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Section 1: 10-Q (10-Q)

Document
                              




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
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  
395493547_spgbarrgbposa13.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
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO ¨
Indicate by check mark whether the registrant has submitted electronically 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 þ NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “small reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
þ Large accelerated filer
o Accelerated filer
o Non-accelerated filer
o Smaller reporting company
o Emerging growth company
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 þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class
Shares Outstanding
Date
Common stock (par value $1.00 per share)
250.9 million
October 19, 2018


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 September 30, 2018, the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2018 and 2017, the related consolidated statements of cash flows for the nine-month periods ended September 30, 2018 and 2017, the related consolidated statement of equity for the nine-month period ended September 30, 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, 2017, 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 9, 2018, 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, 2017, 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 consolidated interim 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 consolidated 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 consolidated interim financial statements taken as a whole. Accordingly, we do not express such an opinion.


/s/ ERNST & YOUNG LLP

New York, NY
October 25, 2018




3


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements

S&P Global Inc.
Consolidated Statements of Income
(Unaudited)
(in millions, except per share amounts)
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$
1,546

 
$
1,513

 
$
4,721

 
$
4,475

Expenses:
 
 
 
 
 
 
 
Operating-related expenses
406

 
419

 
1,290

 
1,262

Selling and general expenses
383

 
399

 
1,194

 
1,123

Depreciation
20

 
22

 
60

 
61

Amortization of intangibles
33

 
24

 
91

 
73

Total expenses
842

 
864

 
2,635

 
2,519

Operating profit
704

 
649

 
2,086

 
1,956

Other income, net
(6
)
 
(9
)
 
(22
)
 
(26
)
Interest expense, net
38

 
37

 
98

 
110

Income before taxes on income
672

 
621

 
2,010

 
1,872

Provision for taxes on income
137

 
169

 
440

 
533

Net income
535

 
452

 
1,570

 
1,339

Less: net income attributable to noncontrolling interests
(40
)
 
(38
)
 
(123
)
 
(105
)
Net income attributable to S&P Global Inc.
$
495

 
$
414

 
$
1,447

 
$
1,234

 
 
 
 
 
 
 
 
Earnings per share attributable to S&P Global Inc. common shareholders:
 
 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
Basic
$
1.97

 
$
1.62

 
$
5.75

 
$
4.80

Diluted
$
1.95

 
$
1.61

 
$
5.70

 
$
4.75

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
251.3

 
255.5

 
251.6

 
257.0

Diluted
253.5

 
257.9

 
253.7

 
259.5

 
 
 
 
 
 
 
 
Actual shares outstanding at period end

 

 
250.9

 
255.0

 
 
 
 
 
 
 
 
Dividend declared per common share
$
0.50

 
$
0.41

 
$
1.50

 
$
1.23

 
See accompanying notes to the unaudited consolidated financial statements.

4


S&P Global Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
 
(in millions)
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
535

 
$
452

 
$
1,570

 
$
1,339

 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(1
)
 
24

 
(53
)
 
96

Income tax effect
2

 

 
(1
)
 

 
1

 
24

 
(54
)
 
96

 
 
 
 
 
 
 
 
Pension and other postretirement benefit plans
5

 
3

 
(6
)
 
7

Income tax effect
(1
)
 
(1
)
 
2

 

 
4

 
2

 
(4
)
 
7

 
 
 
 
 
 
 
 
Unrealized loss on investment and forward exchange contracts
(4
)
 
(4
)
 
(8
)
 
(7
)
Income tax effect
1

 
(1
)
 
2

 
(1
)
 
(3
)
 
(5
)
 
(6
)
 
(8
)
 
 
 
 
 
 
 
 
Comprehensive income
537

 
473

 
1,506

 
1,434

Less: comprehensive income attributable to nonredeemable noncontrolling interests
(4
)
 
(4
)
 
(11
)
 
(10
)
Less: comprehensive income attributable to redeemable noncontrolling interests
(36
)
 
(34
)
 
(112
)
 
(95
)
Comprehensive income attributable to S&P Global Inc.
$
497

 
$
435

 
$
1,383

 
$
1,329



See accompanying notes to the unaudited consolidated financial statements.

5


S&P Global Inc.
Consolidated Balance Sheets
 
(in millions)
September 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,158

 
$
2,777

Restricted cash
45

 
2

Accounts receivable, net of allowance for doubtful accounts: 2018 - $35; 2017 - $33
1,237

 
1,319

Prepaid and other current assets
188

 
226

Total current assets
3,628

 
4,324

Property and equipment, net of accumulated depreciation: 2018 - $586; 2017 - $554
275

 
275

Goodwill
3,544

 
2,989

Other intangible assets, net
1,420

 
1,388

Other non-current assets
516

 
449

Total assets
$
9,383

 
$
9,425

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
194

 
$
195

Accrued compensation and contributions to retirement plans
307

 
472

Short-term debt

 
399

Income taxes currently payable
92

 
77

Unearned revenue
1,576

 
1,613

Accrued legal and regulatory settlements

 
107

Other current liabilities
348

 
351

Total current liabilities
2,517


3,214

Long-term debt
3,661

 
3,170

Pension and other postretirement benefits
225

 
244

Other non-current liabilities
537

 
679

Total liabilities
6,940

 
7,307

Redeemable noncontrolling interest (Note 8)
1,485

 
1,350

Commitments and contingencies (Note 12)

 

Equity:
 
 
 
Common stock
412

 
412

Additional paid-in capital
897

 
525

Retained income
11,003

 
10,025

Accumulated other comprehensive loss
(703
)
 
(649
)
Less: common stock in treasury
(10,704
)
 
(9,602
)
Total equity — controlling interests
905

 
711

Total equity — noncontrolling interests
53

 
57

Total equity
958

 
768

Total liabilities and equity
$
9,383

 
$
9,425

    

See accompanying notes to the unaudited consolidated financial statements.

6


S&P Global Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
(in millions)
Nine Months Ended
 
September 30,
 
2018
 
2017
Operating Activities:
 
 
 
Net income
$
1,570

 
$
1,339

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation
60

 
61

Amortization of intangibles
91

 
73

Provision for losses on accounts receivable
16

 
17

Stock-based compensation
73

 
65

Other
41

 
42

Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
 
 
 
Accounts receivable
62

 
(64
)
Prepaid and other current assets
1

 
3

Accounts payable and accrued expenses
(167
)
 
(50
)
Unearned revenue
(72
)
 
(107
)
Accrued legal settlements
(180
)
 
(4
)
Other current liabilities
(18
)
 
(94
)
Net change in prepaid/accrued income taxes
62

 
(42
)
Net change in other assets and liabilities
(138
)
 
(36
)
Cash provided by operating activities
1,401

 
1,203

Investing Activities:
 
 
 
Capital expenditures
(88
)
 
(77
)
Acquisitions, net of cash acquired
(263
)
 
(80
)
Proceeds from dispositions

 
2

Changes in short-term investments
5

 

Cash used for investing activities
(346
)
 
(155
)
Financing Activities:
 
 
 
Proceeds from issuance of senior notes, net
489

 

Payments on senior notes
(403
)
 

Dividends paid to shareholders
(379
)
 
(316
)
Distributions to noncontrolling interest holders
(116
)
 
(69
)
Purchase of CRISIL shares
(25
)
 

Repurchase of treasury shares
(1,108
)
 
(846
)
Exercise of stock options
24

 
69

Employee withholding tax on share-based payments
(61
)
 
(49
)
Cash used for financing activities
(1,579
)
 
(1,211
)
Effect of exchange rate changes on cash from continuing operations
(52
)
 
83

Net change in cash, cash equivalents, and restricted cash
(576
)
 
(80
)
Cash, cash equivalents, and restricted cash at beginning of period
2,779

 
2,392

Cash, cash equivalents, and restricted cash at end of period
$
2,203

 
$
2,312


See accompanying notes to the unaudited consolidated financial statements.

7


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

 (in millions)
Common Stock $1 par
 
Additional Paid-in Capital
 
Retained Income
 
Accumulated Other Comprehensive Loss
 
Less: Treasury Stock
 
Total SPGI Equity
 
Noncontrolling Interests
 
Total Equity
Balance as of December 31, 2017
$
412

 
$
525

 
$
10,025

 
$
(649
)
 
$
9,602

 
$
711

 
$
57

 
$
768

Comprehensive income 1
 
 
 
 
1,447

 
(64
)
 
 
 
1,383

 
11

 
1,394

Dividends
 
 
 
 
(379
)
 
 
 
 
 
(379
)
 
(9
)
 
(388
)
Share repurchases
 
 


 
 
 
 
 
1,113

 
(1,113
)
 

 
(1,113
)
Employee stock plans
 
 
45

 
 
 
 
 
(11
)
 
56

 

 
56

Change in redemption value of redeemable noncontrolling interest
 
 
 
 
(116
)
 
 
 
 
 
(116
)
 
 
 
(116
)
Increase in CRISIL ownership
 
 
(25
)
 
 
 
 
 
 
 
(25
)
 
(1
)
 
(26
)
Stock consideration for Kensho
 
 
352

 
 
 
 
 
 
 
352

 
 
 
352

Other
 
 

 
26

2 

10

2 


 
36

2 

(5
)
 
31

Balance as of September 30, 2018
$
412

 
$
897

 
$
11,003

 
$
(703
)
 
$
10,704

 
$
905

 
$
53

 
$
958

1
Excludes $112 million 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 Note 1 Nature of Operations and Basis of Presentation for additional details.


See accompanying notes to the unaudited consolidated financial statements.



8


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

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

Our operations consist of 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.
In April of 2018, we acquired Kensho Technologies Inc. ("Kensho") for approximately $550 million, net of cash acquired, in a mix of cash and stock. The results of Kensho, an operating segment of the Company, are included in Corporate revenue and Corporate Unallocated for financial reporting purposes. Restricted cash of $37 million included in our consolidated balance sheet as of September 30, 2018 includes amounts held in escrow accounts in connection with our acquisition of Kensho. See Note 2 Acquisitions and Divestitures and Note 11 Segment and Related Information 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, 2017 (our “Form 10-K”). Certain prior-year amounts have been reclassified to conform with current presentation.

In the opinion of management, all normal recurring adjustments considered necessary for a fair statement of the results of the interim periods have been included. The operating results for the three and nine months ended September 30, 2018 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, we adopted Financial Accounting Standards Board Accounting Standards Codification ("ASC") 606 as discussed below. There have been no other material changes to our critical accounting policies and estimates.

Adoption of ASC 606, “Revenue from Contracts with Customers”

On January 1, 2018, we adopted ASC 606 "Revenue from Contracts with Customers" using the modified retrospective transition method applied to our revenue contracts with customers as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior year amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605. We recorded a net increase to opening retained earnings of $35 million as of January 1, 2018 due to the cumulative effect of adopting ASC 606, with the impact primarily related to our treatment of costs to obtain a contract and to a lesser extent, changes to the timing of the recognition of our subscription and non-transaction revenues. We recognized incremental revenue of $5 million for nine months ended September 30, 2018 as a result of the adoption of this standard.

Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.


9


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 September 30, 2018
Subscription
$

 
$
451

 
$
188

 
$
41

 
$
5

 
$

 
$
685

Non-transaction
372

 

 

 

 

 
(32
)
 
340

Non-subscription / Transaction
328

 
8

 
2

 

 

 

 
338

Asset-linked fees

 
5

 

 
131

 

 

 
136

Sales usage-based royalties

 

 
14

 
33

 

 

 
47

Total revenue
$
700

 
$
464

 
$
204

 
$
205

 
$
5

 
$
(32
)
 
$
1,546

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition


 


 


 


 
 
 


 


Services transferred at a point in time
$
328

 
$
8

 
$
2

 
$

 
$

 
$

 
$
338

Services transferred over time
372

 
456

 
202

 
205

 
5

 
(32
)
 
1,208

Total revenue
$
700

 
$
464

 
$
204

 
$
205

 
$
5

 
$
(32
)
 
$
1,546

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
Subscription
$

 
$
1,306

 
$
556

 
$
109

 
$
10

 
$

 
$
1,981

Non-transaction
1,129

 

 

 

 

 
(92
)
 
1,037

Non-subscription / Transaction
1,094

 
28

 
8

 

 

 

 
1,130

Asset-linked fees

 
15

 

 
396

 

 

 
411

Sales usage-based royalties

 

 
40

 
122

 

 

 
162

Total revenue
$
2,223

 
$
1,349

 
$
604

 
$
627

 
$
10

 
$
(92
)
 
$
4,721

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
 
 
Services transferred at a point in time
$
1,094

 
$
28

 
$
8

 
$

 
$

 
$

 
$
1,130

Services transferred over time
1,129

 
1,321

 
596

 
627

 
10

 
(92
)
 
3,591

Total revenue
$
2,223

 
$
1,349

 
$
604

 
$
627

 
$
10

 
$
(92
)
 
$
4,721


10


(in millions)
Ratings
 
Market Intelligence
 
Platts
 
Indices
 
Corporate
 
Intersegment Elimination 1
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2017 2
Subscription
$

 
$
406

 
$
177

 
$
36

 
$

 
$

 
$
619

Non-transaction
367

 

 

 

 

 
(28
)
 
339

Non-subscription / Transaction
372

 
10

 
2

 

 

 

 
384

Asset-linked fees

 
6

 

 
118

 

 

 
124

Sales usage-based royalties

 

 
14

 
33

 

 

 
47

Total revenue
$
739

 
$
422

 
$
193

 
$
187

 
$

 
$
(28
)
 
$
1,513

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
 
 
Services transferred at a point in time
$
372

 
$
10

 
$
2

 
$

 
$

 
$

 
$
384

Services transferred over time
367

 
412

 
191

 
187

 

 
(28
)
 
1,129

Total revenue
$
739

 
$
422

 
$
193

 
$
187

 
$

 
$
(28
)
 
$
1,513

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017 2
Subscription
$

 
$
1,189

 
$
523

 
$
104

 
$

 
$

 
$
1,816

Non-transaction
1,061

 

 

 

 

 
(81
)
 
980

Non-subscription / Transaction
1,138

 
32

 
9

 

 

 

 
1,179

Asset-linked fees

 
17

 

 
340

 

 

 
357

Sales usage-based royalties

 

 
45

 
98

 

 

 
143

Total revenue
$
2,199

 
$
1,238

 
$
577

 
$
542

 
$

 
$
(81
)
 
$
4,475

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
 
 
Services transferred at a point in time
$
1,138

 
$
32

 
$
9

 
$

 
$

 
$

 
$
1,179

Services transferred over time
1,061

 
1,206

 
568

 
542

 

 
(81
)
 
3,296

Total revenue
$
2,199

 
$
1,238

 
$
577

 
$
542

 
$

 
$
(81
)
 
$
4,475

1 
Intersegment eliminations mainly consists of a royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
2 
As noted above, amounts for the three and nine months ended September 30, 2017 were not adjusted under the modified retrospective transition method applied to our revenue contracts with customers as of January 1, 2018.

Subscription revenue

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. Subscription revenue at Platts is generated by providing customers access to commodity and energy-related price assessments, market data, and real-time news, along with other information services. Subscription revenue at Indices is derived from the contracts for underlying data of our indexes to support our customers' management of index funds, portfolio analytics, and research.

For subscription products and services, we generally provide continuous access to dynamic data sets and analytics for a defined period, with revenue recognized ratably as our performance obligation to provide access to our data and analytics is progressively fulfilled over the stated term of the contract.


11


Non-transaction revenue

Non-transaction revenue at Ratings is primarily related to 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 revenue elimination of $32 million and $92 million for the three and nine months ended September 30, 2018, respectively, and $28 million and $81 million for the three and nine months ended September 30, 2017, respectively, mainly consisting of the royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.

For non-transaction revenue related to Rating’s surveillance services, we continuously monitor factors that impact the creditworthiness of an issuer over the contractual term with revenue recognized to the extent that our performance obligation is progressively fulfilled over the term contract. Because surveillance services are continuously provided throughout the term of the contract, our measure of progress towards fulfillment of our obligation to monitor a rating is a time-based output measure with revenue recognized ratably over the term of the contract.

Non-subscription / Transaction revenue

Transaction revenue at our Ratings segment primarily includes fees associated with:

ratings related to new issuance of corporate and government debt instruments; and structured finance 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.

Transaction revenue is recognized at the point in time when our performance obligation is satisfied by issuing a rating on our customer's instruments, our customer's creditworthiness, or a counter-party's creditworthiness and when we have a right to payment and the customer can benefit from the significant risks and rewards of ownership.

Non-subscription revenue at Market Intelligence is primarily related to certain advisory, pricing and analytical services. Non-subscription revenue at Platts is primarily related to conference sponsorship, consulting engagements and events.

Asset-linked fees

Asset-linked fees at Indices and Market Intelligence are primarily related to royalties payments based on the value of assets under management in our customers exchange-traded funds and mutual funds.

For asset-linked products and services, we provide licenses conveying continuous access to our index and benchmark-related intellectual property during a specified contract term. Revenue is recognized when the extent that our customers have used our licensed intellectual property can be quantified. Recognition of revenue for our asset-linked fee arrangements is subject to the "recognition constraint" for usage-based royalty payments because we cannot reasonably predict the value of the assets that will be invested in index funds structured using our intellectual property until it is either publicly available or when we are notified by our customers. Revenue derived from an asset-linked fee arrangement is measured and recognized when the certainty of the extent of its utilization of our index products by our customers is known.

Sales usage-based royalties

Sales usage-based royalty revenue at our Indices segment is primarily related to trading based fees from exchange-traded derivatives. Sales and usage-based royalty revenue at our Platts segment is primarily related to licensing of its proprietary market price data and price assessments to commodity exchanges.

For sales usage-based royalty products and services, we provide licenses conveying the right to continuous access to our intellectual property over the contract term, with revenue recognized when the extent of our license’s utilization can be quantified, or more specifically, when trading volumes are known and publicly available to us or when we are notified by our customers. Recognition of revenue of fees tied to trading volumes is subject to the recognition constraint for a usage-based royalty promised by our customers in exchange for the license of our intellectual property, with revenue recognized when trading volumes are known.


12


Arrangements with Multiple Performance Obligations

Our contracts with customers may include multiple performance obligations. Revenue relating to agreements that provide for more than one performance obligation is recognized based upon the relative fair value to the customer of each service component as each component is earned. The fair value of the service components are determined using an analysis that considers cash consideration that would be received for instances when the service components are sold separately. If the fair value to the customer for each service is not objectively determinable, we make our best estimate of the services’ stand-alone selling price and record revenue as it is earned over the service period.

Receivables

We record a receivable when a customer is billed or when revenue is recognized prior to billing a customer. For multi-year agreements, we generally invoice customers annually at the beginning of each annual period. The opening balance of accounts receivable, net of allowance for doubtful accounts, was $1,319 million as of January 1, 2018.

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 September 30, 2018 and December 31, 2017, contract assets were $43 million and $17 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 decrease in the deferred revenue balance for the three and nine months ended September 30, 2018 is primarily driven by $1.4 billion of revenues recognized that were included in the unearned revenue balance at the beginning of the period, offset by cash payments received or due in advance of satisfying our performance obligations.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of contracts for work that has not yet been performed. As of September 30, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $1.2 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 certain sales commission programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were $82 million as of September 30, 2018, and is included in prepaid and other current assets and other non-current assets on our consolidated balance sheets. The 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. The expense is recorded within selling and general expenses.

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

Presentation of net periodic pension cost and net periodic postretirement benefit cost

During the first quarter of 2018, we adopted new accounting guidance requiring that net periodic benefit cost for our retirement and postretirement plans other than the service cost component be included outside of operating profit; these costs are included in other income, net in our consolidated statements of income.

The components of other income, net for the three and nine months ended September 30 are as follows: 

13


(in millions)
Three Months
 
Nine Months
 
2018
 
2017
 
2018
 
2017
Other components of net periodic benefit cost
$
(8
)
 
$
(9
)
 
$
(24
)
 
$
(26
)
Net loss from investments 1
2

 

 
2

 

Other income, net
$
(6
)
 
$
(9
)
 
$
(22
)
 
$
(26
)
1 
Primarily relates to the change in fair value of CRISIL's investment in Care Ratings Limited ("CARE"). The investment balance of CARE as of September 30, 2018 and December 31, 2017 is $43 million and $54 million, respectively, and is included in non-current assets in our consolidated balance sheets.

2.
Acquisitions and Divestitures

Acquisitions

2018
In August of 2018, we acquired a 5.03% investment in FiscalNote, a technology innovator at the intersection of global business and government that provides advanced, data-driven Issues Management solutions. The investment in FiscalNote is not material to our consolidated financial statements.

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.

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

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


14


Divestitures

2018
During the nine months ended September 30, 2018, we did not complete any dispositions.

2017
In April of 2017, we signed a letter of intent to sell our facility at East Windsor, New Jersey. The fixed assets of the facility of $5 million have been classified as held for sale, which is included in prepaid and other current assets in our consolidated balance sheet as of September 30, 2018.

In January of 2017, we completed the sale of Quant House SAS, included in our Market Intelligence segment, to QH Holdco, an independent third party.

3.
Income Taxes

Comprehensive tax legislation, enacted through the Tax Cuts and Jobs Act (“TCJA”) on December 22, 2017, significantly modified U.S. corporate income tax law. Provisional amounts have been recorded in our financial statements based on the Company’s initial analysis of the TCJA. The Company may adjust these amounts in future periods if our interpretation of the TCJA changes or as additional guidance from the U.S. Treasury becomes available. We have elected to recognize the tax on Global Intangible Low Taxed Income (“GILTI”) as a period expense in the year the tax is incurred.

The effective income tax rate was 20.4% and 21.9% for the three and nine months ended September 30, 2018, respectively, and 27.3% and 28.5% for the three and nine months ended September 30, 2017, respectively. The decrease in 2018 was primarily due to the reduction of the U.S. federal corporate tax rate as a result of the enactment of the TCJA.

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

The Company is continuously subject to tax examinations in various jurisdictions. As of September 30, 2018 and December 31, 2017, the total amount of federal, state and local, and foreign unrecognized tax benefits was $152 million and $212 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 September 30, 2018 and December 31, 2017, we had $32 million and $59 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 with various tax authorities. Based on the current status of income tax audits, we believe that the total amount of unrecognized tax benefits may decrease by approximately $40 million in the next twelve months as a result of the resolution of tax examinations.


15


4.
Debt 

A summary of short-term and long-term debt outstanding is as follows:
(in millions)
September 30,
2018
 
December 31,
2017
2.5% Senior Notes, due 2018 1
$

 
$
399

3.3% Senior Notes, due 2020 2
698

 
697

4.0% Senior Notes, due 2025 3
692

 
692

4.4% Senior Notes, due 2026 4
892

 
892

2.95% Senior Notes, due 2027 5
493

 
493

6.55% Senior Notes, due 2037 6
396

 
396

4.5% Senior Notes, due 2048 7
490

 

Total debt
3,661

 
3,569

Less: short-term debt including current maturities

 
399

Long-term debt
$
3,661

 
$
3,170

1 
We made a $400 million early repayment of our 2.5% senior notes in June of 2018.
2 
Interest payments are due semiannually on February 14 and August 14, and as of September 30, 2018, the unamortized debt discount and issuance costs total $2 million.
3 
Interest payments are due semiannually on June 15 and December 15, and as of September 30, 2018, the unamortized debt discount and issuance costs total $8 million.
4 
Interest payments are due semiannually on February 15 and August 15, and as of September 30, 2018, the unamortized debt discount and issuance costs total $8 million.
5 
Interest payments are due semiannually on January 22 and July 22, and as of September 30, 2018, the unamortized debt discount and issuance costs total $7 million.
6 
Interest payments are due semiannually on May 15 and November 15, and as of September 30, 2018, the unamortized debt discount and issuance costs total $4 million.
7 
Interest payments are due semiannually on May 15 and November 15, beginning on November 15, 2018, and as of September 30, 2018, the unamortized debt discount and issuance costs total $10 million.

The fair value of our total debt borrowings was $3.8 billion as of September 30, 2018 and December 31, 2017, and was estimated based on quoted market prices.

On May 17, 2018, we issued $500 million of 4.5% notes due in 2048. The notes are fully and unconditionally guaranteed by our wholly-owned subsidiary, Standard & Poor's Financial Services LLC. In June of 2018, we used the net proceeds to fund the redemption price of the $400 million outstanding principal amount of our 2.5% senior notes due in August of 2018, and intend to use the balance for general corporate purposes.

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 September 30, 2018 and December 31, 2017, 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.


16


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 September 30, 2018 and December 31, 2017, we have entered into foreign exchange forward contracts to mitigate or hedge the effect of adverse fluctuations in foreign currency exchange rates. Foreign currency forward contracts are recorded at fair value that is based on foreign currency exchange rates in active markets; therefore, we classify these derivative contracts 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 nine months ended September 30, 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 do not qualify for hedge accounting. As of September 30, 2018 the aggregate notional value of these outstanding forward contracts was $85 million. The fair value of these forward contracts are recorded in prepaid and other assets or other current liabilities in the consolidated balance sheet with their corresponding change in fair value recognized in selling and general expenses in the consolidated statement of income. The net loss recorded in selling and general expense for the three and nine months ended September 30, 2018 related to these contracts was $3 million and $15 million, respectively.

Cash Flow Hedges

During the nine months ended September 30, 2018 and the three months ended December 31, 2017, 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 third quarter of 2019 and the fourth quarter of 2018, 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 September 30, 2018, we estimate that $4 million of the net losses related to derivatives designated as cash flow hedges recorded in other comprehensive income (loss) is expected to be reclassified into earnings within the next twelve months. There was no material hedge ineffectiveness for the three and nine months ended September 30, 2018 and 2017. As of September 30, 2018 and September 30, 2017, the aggregate notional value of our outstanding foreign currency forward contracts was $199 million and $133 million, respectively.
The following table provides information on the location and fair value amounts of our cash flow hedges as of September 30, 2018 and December 31, 2017:
(in millions)
Balance Sheet Location
 
September 30, 2018
 
December 31, 2017
Prepaid and other current assets
Foreign exchange forward contracts
$
1

 
$
3

Other current liabilities
Foreign exchange forward contracts
$
(7
)
 
$

The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges for the periods ended September 30:
Three Months
(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (effective portion)
 
Location of Gain (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
2018
 
2017
 
 
 
2018
 
2017
Foreign exchange forward contracts
$
(3
)
 
$
3

 
Revenue, Selling and general expenses
 
$
(2
)
 
$
2


17



Nine 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
2018
 
2017
 
 
 
2018
 
2017
Foreign exchange forward contracts
$
(6
)
 
$
2

 
Revenue, Selling and general expenses
 
$
(3
)
 
$
6

The activity related to the change in unrealized gains (losses) in accumulated other comprehensive loss was as follows for the periods ended September 30:
(in millions)
Three Months
 
Nine Months
 
2018
 
2017
 
2018
 
2017
Net unrealized (losses) gains on cash flow hedges, net of taxes, beginning of period
$
(1
)
 
$
1

 
$
2

 
$
2

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

 
(9
)
 
8

Reclassification into earnings, net of tax
2

 
(2
)
 
3

 
(6
)
Net unrealized (losses) gains on cash flow hedges, net of taxes, end of period
$
(4
)
 
$
4

 
$
(4
)
 
$
4


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 generally 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.

The components of net periodic benefit cost for our retirement plans and postretirement plans for the periods ended September 30 are as follows: 
(in millions)
Three Months
 
Nine Months
 
2018
 
2017
 
2018
 
2017
Service cost
$
1

 
$
1

 
$
2

 
$
2

Interest cost
18

 
19

 
54

 
56

Expected return on assets
(31
)
 
(32
)
 
(94
)
 
(95
)
Amortization of prior service credit / actuarial loss
4

 
4

 
13

 
12

Net periodic benefit cost
$
(8
)
 
$
(8
)
 
$
(25
)
 
$
(25
)

18



Net periodic benefit cost related to our postretirement plans reflected in the table above was not material for the three and nine months ended September 30, 2018 and 2017, respectively.

As discussed in our Form 10-K, we changed certain discount rate assumptions for our retirement and postretirement plans and our expected return on assets assumption for our retirement plans, which became effective on January 1, 2018. The effect of the assumption changes on retirement and postretirement expense for the three and nine months ended September 30, 2018 did not have a material impact to our financial position, results of operations or cash flows.

In the first nine months of 2018, we contributed $7 million to our retirement plans and expect to make additional required contributions of approximately $2 million to our retirement plans during the remainder of the year. We may elect to make additional non-required contributions depending on investment performance and the pension plan status in the fourth quarter of 2018.

7.
Stock-Based Compensation

We issue stock-based incentive awards to our eligible employees and Directors under the 2002 Employee Stock Incentive Plan and a Director Deferred Stock Ownership Plan. The 2002 Employee Stock Incentive Plan permits the granting of nonqualified stock options, stock appreciation rights, performance stock, restricted stock and other stock-based awards. In 2018, we also made a one-time issuance of incentive stock options under the 2002 Employee Stock Incentive Plan to replace Kensho employees' stock options that were assumed in connection with our acquisition of Kensho in April of 2018.

Stock-based compensation for the periods ended September 30 is as follows:
(in millions)
Three Months
 
Nine Months
 
2018
 
2017
 
2018
 
2017
Stock option expense
$
1

 
$
1

 
$
3

 
$
2

Restricted stock and unit awards expense
26

 
23

 
70

 
63

Total stock-based compensation expense 
$
27

 
$
24

 
$
73

 
$
65


During the nine months ended September 30, 2018, the Company granted 0.2 million shares of employee stock options, which had a weighted average grant date value of $128.46 per share based on the lattice-based option-pricing model. The Company also granted 0.7 million shares of restricted stock and unit awards, which had a weighted average grant date fair value of $170.44 per share.

Total unrecognized compensation expense related to unvested stock option awards and unvested restricted stock and unit awards as of September 30, 2018 was $3 million and $99 million, respectively, which is expected to be recognized over a weighted average period of 2.3 years and 2.1 years, respectively.

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.


19


Share repurchases for the periods ended September 30 were as follows: 
(in millions, except average price)
Three Months
 
Nine Months
 
2018
 
2017
 
2018
 
2017
Total number of shares purchased 1
0.7

 
2.8

 
5.7

 
5.4

Average price paid per share 2
$
205.11

 
$

 
$
180.94

 
$
133.01

Total cash utilized 3
$
13

 
$
500

 
$
1,113

 
$
846

1 
The three and nine months ended September 30, 2018 and 2017 include shares received as part of our accelerated share repurchase agreement described in more detail below.
2 
Average price paid per share information does not include the accelerated share repurchase agreement as discussed in more detail below.
3
During the third quarter of 2018, we repurchased shares for approximately $6 million, which settled in October 2018. Cash used for financing activities only reflects those shares which settled during the nine months ended September 30, 2018 resulting in $1,108 million of cash used to repurchase shares.

Our purchased shares may be used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options. As of September 30, 2018, approximately 13.3 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 Agreement

We entered into an accelerated share repurchase ("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.

Redeemable Noncontrolling Interests

The agreement with the minority partners that own 27% of our S&P Dow Jones Indices LLC joint venture contains redemption features whereby interests held by minority partners are redeemable either (i) at the option of the holder or (ii) upon the occurrence of an event that is not solely within our control. Specifically, under the terms of the operating agreement of S&P Dow Jones Indices LLC, after December 31, 2017, CME Group and CME Group Index Services LLC ("CGIS") 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, considering a combination of an income and market valuation approach. Our income and market valuation approaches incorporate Level 3 fair value measures for instances when observable inputs are not available, including assumptions related to expected future net cash flows, long-term growth rates, the timing and nature of tax attributes, and the redemption features. Any adjustments to the redemption value will impact retained income.

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


20


Changes to redeemable noncontrolling interest during the nine months ended September 30, 2018 were as follows:
(in millions)
 
Balance as of December 31, 2017
$
1,350

Net income attributable to noncontrolling interest
112

Distributions payable to noncontrolling interest
(93
)
Redemption value adjustment
116

Balance as of September 30, 2018
$
1,485


Accumulated Other Comprehensive Loss

The following table summarizes the changes in the components of accumulated other comprehensive loss for the nine months ended September 30, 2018:
(in millions)
Foreign Currency Translation Adjustment
 
Pension and Postretirement Benefit Plans
 
Unrealized Gain (Loss) on Forward Exchange Contracts
 
Unrealized Gain (Loss) on Investments
 
Accumulated Other Comprehensive Loss
Balance as of December 31, 2017
$
(239
)
 
$
(402
)
 
$
2

 
$
(10
)
 
$
(649
)
Other comprehensive income before reclassifications
(54
)
 
(14
)
 
(9
)
 

 
(77
)
Reclassifications from accumulated other comprehensive loss to net earnings

 
10

1 

3

2 


 
13

Net other comprehensive income
(54
)
 
(4
)
 
(6
)
 

 
(64
)
Amounts reclassified to retained income

 

 

 
10

3 

10

Balance as of September 30, 2018
$
(293
)
 
$
(406
)
 
$
(4
)
 
$

 
$
(703
)
1 
See Note 6 Employee Benefits for additional details of items reclassed from accumulated other comprehensive loss to net earnings.
2 
See Note 5 Derivative Instruments for additional details of items reclassed from accumulated other comprehensive loss to net earnings.
3 
On January 1, 2018, the unrealized loss on investments was reclassified to retained income. See Note 13 Recently Issued or Adopted Accounting Standards for additional details.

The net actuarial loss and prior service credit related to pension and other postretirement benefit plans included in other comprehensive income is net of a tax provision of $2 million for the nine months ended September 30, 2018.

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.


21


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

2018
 
2017
 
2018
 
2017
Amounts attributable to S&P Global Inc. common shareholders:
 
 
 
 
 
 
 
Net income
$
495

 
$
414

 
$
1,447

 
$
1,234

 
 
 
 
 
 
 
 
Basic weighted-average number of common shares outstanding
251.3

 
255.5

 
251.6

 
257.0

Effect of stock options and other dilutive securities
2.2

 
2.4

 
2.1

 
2.5

Diluted weighted-average number of common shares outstanding
253.5

 
257.9

 
253.7

 
259.5

 
 
 
 
 
 
 
 
Earnings per share attributable to S&P Global Inc. common shareholders:
 
 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
Basic
$
1.97

 
$
1.62

 
$
5.75

 
$
4.80

Diluted
$
1.95

 
$
1.61

 
$
5.70

 
$
4.75


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 nine months ended September 30, 2018 and 2017, there were no stock options excluded. Restricted performance shares outstanding of 0.8 million and 0.9 million as of September 30, 2018 and 2017, respectively, were excluded.

10.
Restructuring

During 2018 and 2017, we continued to evaluate our cost structure and further identified cost savings associated with streamlining our management structure and our decision to exit non-strategic businesses. Our 2018 and 2017 restructuring plans consisted of a company-wide workforce reduction of approximately 70 and 520 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 September 30, 2018 by segment is as follows:
 
2018 Restructuring Plans
 
2017 Restructuring Plans
(in millions)
Initial Charge Recorded
 
Ending Reserve Balance
 
Initial Charge Recorded
 
Ending Reserve Balance
Ratings
$

 
$

 
$
25

 
$
10

Market Intelligence
2

 
2

 
8

 
2

Platts

 

 
1

 

Indices

 

 

 

Corporate
7

 
7

 
10

 
3

Total
$
9

 
$
9

 
$
44

 
$
15


We recorded a pre-tax restructuring charge of $9 million primarily related to employee severance charges for the 2018 restructuring plan during the nine months ended September 30, 2018. The ending reserve balance for the 2017 restructuring plan was $39 million as of December 31, 2017. For the nine months ended September 30, 2018, we have reduced the reserve for the 2017 restructuring plan by $24 million. The reductions primarily related to cash payments for employee severance charges.


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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 income, net, or interest expense, net, as these are amounts that do not affect the operating results of our reportable segments.

In April of 2018, we acquired Kensho for approximately $550 million, net of cash acquired, in a mix of cash and stock. The results of Kensho, an operating segment of the Company, are included in Corporate revenue and Corporate Unallocated for financial reporting purposes. See Note 2 Acquisitions and Divestitures for additional information.

Effective beginning with the first quarter of 2018, we began reporting the financial results of Market Intelligence and Platts as separate reportable segments consistent with the changes to our organizational structure and how our Chief Executive Officer evaluates the performance of these segments. Our historical segment reporting has been retroactively revised to reflect the current organizational structure.

A summary of operating results for the periods ended September 30 is as follows: 
Revenue
Three Months
 
Nine Months
(in millions)
2018
 
2017
 
2018
 
2017
Ratings
$
700

 
$
739

 
$
2,223

 
$
2,199

Market Intelligence
464

 
422

 
1,349

 
1,238

Platts
204

 
193

 
604

 
577

Indices
205

 
187

 
627

 
542

Corporate
5

 

 
10

 

Intersegment elimination 1
(32
)
 
(28
)
 
(92
)
 
(81
)
Total revenue
$
1,546

 
$
1,513

 
$
4,721

 
$
4,475

Operating Profit
Three Months
 
Nine Months
(in millions)
2018
 
2017
 
2018
 
2017
Ratings 2
$
395

 
$
375

 
$
1,173

 
$
1,144

Market Intelligence 3
148

 
123

 
388

 
339

Platts 4
98

 
84

 
285

 
245

Indices 5
134

 
119

 
416

 
352

Total reportable segments
775

 
701

 
2,262

 
2,080

Corporate Unallocated 6
(71
)
 
(52
)
 
(176
)
 
(124
)
Total operating profit
$
704

 
$
649

 
$
2,086

 
$
1,956


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 legal settlement expenses of $73 million for the nine months ended September 30, 2018. Operating profit includes employee severance charges of $15 million for the three and nine months ended September 30, 2017 and legal settlement expenses of $2 million for the nine months ended September 30, 2017. Operating profit also includes amortization of intangibles from acquisitions of $1 million for the three months ended September 30, 2018 and 2017 and $2 million and $3 million for the nine months ended September 30, 2018 and 2017, respectively.
3 
Operating profit includes restructuring charges related to a business disposition and employee severance charges of $2 million for the three and nine months ended September 30, 2018. Operating profit includes a non-cash disposition-related adjustment of $4 million and employee severance charges of $4 million for the nine months ended September 30, 2017. Operating profit includes amortization of intangibles from acquisitions of $18 million and $17 million for the three months ended September 30, 2018 and 2017, respectively, and $54 million and $52 million for the nine months ended September 30, 2018 and 2017, respectively.
4 
Operating profit includes amortization of intangibles from acquisitions of $4 million and $5 million for the three months ended September 30, 2018 and 2017, respectively, and $13 million for the nine months ended September 30, 2018 and 2017. Operating profit includes a non-cash acquisition-related adjustment of $11 million, a charge to exit a leased facility of $6 million, an asset write-off of $2 million, and employee severance charges of $1 million for the nine months ended September 30, 2017.

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5 
Operating profit includes amortization of intangibles from acquisitions of $2 million and $1 million for the three months ended September 30, 2018 and 2017, respectively, and $5 million and $4 million for the nine months ended September 30, 2018 and 2017, respectively.
6 
Operating loss for the three and nine months months ended September 30, 2018 includes Kensho retention related expense of $11 million and $23 million, respectively, lease impairments of $11 million and employee severance charges of $7 million. Operating loss also includes amortization of intangibles from acquisitions of $8 million and $17 million for the three and nine months ended September 30, 2018, respectively. Operating loss for the three and nine months ended September 30, 2017 includes employee severance charges of $4 million.

The following provides revenue by geographic region for the periods ended September 30:
(in millions)
Three Months
 
Nine Months
 
2018
 
2017
 
2018
 
2017
U.S.
$
932

 
$
914

 
$
2,843

 
$
2,726

European region
380

 
361

 
1,164

 
1,068

Asia
160

 
157

 
475

 
432

Rest of the world
74

 
81

 
239

 
249

Total
$
1,546

 
$
1,513

 
$
4,721

 
$
4,475

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

12.
Commitments and Contingencies

Related Party Agreements

In March of 2018, the Company made a $20 million contribution to the S&P Global Foundation.

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, which replaced the 2005 license agreement between Indices and CME Group. Under the terms of the License Agreement, S&P Dow Jones Indices LLC receives a share of the profits from the trading and clearing of CME Group's equity index products. During the three and nine months ended September 30, 2018, S&P Dow Jones Indices LLC earned $28 million and $82 million, respectively, of revenue under the terms of the License Agreement. During the three and nine months ended September 30, 2017, S&P Dow Jones Indices LLC earned $18 million and $56 million, respectively, of revenue under the terms of the License Agreement. The entire amount of this revenue is included in our consolidated statement of income and the portion related to the 27% noncontrolling interest is removed in net income attributable to noncontrolling interests.

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.

S&P Global Ratings

In the second quarter the Company entered into an agreement to settle certain civil cases in Australia against the Company and certain of its subsidiaries relating to alleged investment losses in collateralized debt obligations rated by S&P Global Ratings. The settlement was approved by the court in August 2018.


24


13. Recently Issued or Adopted Accounting Standards

In August of 2018, 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 February of 2018, FASB issued guidance which allows companies to reclassify certain stranded income tax effects resulting from the enactment of the TCJA from accumulated other comprehensive income to retained earnings. The guidance is effective for reporting periods after December 15, 2018; 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 2017, FASB issued guidance to enhance the hedge accounting model for both nonfinancial and financial risk components, which includes amendments to address certain aspects of recognition and presentation disclosure. The guidance is effective for reporting periods beginning after December 15, 2018. We do not expect this guidance to have a significant impact on our consolidated financial instruments.

In May of 2017, FASB issued guidance that provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This guidance does not change the accounting for modifications but
clarifies when modification accounting guidance should be applied. Under the new guidance, an entity should apply modification accounting in response to a change in the terms and conditions of an entity's share-based payment awards unless three newly specified criteria are met. The guidance was effective on January 1, 2018, and the adoption of this guidance did not have a significant impact on our consolidated financial statements.

In March of 2017, FASB issued guidance to enhance the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance requires employers to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization. We adopted the guidance on January 1, 2018. The change in capitalization requirement did not have a material impact on our consolidated financial statements. As a result of the adoption of the guidance, 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. See Note 6 Employee Benefits for additional information related to our retirement and postretirement plans.

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

In January of 2017, the FASB issued guidance that clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance was effective on January 1, 2018, and the adoption of this guidance did not have a significant impact on our consolidated financial statements.

In November of 2016, the FASB issued guidance requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. We adopted this guidance on January 1, 2018. The adoption of this guidance did not have a significant impact on our consolidated financial statements.

In August of 2016, the FASB issued guidance providing amendments to eight specific statement of cash flows classification issues. The guidance was effective on January 1, 2018, and the adoption of this guidance did not have a significant impact on our consolidated financial statements.


25


In February of 2016, the FASB issued guidance that amends the accounting for leases. Under the new guidance, a lessee will now recognize a "right of use" asset with an offsetting lease liability, with expenses recognized similar to current lease accounting. The guidance is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. 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 expect to elect 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.

As part of our implementation plan, we are in the process of executing a number of workflows including a qualitative and quantitative accounting analysis of our significant lease agreements in the construct of the new standard, and have refined our processes, procedures, and controls to capture the complete population of our leases. In addition we selected and are in the process of implementing a third party software solution that will systematically capture, process, and record both the initial and ongoing financial statement impact of the new standard.  Our preliminary quantitative analysis of the financial statement impact indicates the adoption of the new standard will have a material impact on our consolidated balance sheet; however, we do not expect that the standard will have a material impact on our cons