Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, the “Company,” “we,” “us” or “our”) for the years ended December 31, 2017 and 2016, respectively. The MD&A should be read in conjunction with the consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K for the year ended December 31, 2017, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”).

The MD&A includes the following sections:

•Overview
•Results of Operations
•Liquidity and Capital Resources
•Reconciliation of Non-GAAP Financial Information
•Critical Accounting Estimates
•Recent Accounting Standards

Certain of the statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, any projections of future results of operations and cash flows are subject to substantial uncertainty. See Forward-Looking Statements on page 4 of this report.

OVERVIEW

We are a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide. The capital markets include asset managers, investment banks, commercial banks, insurance companies, exchanges, trading firms and issuers; and the commodity markets include producers, traders and intermediaries within energy, metals, petrochemicals and agriculture.

Our operations consist of three reportable segments: Ratings, Market and Commodities Intelligence and S&P Dow Jones Indices ("Indices").

•Ratings is an independent provider of credit ratings, research and analytics, offering investors and other market participants information, ratings and benchmarks.
•Market and Commodities Intelligence is a global provider of multi-asset-class data, research and analytical capabilities, which integrate cross-asset analytics and desktop services and deliver their customers in the commodity and energy markets access to high-value information, data, analytic services and pricing and quality benchmarks. We completed the sale of J.D. Power on September 7, 2016, with the results included in Market and Commodities Intelligence results through that date.
•Indices is a global index provider maintaining a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors.

In December of 2017, we announced that S&P Global Platts, a business line within Market and Commodities Intelligence, will be managed as a separate business and comprise a separate reportable segment effective January 1, 2018. We will begin reporting the financial results of S&P Global Market Intelligence and S&P Global Platts as separate reportable segments beginning with the first quarter of 2018.

Major Portfolio Changes

The following significant changes by segment were made to our portfolio during the three years ended December 31, 2017:

2016

Market and Commodities Intelligence

•In October of 2016, we completed the sale of Standard & Poor's Securities Evaluations, Inc. ("SPSE") and Credit Market Analysis ("CMA") for $425 million in cash to Intercontinental Exchange, an operator of global exchanges, clearing

houses and data services. During year ended December 31, 2016, we recorded a pre-tax gain of $364 million ($297 million after-tax) in gain on dispositions in the consolidated statement of income related to the sale of SPSE and CMA.

•In September of 2016, we completed the sale of J.D. Power for $1.1 billion to XIO Group, a global alternative investments firm headquartered in London. During the year ended December 31, 2016, we recorded a pre-tax gain of $728 million ($516 million after-tax) in gain on dispositions in the consolidated statement of income related to the sale of J.D. Power.
•In September of 2016, we acquired PIRA Energy Group ("PIRA"), a global provider of energy research and forecasting products and services. The purchase enhances Market and Commodities Intelligence's energy analytical capabilities by expanding its oil offering and strengthening its position in the natural gas and power markets.
•In June of 2016, we acquired RigData, a provider of daily information on rig activity for the natural gas and oil markets across North America. The purchase enhances Market and Commodities Intelligence's energy analytical capabilities by strengthening its position in natural gas and enhancing its oil offering.

2015

Market and Commodities Intelligence

•In September of 2015, we acquired SNL Financial LC ("SNL") for $2.2 billion. SNL is a global provider of news, data, and analytical tools to five sectors in the global economy: financial services, real estate, energy, media & communications, and metals & mining. SNL delivers information through its suite of web, mobile and direct data feed platforms that helps clients, including investment and commercial banks, investors, corporations, and regulators make decisions, improve efficiency, and manage risk.
•In July of 2015, we acquired the entire issued share capital of Petromedia Ltd and its operating subsidiaries (“Petromedia”), an independent provider of data, intelligence, news and tools to the global fuels market that offers a suite of products providing clients with actionable data and intelligence that enable informed decisions, minimize risk and increase efficiency.

In 2015, we further reduced our real estate footprint by completing the consolidation of our corporate headquarters with our operations in New York City.

Increased Shareholder Return

During the three years ended December 31, 2017, we have returned approximately $4.3 billion to our shareholders through a combination of share repurchases and our quarterly dividends: we completed share repurchases of approximately $3.1 billion and distributed regular quarterly dividends totaling approximately $1.2 billion. Also, on February 2, 2018, the Board of Directors approved an increase in the quarterly common stock dividend from $0.41 per share to $0.50 per share.

Key Results

(in millions)Year ended December 31,% Change 1
201720162015’17 vs ’16’16 vs ’15
Revenue$6,063$5,661$5,3137%7%
Operating profit 2$2,610$3,369$1,917(23)%76%
% Operating margin43%60%36%
Diluted earnings per share from net income$5.78$7.94$4.21(27)%89%
1% changes in the tables throughout the MD&A are calculated off of the actual number, not the rounded number presented.
22017 includes legal settlement expenses of $55 million, employee severance charges of $44 million, a charge to exit leased facilities of $25 million, non-cash acquisition and disposition-related adjustments of $15 million, a pension related charge of $8 million and an asset write-off of $2 million. 2016 includes a $1.1 billion gain from our dispositions, a benefit related to net legal settlement insurance recoveries of $10 million, disposition-related costs of $48 million, a technology-related impairment charge of $24 million, employee severance charges of $6 million, a $3 million disposition-related reserve release and acquisition-related costs of $1 million. 2015 includes costs related to identified operating efficiencies primarily related to employee severance charges of $56 million, net legal settlement expenses of $54 million, acquisition-related costs of $37 million and a gain of $11 million on the sale of our interest in a legacy McGraw Hill Construction investment. 2017, 2016 and 2015 also includes amortization of intangibles from acquisitions of $98 million, $96 million, and $67 million, respectively.

2017

Revenue increased 7% driven by increases at Ratings and Indices, partially offset by a decrease at Market and Commodities Intelligence. The increase at Ratings was primarily due to growth in bank loan ratings revenue and corporate bond ratings revenue. Revenue growth at Indices was primarily due to higher levels of assets under management for exchange traded funds ("ETFs") and mutual funds. The decrease at Market and Commodities Intelligence was primarily due to the disposition of non-core businesses in 2016, partially offset by annualized contract value growth in the S&P Global Market Intelligence Desktop and Global Risk Services products and continued demand for Platts’ proprietary content at S&P Global Platts.

Operating profit decreased 23%. Excluding the unfavorable impact of the gain on dispositions in 2016 of 37 percentage points, higher net legal settlement expenses in 2017 of 2 percentage points, higher employee severance charges in 2017 of 1 percentage point, a charge to exit leased facilities of 1 percentage point and non-cash acquisition and disposition-related adjustments in 2017 of 1 percentage point, partially offset by the favorable impact of higher disposition-related costs in 2016 of 1 percentage point, operating profit increased 18%. This increase was primarily due to revenue growth at Ratings and Indices as discussed above, partially offset by higher compensation costs due to increased incentive costs and additional headcount.

2016

Revenue increased 7% driven by increases at all of our reportable segments. Revenue growth at Market and Commodities Intelligence was favorably impacted by the acquisition of SNL in September of 2015 and annualized contract value growth primarily driven by the S&P Capital IQ Desktop, Global Risk Services and certain data feed products within Data Management Solutions. Continued demand for S&P Global Platts’ proprietary content also contributed to revenue growth. These increases were partially offset by the unfavorable impact from our dispositions in 2016. Revenue growth at Ratings was driven by an increase in U.S. bank loan ratings revenue, corporate bond ratings revenue and surveillance fees. Revenue growth at Indices was due to higher average levels of assets under management for ETFs and mutual funds, an increase in data revenue and higher volumes for exchange-traded derivatives.

Operating profit increased 76%. Excluding the favorable impact of the gain from our dispositions of 59 percentage points, higher net legal settlement insurance recoveries in 2016 of 3 percentage points, higher employee severance charges in 2015 of 3 percentage points and higher acquisition-related costs in 2015 of 2 percentage points, partially offset by the unfavorable impact of higher disposition-related costs of 3 percentage points, higher amortization of intangibles from acquisitions of 2 percentage points and a technology-related impairment charge of 1 percentage point, operating profit increased 15%. This increase was primarily driven by revenue growth as discussed above. Decreased costs at Ratings and our legacy Capital IQ business due to reduced headcount following our 2015 restructuring actions also contributed to operating profit growth.

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. In 2018, we will strive to deliver on our strategic priorities in the following four categories by:

Finance

•Achieving financial targets and creating shareholder value by focusing on organic revenue growth and continuing to deliver margin expansion with a focus on operating leverage and efficiency opportunities; and
•Outperforming traditional and nontraditional competitors.

Customer

•Delivering greater customer value through deeper client and market insights, innovative solutions, stronger internal teamwork and reliable, nimble Go-to-Market processes;
•Enriching and modernizing the user experience to improve customer loyalty;
•Identifying and executing transformative growth opportunities; and
•Accelerating investments and coordination in building new products and in developing new markets.

Operations

•Enhancing planning and software engineering processes to speed up the delivery of content and products;
•Applying lean management, robotics, automation and machine learning to streamline internal workflow and deliver productivity;
•Strengthening our Digital Infrastructure capabilities, with emphasis on workplace services and cybersecurity; and
•Upholding our commitment to a disciplined and practical risk, control and compliance environment.

People

•Creating a performance culture to drive innovation, flexibility and agility to address customer needs;
•Committing to leadership development programs and skills training;
•Embracing and expanding diversity and inclusion in our workforce; and
•Enhancing and augmenting technology talent and skills across the company.

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. See Item 1a, Risk Factors, in this Annual Report on Form 10-K.

Further projections and discussion on our 2018 outlook for our segments can be found within “ – Results of Operations”.

RESULTS OF OPERATIONS

Consolidated Review

(in millions)Year ended December 31,% Change
201720162015’17 vs ’16’16 vs ’15
Revenue$6,063$5,661$5,3137%7%
Expenses:
Operating-related expenses1,7131,7731,718(3)%3%
Selling and general expenses1,5601,4391,5328%(6)%
Depreciation and amortization180181157(1)%15%
Total expenses3,4533,3933,4072%—%
Gain on dispositions—(1,101)(11)N/MN/M
Operating profit2,6103,3691,917(23)%76%
Interest expense, net149181102(18)%77%
Provision for taxes on income823960547(14)%76%
Net income1,6382,2281,268(27)%76%
Less: net income attributable to noncontrolling interests(142)(122)(112)16%9%
Net income attributable to S&P Global Inc.$1,496$2,106$1,156(29)%82%

N/M - not meaningful

Revenue

(in millions)Year ended December 31,% Change
201720162015’17 vs ’16’16 vs ’15
Subscription / Non-transaction revenue$3,796$3,623$3,2605%11%
Asset-linked fees$461$381$36921%3%
Non-subscription / Transaction revenue$1,806$1,657$1,6849%(2)%
% of total revenue:
Subscription / Non-transaction revenue63%64%61%
Asset-linked fees7%7%7%
Non-subscription / Transaction revenue30%29%32%
U.S. revenue$3,658$3,461$3,2026%8%
International revenue:
European region1,4731,3301,26511%5%
Asia5945755663%2%
Rest of the world33829528014%6%
Total international revenue$2,405$2,200$2,1119%4%
% of total revenue:
U.S. revenue60%61%60%
International revenue40%39%40%

chart-c457d5189b585f54a88.jpg chart-7ca094db6c75511caed.jpg

2017

Revenue increased 7% as compared to 2016. Subscription / non-transaction revenue increased primarily from growth in S&P Global Market Intelligence's average contract values, continued demand for Platts’ proprietary content and an increase in surveillance fees at Ratings, partially offset by the unfavorable impact of the disposition of non-core businesses in 2016. Asset-linked fees increased due to the impact of higher levels of assets under management for ETFs and mutual funds. Non-subscription / transaction revenue increased primarily due to bank loan ratings revenue and corporate bond ratings revenue at Ratings, partially offset by the unfavorable impact of the disposition of non-core businesses in 2016. See “Segment Review” below for further information.

Foreign exchange rates had a negligible impact on revenue. 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.

2016

Revenue increased 7% as compared to 2015. Subscription / non-transaction revenue increased primarily from the favorable impact of the acquisition of SNL in September 2015, growth in average contract values for our legacy Capital IQ products driven by an expansion in new and existing accounts, continued demand for S&P Global Platts' proprietary content and an increase in surveillance fees at Ratings. Asset-linked fees increased due to higher levels of assets under management for ETFs and mutual funds. Non-subscription / transaction revenue decreased primarily due to the unfavorable impact of the sale of J.D. Power on September 7, 2016, partially offset by an increase in U.S. bank loan ratings revenue and corporate bond ratings revenue at Ratings and higher volumes for exchange traded derivatives at Indices. See " – Segment Review" below for further information.

Foreign exchange rates had a negligible impact on revenue. 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.

Total Expenses

The following tables provide an analysis by segment of our operating-related expenses and selling and general expenses for the years ended December 31, 2017 and 2016:

(in millions)20172016% Change
Operating- related expensesSelling and general expensesOperating- related expensesSelling and general expensesOperating- related expensesSelling and general expenses
Ratings 1$850$581$797$4427%32%
Market and Commodities Intelligence 2833699958774(13)%(10)%
Indices13911111610421%7%
Intersegment eliminations 3(109)—(98)—(12)%N/M
Total segments1,7131,3911,7731,320(3)%5%
Corporate 4—169—119N/M42%
$1,713$1,560$1,773$1,439(3)%8%

N/M - not meaningful

1In 2017, selling and general expenses include legal settlement expenses of $55 million and employee severance charges of $25 million. In 2016, selling and general expenses include a benefit related to net legal settlement insurance recoveries of $10 million and employee severance charges of $6 million.
2In 2017, selling and general expenses include non-cash acquisition and disposition-related adjustments of $15 million, employee severance charges of $9 million, a charge to exit a leased facility of $6 million, and an asset write-off of $2 million. In 2016, selling and general expenses include disposition-related costs of $48 million, a technology-related impairment charge of $24 million and acquisition-related costs of $1 million.
3Intersegment eliminations relate to a royalty charged to Market and Commodities Intelligence for the rights to use and distribute content and data developed by Ratings.
4In 2017, selling and general expenses include a charge to exit leased facilities of $19 million, employee severance charges of $10 million and a pension related charge of $8 million. In 2016, selling and general expenses include $3 million from a disposition-related reserve release.

Operating-Related Expenses

Operating-related expenses decreased $60 million or 3% as compared to 2016. The decrease at Market and Commodities Intelligence was due to the disposition of non-core businesses in 2016. This decrease was partially offset by increases at Ratings and Indices due to higher compensation costs related to increased incentive costs and additional headcount.

Selling and General Expenses

Selling and general expenses increased 8%. Excluding the unfavorable impact of higher net legal settlement expenses in 2017 of 4 percentage points, higher employee severance charges in 2017 of 3 percentage points, a charge to exit leased facilities in 2017 of 2 percentage points and non-cash acquisition and disposition related costs in 2017 of 1 percentage point, partially offset by the favorable impact of higher disposition-related costs in 2016 of 3 percentage points and a technology-related impairment charge in 2016 of 2 percentage points, selling and general expenses increased 3 percentage points. The increase is due to higher compensation costs related to incentives and additional headcount at Ratings and Indices and an increase at Corporate primarily due to performance related incentive compensation and Company-wide technology projects. This increase was partially offset by a decrease at Market and Commodities Intelligence as a result of business divestitures in 2016.

Depreciation and Amortization

Depreciation and amortization remained relatively unchanged as compared to 2016, decreasing $1 million or 1%.

The following tables provide an analysis by segment of our operating-related expenses and selling and general expenses for the years ended December 31, 2016 and 2015:

(in millions)20162015% Change
Operating- related expensesSelling and general expensesOperating- related expensesSelling and general expensesOperating- related expensesSelling and general expenses
Ratings 1$797$442$767$5414%(18)%
Market and Commodities Intelligence 29587749257694%1%
Indices116104114821%26%
Intersegment eliminations 3(98)—(88)—(10)%N/M
Total segments1,7731,3201,7181,3923%(5)%
Corporate 4—119—140N/M(15)%
$1,773$1,439$1,718$1,5323%(6)%

N/M - not meaningful

1In 2016, selling and general expenses include a benefit related to net legal settlement insurance recoveries of $10 million and employee severance charges of $6 million. In 2015, selling and general expenses include net legal settlement expenses of $54 million and employee severance charges $13 million.
2In 2016, selling and general expenses include disposition-related costs of $48 million, a technology-related impairment charge of $24 million and acquisition-related costs of $1 million. In 2015, selling and general expenses include acquisition-related costs related to the acquisition of SNL of $37 million and costs related to identified operating efficiencies primarily related to employee severance charges of $33 million.
3Intersegment eliminations relate to a royalty charged to Market and Commodities Intelligence for the rights to use and distribute content and data developed by Ratings.
4In 2016, selling and general expenses include $3 million from a disposition-related reserve release and 2015 includes costs related to identified operating efficiencies primarily related to employee severance charges of $10 million

Operating-Related Expenses

Operating-related expenses increased $55 million or 3% as compared to 2015. The increase at Market and Commodities Intelligence was primarily driven by the acquisition of SNL in September of 2015, partially offset by decreases from our dispositions in 2016. The increase at Ratings and Indices were due to higher compensation costs related to additional headcount and increased incentive costs.

Selling and General Expenses

Selling and general expenses decreased 6%. Excluding the favorable impact of higher net legal settlement insurance recoveries in 2016 of 4 percentage points, higher employee severance charges in 2015 of 3 percentage points, higher acquisition-related costs in 2015 of 2 percentage points, partially offset by the unfavorable impact of disposition-related costs of 3 percentage points and a technology-related impairment charge of 1 percentage point, selling and general expenses decreased 1%. Decreases at Ratings were driven by reduced professional fees following the completion of the Company's program for the 2015 implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and reduced legal fees following the resolution of a number of significant legal matters. This decrease was partially offset by an increase at Market and Commodities Intelligence driven by the acquisition of SNL in September of 2015, partially offset by decreases from our dispositions in 2016.

Depreciation and Amortization

Depreciation and amortization increased $24 million or 15% as compared to 2015, primarily due to higher intangible asset amortization in 2016 from the acquisition of SNL in September of 2015.

Gain on Dispositions

During 2016, we completed the following transactions that resulted in a pre-tax gain of $1.1 billion in gain on dispositions in the consolidated statement of income:

•In October of 2016, we completed the sale of SPSE and CMA for $425 million in cash to Intercontinental Exchange, an operator of global exchanges, clearing houses and data services. We recorded a pre-tax gain of $364 million in gain on dispositions in the consolidated statement of income related to the sale of SPSE and CMA. Additionally, in October of 2016, we completed the sale of Equity and Fund Research ("Equity Research") to CFRA, a leading independent provider

of forensic accounting research, analytics and advisory services. During the year ended December 31, 2016, we recorded a pre-tax gain of $9 million in gain on dispositions in the consolidated statement of income related to the sale of Equity Research.

•In September of 2016, we completed the sale of J.D. Power for $1.1 billion to XIO Group, a global alternative investments firm headquartered in London. We recorded a pre-tax gain of $728 million in gain on dispositions in the consolidated statement of income related to the sale of J.D. Power.

During 2015, we completed the sale of our interest in a legacy McGraw Hill Construction investment that resulted in a pre-tax gain of $11 million in gain on dispositions in the consolidated statement of income.

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 segments contribution to operating profit. Segment operating profit is defined as operating profit before unallocated expense. 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:

(in millions)Year ended December 31,% Change
201720162015’17 vs ’16’16 vs ’15
Ratings 1$1,524$1,262$1,07821%17%
Market and Commodities Intelligence 27931,822585(56)%N/M
Indices 347141239214%5%
Total segment operating profit2,7883,4962,055(20)%70%
Unallocated expense 4(178)(127)(138)40%(8)%
Total operating profit$2,610$3,369$1,917(23)%76%

N/M - not meaningful

12017 includes legal settlement expenses of $55 million and employee severance charges of $25 million. 2016 includes a benefit related to net legal settlement insurance recoveries of $10 million and employee severance charges of $6 million. 2015 includes net legal settlement expenses of $54 million and employee severance charges of $13 million. 2017, 2016 and 2015 also includes amortization of intangibles from acquisitions of $4 million, $5 million and $5 million, respectively.
22017 includes non-cash acquisition and disposition-related adjustments of $15 million, employee severance charges of $9 million, a charge to exit a leased facility of $6 million, and an asset write-off of $2 million. 2016 includes a $1.1 billion gain from our dispositions, disposition-related costs of $48 million, a technology-related impairment charge of $24 million and an acquisition-related cost of $1 million. 2015 includes acquisition-related costs related to the acquisition of SNL of $37 million and costs identified operating efficiencies primarily related to employee severance charges of $33 million. 2017, 2016 and 2015 includes amortization of intangibles from acquisitions of $87 million, $85 million and $57 million, respectively.
32017, 2016 and 2015 includes amortization of intangibles from acquisitions of $7 million, $6 million and $5 million, respectively.
42017 includes a charge to exit leased facilities of $19 million, employee severance charges of $10 million and a pension related charge of $8 million. 2016 includes $3 million from a disposition-related reserve release. 2015 includes a gain of $11 million related to the sale of our interest in a legacy McGraw Hill Construction investment and costs related to identified operating efficiencies primarily related to employee severance charges of $10 million.

2017

Segment Operating Profit — Decreased $0.7 billion, or 20% as compared to 2016. Excluding the unfavorable impact of the gain on dispositions in 2016 of 36 percentage points, higher net legal settlement expenses in 2017 of 2 percentage points, higher employee severance charges in 2017 of 1 percentage point and non-cash acquisition and disposition-related adjustments in 2017 of 1 percentage point, partially offset by the favorable impact of higher disposition-related costs in 2016 of 2 percentage points and a technology-related impairment charge in 2016 of 1 percentage point, segment operating profit increased 17%. This increase

was primarily due to revenue growth at Ratings and Indices as discussed above, partially offset by higher compensation costs due to additional increased incentive costs and additional headcount. See “ – Segment Review” below for further information.

Unallocated Expense — Increased by $51 million or 40% as compared to 2016. These expenses, included in selling and general expenses, mainly include costs for corporate center functions, select initiatives and unoccupied office space. Excluding the unfavorable impact of a charge to exit leased facilities in 2017 of 14 percentage points, a pension related charge in 2017 of 7 percentage points, employee severance charges in 2017 of 8 percentage points and a disposition-related reserve release in 2016 of 2 percentage points, unallocated expense increased 9%. This increase was primarily due to performance related incentive compensation and Company-wide technology projects.

Foreign exchange rates had a favorable impact on operating profit of 1 percentage point. The foreign exchange rate impact refers to constant currency comparisons and the remeasurement of monetary assets and liabilities. Constant currency impacts are estimated by recalculating 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 monetary assets and liabilities denominated in currencies other than the individual business' functional currency.

2016

Segment Operating Profit — Increased $1.4 billion, or 70% as compared to 2015. Excluding the favorable impact of the gain from our dispositions of 55 percentage points, higher net legal settlement insurance recoveries in 2016 of 3 percentage points, higher acquisition-related costs in 2015 of 2 percentage points, higher employee severance charges in 2015 of 2 percentage points, partially offset by the unfavorable impact of a technology-related impairment charge of 1 percentage point, higher amortization of intangibles from acquisitions of 2 percentage points and higher disposition-related costs of 2 percentage points, segment operating profit increased 13%. Revenue growth at Market and Commodities Intelligence, Ratings and Indices were the primary drivers for the increase. Decreased costs at Ratings and our legacy Capital IQ business due to reduced headcount following our 2015 restructuring actions also contributed to segment operating profit growth. See “ – Segment Review” below for further information.

Unallocated Expense — Decreased by $11 million or 8% as compared to 2015. These expenses, included in selling and general expenses, mainly include costs for corporate center functions, select initiatives and unoccupied office space. Excluding the unfavorable impact of a gain on the sale of our interest in a legacy McGraw Hill Construction investment in 2015 of 8 percentage points, partially offset by the favorable impact of a disposition-related reserve release of 2 percentage points and higher employee severance charges in 2015 of 7 percentage points, unallocated expense decreased 7% due to higher 2016 pension income as well as a reduction in professional service fees.

Foreign exchange rates had a favorable impact on operating profit of 2 percentage points. The foreign exchange rate impact refers to constant currency comparisons and the remeasurement of monetary assets and liabilities. Constant currency impacts are estimated by recalculating 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 monetary assets and liabilities denominated in currencies other than the individual business' functional currency.

Interest Expense, net

Net interest expense for 2017 decreased $32 million or 18% as compared to 2016, primarily as a result of the favorable impact of lower interest rates on the $500 million of senior notes issued in 2016 compared to the $400 million senior notes that were repaid in the third quarter of 2016.

Net interest expense for 2016 increased $79 million or 77% as compared to 2015, primarily as a result of the $700 million of senior notes issued in the second quarter of 2015, the $2.0 billion of senior notes issued in the third quarter of 2015 and the $500 million of senior notes issued in the third quarter of 2016. Additionally, net interest expense in 2016 includes a redemption fee on the early payment of our 5.9% senior notes due in 2017. These increases were partially offset by the favorable impact of lower interest rates on the $500 million of senior notes issued in the third quarter of 2016.

Provision for 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. As a result of the TCJA, a provisional amount of $149 million has been recorded which reflects a one-time tax charge of approximately $173 million on the deemed repatriation of foreign earnings

and a one-time tax benefit of approximately $24 million in respect of the re-valuation of net U.S. deferred tax liabilities at the reduced corporate income tax rate. While the TCJA reduced net income in 2017, the Company is anticipating an ongoing future benefit from the lower corporate income tax rate.

Our effective tax rate was 33.4% for 2017, and 30.1% for 2016 and 2015. The increase in 2017 was primarily due to the one-time tax charge for the deemed repatriation of foreign earnings, net of the recognition of excess tax benefits associated with share-based payments in the statement of income and the re-valuation of net U.S. deferred tax liabilities at the reduced corporate income tax rate.

The Company is continuously subject to tax examinations in various jurisdictions. In May 2017, the IRS issued a 30-Day Letter proposing to increase the Company’s federal income tax for the 2015 tax year by approximately $242 million. The proposed increase relates primarily to the IRS’s proposed disallowance of claimed tax deductions for certain amounts paid in 2015 to settle lawsuits by nineteen states and the District of Columbia. We vigorously disagree with the proposed adjustment and have filed a formal protest with the IRS to contest the matter before the IRS Appeals Office. This development does not materially change our initial assessment of the deductibility of our settlement payments.

Segment Review

Ratings

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

Ratings differentiates its revenue between transaction and non-transaction. Transaction revenue primarily includes fees associated with:

•ratings related to new issuance of corporate and government debt instruments, and structured finance debt instruments;
•bank loan ratings; and
•corporate credit estimates, which are intended, based on an abbreviated analysis, to provide an indication of our opinion regarding creditworthiness of a company which does not currently have a Ratings credit rating.

Non-transaction revenue primarily includes fees for surveillance of a credit rating, annual fees for customer relationship-based pricing programs, fees for entity credit ratings and global research and analytics. Non-transaction revenue also includes an intersegment royalty charged to Market and Commodities Intelligence for the rights to use and distribute content and data developed by Ratings. Royalty revenue from Market and Commodities Intelligence for 2017, 2016 and 2015 was $100 million, $92 million and $83 million, respectively.

(in millions)Year ended December 31,% Change
201720162015’17 vs ’16’16 vs ’15
Revenue$2,988$2,535$2,42818%4%
Transaction revenue$1,540$1,178$1,10731%6%
Non-transaction revenue$1,448$1,357$1,3217%3%
% of total revenue:
Transaction revenue52%46%46%
Non-transaction revenue48%54%54%
U.S. revenue$1,716$1,462$1,39017%5%
International revenue$1,272$1,073$1,03819%3%
% of total revenue:
U.S. revenue57%58%57%
International revenue43%42%43%
Operating profit 1$1,524$1,262$1,07821%17%
% Operating margin51%50%44%
12017 includes legal settlement expenses of $55 million and employee severance charges of $25 million. 2016 includes a benefit related to net legal settlement insurance recoveries of $10 million and employee severance charges of $6 million. 2015 includes net legal settlement expenses of $54 million and employee severance charges of $13 million. 2017, 2016 and 2015 also includes amortization of intangibles from acquisitions of $4 million, $5 million and $5 million, respectively.

2017

Revenue increased 18%. Transaction revenue grew primarily due to growth in bank loan ratings revenue in the U.S. and Europe and an increase in corporate bond ratings revenue driven by an increase in corporate bond issuance. The increase in bank loan ratings revenue was driven by refinancing activity from the low interest rate environment. The increase in structured finance revenue driven by increased U.S. collateralized loan obligations and U.S. commercial mortgage-backed securities issuance also contributed to revenue growth. These increases were partially offset by a decline in public finance revenue driven by lower state and municipal bond issuance. Non-transaction revenue grew primarily due to an increase in surveillance fees and higher entity credit ratings revenue.

Operating profit increased 21%. Excluding the unfavorable impact of higher net legal settlement expenses in 2017 of 5 percentage points and higher employee severance charges in 2017 of 1 percentage point, operating profit increased 27%. This increase is primarily due to revenue growth, partially offset by higher compensation costs related to increased incentive costs and additional headcount. A reduction in legal fees and professional service fees also had a favorable impact on operating profit growth.

2016

Revenue increased 4%, which includes the unfavorable impact of foreign exchange rates that reduced revenue by 1 percentage point. Transaction revenue increased due to growth in U.S. bank loan ratings revenue and an increase in corporate bond ratings revenue largely driven by refinancing activity from the low interest rate environment, partially offset by a decrease in structured finance revenue. Revenue growth benefited from increased contract realization. Non-transaction revenue grew primarily due to an increase in surveillance fees, partially offset by a decline in Ratings Evaluation Service activity.

Operating profit increased 17%. Excluding the favorable impact of higher net legal settlement insurance recoveries in 2016 of 6 percentage points and lower employee severance charges in 2016 of 1 percentage point, operating profit increased 10%. The increase is due to both revenue growth and expense reduction. Reduced expenses were primarily driven by reduced professional fees following the completion of the Company's program for the 2015 implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and reduced legal fees following the resolution of a number of significant legal matters. These decreases were partially offset by higher compensation costs related to increased incentive costs and additional headcount. Foreign exchange rates had a favorable impact on operating profit of 1 percentage point.

Market Issuance Volumes

We monitor market issuance volumes regularly within Ratings. Market issuance volumes noted within the discussion that follows are based on the domicile of the issuer. Issuance volumes can be reported in two ways: by “domicile” which is based on where an issuer is located or where the assets associated with an issue are located, or based on “marketplace” which is where the bonds are sold. The following tables depict changes in market issuance levels as compared to the prior year, based on a composite of Thomson Financial, Harrison Scott Publications, Dealogic and Ratings' internal estimates.

2017 Compared to 2016
Corporate Bond IssuanceU.S.EuropeGlobal
High-yield issuance24%63%53%
Investment grade8%(2)%1%
Total new issue dollars — Corporate issuance10%5%6%
•Corporate issuance in the U.S. and Europe was up as a result of more favorable market conditions primarily due to tightening credit spreads and some issuers that went to market in advance of expected interest rate increases. Both high-yield and investment grade issuance comparisons also benefited from weakness in 2016 due to market volatility and political and economic uncertainty in the European markets.
2017 Compared to 2016
Structured FinanceU.S.EuropeGlobal
Asset-backed securities (“ABS”)12%(12)%7%
Structured credit87%74%85%
Commercial mortgage-backed securities (“CMBS”)20%(5)%19%
Residential mortgage-backed securities (“RMBS”)46%(34)%3%
Covered bonds*9%—%
Total new issue dollars — Structured finance36%2%18%
  • Represents no activity in 2017 and 2016.
•ABS issuance was up in the U.S. driven by an increase in auto transactions, commercial real estate loans and student loans. European ABS declined due to key auto issuers completing financing in the unsecured debt market.
•Issuance was up in the U.S. and European structured credit markets driven by increased collateralized loan obligations ("CLO") refinancing engagements primarily due to overall market conditions.
•CMBS issuance was up in the U.S. reflecting increased market volume due to a low interest rate environment and favorable reaction to the new risk retention rules. European CMBS issuance was down, although from a low 2016 base.
•RMBS volume in the U.S. was up driven primarily by favorable reaction to the new risk retention rules and favorable market conditions leading to increased activity in single family rentals, credit risk transfers, and non-qualified mortgage deals. EMEA issuance declined as central bank liquidity schemes provided other opportunities for funding sources.
•Covered bond (debt securities backed by mortgages or other high-quality assets that remain on the issuer's balance sheet) issuance in Europe was up partially due to the impact from the European Central Bank's covered bond asset purchase program.

Industry Highlights and Outlook

Revenue increased in 2017 primarily due to an increase in bank loan ratings and corporate bond ratings revenue driven by refinancing activity from the low interest rate environment. High-yield and investment grade corporate issuance volumes increased as a result of more favorable market conditions primarily due to tightening credit spreads and some issuers that went to market in advance of expected interest rate increases.

Legal and Regulatory Environment

General

Ratings and many of the securities that it rates are subject to extensive regulation in both the U.S. and in other countries, and therefore existing and proposed laws and regulations can impact the Company’s operations and the markets in which it operates. Additional laws and regulations have been adopted but not yet implemented or have been proposed or are being considered. In addition, in certain countries, governments may provide financial or other support to locally-based rating agencies. For example, governments may from time to time establish official rating agencies or credit ratings criteria or procedures for evaluating local issuers. We have reviewed the new laws, regulations and rules which have been adopted and we have implemented, or are planning to implement, changes as required. We do not believe that such new laws, regulations or rules will have a material adverse effect on our financial condition or results of operations. Other laws, regulations and rules relating to credit rating agencies are being considered by local, national, foreign and multinational bodies and are likely to continue to be considered in the future, including provisions seeking to reduce regulatory and investor reliance on credit ratings, rotation of credit rating agencies and liability standards applicable to credit rating agencies. The impact on us of the adoption of any such laws, regulations or rules remains uncertain, but could increase the costs and legal risks relating to Ratings’ rating activities, or adversely affect our ability to compete, or result in changes in the demand for credit ratings.

In the normal course of business both in the U.S. and abroad, Ratings (or the legal entities comprising Ratings) are defendants in numerous 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 Ratings and are or have been brought by purchasers of rated securities. In addition, various government and self-regulatory agencies frequently make inquiries and conduct investigations into Ratings’ compliance with applicable laws and regulations. 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.

U.S.

The businesses conducted by our Ratings segment are, in certain cases, regulated under the Credit Rating Agency Reform Act of 2006 (the “Reform Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”), the Securities Exchange Act of 1934 (the “Exchange Act”) and/or the laws of the states or other jurisdictions in which they conduct business. The financial services industry is subject to the potential for increased regulation in the U.S.

S&P Global Ratings is a credit rating agency that is registered with the SEC as a Nationally Recognized Statistical Rating Organization (“NRSRO”). The SEC first began informally designating NRSROs in 1975 for use of their credit ratings in the determination of capital charges for registered brokers and dealers under the SEC’s Net Capital Rule. The Reform Act created a new SEC registration system for rating agencies that choose to register as NRSROs. Under the Reform Act, the SEC is given authority and oversight of NRSROs and can censure NRSROs, revoke their registration or limit or suspend their registration in certain cases. The rules implemented by the SEC pursuant to the Reform Act, the Dodd Frank Act and the Exchange Act address, among other things, prevention or misuse of material non-public information, conflicts of interest, documentation and assessment of internal controls, and improving transparency of ratings performance and methodologies. The public portions of the current version of S&P Global Ratings’ Form NRSRO are available on S&P Global Ratings’ website.

European Union

In the European Union, the credit rating industry is registered and supervised through a pan-European regulatory framework which is a compilation of three sets of legislative actions. In 2009, the European Parliament passed a regulation (“CRA1”) that established an oversight regime for the credit rating industry in the European Union, which became effective in 2010. CRA1 requires the registration, formal regulation and periodic inspection of credit rating agencies operating in the European Union. Ratings was granted registration in October of 2011. In January of 2011, the European Union established the European Securities and Markets Authority (“ESMA”), which, among other things, has direct supervisory responsibility for the registered credit rating industry throughout the European Union.

Additional rules augmenting the supervisory framework for credit rating agencies went into effect in 2013. Commonly referred to as CRA3, these rules, among other things:

•impose various additional procedural requirements with respect to ratings of sovereign issuers;
•require member states to adopt laws imposing liability on credit rating agencies for an intentional or grossly negligent failure to abide by the applicable regulations;
•impose mandatory rotation requirements on credit rating agencies hired by issuers of securities for ratings of resecuritizations, which may limit the number of years a credit rating agency can issue ratings for such securities of a particular issuer;
•impose restrictions on credit rating agencies or their shareholders if certain ownership thresholds are crossed; and
•impose additional procedural and substantive requirements on the pricing of services.

The financial services industry is subject to the potential for increased regulation in the European Union.

Other Jurisdictions

Outside of the U.S. and the European Union, regulators and government officials have also been implementing formal oversight of credit rating agencies. Ratings is subject to regulations in most of the foreign jurisdictions in which it operates and continues to work closely with regulators globally to promote the global consistency of regulatory requirements. Regulators in additional countries may introduce new regulations in the future.

For a further discussion of competitive and other risks inherent in our Ratings business, see Item 1a, Risk Factors, in this Annual Report on Form 10-K. For a further discussion of the legal and regulatory environment in our Ratings business, see Note 13 - Commitments and Contingencies to the consolidated financial statements under Item 8, Consolidated Financial Statements and Supplementary Data, in this Annual Report on Form 10-K.

Market and Commodities Intelligence

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

In December of 2017, we announced that S&P Global Platts, a business line within Market and Commodities Intelligence, will be managed as a separate business and comprise a separate reportable segment effective January 1, 2018. We will begin reporting the financial results of S&P Global Market Intelligence and S&P Global Platts as separate reportable segments beginning with the first quarter of 2018.

In January of 2017, we completed the sale of Quant House SAS ("QuantHouse"), included in our Market and Commodities Intelligence segment, to QH Holdco, an independent third party. In November of 2016, we entered into a put option agreement that gave the Company the right, but not the obligation, to put the entire share capital of QuantHouse to QH Holdco. As a result, we classified the assets and liabilities of QuantHouse, net of our costs to sell, as held for sale, which is included in prepaid and other current assets and other current liabilities, respectively, in our consolidated balance sheet as of December 31, 2016 resulting in an aggregate loss of $31 million. On January 4, 2017, we exercised the put option, thereby entering into a definitive agreement to sell QuantHouse to QH Holdco. On January 9, 2017, we completed the sale of QuantHouse to QH Holdco.

In October of 2016, we completed the sale of SPSE and CMA for $425 million in cash to Intercontinental Exchange, an operator of global exchanges, clearing houses and data services. During the year ended December 31, 2016, we recorded a pre-tax gain of $364 million ($297 million after-tax) in gain on dispositions in the consolidated statement of income related to the sale of SPSE and CMA. Additionally, in October of 2016, we completed the sale of Equity Research, a business within our Market and Commodities Intelligence segment to CFRA, a leading independent provider of forensic accounting research, analytics and advisory services. During the year ended December 31, 2016, we recorded a pre-tax gain of $9 million ($5 million after-tax) in gain on dispositions in the consolidated statement of income related to the sale of Equity Research.

In September of 2016, we completed the sale of J.D. Power for $1.1 billion to XIO Group, a global alternative investments firm headquartered in London. During the year ended December 31, 2016, we recorded a pre-tax gain of $728 million ($516 million after-tax) in gain on dispositions in the consolidated statement of income related to the sale of J.D. Power.

Market and Commodities Intelligence includes the following business lines:

•Desktop — a product suite that provides data, analytics and third-party research for global finance professionals, which includes the Market Intelligence Desktop (which are inclusive of S&P Capital IQ and SNL Desktop products);
•Data Management Solutions — integrated data feeds and application programming interfaces that can be customized, which includes Computstat, GICS, Point In Time Financials and CUSIP;
•Risk Services — commercial arm that sells Ratings' credit ratings and related data, analytics and research, which includes subscription-based offerings, RatingsDirect® and RatingsXpress®; and
•S&P Global Platts — the leading independent provider of information and benchmark prices for the commodity and energy markets. S&P Global Platts provides essential price data, analytics, and industry insight that enable the commodities and

energy markets to perform with greater transparency and efficiency. Additionally, S&P Global Platts generates revenue from licensing of our proprietary market price data and price assessments to commodity exchanges.

We completed the sale of J.D. Power on September 7, 2016, with the results included in Market and Commodities Intelligence results through that date.

(in millions)Year ended December 31,% Change
201720162015’17 vs ’16’16 vs ’15
Revenue$2,452$2,585$2,376(5)%9%
Subscription revenue$2,317$2,231$1,9114%17%
Non-subscription revenue$135$354$465(62)%(24)%
% of total revenue:
Subscription revenue95%86%80%
Non-subscription revenue5%14%20%
U.S. revenue$1,396$1,523$1,368(8)%11%
International revenue$1,056$1,062$1,008(1)%6%
% of total revenue:
U.S. revenue57%59%58%
International revenue43%41%42%
Operating profit 1$793$1,822$585(56)%212%
% Operating margin32%70%25%
12017 includes non-cash acquisition and disposition-related adjustments of $15 million, employee severance charges of $9 million, a charge to exit a leased facility of $6 million, and an asset write-off of $2 million. 2016 includes a $1.1 billion gain from our dispositions, disposition-related costs of $48 million, a technology-related impairment charge of $24 million and an acquisition-related cost of $1 million. 2015 includes acquisition-related costs related to the acquisition of SNL of $37 million and costs identified operating efficiencies primarily related to employee severance charges of $33 million. 2017, 2016 and 2015 includes amortization of intangibles from acquisitions of $87 million, $85 million and $57 million, respectively.

2017

Revenue decreased 5% and was unfavorably impacted by 13 percentage points from the net impact of acquisitions and dispositions. Excluding these acquisitions and dispositions, revenue increased primarily driven by growth in annualized contract values in the Market Intelligence Desktop products, RatingsXpress® and RatingsDirect® from new and existing customers. The number of users and customers continued to grow for each of these products in 2017. Increases in annualized contract value for certain of our data feed products within Data Management Solutions also contributed to revenue growth. Additionally, strength in S&P Global Platts' proprietary content due to continued demand for market data and price assessment products across all commodity sectors, led by petroleum, contributed to revenue growth. Both domestic and international revenue decreased due to the unfavorable impact of the dispositions discussed below. In 2017, international revenue represented 43% of Market and Commodities Intelligence's total revenue compared to 41% in 2016. Revenue was favorably impacted by the acquisitions of RigData and PIRA in June of 2016 and September of 2016, respectively. Revenue was unfavorably impacted by the dispositions of J.D. Power in September of 2016, SPSE and CMA in October of 2016, Equity Fund Research in October of 2016 and QuantHouse in January of 2017. See Note 2 — Acquisitions and Divestitures for further discussion.

Operating profit decreased 56%. Excluding the unfavorable impact of the gain on dispositions in 2016 of 62 percentage points, non-cash acquisition and disposition-related adjustments in 2017 of 1 percentage point, partially offset by the favorable impact of disposition-related costs in 2016 of 2 percentage points and a technology-related impairment charge in 2016 of 1 percentage point, operating profit increased 4%. The increase is due to margin improvement from existing businesses, partially offset by the unfavorable impact of the dispositions discussed above.

2016

Revenue increased 9% and was favorably impacted by 1 percentage point of growth from the net impact of acquisitions and dispositions discussed below. Revenue growth was also driven by increases in annualized contract values in the S&P Capital IQ Desktop, RatingsXpress® and RatingsDirect® from new and existing customers. The number of users on the S&P Capital IQ Desktop and the number of customers at RatingsXpress® continued to grow in 2016. Increases in annualized contract value for certain of our data feed products within Data Management Solutions also contributed to revenue growth. Additionally, strength in S&P Global Platts' proprietary content due to continued demand for S&P Global Platts’ market data and price assessment products across all commodity sectors, led by petroleum, and continued licensing of our proprietary market price data and price assessments to various commodity exchanges contributed to revenue growth. Both domestic and international revenue increased, with international revenue representing 41% of Market and Commodities Intelligence's total revenue. Revenue was favorably impacted by the acquisitions of SNL, PIRA, RigData and Petromedia Ltd, partially offset by the unfavorable impact of the dispositions of J.D. Power, SPSE and CMA and Equity Research. See Note 2 — Acquisitions and Divestitures for further discussion.

Operating profit increased 212%. Excluding the favorable impact from the gain on dispositions of 194 percentage points, the favorable impact of higher acquisition-related costs in 2015 of 6 percentage points and higher employee severance charges in 2015 of 6 percentage points, partially offset by the unfavorable impact of higher disposition-related costs of 9 percentage points, higher amortization of intangibles from acquisitions of 5 percentage points and a technology-related impairment charge of 4 percentage points, operating profit increased 24%. This increase is due to revenue growth and the favorable impact of foreign exchange rates of 5 percentage points, partially offset by higher compensation costs and increased technology costs primarily as a result of the acquisition of SNL in September of 2015.

Industry Highlights and Outlook

In 2017, Market and Commodities Intelligence continued to benefit from organic revenue growth and SNL integration synergies. The segment also launched a beta version of the new Market Intelligence platform in 2017. Additionally, the segment integrated and leveraged recent acquisitions to develop and expand its analytical capabilities and offerings.

In 2018, both Market Intelligence and S&P Global Platts will continue to enhance its product offerings, pursue growth in new markets and geographies, and develop its analytical capabilities.

Legal and Regulatory Environment

Market Intelligence

The financial services industry is subject to the potential for increased regulation in the U.S. and abroad. Market Intelligence operates investment advisory businesses that are regulated in the U.S. under the U.S. Investment Advisers Act of 1940 (the “Investment Advisers Act”) and/or the laws of the states or other jurisdictions in which they conduct business.

Market Intelligence operates a business that is authorized and regulated in the United Kingdom by the Financial Conduct Authority (the “FCA”). As such, this business is authorized to arrange and advise on investments, and is also entitled to exercise a passport right to provide specified cross border services into other European Economic Area (“EEA”) States, and is to the conditions under the E.U. Markets in Financial Instruments Directive (“MiFID”).

The markets for research and investment advisory services are very competitive. Market Intelligence competes domestically and internationally on the basis of a number of factors, including the quality of its research and advisory services, client service, reputation, price, geographic scope, range of products and services, and technological innovation. For a further discussion of competitive and other risks inherent in our Market Intelligence business, see Item 1a, Risk Factors, in this Annual Report on Form 10-K.

S&P Global Platts

S&P Global Platts’ commodities price assessment and information business is subject to increasing regulatory scrutiny in the U.S. and abroad. As discussed below under the heading “Indices-Legal and Regulatory Environment”, the financial benchmarks industry is subject to the new pending benchmark regulation in the European Union (the “E.U. Benchmark Regulation”) as well as potential increased regulation in other jurisdictions. As a result of these measures, as well as measures that could be taken in other jurisdictions outside of Europe, S&P Global Platts will be required in due course to obtain registration or authorization in connection with its benchmark and price assessment activities in Europe and potentially elsewhere.

The European Union has finalized a package of legislative measures known as MiFID II ("MiFID II"), which revise and update the existing E.U. Markets in Financial Instruments Directive framework entered into force on July 2, 2014, and the substantive

provisions apply in all E.U. Member States as of January 3, 2018. MiFID II includes provisions that, among other things: (i) impose new conditions and requirements on the licensing of benchmarks and provide for non-discriminatory access to exchanges and clearing houses; (ii) modify the categorization and treatment of certain classes of derivatives; (iii) expand the categories of trading venue that are subject to regulation; (iv) require the unbundling of investment research and direct how asset managers pay for research either out of a research payment account or from a firm’s profits; and (v) provide for the mandatory trading of certain derivatives on exchanges (complementing the mandatory derivative clearing requirements in the E.U. Market Infrastructure Regulation of 2011). Although the MiFID II package is “framework” legislation (meaning that much of the detail of the rules will be set out in subordinate measures, including some technical standards yet to be adopted by the European Commission. The introduction of the MiFID II package may result in changes to the manner in which Platts licenses its price assessments. MiFID II and the Market Abuse Regulation (“MAR”) may impose additional regulatory burdens on Platts’s activities in the European Union, although the exact impact and costs are not yet known.

In October of 2012, IOSCO issued its PRA Principles which set out principles, which are intended to enhance the reliability of oil price assessments referenced in derivative contracts subject to regulation by IOSCO members. S&P Global Platts has taken steps to align its operations with the PRA Principles and as recommended by IOSCO in its final report on the PRA Principles, has aligned to the PRA Principles for other commodities for which it publishes benchmarks.

The markets for commodities price assessments and information are very competitive. S&P Global Platts competes domestically and internationally on the basis of a number of factors, including the quality of its assessments and other information it provides to the commodities and related markets, client service, reputation, price, range of products and services (including geographic coverage) and technological innovation. Furthermore, sustained downward pressure on oil and other commodities prices and trading activity in those markets could have a material adverse impact on the rate of growth of S&P Global Platts’ revenue. For a further discussion of competitive and other risks inherent in our Platts business, see Item 1a, Risk Factors, in this Annual Report on Form 10-K.

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 transaction revenue. Specifically, Indices generates revenue from the following sources:

•Investment vehicles — asset-linked fees such as ETFs and mutual funds, that are based on the S&P Dow Jones Indices' benchmarks and generate revenue through fees based on assets and underlying funds;
•Exchange traded derivatives — generate royalties based on trading volumes of derivatives contracts listed on various exchanges;
•Index-related licensing fees — fixed or variable annual and per-issue fees for over-the-counter derivatives and retail-structured products; and
•Data and customized index subscription fees — fees from supporting index fund management, portfolio analytics and research.
(in millions)Year ended December 31,% Change
201720162015’17 vs ’16’16 vs ’15
Revenue$733$639$59715%7%
Asset-linked fees$461$381$36921%3%
Subscription revenue$141$133$1166%14%
Transaction revenue$131$125$1125%11%
% of total revenue:
Asset-linked fees63%60%62%
Subscription revenue19%21%19%
Transaction revenue18%19%19%
U.S. revenue$603$525$48815%8%
International revenue$130$114$10914%5%
% of total revenue:
U.S. revenue82%82%82%
International revenue18%18%18%
Operating profit 1$471$412$39214%5%
Less: net income attributable to noncontrolling interests$127$109$10116%8%
Net operating profit$344$303$29114%4%
% Operating margin64%64%66%
% Net operating margin47%47%49%
12017, 2016 and 2015 includes amortization of intangibles from acquisitions of $7 million, $6 million and $5 million, respectively.

2017

Revenue at Indices increased 15%, primarily driven by higher average levels of assets under management ("AUM") for ETFs and mutual funds. Revenue growth was favorably impacted by 1 percentage point from the acquisition of Trucost plc ("Trucost") in October of 2016. See Note 2 — Acquisitions and Divestitures for further discussion. Ending AUM for ETFs increased 31% to $1.343 trillion and average AUM for ETFs increased 34% to $1.167 trillion compared to 2016.

Operating profit grew 14%. The impact of revenue growth was partially offset by higher compensation costs and increased operating costs to support revenue growth and business initiatives at Indices. Higher compensation costs related to increased incentive costs and additional headcount partially related to the acquisition of Trucost.

2016

Revenue at Indices increased 7%, primarily driven by higher average levels of AUM for ETFs and mutual funds, an increase in data revenue and higher volumes for exchange-traded derivatives. Revenue growth was favorably impacted by less than one percentage point from the acquisition of Trucost. Ending AUM for ETFs increased 25% to $1.023 trillion and average AUM for ETFs increased 8% to $869 billion compared to 2015. Higher average levels of AUM for ETFs contributed to revenue growth primarily driven by the flow of investment funds to the U.S. equity markets in the second half of the year.

Operating profit grew 5%. Revenue growth was partially offset by higher compensation costs primarily driven by additional headcount related to the acquisition of Trucost, increased incentive costs and increased operating costs to support revenue growth and business initiatives at Indices.

Industry Highlights and Outlook

Indices continues to be the leading index provider for the ETF market space. In 2017, higher average levels of AUM for ETFs contributed to revenue growth. In 2017, Indices focused on continued Index innovation and growing international partnerships. In 2018, Indices will continue to pursue opportunities for innovation and seek to grow international partnerships.

Legal and Regulatory Environment

The financial benchmarks industry is subject to the new pending benchmark regulation in the European Union (the “E.U. Benchmark Regulation”) as well as potential increased regulation in other jurisdictions.

The E.U. Benchmark Regulation was published June 30, 2016 and included provisions applicable to Indices and Platts, which will become effective January 1, 2018. The E.U. Benchmark Regulation requires Indices and Platts in due course to obtain registration or authorization in connection with their respective benchmark activities in Europe. This legislation will likely cause additional operating obligations but they are not expected to be material at this time, although the exact impact remains unclear.

As discussed above under the heading “S&P Global Platts Legal and Regulatory Envioronment”, the European Union has finalized a package of legislative measures known as MiFID II The introduction of the MiFID II package may result in changes to the manner in which S&P Dow Jones Indices licenses its indices. MiFID II and the Market Abuse Regulation (“MAR”) may impose additional regulatory burdens on S&P Dow Jones Indices activities in the European Union, although the exact impact and costs are not yet known.

In July of 2013, the International Organization of Securities Commissions (“IOSCO”) issued Financial Benchmark Principles, intended to promote the reliability of benchmark determinations, and address governance, benchmark quality and accountability mechanisms, including with regard to the indices published by Indices. Even though the Financial Benchmark Principles are not binding law, Indices has taken steps to align its governance regime and operations with the Financial Benchmark Principles and engaged an independent auditor to perform a reasonable assurance review of such alignment.

The markets for index providers are very competitive. Indices competes domestically and internationally on the basis of a number of factors, including the quality of its benchmark indices, client service, reputation, price, range of products and services (including geographic coverage) and technological innovation. For a further discussion of competitive and other risks inherent in our Indices business, see Item 1a, Risk Factors, in this Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

We continue to maintain a strong financial position. Our primary source of funds for operations is cash from our businesses and our core businesses have been strong cash generators. In 2018, cash on hand, cash flows from operations and availability under our existing credit facility are expected to be sufficient to meet any additional operating and recurring cash needs into the foreseeable future. We use our cash for a variety of needs, including but not limited to: ongoing investments in our businesses, strategic acquisitions, share repurchases, dividends, repayment of debt, capital expenditures and investment in our infrastructure.

Cash Flow Overview

Cash and cash equivalents were $2.8 billion as of December 31, 2017, an increase of $0.4 billion as compared to December 31, 2016, and consisted of approximately 20% of domestic cash and 80% of cash held abroad.

(in millions)Year ended December 31,
201720162015
Net cash provided by (used for):
Operating activities from continuing operations$2,016$1,560$356
Investing activities from continuing operations(209)1,205(2,525)
Financing activities from continuing operations(1,507)(1,696)1,349

In 2017, free cash flow increased to $1.8 billion compared to $1.3 billion in 2016. The increase is primarily due to the increase in cash provided from 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 to $2.0 billion in 2017 compared to $1.6 billion in 2016. The increase is mainly due to higher results from operations, partially offset by the timing of estimated tax payments.

Cash provided by operating activities increased $1.2 billion to $1.6 billion in 2016 compared to $356 million in 2015. The increase is mainly due to the payment of legal and regulatory settlements in 2015 of $1.6 billion.

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 $209 million for 2017 as compared to cash provided by investing activities of $1.2 billion in 2016. The decrease is primarily due to proceeds from the sale of J.D. Power of $1.1 billion in 2016.

Cash provided by investing activities increased to $1.2 billion for 2016 as compared to cash used for investing activities of $2.5 billion in 2015. The increase is primarily due to proceeds from the sale of J.D. Power of $1.1 billion in 2016 compared to cash used for the acquisition of SNL of $2.2 billion in 2015.

Refer to Note 2 – Acquisitions and Divestitures to our consolidated financial statements for further information.

Financing activities

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

Cash used for financing activities decreased to $1.5 billion in 2017 from $1.7 billion in 2016. The decrease is primarily attributable to higher repayments of debt and higher cash paid for share repurchases in 2016, partially offset by the issuance of senior notes in 2016.

Cash used for financing activities was $1.7 billion in 2016 compared to cash provided by financing activities of $1.3 billion in 2015. The decrease is primarily attributable to higher proceeds received from the issuance of senior notes in 2015.

During 2017, we used cash to repurchase 6.8 million shares for $1.0 billion. We entered into an accelerated share repurchase ("ASR") agreement with a financial institution on August 1, 2017 to initiate share repurchases aggregating $500 million. We repurchased a total of 3.2 million shares under the ASR agreement for an average purchase price of $154.46 per share. See Note 9 — Equity for further discussion.

During 2016, we used cash to repurchase 10 million shares for $1.1 billion, which included 0.3 million shares for approximately $26 million that settled in January of 2016. Using a portion of the proceeds received from the sale of J.D. Power, we entered into an ASR agreement with a financial institution on September 7, 2016 to initiate share repurchases aggregating $750 million. We repurchased a total of 6.1 million shares under the ASR agreement for an average purchase price of $122.18 per share. See Note 9 — Equity for further discussion.

During 2015, we used cash to repurchase 9.8 million shares for $974 million. An additional 0.3 million shares were repurchased in the fourth quarter of 2015 for approximately $26 million, which settled in January of 2016.

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 total shares of our outstanding common stock at that time. Our current repurchase program has no expiration date and purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions. As of December 31, 2017, 19 million shares remained available under our current repurchase program.

Discontinued Operations

Cash flows from discontinued operations reflects the classification of McGraw Hill Construction as a discontinued operation. Cash used for operating activities from discontinued operations of $129 million in 2015 relates to the tax payment on the gain on sale of McGraw Hill Construction.

Additional Financing

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

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

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

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

Dividends

On February 2, 2018, the Board of Directors approved an increase in the quarterly common stock dividend from $0.41 per share to $0.50 per share.

Contractual Obligations

We typically have various contractual obligations, which are recorded as liabilities in our consolidated balance sheets, while other items, such as certain purchase commitments and other executory contracts, are not recognized, but are disclosed herein. For example, we are contractually committed to contracts for information-technology outsourcing, certain enterprise-wide information-technology software licensing and maintenance and make certain minimum lease payments for the use of property under operating lease agreements.

We believe that the amount of cash and cash equivalents on hand, cash flow expected from operations and availability under our credit facility will be adequate for us to execute our business strategy and meet anticipated requirements for lease obligations, capital expenditures, working capital and debt service for 2018.

The following table summarizes our significant contractual obligations and commercial commitments as of December 31, 2017, over the next several years. Additional details regarding these obligations are provided in the notes to our consolidated financial statements, as referenced in the footnotes to the table:

(in millions)Less than 1 Year1-3 Years3-5 YearsMore than 5 YearsTotal
Debt: 1
Principal payments$399$697$—$2,473$3,569
Interest payments1382542176571,266
Operating leases 2122192140516970
Purchase obligations and other 31101003178319
Total contractual cash obligations$769$1,243$388$3,724$6,124
1Our debt obligations are described in Note 5 – Debt to our consolidated financial statements.
2Amounts shown include taxes and escalation payments, see Note 13 – Commitments and Contingencies to our consolidated financial statements for further discussion on our operating lease obligations.
3Other consists primarily of commitments for unconditional purchase obligations in contracts for information-technology outsourcing and certain enterprise-wide information-technology software licensing and maintenance.

As of December 31, 2017, we had $212 million of liabilities for unrecognized tax benefits. We have excluded the liabilities for unrecognized tax benefits from our contractual obligations table because, until formal resolutions are reached, reasonable estimates of the timing of cash settlements with the respective taxing authorities are not practicable.

As of December 31, 2017, we have recorded $1,350 million for our redeemable noncontrolling interest in our S&P Dow Jones Indices LLC partnership discussed in Note 9 – Equity to our consolidated financial statements. Specifically, this amount relates to the put option under the terms of the operating agreement of S&P Dow Jones Indices LLC, whereby, after December 31, 2017, CME Group and CME Group Index Services LLC ("CGIS") will have the right at any time to sell, and we are obligated to buy, at least 20% of their share in S&P Dow Jones Indices LLC. We have excluded this amount from our contractual obligations table because we are uncertain as to the timing and the ultimate amount of the potential payment we may be required to make.

We make contributions to our pension and postretirement plans in order to satisfy minimum funding requirements as well as additional contributions that we consider appropriate to improve the funded status of our plans. During 2017, we contributed $8 million and $25 million to our domestic and international retirement and postretirement plans, respectively. Expected employer contributions in 2018 are $9 million and $7 million for our domestic and international retirement and postretirement plans, respectively. In 2018, we may elect to make additional non-required contributions depending on investment performance and the pension plan status. See Note 7 – Employee Benefits to our consolidated financial statements for further discussion.

Off-Balance Sheet Arrangements

As of December 31, 2017 and 2016, we did not have any relationships with unconsolidated entities, such as entities often referred to as specific purpose or variable interest entities where we are the primary beneficiary, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such we are not exposed to any financial liquidity, market or credit risk that could arise if we had engaged in such relationships.

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

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

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

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 items below:

(in millions)Year ended December 31,% Change
201720162015’17 vs ’16’16 vs ’15
Cash provided by operating activities$2,016$1,560$35629%N/M
Capital expenditures(123)(115)(139)
Distributions to noncontrolling interest holders(111)(116)(104)
Free cash flow$1,782$1,329$11334%N/M
Tax on gain from sale of J.D. Power—200—
Tax on gain from sale of SPSE and CMA67——
Payment of legal and regulatory settlements41501,624
Legal settlement insurance recoveries—(77)(101)
Tax benefit from legal settlements(2)(24)(250)
Free cash flow excluding above items$1,851$1,578$1,38617%14%

N/M - not meaningful

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Unless otherwise indicated, all discussion and analysis of our financial condition and results of operations relate to our continuing operations.

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. 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.

Management considers 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. Management has discussed the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors. The Audit Committee has reviewed our disclosure relating to them in this MD&A.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements:

Revenue recognition

Revenue is recognized as it is earned when services are rendered. We consider amounts to be earned once evidence of an arrangement has been obtained, services are performed, fees are fixed or determinable and collectability is reasonably assured. Revenue relating to products that provide for more than one deliverable is recognized based upon the relative fair value to the customer of each deliverable as each deliverable is provided. Revenue relating to agreements that provide for more than one service is recognized based upon the relative fair value to the customer of each service component as each component is earned. If the fair value to the customer for each service is not objectively determinable, we make our best estimate of the services’ standalone selling price and recognize revenue as earned as the services are delivered. The allocation of consideration received from multiple element arrangements that involve initial assignment of ratings and the future surveillance of ratings is determined through an analysis that considers cash consideration that would be received for instances when the service components are sold separately. In such cases, we defer portions of rating fees that we estimate will be attributed to future surveillance and recognize the deferred revenue ratably over the estimated surveillance periods. Advertising revenue is recognized when the page is run. Subscription income is recognized over the related subscription period.

For the years ended December 31, 2017, 2016 and 2015, no significant changes have been made to the underlying assumptions related to estimates of revenue or the methodologies applied. In 2018, we will be adopting a new accounting standard for the recognition of revenue. See Note 1 - Accounting Policies to our consolidated financial statements for further information related to the impact of the new revenue standard in 2018.

Allowance for doubtful accounts

The allowance for doubtful accounts reserve methodology is based on historical analysis, a review of outstanding balances and current conditions. In determining these reserves, we consider, amongst other factors, the financial condition and risk profile of our customers, areas of specific or concentrated risk as well as applicable industry trends or market indicators. The impact on operating profit for a one percentage point change in the allowance for doubtful accounts is approximately $14 million.

For the years ended December 31, 2017, 2016 and 2015, there were no material changes in our assumptions regarding the determination of the allowance for doubtful accounts. Based on our current outlook these assumptions are not expected to significantly change in 2018.

Accounting for the impairment of long-lived assets (including other intangible assets)

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to current forecasts of undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on market evidence, discounted cash flows, appraised values or management’s estimates, depending upon the nature of the assets.

For the year ended December 31, 2016, we recorded a non-cash impairment charge of $24 million related to a technology project at our Market and Commodities segment in selling and general expenses in our consolidated statement of income.

Goodwill and indefinite-lived intangible assets

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. As of December 31, 2017 and 2016, the carrying value of goodwill and other indefinite-lived intangible assets was $3.7 billion, respectively. Goodwill and other intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually during the fourth quarter each year or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Goodwill

As part of our annual impairment test of our four reporting units, we initially perform a qualitative analysis evaluating whether any events and circumstances occurred that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than its carrying amount. Reporting units are generally an operating segment or one level below an operating segment. Our qualitative assessment included, but was not limited to, consideration of macroeconomic conditions, industry and market conditions, cost factors, cash flows, changes in key Company personnel and our share price. If, based on our evaluation of the events and circumstances that occurred during the year we do not believe that it is more likely than not that the fair value of any of our reporting units is less than its carrying amount, no quantitative impairment test is performed. Conversely, if the results of our qualitative assessment determine that it is more likely than not that the fair value of any of our reporting units is less than its respective carrying amount we perform a two-step quantitative impairment test. For 2017, based on our qualitative assessments, we determined that it is more likely than not that our reporting units’ fair value was greater than their respective carrying amounts.

If the fair value of the reporting unit is less than the carrying value, a second step is performed which compares the implied fair value of the reporting unit's goodwill to the carrying value of the goodwill. The implied fair value of the goodwill is determined based on the difference between the fair value of the reporting unit and the net fair value of the identifiable assets and liabilities of the reporting unit. If the implied fair value of the goodwill is less than the carrying value, the difference is recognized as an impairment charge.

Indefinite-Lived Intangible Assets

We evaluate the recoverability of indefinite-lived intangible assets by first performing a qualitative analysis evaluating whether any events and circumstances occurred that provide evidence that it is more likely than not that the indefinite-lived asset is impaired. If, based on our evaluation of the events and circumstances that occurred during the year we do not believe that it is more likely than not that the indefinite-lived asset is impaired, no quantitative impairment test is performed. Conversely, if the results of our qualitative assessment determine that it is more likely than not that the indefinite-lived asset is impaired, a quantitative impairment test is performed. If necessary, the impairment test is performed by comparing the estimated fair value of the intangible asset to its carrying value. If the indefinite-lived intangible asset carrying value exceeds its fair value, an impairment analysis is performed using the income approach. The fair value of loss is recognized in an amount equal to that excess. Significant judgments inherent in these analyses include estimating the amount and timing of future cash flows and the selection of appropriate discount rates, royalty rates and long-term growth rate assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for this indefinite-lived intangible asset and could result in an impairment charge, which could be material to our financial position and results of operations.

We performed our impairment assessment of goodwill and indefinite-lived intangible assets and concluded that no impairment existed for the years ended December 31, 2017, 2016, and 2015.

Retirement plans and postretirement healthcare and other benefits

Our employee pension and other postretirement benefit costs and obligations are dependent on assumptions concerning the outcome of future events and circumstances, including compensation increases, long-term return on pension plan assets, healthcare cost trends, discount rates and other factors. In determining such assumptions, we consult with outside actuaries and other advisors where deemed appropriate. In accordance with relevant accounting standards, if actual results differ from our assumptions, such differences are deferred and amortized over the estimated remaining lifetime of the plan participants. While we believe that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could affect the expense and liabilities related to our pension and other postretirement benefits.

The following is a discussion of some significant assumptions that we make in determining costs and obligations for pension and other postretirement benefits:

•Discount rate assumptions are based on current yields on high-grade corporate long-term bonds.
•Healthcare cost trend assumptions are based on historical market data, the near-term outlook and an assessment of likely long-term trends.
•The expected return on assets assumption is calculated based on the plan’s asset allocation strategy and projected market returns over the long-term.

Our discount rate and return on asset assumptions used to determine the net periodic pension and postretirement benefit cost on our U.S. retirement plans are as follows:

Retirement PlansPostretirement Plans
January 1201820172016201820172016
Discount rate3.68%4.14%4.47%3.40%3.69%3.90%
Return on assets6.00%6.25%6.25%
Weighted-average healthcare cost rate6.50%7.00%7.00%

Stock-based compensation

Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized over the requisite service period, which typically is the vesting period. Stock-based compensation is classified as both operating-related expense and selling and general expense in our consolidated statements of income.

We use a lattice-based option-pricing model to estimate the fair value of options granted. The following assumptions were used in valuing the options granted:

Year Ended
December 31, 2015
Risk-free average interest rate0.2 - 1.9%
Dividend yield1.4%
Volatility21 - 39%
Expected life (years)6.3
Weighted-average grant-date fair value per option$27.57

Because lattice-based option-pricing models incorporate ranges of assumptions, those ranges are disclosed. These assumptions are based on multiple factors, including historical exercise patterns, post-vesting termination rates, expected future exercise patterns and the expected volatility of our stock price. The risk-free interest rate is the imputed forward rate based on the U.S. Treasury yield at the date of grant. We use the historical volatility of our stock price over the expected term of the options to estimate the expected volatility. The expected term of options granted is derived from the output of the lattice model and represents the period of time that options granted are expected to be outstanding.

During 2015, we stopped granting stock options as part of our employees' total stock-based incentive awards. There were no stock options granted in 2017 and 2016 and a minimal amount of stock options granted in 2015.

Income taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize liabilities for uncertain tax positions taken or expected to be taken in income tax returns. Accrued interest and penalties related to unrecognized tax benefits are recognized in interest expense and operating expense, respectively.

Judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and unrecognized tax benefits. In determining the need for a valuation allowance, the historical and projected financial performance of the operation that is recording a net deferred tax asset is considered along with any other pertinent information.

We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions, and we are routinely under audit by many different tax authorities. We believe that our accrual for tax liabilities is adequate for all open audit years based on our assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. It is possible that examinations will be settled prior to December 31, 2018. If any of these tax audit settlements do occur within that period we would make any necessary adjustments to the accrual for unrecognized tax benefits.

For the years ended December 31, 2016 and 2015, we had determined that the undistributed earnings of our foreign subsidiaries were permanently reinvested within those foreign operations. Accordingly, we had not recorded deferred income taxes on these

indefinitely reinvested earnings. As of December 31, 2017, we have approximately $2.6 billion of undistributed earnings of our foreign subsidiaries. As a result of the TCJA, more than 70% of these $2.6 billion earnings will no longer be permanently reinvested. We will continue to permanently reinvest approximately $780 million of these undistributed earnings.

Contingencies

We are subject to a number of lawsuits and claims that arise in the ordinary course of business. We recognize a liability for such contingencies when both (a) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can reasonably be estimated. We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on an analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Because many of these matters are resolved over long periods of time, our estimate of liabilities may change due to new developments, changes in assumptions or changes in our strategy related to the matter. When we accrue for loss contingencies and the reasonable estimate of the loss is within a range, we record its best estimate within the range. We disclose an estimated possible loss or a range of loss when it is at least reasonably possible that a loss may have been incurred.

Redeemable Noncontrolling Interest

The fair value component of the redeemable noncontrolling interest in Indices business is based on a combination of an income and market valuation approach. Our income and market valuation approaches may incorporate Level 3 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.

RECENT ACCOUNTING STANDARDS

See Note 1 – Accounting Policies to our consolidated financial statements for a detailed description of recent accounting standards. We do not expect these recent accounting standards to have a material impact on our results of operations, financial condition, or liquidity in future periods.

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