior Year
 
Year-to-Date Compared to Prior Year
Structured Finance Issuance
U.S.
 
Europe
 
Global
 
U.S.
 
Europe
 
Global
Asset-backed securities (“ABS”)
(1)%
 
(19)%
 
—%
 
(12)%
 
(31)%
 
(10)%
Structured credit
(51)%
 
(33)%
 
(48)%
 
(46)%
 
(36)%
 
(44)%
Commercial mortgage-backed securities (“CMBS”)
18%
 
4%
 
17%
 
(2)%
 
(35)%
 
(5)%
Residential mortgage-backed securities (“RMBS”)
28%
 
23%
 
45%
 
44%
 
(16)%
 
27%
Covered bonds
*
 
4%
 
—%
 
*
 
22%
 
15%
Total issuance
(19)%
 
(1)%
 
(7)%
 
(19)%
 
2%
 
(7)%
*
Represents no activity in 2019 and 2018.

•
ABS issuance was down in the U.S. for the quarter driven by a decline in credit card transactions. ABS issuance in the U.S. for the first half of the year was down reflecting a decline in student loan transactions in the first quarter of 2019. ABS issuance was down in Europe for the quarter driven by a decline in auto transactions. ABS issuance was down in Europe for the first half of the year also reflecting uncertainty caused by regulation introducing a new framework for simple, transparent and standardized ("STS") securitizations effective January 1, 2019.

46

•
Issuance was down in the U.S and European structured credit markets driven by a decline in CLO transactions.
•
CMBS issuance was up in the U.S. and Europe in the quarter reflecting increased market volume. CMBS issuance for the first half of the year was down reflecting decreased market volume in the first quarter of 2019.
•
RMBS issuance was up in the U.S. and Europe in the quarter reflecting increased market volume primarily driven by nonqualified mortgages. RMBS issuance was down in Europe for the first half of the year reflecting uncertainty caused by regulations introducing a new framework for STS securitizations effective January 1, 2019.
•
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 of new regulations bringing consistency across countries within Europe and 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 Intelligence

Market Intelligence's portfolio of capabilities are designed to help investment professionals, government agencies, corporations and universities track performance, generate alpha, identify investment ideas, understand competitive and industry dynamics, perform valuations and assess credit risk.

Market 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 (which are inclusive of the S&P Capital IQ and SNL Desktop products);
•
Data Management Solutions — integrated bulk data feeds and application programming interfaces that can be customized, which includes Compustat, GICS, Point In Time Financials and CUSIP; and
•
Credit Risk Solutions — commercial arm that sells Ratings' credit ratings and related data, analytics and research, which includes subscription-based offerings, RatingsDirect® and RatingsXpress®, and Credit Analytics.
Subscription revenue at Market Intelligence is primarily derived from distribution of data, analytics, third party research, and credit ratings-related information primarily through web-based channels including Market Intelligence Desktop, RatingsDirect®, RatingsXpress®, and Credit Analytics. Non-subscription revenue at Market Intelligence is primarily related to certain advisory, pricing and analytical services.

47

The following table provides revenue and segment operating profit information for the periods ended June 30: 
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Revenue
$
487

 
$
449

 
8%
 
$
969

 
$
889

 
9%
 
 
 
 
 
 
 
 
 
 
 
 
Subscription revenue
$
471

 
$
431

 
9%
 
$
939

 
$
856

 
10%
Non-subscription revenue
$
12

 
$
13

 
(9)%
 
$
21

 
$
23

 
(5)%
Asset-linked fees
$
4

 
$
5

 
(18)%
 
$
9

 
$
10

 
(11)%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     Subscription revenue
97
%
 
96
%
 
 
 
97
%
 
96
%
 
 
     Non-subscription revenue
2
%
 
3
%
 
 
 
2
%
 
3
%
 
 
     Asset-linked fees
1
%
 
1
%
 
 
 
1
%
 
1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. revenue
$
306

 
$
285

 
7%
 
$
611

 
$
576

 
6%
International revenue
$
181

 
$
164

 
11%
 
$
358

 
$
313

 
15%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     U.S. revenue
63
%
 
63
%
 
 
 
63
%
 
65
%
 
 
     International revenue
37
%
 
37
%
 
 
 
37
%
 
35
%
 
 
 


 


 

 


 


 

Operating profit 1
$
147

 
$
127

 
15%
 
$
292

 
$
238

 
22%
Operating margin %
30
%
 
28
%
 
 
 
30
%
 
27
%
 
 
Note - In the fourth quarter of 2018, Trucost was transferred from Indices to Market Intelligence and historical reporting was retroactively revised to reflect the change.
1 
Operating profit for the three and six months ended June 30, 2019 includes employee severance charges of $1 million. Operating profit includes amortization of intangibles from acquisitions of $19 million and $18 million for the three months ended June 30, 2019 and 2018, respectively, and $37 million and $36 million for the six months ended June 30, 2019 and 2018, respectively.

Three Months

Revenue increased 8%, with a 1 percentage point unfavorable impact from foreign exchange rates. Revenue increased primarily driven by growth in annualized contract values in RatingsXpress® and RatingsDirect®, certain of our Data feed products and CUSIP within Data Management Solutions and the Market Intelligence Desktop products. Revenue growth at Data Management Solutions, Credit Risk Solutions and Desktop was 15%, 12% and 4%, respectively.

Operating profit increased 15%, with a 7 percentage point favorable impact from foreign exchange rates. Excluding the impact of employee severance charges and amortization of intangibles from acquisitions of 1 percentage point, operating profit increased 14%. The increase was primarily due to revenue growth, partially offset by an increase in technology costs, higher compensation costs primarily driven by additional headcount and an increase in intersegment royalties tied to annualized contract value growth.

Six Months

Revenue increased 9% primarily driven by growth in annualized contract values in the Market Intelligence Desktop products, RatingsXpress® and RatingsDirect® and certain of our Data feed products and CUSIP within Data Management Solutions. Revenue growth at Data Management Solutions, Credit Risk Solutions and Desktop was 13%, 11% and 6%, respectively. Foreign exchange rates had an unfavorable impact of less than one percentage point.

Operating profit increased 22%, with a 5 percentage point favorable impact from foreign exchange rates. Excluding the impact of employee severance charges of 1 percentage point and amortization of intangibles from acquisitions of 1 percentage point, operating profit increased 20%. The increase was primarily due to revenue growth, partially offset by an increase in technology costs, higher compensation costs primarily driven by additional headcount and an increase in intersegment royalties tied to annualized contract value growth.

48

Platts

Platts is the leading independent provider of information and benchmark prices for the commodity and energy markets. Platts provides essential price data, analytics, and industry insight enabling the commodity and energy markets to perform with greater transparency and efficiency.

Platts' revenue is generated primarily through the following sources:
•
Subscription revenue — primarily from subscriptions to our real-time news, market data and price assessments, along with other information products;
•
Sales usage-based royalties — primarily from licensing of our proprietary market price data and price assessments to commodity exchanges; and
•
Non-subscription revenue — conference sponsorship, consulting engagements, and events.
The following table provides revenue and segment operating profit information for the periods ended June 30: 
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Revenue
$
213

 
$
205

 
4%
 
$
420

 
$
401

 
5%
 
 
 
 
 
 
 
 
 
 
 
 
Subscription revenue
$
195

 
$
188

 
4%
 
$
386

 
$
369

 
5%
Sales usage-based royalties
$
15

 
$
13

 
12%
 
$
29

 
$
26

 
10%
Non-subscription revenue
$
3

 
$
4

 
(18)%
 
$
5

 
$
6

 
(15)%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     Subscription revenue
92
%
 
92
%
 
 
 
92
%
 
92
%
 
 
     Sales usage-based royalties
7
%
 
6
%
 
 
 
7
%
 
6
%
 
 
     Non-subscription revenue
1
%
 
2
%
 
 
 
1
%
 
2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. revenue
$
71

 
$
71

 
1%
 
$
141

 
$
140

 
—%
International revenue
$
142

 
$
134

 
6%
 
$
279

 
$
261

 
7%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     U.S. revenue
33
%
 
34
%
 
 
 
33
%
 
35
%
 
 
     International revenue
67
%
 
66
%
 
 
 
67
%
 
65
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit 1
$
107

 
$
98

 
9%
 
$
201

 
$
188

 
7%
Operating margin %
50
%
 
48
%
 
 
 
48
%
 
47
%
 
 
1 
Operating profit for the three and six months ended June 30, 2019 includes employee severance charges of $1 million. Operating profit includes amortization of intangibles from acquisitions of $3 million and $4 million, for the three months ended June 30, 2019 and 2018, respectively, and $7 million and $9 million for the six months ended June 30, 2019 and 2018, respectively.

Three Months

Revenue increased 4% due to continued demand for market data and price assessment products primarily driven by enhanced contract terms, led by petroleum, and an increase in sales usage-based royalties from the licensing of our proprietary market price data and price assessments to commodity exchanges mainly due to increased trading volumes in Fuel Oil, Natural Gas, LNG and Iron Ore. Demand for market data and price assessment products was driven by international customers. Petroleum continues to be the most significant revenue driver, with power & gas and metals also contributing to revenue growth.

Operating profit increased 9%, with a 4 percentage point favorable impact from foreign exchange rates. Excluding the unfavorable impact of higher employee severance costs in 2019 of 3 percentage points, offset by the favorable impact of lower amortization of intangibles in 2019 of 3 percentage points, operating profit increased 9%. The increase was primarily due to revenue growth.


49

Six Months

Revenue increased 5% due to continued demand for market data and price assessment products primarily driven by enhanced contract terms, led by petroleum, and an increase in sales usage-based royalties from the licensing of our proprietary market price data and price assessments to commodity exchanges mainly due to increased trading volumes in Fuel Oil, Natural Gas, LNG and Iron Ore. Demand for market data and price assessment products was driven by international customers. Petroleum continues to be the most significant revenue driver, with power & gas, metals and petrochemicals also contributing to revenue growth.

Operating profit increased 7%, with a 3 percentage point favorable impact from foreign exchange rates. Excluding the favorable impact of lower amortization of intangibles in 2019 of 2 percentage points, partially offset by the unfavorable impact of higher employee severance costs in 2019 of 1 percentage point, operating profit increased 6%. The increase was primarily due to revenue growth, partially offset by an increase in operating costs to support revenue growth and business initiatives at Platts, an increase in compensation costs mainly due to annual merit increases, higher technology costs, an increase in the bad debt provision in the current year and one-time costs related to the discontinuation of a product line at Platts.
 
Indices

Indices is a global index provider maintaining 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 sales-usage based royalties. 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 that generate revenue through fees based on assets and underlying funds;
•
Exchange traded derivatives — generate sales usage-based royalties based on trading volumes of derivatives contracts listed on various exchanges;
•
Index-related licensing fees — fixed or variable annual and per-issue asset-linked 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.


50

The following table provides revenue and segment operating profit information for the periods ended June 30: 
(in millions)
Three Months
 
Six Months
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Revenue
$
235

 
$
207

 
14%
 
$
452

 
$
418

 
8%
 
 
 
 
 
 
 
 
 
 
 
 
Asset-linked fees
$
159

 
$
135

 
18%
 
$
302

 
$
265

 
14%
Subscription revenue
$
40

 
$
34

 
21%
 
$
80

 
$
64

 
24%
Sales usage-based royalties
$
36

 
$
38

 
(6)%
 
$
70

 
$
89

 
(21)%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     Asset-linked fees
67
%
 
65
%
 
 
 
67
%
 
63
%
 
 
     Subscription revenue
17
%
 
16
%
 
 
 
18
%
 
16
%
 
 
     Sales usage-based royalties
16
%
 
19
%
 
 
 
15
%
 
21
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. revenue
$
206

 
$
173

 
19%
 
$
389

 
$
356

 
9%
International revenue
$
29

 
$
34

 
(14)%
 
$
63

 
$
62

 
2%
% of total revenue:
 
 
 
 
 
 
 
 
 
 
 
     U.S. revenue
88
%
 
84
%
 
 
 
86
%
 
85
%
 
 
     International revenue
12
%
 
16
%
 
 
 
14
%
 
15
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit 1
$
162

 
$
137

 
19%
 
$
311

 
$
285

 
9%
Less: net operating profit attributable to noncontrolling interests
44

 
37

 

 
84

 
77

 

Net operating profit
$
118

 
$
100

 
19%
 
$
227

 
$
208

 
9%
Operating margin %
69
%
 
66
%
 
 
 
69
%
 
68
%
 
 
Net operating margin %
50
%
 
48
%
 
 
 
50
%
 
50
%
 
 
Note - In the fourth quarter of 2018, Trucost was transferred from Indices to Market Intelligence and historical reporting was retroactively revised to reflect the change.
1 
Operating profit includes amortization of intangibles from acquisitions of $1 million for the three months ended June 30, 2019 and 2018, and $3 million for the six months ended June 30, 2019 and 2018.

Three Months

Revenue at Indices increased 14% and was favorably impacted by the buyout of the balance of intellectual property rights in a family of indices from one of our co-marketing and index development partners in the fourth quarter of 2018, a benefit related to a recent contract renegotiation, and a retrospective fee for previously unidentified index usage. Higher levels of assets under management ("AUM") for mutual funds and ETFs also contributed to revenue growth. These increases were partially offset by lower revenue from exchange-traded derivatives. Ending AUM for ETFs in the second quarter of 2019 increased 10% to $1.521 trillion and average AUM for ETFs increased 9% to $1.488 trillion compared to the second quarter of 2018. Foreign exchange rates had an unfavorable impact of less than one percentage point.

Operating profit increased 19%. The impact of revenue growth was partially offset by increased operating costs to support revenue growth and business initiatives at Indices, higher legal expenses and increased compensation costs driven by additional headcount, partially offset by lower incentive costs. Foreign exchange rates had a favorable impact of 1 percentage point.


51

Six Months

Revenue at Indices increased 8% and was favorably impacted by the buyout of the balance of intellectual property rights in a family of indices from one of our co-marketing and index development partners in the fourth quarter of 2018, a benefit related to a recent contract renegotiation, and a retrospective fee for previously unidentified index usage. Higher levels of assets under management ("AUM") for mutual funds and ETFs also contributed to revenue growth. These increases were partially offset by a decrease in exchange-traded derivatives revenue primarily driven by lower volumes in the first quarter of 2019. Ending AUM for ETFs in the first six months of 2019 increased 10% to $1.521 trillion and average AUM for ETFs increased 5% to $1.444 trillion compared to first six months of 2018. Foreign exchange rates had an unfavorable impact of less than one percentage point.

Operating profit increased 9%. The impact of revenue growth was partially offset by increased operating costs to support revenue growth and business initiatives at Indices, increased compensation costs primarily driven by additional headcount and higher legal expenses, partially offset by lower incentive costs. Foreign exchange rates had a favorable impact of less than 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, cash equivalents, and restricted cash were $1,920 million as of June 30, 2019, a decrease of $38 million from December 31, 2018.

The following table provides cash flow information for the six months ended June 30: 
(in millions)
2019
 
2018
 
% Change
Net cash provided by (used for):
 
 
 
 
 
Operating activities
$
1,010

 
$
903

 
12%
Investing activities
$
(53
)
 
$
(305
)
 
(83)%
Financing activities
$
(1,008
)
 
$
(1,404
)
 
(28)%

In the first six months of 2019, free cash flow increased to $905 million compared to $765 million in the first six months of 2018. The increase is primarily due to an increase 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 distributions to noncontrolling interest holders. 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 increased $107 million to $1,010 million for the first six months of 2019. The increase is mainly due to higher operating results and lower incentive compensation payments in 2019.

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 decreased to $53 million for the first six months of 2019 compared to $305 million in the first six months of 2018, primarily due to cash used for the acquisition of Kensho in 2018. See Note 2 — Acquisitions and Divestitures to the consolidated financial statements of this Form 10-Q for further discussion.


52

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 decreased to $1,008 million for the first six months of 2019 as compared to $1,404 million in the first six months of 2018. The decrease is primarily attributable to a decrease in cash used for share repurchases in 2019.

During the first six months of 2019, we used cash to repurchase 3.4 million shares for $644 million. We entered into an accelerated share repurchase ("ASR") agreement with a financial institution on February 11, 2019 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 2.2 million shares, representing 85% of the $500 million at a price equal to the then market price of the Company.We completed the ASR agreement on July 31, 2019 and will receive an additional 0.1 million shares in August of 2019 resulting in a total of 2.3 million shares repurchased under the ASR agreement for an average purchase price of $214.65 per share. The total number of shares repurchased under the ASR agreement is equal to $500 million divided by the volume weighted-average share price, less a discount. The repurchased shares are held in Treasury. The ASR agreement was executed under the current share repurchase program, approved by the Board of Directors on December 4, 2013. During the first six months of 2018, we used cash to repurchase 5.0 million shares for $1,100 million.

Additional Financing

We have the ability to borrow a total of $1.2 billion through our commercial paper program, which is supported by our revolving $1.2 billion five-year credit agreement (our "credit facility") that we entered into on June 30, 2017. This credit facility will terminate on June 30, 2022. As of June 30, 2019 and December 31, 2018, 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 10 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 30, 2019, the Board of Directors approved an increase in the quarterly common stock dividend from $0.50 per share to $0.57 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, net. 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.


53

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 six months ended June 30: 
(in millions)
2019
 
2018
 
% Change
Cash provided by operating activities
$
1,010

 
$
903

 
12
%
Capital expenditures
(46
)
 
(60
)
 


Distributions to noncontrolling interest holders, net 1
(59
)
 
(78
)
 


Free cash flow
905

 
765

 
18
%
Settlement of prior-year tax audits
50

 
71

 
 
Payment of legal settlements
1

 
29

 


Tax benefit from legal settlements
—


(7
)
 


Free cash flow excluding certain items
$
956

 
$
858

 
11
%

1 Distributions to noncontrolling interest holders is net of amounts owed to the S&P Dow Jones Indices LLC joint venture by the noncontrolling interest holders.

(in millions)
2019
 
2018
 
% Change
Cash used for investing activities
(53
)
 
(305
)
 
(83
)%
Cash used for financing activities
(1,008
)
 
(1,404
)
 
(28
)%

CRITICAL ACCOUNTING ESTIMATES

Our accounting policies are described in Note 1 — Accounting Policies to the consolidated financial statements in our most recent Form 10-K. As discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our most recent 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.


54

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 geopolitical uncertainty and conditions that may result from legislative, regulatory, trade and policy changes associated with the current U.S. administration or the United Kingdom’s withdrawal from the European Union;
•
the rapidly evolving regulatory environment, in Europe, the United States and elsewhere, affecting Ratings, S&P Global Platts, Indices, and S&P Global Market Intelligence, including new and amended regulations and the Company’s compliance therewith;
•
the impact of the recent acquisition of Kensho, including the impact on the Company’s results of operations; any failure to successfully integrate Kensho into the Company’s operations; any failure to attract and retain key employees; and the risk of litigation, unexpected costs, charges or expenses relating to the acquisition;
•
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;
•
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;
•
the health of debt and equity markets, including credit quality and spreads, the level of liquidity and future debt issuances and the potentially adverse impact of increased access to cash resulting from the Tax Cuts and Jobs Act;
•
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, benchmarks and indices;
•
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;
•
the introduction of competing products or technologies by other companies;
•
the impact of customer cost-cutting pressures, including in the financial services industry and the commodities markets;
•
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;
•
our ability to attract, incentivize and retain key employees;
•
our ability to adjust to changes in European and United Kingdom markets as the United Kingdom leaves the European Union; the impact of the United Kingdom’s departure on our offerings in the European Union; and the impact of the United Kingdom’s departure on our credit rating activities and other European and United Kingdom offerings, particularly in the event of the United Kingdom's departure without an agreement on terms with the European Union;
•
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, including the impact of the Tax Cuts and Jobs Act;
•
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.

55


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 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.

56

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 June 30, 2019 and December 31, 2018, we entered into foreign exchange forward contracts in order to mitigate the change in fair value of specific assets and liabilities in the consolidated balance sheet. These forward contracts are not designated as hedges and do not qualify for hedge accounting. As of June 30, 2019 and December 31, 2018, we entered into foreign exchange forward contracts to hedge the effect of adverse fluctuations in foreign 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 June 30, 2019, 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 June 30, 2019.

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 most recent 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 most recent 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. As of June 30, 2019, 7.2 million shares remained under our current share repurchase program.

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 share 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.

We did not make any purchases of our outstanding common stock during the second quarter of 2019 pursuant to our current share repurchase program.

The following table provides information on our purchases of our outstanding common stock during the second quarter of 2019 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
April 1 — April 30, 2019 
 
2,353

 
214.38

 
—

 
7.2 million
May 1 — May 31, 2019
 
1,989

 
217.16

 
—

 
7.2 million
June 1 — June 30, 2019
 
1,995

 
216.40

 
—

 
7.2 million
Total — Quarter
 
6,337

 
$
215.89

 
—

 
7.2 million
Item 5. Other Information

IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT DISCLOSURE

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 second quarter of 2019 attributable to the transactions or dealings by the Company described below was approximately $1.4 million with net profit from such sales being a fraction of the revenues.


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During the second quarter of 2019, 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 subscribers that are owned or controlled, or appear to be owned or controlled, by the Government of Iran. Platts provided such subscribers access to proprietary data, analytics, and industry information that enable commodities markets to perform with greater transparency and efficiency, generating revenue that was a de minimis portion of both the division's and the Company’s revenue. The Company will continue to monitor its provision of products and services to such subscribers.
 




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Item 6. Exhibits

 
 
(10.1)
 
 
(15)
 
 
(31.1)
 
 
(31.2)
 
 
(32)
 
 
(101.INS)
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




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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:
August 1, 2019
By:
/s/ Ewout L. Steenbergen
 
 
 
Ewout L. Steenbergen
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
Date:
August 1, 2019
By:
/s/ Christopher F. Craig
 
 
 
Christopher F. Craig
 
 
 
Senior Vice President, Controller and Chief Accounting Officer

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